Direct investment in real estate is uncommon for most very wealthy individuals (they tend to invest indirectly through private-equity funds or established developers). It is even less common for an individual to happen upon success in real estate, largely by accident. For Microsoft Corp. co-founder Paul Allen, these are paths well traveled. Allen fell into real estate after a nonprofit group planning a park in Seattle’s South Lake Union neighborhood defaulted on a 20 million dollar loan he made, giving him control of the land. Instead of selling the property, Allen’s Investment firm, Vulcan Inc., chose to buy more adjacent land and develop apartments and offices. While the project suffered an initial blow during the recession, the area got a boost when Amazon decided to station it’s headquarters in an 11 building compound on the site. The company turned the area into a hot spot for businesses and residents alike, and now many more developers have joined in to take advantage of the growing market.
Allen and Vulcan’s property purchases and developments are mirroring the investment decisions of a few key wealthy individuals in different areas of the United States. Quicken Loans founder Dan Gilbert has been buying up land in Detroit with hopes to redevelop key areas of downtown, while Michael Dell of Dell Computers is currently working on redeveloping the Fairmont Miramar Hotel in Santa Monica, California (among other projects). While each region has benefited from a resurgence in the real estate market, Vulcan has been in a particularly profitable area, due to Seattle’s prominence within the tech industry. While a lag in this sector could spell trouble for Vulcan and other investors, current returns show that, for now, the area remains profitable. The Lake Union submarket (where Vulcan is focused) showed average prices per square foot of $39 in the third quarter, the highest of any submarket in the region. This, combined with vacancy at 3.6% (compared to a 10.6% average for the region) show that the area remains in high demand.