Seattle real estate market in a long lull
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Kai Ryssdal: You know, there’s a temptation to talk about the American economy — as if it were a single, monolithic thing. Truth is, that couldn’t really be farther from the truth. What happens in one place doesn’t necessarily happen in another. Some cities felt the recession more deeply than other did. They felt it at different times and in different ways. The bust hit Seattle, for instance, later than most of the rest of the country.
Our personal finance show Marketplace Money is in Seattle this week, where Marketplace’s Jeff Tyler reports that people are still trying to figure out whether parts of the real estate market there are improving or getting worse.
Jeff Tyler: The elevator descends quickly in Seattle’s tallest building, the 76-story Columbia Center. The financial health of the skyscraper itself is in question, as we’ll see in a minute. At least with the elevator, you know when you’ve reached the bottom.
Elevator voice: Lobby level. Fifth Avenue.
Developers in Seattle overbuilt. Office space is now 20 percent vacant — that’s double what’s considered healthy. Brand new condo buildings sit empty.
Cindy Thomas is a lawyer specializing in commercial real estate. She says there is money out there, but it’s in a holding pattern.
Cindy Thomas: We have buyers, standing on the sidelines, waiting to buy. But they want to buy at the bottom price. So everyone is waiting, and standing and staring at each other. But, they’ve been doing that for about a year now. So we’re just beginning to see the thaw.
At the same time, she makes a good case that the market will get worse. Several regional banks are nearly insolvent. And if they’re forced to foreclose on bad loans to raise money, the banks could dump more real estate on the market at fire-sale prices.
Land use economist Matthew Gardner says a little deflation was needed after real estate prices skyrocketed in recent years.
Matthew Gardner: We saw prices escalate from that 500-a-foot barrier to close to a $1,000 a foot in about three, three and a half years. We’re not a market that is worth $1,000 a foot, in my opinion.
What is real estate worth in Seattle? For some condos downtown, that question was answered at an auction. The prices set at auction help determine the value of similar condos on the market.
Gardner: They achieved a value somewhere north of $400 a square foot. I think Seattle is probably worth more than that, but not by very much.
In terms of construction projects, these are Seattle’s lost years. The perfect example is a downtown property that was supposed to be home to a new hotel with condos. They even dug a pit 30-feet deep down for the foundation.
Paul Thomas, with Northwest Auctions, has been following the developer’s progress.
Paul Thomas: As he was digging down, the condo market just evaporated out from under his feet. So they got the hole dug. It sat as a giant hole for about a year, while the market continued to plummet.
Ultimately, the developer filled in the hole.
[Sound of rocks fall into a truck bed. Constructions sounds]
The property is about to re-open as a parking lot.
Landlords for existing office buildings aren’t so lucky. Charles Staadecker runs a commercial real estate company.
Charles Staadecker: The name of the game for the landlords today is, “Do everything possible to keep your building as full as you can.”
The landlord may lower the rent in return for locking in a longer lease. Of course, this reduces revenues for the owners, potentially pushing troubled properties over the brink.
Remember Seattle’s tallest building, the Columbia Center? The building’s owner recently missed a loan payment, and vacancies there are expected to hit 40 percent in the next year.
I asked some of the current tenants if they planned to renegotiate rent or move. Bond manager George Hankey has a gorgeous view of the Puget Sound.
George Hankey: The comment has been made that this office is actually better than the president of the company’s office, given the view.
His lease doesn’t expire for a year. He says he’d have to consider cheaper rent elsewhere, but there are downsides.
Hankey: You have a lot of soft costs: Changing letter-head, changing business cards.
He also knows of a company that moved out of downtown, and as a consequence, it lost about a third of its staff.
From the lake, you can see about the only construction cranes still in use. Billionaire Paul Allen’s company, Vulcan, is finishing a major project.
Spokesperson Lori Mason Curran.
Lori Mason Curran: We have quite a bit of construction under development. Right now, we are completing a 1.7 million-square foot headquarters for Amazon.com.
After that, Vulcan has no projects planned. Curran says Seattle development could use a couple of “lost years,” just to get the market back to equilibrium.
In Seattle, I’m Jeff Tyler for Marketplace.
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