Seattle Bubble

News & discussion about real estate & the housing bubble in the Seattle area.

Seattle Bubble - News & discussion about real estate & the housing bubble in the Seattle area.

Entries Tagged as 'Mastro'

Tacoma Condo Project Foreclosure Auction Reveals Grim Reality

By The Tim on August 24th, 2009 at 9:00 AM · 44 Comments

How bad is the condo market in Tacoma? Pretty bad.

Recall this article from June: Tacoma Luxury Condo Project Headed for Foreclosure

The Esplanade, a nine-story condominium on the west side of the near-downtown Thea Foss Waterway, has until Aug. 21 to escape from the imminent foreclosure, said sources close to the project who were not authorized to speak publicly.

Just 10 of the 162 housing units in the building at 1515 Dock St. have been sold, and none of the retail spaces on Dock Street or facing the waterfront walkway has been leased.

According to the the Notice of Trustee sale filed with Pierce County (pdf), the developer (Thea Foss Holdings, LLC) has outstanding obligations of $48,532,793.62 on the project.

Saturday, the Tacoma News Tribune reported that the “winner” at Friday’s courthouse auction was the bank: IStar Financial wins Esplanade

…when the short bidding was done, the lender for the eight-story Esplanade condominium, IStar Financial Inc. of New York, emerged the auction’s winner with a price of $7 million.

Some two dozen spectators watched as attorney Greg Fox read the lengthy auction documents in a light rain outside the second-floor entrance to the government building and then began the auction process about 10:15 a.m.

The sole outside bidder, Northwest businessman Chuck Tomas, halted his bidding at $6.1 million as the bank successively topped each of his bids.

Take a minute to let that sink in…

There was one bidder. The maximum bid was $6.1 million. In other words, the true open market value on this condo project is roughly 87% lower than the outstanding debt. Of course, with over $48 million debt owed on the project, the bank refused to sell for what the market was willing to pay, and bought the project back themselves.

The units that have sold so far went for an average price of $532,350. An open market value of $6.1 million for the whole project puts the average value of the 151 remaining units at just over $40,000 each.

Yowza.

In somewhat related news, Mike Mastro agreed over the weekend to move into Chapter 7 bankruptcy (previous Mastro stories) which most likely means that the dozens of projects his company has fallen behind paying for will not end up in a similar public foreclosure auction situation, thus continuing to mask their true market values.

(John Gillie, Tacoma News Tribune, 2009.08.22)
(Puget Sound Business Journal, 2009.08.21)

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More on the Possible Mastro Bankruptcy

By The Tim on August 15th, 2009 at 5:14 PM · 17 Comments

Kristen Grind over at the Puget Sound Business Journal had another great article about the unfolding mess with local developer Mike Mastro: Rival banks battle over Mastro bankruptcy

A legal battle between rival creditor banks over developer Michael Mastro Sr.’s real estate holdings is breaking out in federal bankruptcy court — a dispute that affects creditors’ ability to recoup their loans and sheds light on the extensive amount of property Mastro had amassed in the years before his financial trouble began.

Cascade Bank, Sterling Savings Bank, Golf Savings Bank and Washington Trust Bank, together owed more than $40 million by Mastro, have asked the court for permission to pursue their claims against him outside the bankruptcy proceeding. That would allow them to pluck their properties out of bankruptcy, foreclose on them and sell the properties to possibly recoup some of their losses.

But other creditors that are petitioning to force Mastro into involuntary Chapter 7 bankruptcy argue that a single proceeding would put all creditors, including individuals, on equal footing.

The banks — Columbia State Bank, Venture Bank and First Sound Bank — filed to put Mastro into liquidation in July, and Mastro has challenged the move. Until the court decides on whether Mastro can be forced into involuntary bankruptcy and whether some creditors can opt out, all legal proceedings are frozen.

The article also includes a list of some of Mastro’s multi-million dollar debts on various major projects around the area. One notable exclusion from the list was Northshore Townhomes, an 86-unit townhome complex in Kenmore featured on these pages last month. Mastro’s company owes $24 million to HomeStreet bank on that project.

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Northshore Townhomes: A Case Study in Bubble Mania Development

By The Tim on July 23rd, 2009 at 9:00 AM · 48 Comments

Northshore Townhomes Sandwich Signs

Regular readers may recall past mentions on these pages of Northshore Townhomes, an 86-unit townhome complex in my north Kenmore neighborhood.

The story of Northshore Townhomes is a classic tale of bubble mania. The 6-acre parcel was purchased in 2002 for $1 million by well-known local developer Mike Mastro (via an LLC), but development did not begin in earnest until 2006, breaking ground in the midst of the real estate frenzy (condo prices were up over 24% year-over-year in November that year).

Now, Kenmore is nice, but it’s not exactly near the top of most people’s lists when they are thinking about where they want to live around Seattle. Is Kenmore really the best market in which to build 86 new townhomes priced $280,000 to $400,000, with a feature list that includes “the finest finishes throughout” and “chic cabanas with table, bar, and rollout lounges”? And even if Kenmore is a good place for such a development, does it make sense to put it half a block from a major auction house? Obviously not, but during the bubble everything was being snatched up with bidding wars as soon as it came on the market, so in the mind of the developer it was probably a no-lose proposition.

As construction on Northshore neared completion in early 2008, the marketing began to ramp up. A flashy website came online, sandwich boards were strewn about the neighborhood, billboards were placed all along Bothell / Lake City Way, and promotions were launched. Everything looked great, except for one thing… There were no buyers.

Northshore Townhomes | Kenmore, WA
Northshore Townhomes | Kenmore, WA

As 2008 wound to a close, not a single unit had sold. Signs and online offers advertising units for rent began to pop up along side the still-listed units that were for sale. Of course, this simply provided an even greater disincentive to any possible buyers.

By early 2009, the days of speculators gobbling up properties in hopes unloading on a greater fool for a massive profit were long gone, and Northshore had been left in the lurch. Mastro finally completely gave up trying to sell the townhomes, and the entire complex became rentals. According to a May deed of trust (pdf) filed with King County, Mastro’s company owes $23.6 million on the property. With rents at the complex averaging around $1,700, it will take at least 30 years to pay off the construction (assuming 100% occupancy and ignoring maintenance costs and taxes).

Northshore Townhomes | Kenmore, WA
Northshore Townhomes | Kenmore, WA

Today, the ridiculous marketing website has gone dark, the sandwich boards that used to proclaim “NEW TOWNHOMES FROM $279K” have new “NOW LEASING” labels taped over them, and the front door of the former sales center has a slot cut into it for the rent drop. Renters are moving in, but with rents that average 16% higher (in terms of $/sqft) than other nearby apartments, it’s no surprise that the complex is slow to fill up.

We recently posted a link to a Puget Sound Business Journal story about Mike Mastro’s mounting financial troubles. Kenmore’s Northshore Townhomes is just one example of Mastro’s major market miscalculation. $24 million here, $10 million there, pretty soon you’re talking about some real money.

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Major Local Commercial Real Estate Developer Struggling

By The Tim on July 10th, 2009 at 10:44 AM · 8 Comments

Speaking of developers having financial trouble, the Puget Sound Business Journal has a story up today about a major local commercial developer on the rocks: Developer Mike Mastro’s troubles mount.

A longtime, prominent Seattle developer is facing a mounting string of legal actions as he struggles to pay off millions of dollars in loans at dozens of banks across the Pacific Northwest.

Michael Mastro Sr., for years among the most successful commercial developers in the Puget Sound region, is quickly becoming a source of concern at banks — both because of their direct exposure and because of what his troubles say about the potential pain still ahead in the commercial real estate market, according to people familiar with the matter.

Mastro, and his company, Mastro Properties, owe about $500 million to more than 25 banks in Washington and Oregon, including local banks, such as HomeStreet Bank, and national lenders such as Wells Fargo and Bank of America, according to a Mastro company associate and other people familiar with the matter.

Mastro values his assets at more than $600 million — more than enough to cover his debts — and he expects to recover. But court documents and people familiar with the matter indicate he presently appears to lack the cash flow to make loan payments.

It’s interesting to contrast today’s market with what we were seeing just three short years ago…

Spec development, as in constructing an office building without pre-lease commitments on the gamble that it will attract tenants upon completion, is the new buzzword among real estate developers in downtown Bellevue.

Developers of at least four different office tower projects proposed for the city’s central business district are scrambling to be next in line after Lincoln Square developer Kemper Freeman Jr. to begin construction.
…
With no new office buildings set to be ready for occupancy on the Eastside until at least the summer of 2007, available office space in downtown Bellevue will likely become even more difficult to find as the local economy continues to improve.

Incidentally, one of the specific projects mentioned in the 2006 article about Bellevue office space was in the news today as well.

2006: More downtown Bellevue builders gambling on spec development

The proposed 15-story, 311,000-square-foot Summit 108 Building (the project’s working title) would replace the much smaller six-story Summit Ridge building, which was built in 1971.

Canadian developer Bentall Capital is prepared to begin construction of the new Summit 108 Building as early as this coming June, said Gary Carpenter, the executive vice president who heads Bentall’s U.S. operations.

The new building could be ready for occupancy as soon as March 2008, he said.

“At the present time, we believe we will be going spec” with the project, Carpenter said.

“Any additional office building other than your own is a concern,” as a developer, Carpenter said. “Fortunately, the (Bellevue office) market has the strength to absorb it.” even if it must compete for tenants with several other new buildings, he said.

2009: Stalled Bellevue tower site won’t be eyesore

Developer Bentall Capital is halting work on Summit III, a 15-story office building in downtown Bellevue, and says construction may not resume for two or three years.

But the developer vows the site won’t become another unsightly hole in the ground. It might even be attractive.

Between now and mid-September, Bentall plans to finish all the tower’s street-level surroundings according to plan — sidewalks, street trees, a plaza, fountains, flagpoles, benches, a sculpture.

Only the footprint of the tower itself will be fenced off, said Gary Carpenter, executive vice president, and that fence won’t be chain-link but an architect-designed, 10-foot wall.

How quickly things can change.

(Kirsten Grind & Jeanne Lang Jones, Puget Sound Business Journal, 07.10.2009)
(Eric Pryne, Seattle Times, 07.10.2009)

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