Chophouse Row as seen from 11th Avenue. The entrance to the alley is on the third bay on the left and connects to the courtyard in the back. (Tim Beis)

Completed in spring 2015, Chophouse Row is a 44,000-square-foot (4,000 sq m) mixed-use project in the Pike-Pine neighborhood of Seattle, less than one mile (1.6 km) from downtown, that combines loft office space, retail space, and three apartments. The development combines a circa-1924 industrial building with a new seven-story office tower, a through-block pedestrian alley/mews, and a midblock courtyard that links Chophouse Row with the developer’s other properties on the block, collectively known as 12th Avenue Marketplace.

Development Finance
The developer was Dunn + Hobbes, a Seattle-based firm focused on small-scale infill projects in urban village neighborhoods. Developing Chophouse Row required $4 million of equity and $12.4 million of debt, plus $750,000 for closing costs and working capital. The project financing involved the recapitalization of the entire 12th Avenue Marketplace. Dunn + Hobbes provided 51 percent of the equity, and a Heartland Investor Opportunities fund provided the remaining 49 percent.

There are about 45 investors in the 12th Avenue Marketplace deal, each of whom has invested $50,000 to $200,000 through a preferred equity stake. The leveraged ten-year internal rate of return for the investors, originally projected to be 13 percent, was 11 to 12 percent as of early 2017 due to construction cost overruns.

One of the small retailers along the alley. (Tim Beis)

Planning and Design
Liz Dunn, who founded the development firm in 1997, says she has “always been a fan of what I call skinny infill development—filling in the missing teeth on a block rather than demolishing it. My entire business is defined by rehab paired with skinny infill, and Chophouse Row is an example of both.”

Principal objectives of the plan were to preserve and adapt the two-story existing building, and to provide attractive pedestrian spaces within the project. To accomplish this, one of the existing structure’s three bays became an open-air pedestrian alley providing access to the midblock courtyard and creating 160 feet (49 m) of retail frontage. Since then, Dunn has begun converting the backs of other buildings along the courtyard to provide retail space. The scale of the mews, its textured frame of exposed structural elements, its lighting, and the small tenants alongside it all invite visitors to explore the spaces beyond.

Tenants and Leasing
All of the commercial spaces were leased before construction was completed. The offices achieved a new benchmark for market rents in the Capitol Hill neighborhood, with rents in the $24 to $28 range. The retail space attracted restaurateurs and innovative retail entrepreneurs, with rents in the $36-per-square-foot ($388 per sq m) range. The residential penthouses were rented within three months, with typical rents of $3.69 per square foot ($39.72 per sq m).

Events such as a farmers market help enliven the alley and courtyard. (Andrew J.S.)

“I spend a lot of my time . . . searching for the tenants I want, determining which is going to be the best fit,” says Dunn. “I like to get a feel for who the tenant is.” Small tenants are a big part of the plan, and often pay higher per-square-foot rents. “What a tenant starting a small business probably cares most about is their total monthly rent bill, not what rate they are paying on a per-square-foot basis,” she notes.

Observations and Lessons Learned
Heartland believes there are many small investors looking for investment opportunities like this one, but that it takes more work and time to arrange this type of financing than it does to arrange financing with one large institutional investor. There are benefits, however, in that the developer can exercise more control when working with small investors than when working with large institutional investors.

Incremental infill development can take extra time and effort, and it requires a dedicated developer that is committed to staying with the project over an extended period. While some developers might have tried to remove the old buildings on the site and build new ones in one big phase, a more granular approach can be rewarding. There are easier and perhaps more profitable ways to go about developing a site like this, but those likely would not have resulted in the same level of richness of the environment that has been created.

Dean Schwanke is ULI senior vice president of case studies and publications.

Read the full ULI Case Study: Chophouse Row | More ULI Case Studies

Project Information

Development timeline
Site purchased 1999
Design planning started March 2012
Entitlements received September 2013
Construction financing arranged October 2013
Construction started October 2013
Sales/leasing started January 2014
Project opened/completed May 2015


Building area by use Gross building area (sq ft) Net building area (sq ft)
Office 25,317 21,080
Retail/restaurant 6,379 5,328
Residential 4,795 3,901
Storage 1,218
Parking 5,834
Total GBA 43,543
Adjacent courtyard retail addition 3,005 sq ft
Parking spaces 12


Land use plan Site area (sq ft) % of site
Buildings 6,500 65%
Open space/landscaping 3,500 35%
Total site area 10,000 100%


Residential information
Number of units 3
Unit size 1,300 sq ft
Percentage leased 100%
Typical rent per month $4,800
Typical rent per sq ft $3.69


Office information
Office gross area 25,317 sq ft
Office net rentable area 21,080 sq ft
Typical floor size 6,375 sq ft
Percentage of net rentable area leased 100%
Number of tenants 7
Annual rent per sq ft per year $24 – $28
Average length of lease 5 years


Major office tenants Tenant type
Tectonic Design firm
Mazlo Mobile technology
Glympse Mobile technology
Cloud Room Coworking space/social club


Retail/restaurant information
Retail space (gross) 6,379 sq ft
Retail space (net) 5,328 sq ft
Retail tenants 8
Percentage of retail leased 100
Annual rent range $34 – $37 per sq ft


Key retail/restaurant tenants Tenant type
Amandine Bakery
Empire Espresso Coffee shop
Marmite Restaurant
NICHEoutside Garden and housewares shop
Kurt Farm Shop Ice cream and cheese
Upper Bar Ferdinand Restaurant
Play on the Hill* Doggie daycare and retail shop
Honed Jewelry boutique
Sundry Juice bar and bodega
* This tenant is in the Manhattan Building and not part of the square footage total for Chophouse Row. However, the construction cost for this space is included in the construction budget.


Chophouse Row development cost information
Site value (2016) $2,367,500
Site acquisition cost (1999)* $900,000
Hard costs
Core and shell (main building) $8,811,184
Core and shell (adjacent doggie daycare) $310,129
Office tenant improvements $752,000
Retail tenant improvements $294,000
Residential upgrades $145,000
Sales tax $947,000
Total $11,259,313
Soft costs
Architecture and engineering $986,383
Finance and legal $219,995
Insurance $41,521
Permits $89,000
Leasing and marketing $103,000
Developer’s fee $550,000
Interest reserve $397,892
Signage, utilities, landscaping, other $389,691
Total $2,777,482
Total development cost without land $14,036,795
Total develoment costs with land value $16,404,295
Hard costs per sq ft** $259
Total development costs per sq ft** $322
*Site was part of a larger acquisition, so figure is approximate. **Excluding land costs.


Project Capitalization: Existing operating assets
Agnes/Piston & Ring
Value $16,903,235
Less debt -$10,950,000
Net equity required $5,953,235
Pacific Supply/Manhattan (PacMan)
Value $4,023,857
Less debt -$2,800,000
Net equity required $1,223,857
Total operating equity $7,177,092


Project Capitalization: New development Pro forma Actual (revised post-construction) Notes
Total new development costs $14,366,914 $16,402,293 Costs increased during construction due to delays and unprecedented inflation in construction market.
Less construction loan -$10,700,000 -$12,370,000 Loan increased during construction as rent deals consistently exceeded pro forma.
Net equity required $3,666,914 $4,032,293
Closing expenses/working capital
Legal and organizational costs $215,000
Loan closing fees $230,927
Platform working capital $200,000
Total $645,927 $752,830 Per 2014 deal closing (higher than projected in prospectus)
Total development equity $4,312,841 $4,785,123


Sources of capital Pro forma Actual Notes
Equity sources
Urban Shelter LLC (sponsor) $5,859,865 (51%) $6,278,880 (52.5%) Sponsor put in extra equity to cover construction cost overruns not covered by increased debt.
HIO 12th Avenue Investors LLC $5,630,067 (49%) $5,683,333 (47.5%) Per 2014 deal closing (slightly higher than projected in prospectus)
Total equity $11,489,932 $11,962,213
Debt sources
Agnes Piston loan – Cashmere Valley Bank $10,950,000 $10,950,000 10-year permanent, 3.5%
Pacific Chophouse construction loan – HomeStreet Bank $13,500,000 $15,170,000 Construction loan, LIBOR + 3%, including $2.8 million of debt for Pacific Supply Building
Total debt $24,450,000 $26,120,000
Total equity and debt capital $35,939,932 $38,082,213


12th Avenue Marketplace Project Performance Projected Actual Notes
Project level
Leveraged 10-year IRR 15% 13.25% – 14%
Cash flow year 1 (under construction) $470,504 $624,570 2014; permanent financing payments delayed
Cash flow year 2 (lease-up) $1,232,670 $447,902 2015; permanent financing payments kicked in
Cash flow years 3 – 7 (stabilized) $1,062,391 $900,000 – $950,000 2016 – 2020 average expected
Cash flow years 8 – 12 (stabilized) $1,456,584 $1,350,000 – $1,400,000 2021 – 2025 average expected
Investor equity
Leveraged 10-year IRR 13% 11% – 12%
Priority preferred return 10% (per annum, compounded at the end of each calendar year)
Sponsor equity
Leveraged 10-year IRR 16.50% 13.5% – 15%
Promote 60% 60%