All posts by Rebecca Heathcock

Whatcom County's Multi-Family Specialist

Top Ten Issues Affecting Commercial Real Estate (from the CRE Counselors 2015-2016 Report)

This is a market update from the Winter 2015-2016 Real Estate Report, put out by the Counselors of Real Estate, a Chicago-based organization that publishes scholarly articles each trimester by national thought leaders. The goal is to provide expert opinion on the most important issues impacting the US real estate market, to facilitate better decision making for real estate investors, brokers and advisors. The perspective below was provided by Noah Slayze, a former commercial real estate appraiser and 2015 CRE chair and guest speaker on the August 6, 2015 Commercial Real Estate Show. Continue reading

Forcing Equity in Older Whatcom County Apartment Buildings (While Saving the Environment)

Everybody wants to force equity, but you don’t have to be a developer to cash in on some great forced equity opportunities here. Investors seeking pre-existing, cash flowing apartment buildings can also force some substantial equity by finding seventies and eighties era buildings that are being poorly managed.

It’s the classic model: find an older building with a few minor problems, including below-market rents. Typically these buildings are self managed or poorly managed, and they will sell for a higher cap rate because of these problems. Make some interior improvements and get the rents up to market rate as the units turn over. Any smart investor will do this; but this equity takes time. Continue reading

1031 News: Presidents 2016 Budget Proposal Seeks to Modify Like-Kind Exchange Rules

Background: President Obama’s 2016 Budget Proposal seeks to modify Like-Kind Exchange rules for real property and restrict some eligibility. The proposal would limit the amount of capital gains that can be deferred under section 1031 from the exchange of real property to $1 million (indexed for inflation) per taxpayer per taxable year. In addition, art and collectibles would no longer be eligible. The provision would be effective for exchanges completed after December 31, 2015. Continue reading

Should you hire a property manager to run your apartment building?

A few of my clients acquiring apartment buildings in the $3-M range have chosen to manage their properties themselves. After all, property management isn’t rocket science. And there doesn’t seem to be that much to it especially if you own property in a market like Whatcom County where in most areas we enjoy sub 1% vacancy rates. All you have to do in a market like that is keep your apartments competitive, post the occasional vacancy on Craigs List, screen new tenants carefully, and arrange for unit turnovers. Definitely doable, and very part-time for most people, even fully employed people. And then you can pocket the 5-9% per month it would have cost you to hire a property management firm to do the work. OR, will it actually end up costing you more? Continue reading

Where is the “Strategy” in the Whatcom County Economic Development Strategy?

If like me you’ve recently read the Whatcom County Comprehensive Economic Development Strategy published by the Whatcom Council of Governments in March of this year, you’re likely equally impressed by the wealth of data included in the report and explanation of Whatcom County’s economic progress over the last decade. Jack Louws, Robert Bromley, and Robert Wilson clearly did a great job on that, and I support their work. Unfortunately, the report falls short of providing any concrete solutions for reviving our county’s fragile economy. What it does do however, is provide a list of how we as a county are planning to spend our money, and that needs a lot more public input.
Continue reading

City of Bellingham Passes Rental Registration Ordinance

Whether you agree with it or not, a rental registration program will be implemented in the City of Bellingham in August 2015, and will require any landlord owning and renting income property within city limits to get registered, paying a registration fee of from $8.00 to $10.00 per rental unit, by August 1.  The ordinance passed it’s third and final vote in City Council session on March 23, 2015.

The registration and inspection program was sponsored by Council member Jack Weiss who had been pushing for a rental safety program for six years.

According the City website rental registration page, “There are an estimated 15,000 rental units in Bellingham. Based on data from other jurisdictions with similar programs, the City anticipates 10-15% of those total units would be considered substandard at inspection. The RR&SIP creates a system to address and monitor rental property issues without the need for a tenant to complain first.”

Landlords will pay an annual registration cost of $10 per unit if they own one to 20 units, and $8 per unit if they own 21 or more units.

Initial registration will open July 1st, 2015 and close August 1st, 2015 with inspections scheduled to begin in early 2016. Failure to comply with registration will result in fines and/or penalties of between $50-$250 per day depending on the number of units, if registration is one to sixty days late. If registration is more than two months late, the fine may be greater.

Information on how to register will be sent to property owners starting in May, and also will be posted on the city website at

Read more here:

Late fees can be assessed on those who don’t register. If registration is one to 60 days late, the late fee will range from $50 to $250, depending on how many units that owner has. If registration is more than two months late, the fine may be more.

Read more here:

The City of Bellingham wil

Multi-Family Tax Exemption Program Target Area Being Modified by the City of Bellingham

MFTEP_TargetArea1The multi-family tax abatement program target area in the City of Bellingham’s downtown core will soon be slightly modified by City Council. The City Center Targeted Area map is being amended to align with the revised Downtown Bellingham Plan boundary.

The multi-family tax exemption program makes 8 and 12-year property tax abatements available to property owners that redevelop multi-family housing in Urban Village zones within the City of Bellingham city limits. The tax exemptions apply only to new residential improvements and the owner continues to pay taxes on the value of the land, any pre-existing units that have not be redeveloped, and any non-residential improvements made to the property. The exemption is in addition to any exemptions received for historical preservation, and if the property is on the historical register, it must preserve all parts of the building deemed historic in order to qualify for the multi-family tax abatement program.

An 8-year abatement gives a property owner/developer a complete exemption from paying property tax for 8 years on those improvements, while a 12-year abatement exempts the property owner/developer from paying property tax for 12 years if the development includes at least 20% low income housing units in the mix. Multi-family tax abatements can be added in addition to historical preservation tax abatements.

To qualify for inclusion in the exemption, a Multi-family Tax Abatement Program application must be submitted before any building permits for the project have been issued.

More details of the program are available on the City of Bellingham’s Municipal Code Web page detailing Chapter 17.82: Multifamily Tax Exemption.

Bellingham’s Central Business District To Be Expanded on September 8, 2014

Chap3_Map1_LandUseAreas_RegulatoryBndysThe City of Bellingham’s Central Business District is about to get bigger thanks to new zoning regulations that will officially take effect on September 8, 2014. The revised zoning regulations are primarily intended to stimulate development in the Central Business District and to increase the range of mixed uses in proposed “Transition Zones” adjacent to the downtown core, located along the west, southeast, and northeast sides of the city center. The City Council will also be changing the name of the Central Business District to “City Center Neighborhood”.

Officially referred to as the Central Business District, Bellingham’s City Center was already zoned as one of five Urban Villages within the city limits, including the Downtown Core (shown on the attached map), the Fountain District (south of the I-5 freeway along Guide Meridian and bordered by Broadway along the east), Samish Way (Northeast of Sehome shopping center, bordered by I-5 along the east and Bill McDonald Parkway on the south), Old Town (North of the railroad tracks along Roeder, bordered generally by Bay, G and Dupont streets), and the Fairhaven District (bordered to the south by Cowsgill, to the west by the water, to the east by the Happy Valley neighborhood and by Knox street to the north). Now the City Center’s Urban Village boundaries will be expanded to include several commercial, residential and industrial transition zones, bringing  with them more relaxed development restrictions, resulting in incentives for redevelopment.

Relaxed zoning requirements inside Urban Villages can vary based on how well developed the Urban Village is, and areas within the Urban Village zones themselves can also vary, but generally they incude relaxed height, setback and parking restrictions in addition to other incentives for multi-family development and historical preservation. In four of the five Urban Village zones (City Center, Fountain District, and Samish Way) property owners can take advantage of the multi-family tax abatement program which allows an 8 or 12-year property tax exemption for any multi-family housing units that are redeveloped within the zone. The 12 year exemption applies to multi-family developments that include at least 20% low income housing in the unit mix.

A few land use limitations will also be introduced with the new zoning rules, prohibiting drive-up facilities such as bank tellers, food and beverage services, laundry p/u and car washes within commercial transition zones.

Below is a summary of the zoning changes taken from a planning document forwarded by City of Bellingham Senior Planner Darby Cowles on 8/11/2014.

1) In all proposed Residential Transition (RT) zones, increase the range of mixed uses (currently limited to offices in most areas that are currently zoned residential) to include:
• Corner stores
• Bed & Breakfast
• Personal Services
• Eating Establishments
• Live/Work
• Art Galleries/Schools/Studios

2) In proposed RT-1 (North and South):
• Limited mixed uses in #1 above allowed outright.
• No residential density limit (currently ranges from unlimited, 1,000 SF/unit, and 1,500 SF/unit).
• No setbacks due to minimal view blockage and to allow for more efficient use of land (currently use standard multifamily setbacks in BMC 20.32).
•Maintain existing 45′ height limit.

3) In proposed RT-2 (York Neighborhood):
• Limited mixed uses in #1 above would largely be limited to adaptive reuse of existing buildings as an incentive to invest in, and rehabilitate, historic housing stock (historic preservation). Exceptions: Offices, corner markets, and corner eating establishments could take place as new, purpose built development.
• Residential density is limited to 1 unit per 1,500 SF of land to allow reasonable redevelopment in the event that an existing building is destroyed by any cause.
• Height is limited to 35′ to respect predominant scale of existing historic SF development (45′ in RT-1).

4) Proposed Commercial Core (CC):
• Maintain existing unlimited height limit.
• Prohibit drive-up facilities such as bank tellers, food and beverage services, laundry p/u and car washes.

5) Proposed Commercial Transition (CT):
CT zoning is generally applied to the edges of the Commercial Core to provide a transition between the more intense Commercial Core and less intense residential zones. Within the CT:
• Height is limited to 65′, and further limited to 32′ and 2 stories when within 15′ of a residential zone.
• Prohibit drive-up facilities such as bank tellers, food and beverage services, laundry p/u and car washes.

6) Existing Industrial zones:
• A half block of land SW of Laurel Street that is currently zoned Industrial/Waterfront Mixed Use will be consolidated into the proposed Commercial Core.
• Land north and east of Whatcom Creek that is currently zoned Industrial, Light will become a new Industrial Transition (IT) zone with minimal changes to zoning and development regulations from what currently exist.

7) Existing Public zones – Each of the existing ‘public’ zones within the Downtown Bellingham Plan boundary will be consolidated into that zoning which predominately surrounds them, such that there will no longer be any public zones within the Downtown Bellingham Plan boundaries.

8) Parking requirements for new development and redevelopment:
• Expand the exempt auto parking district to 1 block around the WTA Transit Center, and include all of the Civic Center.
• Reduce auto parking requirements in all other areas within the Downtown Bellingham Plan boundary.
• Provides flexible means to reduce required auto parking to zero.
• Do not require additional parking for a change in use.
• Increase bike parking in all areas within the Downtown Plan Boundary, consistent with what was recently adopted for Fairhaven and the Waterfront.

9) Sign Standards
• Residential and Industrial zones – No major changes from what currently exists.
• Commercial zones:
– Prohibit pole signs,
– No limit on the square footage of signage when placed on a building, and
– Limit monument signs to 6′ in height and 60 sq.ft. per sign face.

Tracking commercial real estate lending rates in Bellingham WA

Adam Lervik, one of my favorite commercial lending partners in Whatcom County, and a commercial banking officer at Bank of the Pacific (BOP), recently shared some resources for tracking commercial real estate lending rates in the area.

BOP most frequently uses the Seattle Federal Home Loan Bank (“FHLB”) 5-year base rate as a starting point. They then add a margin of 2.75% – 3.25% on top of that base rate, depending on the perceived risk in the loan. Perceived risk includes such factors as vacancy rate, debt coverage ratio, and loan to value. The link above takes you to the rate sheet Adam follows, which is updated daily.

As an example of this, let’s say the commercial base rate for a specific date in July 2014 was 2.09%. Adding in BOP’s margin of 2.75% to 3.25% to that base rate yields a range of interest rates between 4.84% to 5.34% for that date.

These rates move closely with the treasury bond market, so you can also look at changes in the 3, 5, and 10-year treasury market to see how commercial rates are moving. Bond prices move inversely to yield, so when you see the graphs trending upward, that means interest rates are moving downward and vice versa.

BOP also utilizes the SBA 504 loan program frequently to finance properties that are greater than 50% owner occupied. SBA 504 loan rates are only determined once per month.

New Bellingham Rental Ordinance Will Require Apartment Building Owners to Register Property Information

The Bellingham City Council voted unanimously on July 7th to approve council member Roxanne Murphy’s proposed rental safety ordinance that would require most property owners to register their rental units. Final approval on the ordinance is expected to take place in September 2014.

If approved, the new ordinance will require Bellingham apartment building owners to declare that their units are in compliance with a city-provided checklist of safety standards via a “simple apartment and rental unit registration system”. The registration will require property owners to pay a fee which has yet not been set.

Other rental ordinance options have come before council over the past several years and have failed, causing Councilmember Murphy to draft a registration-only ordinance in order to get something basic passed by Council.

Councilmember Jack Weiss had put forth a more stringent ordinance, which was rejected by the City Council. Weiss’ ordinance would have required both registration and inspection of a certain percentage of the city’s rental units each year and would likely have resulted in a larger registration fee due to the inspection process.

In Murphy’s ordinance option, which is widely expected to pass in September, the city could require a property owner to get a certified inspection before renewal of their registration if a complaint is received. Property owners would also be required to provide contact information, along with basic data about their units, such as the number of bedrooms and bathrooms, fuel sources, and building location.

Read more here: