The state of capital markets in Seattle is strong, thanks to the region’s continued strong job market.

“Capital tends to chase job growth,” The Wolff Co. Vice President of Development Chris Rossman said. Rossman will be a panelist at Bisnow's Seattle Capital Markets and Real Estate Finance event Dec. 11.

Here in Seattle, a lot of the growth has been led by Amazon, as well as some other companies, he said. That trend has allowed for a lot of growth and investment.

“I think the fundamentals remain strong,” Rossman said.

The exception is the downtown Seattle apartment market, where rents are beginning to drop due to high levels of supply.

In the near term, Rossman expects to see stabilizing rent growth, which will put pressure on margins and yields.

“One thing we need to consider is that development is a three- to four-year business,” he said. “Although supply is starting to outpace demand, there are projects that have yet to be considered. Development is slow to change.”

Rossman said he is seeing capital providers starting to recognize the imbalance, and they may not be as interested in certain product types in certain neighborhoods. But the macro fundamentals remain strong, he said.

Rossman sees opportunities in some of the secondary markets that haven’t had the same supply influx. Developing in these markets wouldn’t have been considered earlier in the cycle.

For example, The Wolff Co. is working on apartment projects in Lacey and Bremerton, where there is less competition.

“We have a project in Bremerton with 216 units that will deliver in mid-2019,” he said. Implementation of the fast ferry and cheaper construction costs makes the Bremerton market attractive. “The fast ferry cuts the commute in half.”

The Wolff Co.’s Ambrose multifamily development in Bremerton will cover 8.24 acres in the Bay Vista master plan. The three-story stacked flats will have a modern farmhouse design.

It is the same situation in Lacey, where construction costs are lower and there is less competition. 

While constraints continue to squeeze development margins, Rossman believes new capital providers are emerging to address that problem.

“We’ve seen a lot of groups that have created vehicles to address that need in the market,” he said. “Traditionally they have been known as mezzanine or preferred equity providers. They may operate as sponsors to fill that need.”

The Wolff Co. has a branch called Parse Capital that provides equity to peers in the market.

The capital markets picture in Seattle is brighter than it is in the rest of the country, where the prospect of recession and the long real estate cycle is dogging the outlook.

The U.S. commercial real estate market is late in a strong cycle, and most experts agree that fortune must turn at some point. However, like in Seattle, private capital is picking up where the institutional debt is tightening. That means that capital should continue to be available for developers despite tighter margins.

Rising interest rates may cause some development pushback that is sure to thin the field of competition going forward.

Hear more from Rossman and other experts at Bisnow's Seattle Capital Markets and Real Estate Finance event Dec. 11 at the Four Seasons Hotel Seattle.