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.
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).
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.
