Big Downtown Land Deal Evaporates

Almost a year ago, a family that has accumulated ownership of 13 near-contiguous acres of downtown real estate in the Denny Triangle finally put the whole lot of it on the market.

Clise PropertyMr. Clise is convinced now is the ideal time to sell. The job-market outlook is robust for Seattle, and the office market, with a low 5% vacancy rate for top-quality “Class A” buildings, is hungry for more space, says Michel Seifer, managing director of capital markets for Jones Lang LaSalle, the real-estate-services firm handling the sale.

Yet, there is a possibility that Mr. Clise, age 57, may have missed his window. Increases in the cost of borrowing — with the yield on the benchmark 10-year Treasury note rising to nearly 5.25% last week — could keep some previously active real-estate investors on the sidelines for this blockbuster, but inherently risky, transaction. Mr. Clise says if he doesn’t get the price he is seeking for the land — well into the hundreds of millions of dollars — he could still take it off the market.

Well, as reported by the Wall Street Journal yesterday (subscription), and picked up by the Seattle Times and Seattle P-I today, it looks like they were indeed a bit too late:

In retrospect, Clise said, the family should have begun marketing the property a year earlier, before the credit crisis deepened.
Seattle Times

“Large real estate deals are not being financed right now,” Clise Properties Chief Executive Alfred Clise said Thursday afternoon.

Frank Bosl, a senior vice president in the Seattle office of CB Richard Ellis, said the move makes sense.

“The changes in the financial market are causing the capital for doing deals to be out of sync with the value of the real estate right now,” he said.
Seattle P-I

Some see this as a portent of a growing trend in commercial real estate, heading into a downturn 12-18 months after residential. Personally I don’t follow commercial real estate really at all, so I wouldn’t attempt to derive any sort of market meaning out of this move.

Does anyone here deal a lot with commercial real estate? Have you seen a significant slowdown there, too? Or was the failure of this deal more a result of its massive size?

Story tip: Deejayoh’s forum post

(Jennifer S. Forsyth, Wall Street Journal, 06.18.2007)
(Jennifer S. Forsyth, Wall Street Journal, 04.25.2008)
(Eric Pryne, Seattle Times, 04.25.2008)
(Aubrey Cohen, Seattle P-I, 04.24.2008)

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

18 comments:

  1. 1
    deeplennon says:

    That is, in common parlance, a shitload of land.

  2. 2
    Alan says:

    It is too bad. Developing that land with an overarching plan in mind would help move Seattle towards being a superstar city.

  3. 3
    squidier says:

    Perhaps even, *shudder*, world class??

    :)

  4. 4
    S-Crow says:

    Up in Snohomish Co., just driving around, it appears that there is quite a bit of vacant office space starting to show, including retail.

  5. 5
    david losh says:

    Big dirt!

    The acheivement of putting a parcel like that together is fantastic. Once it’s together, and stays together, the possibilities for down town Seattle are incredible.

    The problem is that the mayor and city council are such loser low life scum that I don’t think any one would want to deal with them.

    Remeber this is the same city council or it’s cronies that gave us the CAP initiative. These are the same people who took money for a Rick’s Dance Club expansion. I just mention that for how stupid that was.

    Peter Steinbreck was elected all those years ago because he was going to save down town Seattle. I remember his passionate concerns because he could see the Columbia Tower from Couger Mountain. The people needed to stop that type of glass and steel construction.

    Then we had Dick Conlin elected. The stupid Dick campaigned in opur neighborhoods for the Urban Center concept. BTW I worked on his campaign because he was going to bring envioromental concerns to the fore front of city politics, he didn’t, as a matter of fact he championed just the opposite.

    The Dick did give us the rise of the Row House concept. Dick has destroyed more lives in his time in office than any other loser low life scum the people of Seattle elect to city politics. Now that’s saying a lot because Jim Street, the honorable, did so much damage to the city.

    The point is that the city of Seattle is a tough place to put concept construction projects. Many local developers, who are good, choose to go elsewhwere to build. Other states or cities want development. Other cities want vibrant down town cores. Seattle is an old boy network that would rather preserve Rick’s than actually do anything outside of the network.

    So the parcels are there but who wants to fight the city fathers? The city is busy rubber stamping row houses. The city is collecting those permit fees so why do anything outside of the box? OMG they may have to add a hundred more over educated dillitantes to the DP Department to hold up a construction project.

    It’s not whether it will sell, this is just the way things are in Seattle. Low construction rate to hold up supply, to push up prices, while the city governent gives the people of Seattle nothing.

  6. 6
    old timer says:

    So, these folks have been doing a Seattle Real Estate thing for 4 generations?
    And what was their goal with assembling this big pile of dirt?
    To milk even more out of serendipitous birth?

    Boomtown, the money’s shut off for a while.

  7. 7
    whats my name says:

    The real estate guys quoted in the article are tellng the truth. It’s about finance – and the impact of finance on price. Over the past 10 years, mortgage backed securities have gone from insignificant market share to the primary financing source for large, let alone mega projects. In one of life’s little ironies, the commercial RE secondary market has been hit harder than the residential RE secondary market. Although it will no doubt rise again, it is currently dead. The big banks want short term only, and they want their construction loans covered. The insurance companies and pension funds can easily fill their quotas with safe, demonstrated performing properties. That leaves REIT’s, small banks, and hard money. Hard to believe with all the cranes you see, but that was yesterday’s business.

    That said, commercial RE always suffers in a downturn. Failed businesses don’t pay rent, and are hard to replace in a recession. There has been some slippage in underwriting standards, and cap rates supported by 5% leverage rates won’t stand when rates are 7%. Was Seattle at risk for being overbuilt anyway? Probably.

  8. 8
    david losh says:

    The crane comment reminded me of the discussions I’ve had since returning from Spain a few weeks ago. There are a hundred cranes in Barcelona. It’s unbelievable to see. Condo units I looked at in 1996 are selling for three, four, and five times the price today.

    The Euro, I’m told helped drive up prices. What I was also told is that Barcelona is expecting growth from the “Digital Economy.” What a great term!

    It is a matter of money without question, but I also look at a guy like Martin Selig who was villified for years. Would you want to be that guy? He might as well be the Darth Vader they claim his buildings to be.

    If Shanghai, New York, or Barcelona, can have world class development why can’t Seattle? Is it really just the availablity of investment?

  9. 9
    Everett_Tom says:

    Not sure if Spain is the best example to look at, I recently heard on NPR that they’ve begun to enter a US styled housing bust ( NPR link here )

  10. 10
    seattlegator says:

    http://seattletimes.nwsource.com/html/businesstechnology/2004374762_escala26.html

    Seattle Times piece on condo builders raising prices downtown to spur buying interest. Insane.

  11. 11
    b says:

    seattlegator –

    I wonder how the financiers of that project feel about this move. Insane is an understatement, more like suicidal.

  12. 12
    david losh says:

    In the Wall Street article it says there is no shortage of capital. The reason I mention Spain is that the people selling those condo units for more than three times the value are putting the money some where.

    The problem is selling Real Estate backed securities to the secondary market. Capital is not an issue liquidity is.

    Over a ten year period cash invested in a multi billion dollar project may be better used some place else. Money has to keep working. So an individual or corporation may want to borrow against or sell off a portion of thier holdings.

    If cash is not available to borrow or sell an interest the corporation can bankrupt effectively putting the project on hold. It’s not the same as an individual.

    In the forum it mentions:

    “on par with New York’s Rockefeller Center or London’s Canary Wharf.”

    What do the two have in common? Bankruptcy.

    Rockefeller Center though is bought and sold, good investment or not.

    Money comes and goes, it rarely gets lost, it’s just in the next place making more. The way I read these articles is the Clise family is making a smart decisioin to look for larger investors and the time to act is now.

  13. 13
    deejayoh says:

    Meanwhile, back on planet earth – the Spanish real esate market is crashing. People aren’t selling condos in Spain for mutiples of their purchase price, they aren’t selling them at all.

    Seriously. There are cranes all over Miami too. Is this a good sign?

    http://www.nytimes.com/2008/04/14/business/worldbusiness/14real.html?_r=1&hp&oref=slogin
    http://www.ft.com/cms/s/0/38f3e05e-fcf0-11dc-961e-000077b07658.html
    http://www.youtube.com/watch?v=DURdRl-cuvo

  14. 14
    whats my name says:

    In the article, and under the paragraph heading ‘No Shortage of Capital’, It says that

    . “We were hopeful that there were players who didn’t need to be involved in financing. And there are groups out there like that,” says Mr. Clise. “But we learned that in the real-estate world, people look to the credit markets. For a deal of this size, requiring a long period of time and many billions of dollars to build it out, you’re going to be dealing in debt.”

    When you need debt capital, and can’t get it; you have a shortage of capital. The Clise problem isn’t that they need investors bigger than Dubai oil shieks. Their problem is that this isn’t a good time to get a good price for their property because the necessary capital structure would be unfavorable for the buyer.

  15. 15
    matthew says:

    Hopeful = praying

    Mr Clise = Mr. Clause

    You are right, they don’t need investors bigger than Dubai oil sheiks, they just need investors dumb enough to buy property at a the height of the largest bubble in the history of the US and a country on the precipice of an economic meltdown!

  16. 16
    david losh says:

    I’m always interested in the economic melt down theory.

    First you mention national. The United States is on the threshold of reaping benefits from an over inflated Euro. Sorry that I don’t buy the large manufacturing base for the European economies. Natural resources are scarce. The Uninted States and North America have oil, gold, wheat, steel, and live stock, the list actually goes on.

    Second, on this blog in particular rental income is a favorite topic. Renting is smart according to many people here. The Clise Family owns a lot of rental properties. I don’t think they need to sell. I don’t think we are talking about a thirty person company that owns acres of down town Seattle needing cash.

    Third is that money is everywhere you want to be. Even when we talk about our own banking system here in the United States, more specifically lender/investors that system made billions of billions of dollars these past few years. If banks were happy with checking account fees they loved mortgage money.

    Unlike the Saving an Loan scandal banks have tangible assets to sell. Those dollars will continue to circulate. The thing about money is that money makes money. You’ll notice the term is write downs, banks are taking write downs on the value, not write offs, but that’s a comment for another time.

    In my opinion the Clise Family is seeing an opportunity to capitalize on the South Lake Union redevelopment. You’ll notice all of those plans are moving forward. So my question would be, if they can rent the property out, and if they have held on to the property for a hundred years, why sell now?

    I’m also going to point out that down town development has been stalled for years due to the CAP initiative. That initiative is weakening now, but the city still wants blood money from large developers. It’s also my opinion that the Clise Family is holding out a carrot to the city council.

  17. 17
    softwarengineer says:

    FORGET TALK AND WHATIFS AND COULDOFS

    Its all unscientific wishful thinking on commercial real estate. Drive around and look at the plethora of closed businesses, for lease signs and other grim proof.

    Where did Albertsons go? A 24 fitness is remodeling one in my neighborhood that was empty for 3 years; I’d bet money the gym will go bankrupt too, yet they must be pouring money like fiends into that old cement floored grocery store wharehouse turning it into a gym for paultry $19.95 a month memberships….lol

    I see disappearing gas stations, closed down bankrupt restaurants [the ones still open have mostly empty booths].

    Speaking of rentals how does a landlord rent a property for 1/2 or 1/3 the mortgage payment and propertyax and realitors with no calculator call that a profit?

  18. 18
    Jackson Wallace says:

    The Clise family were the heros that tore down the Music Hall and turned it into a parking lot, so they could avoid a historical classification that would keep them from the maximum profits for their parasitic family. The Music Hall was an incredible gilded age theater inside and out. They eventually sold the land for the new Federal Bldg monstrosity (that also blocked the view of the Olympics from Pine street, a view never to be seen again, blocked by that blast-proof symbol of the Federal Empire.) The Doghouse was also an institution, and they treated it the same way. The Clises are scum. If they didn’t profit even more than they have, its because their greed blinded them. They are an embarassment to their forebearers, a liability to their hometown, and an example of the need for greater inheritance taxes.

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