The professionals of Seattle Commercial Real Estate started a drumbeat years ago about the potential danger to the Seattle Office Market. With the advent of Covid and the rise of interest rates a few years ago, we sounded the alarm about foreclosures. Sad to report, we were prescient in our outlook.
Seattle’s Colman Building Troubles
The lead article in the Real Estate section of the Puget Sound Business Journal of February 16th was “Colman Building Caught In Limbo”. The iconic structure was sold for $37 Million for the classic 150,000 square-foot structure five years ago. The debt (interest only) is $22.4 Million and occupancy in 2022 was 60% but now it is at 71%, supposedly. The net operating income in 2023 was reported to be $74,562. The ground level tenants have left the building (Starbucks, etc.). The project is in receivership.
Offices in South Lake Union at 49% Assessed Value
Two office projects in the South Lake Union corridor totaling 223,233 square feet sold for $47.5 Million, which is 49% of the Assessed Valuation. This week Seattle Commercial Real Estate was contacted by an ownership group out of Dallas marketing two office buildings, one in Reston, Virginia, and the other in Irving Texas, both being presented at a 9.5% Capitalization rate and both with stabilized tenancies of 90% or more.
Rising Commercial Backed Mortgage Loans Delinquency Rates
The delinquency rates in Commercial Backed Mortgage Loans (CMBS) have risen continuously for 9 months as of October of 2023, which was the last reporting period. The implication on the banking industry is seen by mergers (particularly those small institutions with $18 Billion or less in assets), a major bank failure in California and 44% of office loans reporting negative equity, Actual usage of leased square footage substantially below 100% with remote work and 10-year leases are now maturing. Seattle Commercial Real Estate believes firmly that the implications of problems in one sector of the commercial real estate sector will impact, directly or indirectly, all other sectors. Be aware, be cautious, and look for the opportunities that will inevitably arise for a conservative investor with low leverage and high equity.
