Vulcan’s Rollin Street Flats to Convert to Apartments

I received an email tip from a reader that Vulcan’s Rollin Street Flats, a 197-unit condo building in South Lake Union is officially going apartment.

Just four days ago, the Seattle Times reported that Vulcan had “pushed back the start of closings on its nearly finished Rollin Street Flats project.”

An email being sent to buyers who had pre-sale agreements at Rollin indicates that Rollin Street was only 25% pre-sold, well below 70% threshold required for Fannie Mae backing (the threshold was previously 51%, and was raised to 70% on March 1):

Market conditions tell us we will not achieve the required minimum 50% pre‐sales in a short timeframe. As a result, we have decided to convert Rollin Street into a rental apartment building. We will refund your earnest money deposit (currently safely held in an escrow account) and any deposits you made for upgrade finish options.

We had expected to be able to communicate this decision earlier, but the process of getting permission from our construction lender took much longer than we had hoped.

I have an email out to Vulcan for confirmation on this, and will update this post if/when I hear back from them.

[Update @ 3:45 PM]
Over at Urbnlivn, Matt has posted the full email from Vulcan.

[Update @ 3:55 PM]
Confirmed by a representative from Vulcan:

Yes, we did send out a buyer communication today that confirmed our intention to convert Rollin Street into an apartment building.

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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.

30 comments:

  1. 1
    deejayoh says:

    Wow

    If you bought at a building like Enso or Olive8 where the sales were high enough for them to remain condo – you end up stuck with closing the deal an over market price

    If you bought at a building that didn’t sell well – then they convert it to apartments and you get a refund of not only your earnest money – but also the cost of upgrades!

    Talk about a winner’s curse!

  2. 2
    Jillayne says:

    I wonder what the rent will be.

    Has this project foreclosed and is it now owned by the bank or is it still owned by the developer? Wondering if the rent will cover the payment to the bank if it’s still owned by the developer.

  3. 3
    Wanderer says:

    If the developer is indeed Vulcan, how could foreclosure be an issue/possibility? I know it is not Paul Allen’s personal bank account, but I can’t imagine that Paul Allen’s development company suffers from cash flow or capital issues like other developers. Am I missing something?

  4. 4
    Garth says:

    Look at the trump deal in mexico,all of these projects are individual LLC’s, so if Vulcan decides it wants out I imagine it is already structured so that just the one project can go belly up without affecting their other projects.

    If the interiors are complete this is a bad idea, but if they still have some control over floor plans they could successfully convert it to apartments at a lower cost then completing the condos.

  5. 5
    Jason says:

    I doubt Vulcan will allow this to go to foreclosure, as it is a big part of the entry into South Lake Union. When you drive from downtown to Lake Union, you enter through Enso, 2200 and Rollin Street. The DJC recently reported (today, in fact) that Vulcan is experiencing some great rentals from their other projects such as Alcyone, Alley 24 and the Borealis… this will only add to their portfolio and help make SLU the place they envision, I would imagine!

  6. 6
    Scott Weitz says:

    Deejayoh @ 1

    If I were a purchaser, I would bring suit for a return of deposit as the contract is voidable now that the building is not being used as a condominiums as was promised.

    Garth- good point, but I doubt Allen will want to tarnish both his reputation and the reputation of South Lake Union (which he owns in its entirety).

  7. 7
    AmazedR says:

    Correction: I’d like to call out that this is called a ‘repartment.’

  8. 8
    The Tim says:

    RE: AmazedR @ 7 – I think technically “repartments” are when a building or complex that was originally apartments, is converted into condos, but then changed back into apartments after poor sales.

    That said, I tagged this story “repartment” anyway.

  9. 9
    Scotsman says:

    Big deal… so now I take the SLUT to my apartment instead of my condo…. (Sorry, I’m too immature to successfully resist.)

    Does this mean rents will now rise in the area? The new economics can be so confusing.

  10. 10
    One Eyed Man says:

    I’m sure Vulcan has some talented people who have run all the numbers and just consider this the best alternative given their forecast for the absorption rate of condo’s in SLU. It’s just another business decision for a presumably well capitalized development company (although I’d be suprised if title isn’t held in a wholely owed LLC, which would be easy enough to check).

    On a broader theme, is this another stage in market psychology? Can you say capitulation? To borrow a phrase, this is not the end. It’s not even the beginning of the end. But it just might be the end of the beginning.

    Or are we now perhaps even further along on both the real estate cycle and the stages of market psychology? If condo conversions are a sign of an approaching top, is an apartment conversion a sign of an approaching bottom? OK, OK Scotsman, I can already hear you thinking that the economy is broken and only an idiot would say that a bottom is even possible until it’s fixed. So when are you going to invite us all to a chicken BBQ in you’re family room.

  11. 11

    “but I can’t imagine that Paul Allen’s development company suffers from cash flow or capital issues like other developers. Am I missing something?”

    How do you get to be worth 10.5 billion dollars?
    You start out with 40 billion.
    In 1999, Forbes Magazine ranked Paul Allen the 2nd richest man in the world worth 40 billion dollars.
    In 2009, Forbes Magazine ranked Paul Allen the 37th richest man in the world worth 10.5 billion dollars.

    Vulcan is laying people off, and his cable company, Charter Communications, declared bankruptcy.
    I’m not suggesting that everything he touches turns to “chocolate”, but it sure don’t turn to gold.

  12. 12
    EconE says:

    I’ll even feel sorry for the renters in those alley facing units.

  13. 13
    Scotsman says:

    RE: Ira sacharoff @ 11

    Ouch! That’s not a record to envy. Still at this rate he’ll be dead before he’s broke, and there are no heirs. I just hope he doesn’t have to sell the boat:

    (Scroll to see more)

    http://www.sailingscuttlebutt.com/photos/05/octopus.ppt

  14. 14
    David Losh says:

    This is a bad thing.

    South Lake Union has been the albatross of Seattle for decades now. Is it a Commons, is it a neighborhood, is it land vital to commerce? In the end Paul Allen got a compromise maybe a little too late.

    It’s not just the condo projects, or even the retail, it’s that the City of Seattle bent over backward to have a show piece of poop.

    I think some one even dubbed South Lake Union as the Park Avenue of Seattle.

    What a mess.

  15. 15
    b says:

    RE: One Eyed Man @ 10

    I think the end of the beginning is more likely. I used to live in the SF bay area, and when the bubble popped there condos went back to apartments after some declines had happened, around fall 2007 when I was looking to re-lease IIRC. I think we all know what has happened since then. The sunny talk from agents here this spring is very reminiscent of last spring back in the BA to me, but maybe I am just crazy. Lots of talk of sales picking up, bottoms forming, multiple offers and of course, savvy buyers snapping up foreclosures and short sales left and right. Too bad some friends of mine got dazzled, I am guessing they are probably underwater a good $50-75k by now.

  16. 16
    Jonness says:

    “Big deal… so now I take the SLUT to my apartment instead of my condo…. (Sorry, I’m too immature to successfully resist.)”

    You should lie and claim you own the condo and bought it for cash up front. That will impress her way more. If she later finds out you’re a liar, who cares? By then, you’re ready to move on anyways. (Sorry, my immaturity is getting the best of me as well. I mean no disrespect.)

  17. 17
    Wanderer says:

    RE: Ira sacharoff @ 11
    I’m with ya, Ira. Mr. Allen certainly has a well deserved reputation for losing money in ventures outside his core expertise (knowing Bill Gates). I did not know that Charter was in bankruptcy, so I guess it is possible that Vulcan could go that way too… theoretically. If Paul is a rational investor, he won’t throw good personal money after bad to cover Vulcan (certainly some sort of LLC) if he KNOWS that it is a lost cause. That said, he won’t let Vulcan collapse if he thinks that it is just a timing issue and that the value of his investment will recover. I am not sure I want to see a world in which things get so bad that Paul Allen writes off Vulcan.

  18. 18
    David Losh says:

    RE: Wanderer @ 17

    It’s worse than if he bankrupts this venture. Paul Allen has his finger prints all over the mess that has become down town Seattle. I remember when the City Council villified Martin Selig then embraced the hap hazard development schemes of Paul.

    These were just schemes that left us with the satadiums surrounded by mess, now South Lake Union which is a mess of it’s own, and let’s not forget the Seattle Center.

    I don’t see how this is going to fix itself. It’s like a kid came in and took out all the toys in a toy box then left the room.

  19. 19
    WestSideBilly says:

    RE: Jonness @ 16 – I think you missed the joke there.

  20. 20
    Mike2 says:

    Ironically, the earnest money “investment” probably had far better returns (0%) than most people saw on their 401K’s and other RE holdings during the same period.

    Who says presale condos weren’t a good investment post-bubble?

  21. 21
    One Eyed Man says:

    RE: b @ 15

    I hear ya b and I think you’re probably right. But then again, I’ve never been good at timing markets. I tend to buy too early and to never want to sell. When I do sell, I commonly hate to hold the cash and buy too early again. There’s probably some psycho-babble term for that but I don’t know what it is.

    The last time I lived in the Bay Area was 1979. At that time you could buy a house with a pool in Sunnyvale for under 100K. I rented a tiny 2 bedroom house in Santa Clara for $225/mo. Now the son of one of my old friends rents a one bdrm apartment in Sunnyvale or Mountain View for $1600/mo. But the ride has been far from straight up. I think the BA has been through 3 or 4 boom/bust cycles since 1979. And it’s hard to trade in and out of houses when it’s your home.

  22. 22
    mukoh says:

    RE: Jillayne @ 2 – Jill, Vulcan is not facing foreclosure on properties, in fact if you check title, they bought another one from a local bank for $16m

  23. 23
    Slumlord says:

    RE: David Losh @ 18

    I agree with those who think Paul Allen has gotten himself into a bind by overreaching the market. However, I think this is a temporary problem (at least for the Vulcan part of his empire; I don’t know anything about the rest).

    Allen owns a huge amount of land around South Lake Union. The long-term strategy seems to be to bring in people, jobs, and entertainment to the area. Every money-losing building still increases the relative value of his other holdings around it. As long as Vulcan has the resources, they can keep building until lease rates reach the point where new buildings become profitable. At that time, other developers will start building in the area and this will further increase the value of Allen’s holdings. It takes deep pockets and nerves of steel to get there, but I expect that Vulcan and Allen will.

  24. 24
    Dave Lincoln says:

    RE: Jonness @ 16

    Indeed, see #19, but I’ll at least explain: I don’t think the South Lake Union Trolley really is worried about your disrespect, Johnness. You can call it a SLUT, even call it “late for dinner”, but just don’t call it a BOONDOGGLE – it will get really upset and purposefully stall out in the middle of Fairview St. (or at least the brushes will let go, not really a stall.)

    I hope you don’t think that Scotsman and and a, ahem, friend of mine, who will live in that apartment will have to get SLUTs for girlfriends just because a proper woman would not show her face in the place now that they are only apartments. I’m sure, his girlfriend, just like mine, I mean, my friend’s, just had a rough childhood, and needed cash for tatoos and peircings. That stuff ain’t cheap, ya know. Plus, what’s a poor girl to do in Seattle in these tough times besides that type of work – no, don’t say Real Estate; she’s already said she’s not that kind of girl..

  25. 25
    CCG says:

    Re: B @ 15:

    Yep. Way too much optimism and denial still out there. As Galbraith said:

    “The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune.

    The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that, there would be still another. In the end, all the money he had was extracted from him and lost. The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains…

    The bargains then suffered a ruinous fall.”

    I went over to Seattle last weekend and counted a dozen cranes just driving down I-5 – more than I was able to count at the height of the bubble in 2006 for god’s sake. I’m guessing the Times or some other tout sheet will finally proclaim “The Death of Real Estate” (a la Business Week 1982) in another 5 years or so, then it’ll be time to bring out the cash stockpile and grab with both hands.

  26. 26
    wreckingbull says:

    RE: CCG @ 25 – Mod this post up! I have been warning for almost a year of the many bull-traps that will ensnare the unwary. If I hear the argument ‘open house traffic is up’ or ‘multiple offers on a listing’ one more time this month, I think I am going to hurl.

  27. 27
    Chris says:

    By Mike2 @ 20:

    Ironically, the earnest money “investment” probably had far better returns (0%) than most people saw on their 401K’s and other RE holdings during the same period.

    Who says presale condos weren’t a good investment post-bubble?

    I’m a former Rollin buyer. I made nearly $150 interest on my EM last year!

  28. 28
    voight-kampff says:

    I walked from by deposit at olive8. boy do I hope they go apartment too so i can get my money back!
    Who would have thought that buyers would be hoping their purchases would go apartment… wait… dont answer that.

  29. 29
    Jim says:

    Pray for the Old Cascade!
    http://www.ridetheslut.com

  30. 30
    Esol Esek says:

    Paul Allen is a semi-tool, but, as a sometime resident of SLU, it’s a lot better living than it was. Whole Foods is better quality than Deathway and Kruger/QFC (complete trash), you’re walking distance to downtown and Belltown, but not mired in as much human dreck as most of Belltown is. The new park on Lake Union is nice, the SLUT ferries more people around than I expected.

    As someone who has laughed at Allen, I have to admit this revamp has turned out to be one of his better ventures. The problem with these condos is these morons overprice them, and the dues are ridiculous on top of it. They try to sell this bogus lifestyle illusion that doesnt wash instead of just going utilitarian, which now is what will happen with renters anyway. All the art dreamers at Cornish can rent at Rollin now. Also, whoever allowed the new building on Virginia to be matching height within 20 feet of the entire west side of the Cosmopolitan must have been a crook, because those condo owners (including in the penthouses) got JACKED.

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