Eddie Bauer to sell HQ campus to Microsoft

Microsoft Corp., looking to further expand its presence around its main campus, has reached an agreement to buy the Redmond headquarters of Eddie Bauer Inc. for $38 million, pending court approval.

The proposed sale, disclosed in court documents, is part of the Chapter 11 bankruptcy reorganization by Eddie Bauer's parent company, Downers Grove, Ill.-based Spiegel Inc.

Under terms of a lease that would accompany the sale, the outdoor-apparel retailer would remain on the property for up to three years.

After that, however, the purchase would give Microsoft new room for future growth around its Redmond headquarters. The wooded Eddie Bauer campus, on the west side of state Route 520, is positioned between Microsoft's main campus and a series of large office buildings owned by the software company along 148th Avenue Northeast.

"That's great real estate. For Microsoft, that's a hell of an investment," said Al Hodge, a real estate broker with Broderick Group Inc., who represented SpaceLabs Medical in the sale of its nearby campus to Microsoft three years ago.

Eddie Bauer's property, totaling about 20 acres, has three buildings consisting of more than 232,000 square feet, according to court documents. The company has been located at the site for more than three decades. About 600 people work there, said Spiegel spokeswoman Debbie Koopman.

Spiegel, which filed for Chapter 11 in March 2003, citing more than $1.7 billion in debt, is searching for a buyer for its Eddie Bauer apparel division. The retailer and the property were put up for sale separately, not as a package, Koopman said.

"Obviously, long-term decisions about Eddie Bauer will be based on who buys the company, but at this point they just signed a three-year lease," she said. "So I don't think you can draw any conclusions about what will happen with Eddie Bauer long-term."

Spiegel sought court permission in November to sell the Eddie Bauer headquarters and hire CB Richard Ellis to market the property. The U.S. Bankruptcy Court in the Southern District of New York must approve the purchase-and-sale agreement between Eddie Bauer and Microsoft. A hearing is scheduled for July 20.

Under bankruptcy court proceedings, other potential buyers will also be given an opportunity to outbid Microsoft for the property before the deal is approved, but real estate brokers said they consider that unlikely under the circumstances.

"I would be very surprised if that happened, because that market is very soft," said Gary Bullington, a real estate broker with Cushman & Wakefield of Washington.

The deal would be the latest in a string of real estate acquisitions for Microsoft around its main campus. Intermediaries acting on behalf of the company bought SpaceLabs Medical's headquarters for $74 million in September 2001 and the LakeRidge Square office complex, which Microsoft had leased, for $142.3 million in December 2001. In October 2002, Microsoft paid nearly $100 million for the nearby Cedar Court complex, which the company also had leased.

Microsoft's offer for the Eddie Bauer campus was "consistent with past opportunities that have come to us to purchase property in and around our Overlake campus," said spokeswoman Tami Begasse, referring to the Redmond neighborhood where Microsoft's campus is located.

For the near term, Begasse said, the company's space needs will be met by the newest building on the main Microsoft campus (Building 36) and the two former SpaceLabs buildings, which are under renovation and scheduled to open sometime in the fall.

Those buildings add about 700,000 square feet to Microsoft's holdings, bringing the amount of space it owns on the Eastside to about 8 million square feet.

It's not clear what effect, if any, the purchase of the Eddie Bauer buildings would have in the long run on the timeline for Microsoft's proposed 150-acre Issaquah campus.

The company said last month that its acquisitions and construction in Redmond have helped alleviate the need to proceed with construction in Issaquah for the time being.

As part of the proposed agreement with Microsoft, Eddie Bauer would lease space from Microsoft for three years for rent payments totaling more than $9.3 million, although the deal also gives Eddie Bauer the option to end the lease after two years, according to court records.

Eddie Bauer's home beyond those two or three years is uncertain.

Spiegel has already received court permission to sell its Newport News women's apparel division and Spiegel Catalog division. The company has until September to file its reorganization plan.

P-I reporter Todd Bishop can be reached at 206-448-8221 or toddbishop@seattlepi.com

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