Flood fears dampen business, home sales

Group Health has stored its records in a leased building in Kent for 16 years. Next month it will move that operation up the hill to SeaTac.

One big reason: SeaTac is more likely to stay dry.

The Kent building "was right in the path of the potential flood" that has been the talk of the Green River Valley this fall, spokeswoman Katie McCarthy says.

So Group Health signed a lease in October for 26,000 square feet in the new ProLogis business park in SeaTac. "They were very insistent on getting out of the floodplain as soon as possible," says ProLogis' Alex Vulic.

The much-publicized flood risk in Kent and other valley cities is sending ripples through South King County real-estate markets, both commercial and residential.

Some valley businesses, like Group Health, are relocating to higher ground, or contemplating it. Some businesses that were considering moving into that area from elsewhere are backing off.

"Before, rent and amenities were the issue" in lease negotiations, says Nick Fletcher, a sales associate with brokerage Colliers International who specializes in South King County office properties.

"Now it's, 'Is it or is it not in the flood zone?' "

On the residential side, some agents who work in the valley say flood fears are driving sales and prices down. Marti Reeder, a John L. Scott agent in Kent, says she's advising all prospective sellers with homes on the valley floor not to bother listing them until March.

Right now just looking at a puddle seems to spook most buyers, she says: "It's at a virtual standstill."

Beleaguered property owners and city officials hope an announcement by the Army Corps of Engineers earlier this month will provide some relief. The corps said temporary repairs at Howard Hanson Dam, upstream on the Green River, had reduced the risk of flooding in the valley this winter from 1-in-3 to 1-in-25.

That news seems to have calmed the commercial real-estate market some, says Ben Wolters, Kent's economic-development director.

But the flood threat may persist for years until permanent dam repairs are completed. And the economy already is giving fits to many valley businesses and residents.

"It's been a tough year," says Troy Stark, an industrial leasing and sales associate with Colliers. "This is just another hurdle these guys have to overcome."

Fears or recession?

It's hard to quantify the impact of the flood risk on valley real estate. The threat didn't become regular front-page news until September, too recently to show up in most market statistical reports.

More industrial space was vacated in the third quarter in Kent than in any other Seattle-area submarket, according to brokerage Grubb & Ellis. But there's no way to know how much of that is attributable to flood fears, how much to the recession.

The Green River Valley is the state's premier warehouse and distribution center. It's home to 1,000 businesses and more than 20,000 residents.

Most aren't fleeing. Some just can't.

For most manufacturers, the cost of moving their equipment is prohibitive. Many office and industrial tenants are locked into long-term leases; they can't afford to relocate now and make two monthly payments.

Two-thirds of Kent residents who live in the potentially affected area are low-income, Wolters says: "They don't have many options."

Economic-development directors in cities above the valley, such as SeaTac and Federal Way, say they're fielding more calls from valley businesses looking to move. Meanwhile, their counterparts in Kent and Renton say they're working hard to persuade businesses to stay.

Commercial brokers say some business tenants who are staying also are lining up backup space elsewhere. Others are using the flood issue to push for lower rents.

Plemmons Industries, which owns industrial, office, ministorage and retail properties in Kent, has lost several tenants to flood concerns. "A lot of businesses have just decided they want to get out of the exposure," says Vice President Teresa Hutchens.

One longtime tenant chose to consolidate operations in Portland. Another had leased space from Plemmons for nearly 20 years; the sight of sandbags piled along the riverbank and the prospect of higher insurance premiums pushed him out, Hutchens says.

Huge sandbags also line the levee above the river in The Lakes, a huge residential development in Kent. More sandbags and black plastic sheeting surround some condos and apartments.

"If buyers were cautious before, they certainly will be scared off by these measures," Kathi Jones, a Lakes homeowner, member of the community's board and John L. Scott real-estate agent said in an e-mail.

Condo sales in nearby, higher-elevation areas such as Des Moines got a boost in recent months from the federal first-time homebuyers' tax credit, Jones says. The Lakes didn't.

"This flood scare may not be the primary reason," she says, "but it certainly has not helped."

But valley city officials and property-owners suspect much buyer and tenant fear is based more on emotion than fact. And there are signs that the Corps of Engineers' recent downgrade of this winter's flood risk may be starting to stem the tide.

• Ryan Hopkins confronted the flood question head-on — with humor — when he put a house he owns near downtown Kent up for sale last month. He offered to throw in two Jet Skis for buyers to use as "evacuation vehicles" in case the house became waterfront property.

The ploy didn't work. A few weeks ago Hopkins said many prospective buyers were steering clear of the valley; he feared the house might not sell for months.

Then a buyer surfaced. Now Hopkins says the sale — without the Jet Skis — could close as soon as next week. "When they reduced the risk, that probably helped some," he says.

• Schwartz Brothers Restaurants recently revived plans to open a new bakery five blocks from the Green River in Renton. It had broken off lease negotiations last month.

Michael Carr, Schwartz Brothers' senior vice president for administration, says insurance was the big stumbling block. Premiums for flood and business-interruption coverage would have been 2 ½ times as high for Renton than for any of the company's other properties.

But now that the official flood risk is just 1-in-25, Schwartz Brothers is taking another look. "It doesn't seem nearly as bad now," Carr says.

• Before the corps' announcement, Teresa Hutchens received an application to rent a house she owns on Kent's East Hill — above the floodplain — from a woman with a disabled son who lives in an apartment on the valley floor.

The woman sounded terrified, Hutchens says. Her application was approved.

She canceled the day after the corps downgraded the flood risk.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com