The hue and cry in the Washington State Legislature is to create housing and more particularly “affordable” housing (link to prior article defining affordable). At the same time, there is a potential bill to control rents by limiting annual rent increases to 7% per year. In multifamily that is called the Forrest Gump Syndrome (stupid is as stupid does). The variables that this can and will not address include real estate taxes, increased maintenance costs, utilities, and the cost of money which has no relationship to the limitation on rent increases. As in the case of the pending foreclosures in office CMBS loans, the same could hold true in multifamily projects.
In the Ballard area of Seattle, a 166-unit project just sold for $55 Million. That price is below replacement cost and $1.5M less than what the property sold for 10 years ago! That still does not address “Affordable”
Amazon Meets HEH Goal
Amazon and others are attempting to address the projected need for 1 million housing units in the state and the need for affordable housing through their Housing Equity Fund (HEF). Their 2 Billion dollar initiative, announced in 2021 under a five-year plan was to preserve and create 20,000 affordable units. They have done it in three years. That is the difference between private initiative and governmental fiat.
The first $635 Million in low-interest loans has lead to 6,500 units. Another $1.8 billion has generated 14,400 units in Washington D.C., Nashville, and Seattle. That reads as 1,084 units in King County alone.
Smith Tower Conversion
There is still a long way to go. Problems and obstacles exist. The attempts to convert the iconic Smith Tower to affordable housing, with some market units have failed again. However, the project has lost 22% of its assessed value over the last three years after having sold for $138 Million five years ago. Strange as it may seem, the Smith Tower may slide into housing to mitigate losses in a market where values fall as Seattle Commercial Real Estate points out in this article. It is, in our opinion, an opportunity market for a knowledgeable buyer.
