In three years, Zach Kosturos went from working at Prime Locations to running the nearly 30-year-old commercial real estate business after he bought out the founding partners in 2009, 2011 and 2012. Priscilla Terry, Dean Questi and Jeff Powell continue to work as brokers at the Lacey-based business.
Kosturos, 33, grew up in Reno, Nevada, then moved to Olympia when he was 12. He graduated from Olympia High School and played baseball for the University of Nevada, Reno, before transferring to play baseball for Washington State University.
He graduated with a degree in communications and was once set to accept a job in medical equipment sales, when he decided to enter the world of commercial real estate.
He grew up exposed to the business: his stepfather worked for a title company, his father was a bricklayer and Kosturos had an interest in investing. He earned his real estate license and joined Prime Locations in February 2009 during the thick of the Great Recession.
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We sat down with Kosturos to learn more about what has happened to the commercial real estate market since then.
Q: Where was the commercial real estate market then, and where is it today?
A: It has come back from the bottom. In summary, 2008 was bad and 2009 was worse, especially here. At the bottom, apartment vacancy rates were in the range of 8 percent to 12 percent, and that’s something we hadn’t seen in a long time. Rents were plummeting and people were going out of business. Leasing rates were similar to the early 1990s, falling to $18 or $19 per square foot from $30 per square foot on a renewal basis. We have a large property management arm and that protected us in the down years, but revenue was still down 40 to 45 percent from 2007. That was tough, but we were able to get through it. And we’re finally starting to see rents go up. The multifamily side of the business got better quick. Multifamily came out the strongest, but we’re now seeing the commercial end of the business improve. Our revenues are up 300 percent from 2009.
Q: Retail space, industrial space and office space. How is each of these categories doing?
A: Retail space is doing good. If you look around the county, every single big-box store is spoken for or occupied. Dick’s Sporting Goods is coming to the mall and Mon Wig is set to do an outlet mall in Hawks Prairie. The retail industry is doing OK and that’s good. Industrial space is picking up, and it’s pretty close behind retail space. Marijuana growers have leased 300,000 square feet, which was helpful because it got some stale inventory off the market. Office space is the biggest problem in Thurston County, and it’s keeping our county from doing what it should do in a normal recovery. I don’t have exact figures, but I’d say there is 800,000 square feet to 1 million square feet of empty office space, some of which was left vacant by the state. There’s not enough private industry in the county to absorb what’s been vacated.
Q: So what do you do with this excess office space?
A: You could lower prices, but the hard part with discounting is that building owners don’t have a lot of flexibility because they have a mortgage to pay. You could recruit bigger businesses to Thurston County because the number of businesses that occupy more than 20,000 square feet is probably less than 20. There’s not enough to fill everything. So then you talk about repurposing office buildings into a totally different use, such as mixed-use or apartments.
Q: Are you excited about the changes happening in Lacey’s Woodland District?
A: From a city of Lacey perspective, they have done a good job. The only thing I’m concerned about is that to create a live, working urban environment, you have to get more traffic through the area, such as putting another stoplight on College Street to direct traffic through the district. The other barrier is that the district competes with Hawks Prairie. Hawks Prairie is closer to the base (JBLM) and it’s newer. If I get 10 phone calls, eight of them are about Hawks Prairie.
Q: Where do you see Prime Locations in the future?
A: We certainly want to keep growing the business. We have 30 employees, plus about five independent contractors. We want to continue to acquire more of our own property. Last year we bought self-storage units in Lacey and Yelm and a 62-unit apartment complex in Tumwater. Self-storage is one of my favorite investments because the cost of doing business is low. Homes are getting smaller but people aren’t buying less stuff and they don’t get rid of that stuff.