The region's biggest condo project ever has been transferred to its lenders after the developer sold less than a quarter of its units in almost two years.
Seattle Times business reporter
The new owners of Bellevue Towers announced price cuts to try to spur sales at the 539-unit complex. The developer of Bellevue Towers, the region's biggest condo project ever, has turned over the development to lenders to avoid foreclosure. Portland-based Gerding Edlen transferred the downtown Bellevue project's unsold units on Thursday to an entity led by investment bank Morgan Stanley, according to county records. The new owners announced price cuts to help spur sales at the 539-unit development, where just 118 sales have closed since the two towers were completed nearly two years ago.
"This is an acknowledgment that prices today aren't what they were," Ira Glasser, an adviser to Morgan Stanley, said Monday. At 43 and 42 stories, the project's two towers are the Eastside's tallest buildings. Gerding Edlen built them in large part with $275 million borrowed in January 2007 from a consortium of lenders led by Morgan Stanley.That loan matured a year ago, Glasser said, and the lenders have been paying the project's bills since then. The ownership transition was "an amicable and consensual agreement" to put the towers on new financial footing with minimal disruption, he added.
The Bellevue Towers takeover is the latest sign of how far the high-rise, high-end condo market has fallen since the real-estate bubble popped.Sales at most new projects have been sluggish. Some, including The Bravern in downtown Bellevue, have been converted to rentals until the market recovers. Gerding Edlen, one of Oregon's most prominent developers, also has lost two Portland condo projects to lenders because of slow sales, according to The Oregonian.
By the time the buildings were completed in early 2009, many of those prospective buyers either couldn't or didn't want to close. The project's financial status has been the subject of considerable speculation in Seattle's commercial real-estate community for months. The Morgan Stanley takeover comes as no surprise, said Seattle land-use economist Matthew Gardner.
In addition to the more than 400 unsold units, he said, more than 100 units remain on the market at Washington Square, the towers' closest high-rise competitor in downtown Bellevue.
"That's a lot of supply in a condo market that I don't believe has yet bottomed in terms of price," Gardner said.
When Bellevue Towers opened in February 2009, condo prices ranged from $399,000 to $4.4 million. A Gerding Edlen principal predicted the project, at Northeast Fourth Street and 106th Avenue Northeast, would sell out in two years.
Five months later, with less than 10 percent of the units sold, Gerding Edlen cut prices an average 20 percent. With the additional reductions announced last week, average prices are 30 percent lower than two years ago, Glasser said.
County records indicate just three condos have sold over the past three months. But 10 sales are scheduled to close this month, Glasser said, and 50 more are in the pipeline. Those 50 buyers are being contacted this week and offered the reduced prices, he added.
Traffic at the project's sales center is up, Glasser said, and the condo market appears to be on the upswing. "I think we can sell out in the next few years, if the economy lets us," he said.
In addition to the $275 million loan from the Morgan Stanley consortium, county records indicate Gerding Edlen also took out a $67 million "mezzanine" loan — something like a second mortgage — from Seattle real-estate investment company Washington Holdings to help build Bellevue Towers.
It's unclear whether that loan has been repaid. When contacted Monday, Washington Holdings CEO Craig Wrench declined to discuss the status of the debt.
But Glasser said the Morgan Stanley loan is the new owners' only debt.
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