Here’s Why Burien Town Square Sits Vacant Less Than A Year After Opening
“Now Leasing Retail,” reads the message on a street-level storefront window in Burien’s still-new Town Square condominium/retail complex at SW 152nd St. and 6th Ave. South.
Other window signs advertise 20,000 square feet for shops and restaurants in the stand-alone building at this prime location for business downtown.
Yet no business has located there – and only five condos have been sold – since the complex opened last June, despite several serious offers to lease or buy available commercial space.
The barrier to these real estate transactions, as first reported by The B-Town Blog last October (read the story here), stems from the failure of Corus Bank – the construction lender for Los Angeles-based Urban Partners, the city’s private developer for Town Square – which financed this complex.
Corus, headquartered in Chicago, was closed on Sept. 11 by the Federal Deposit Insurance Corporation (FDIC), which took control of the bank’s assets and acquired its entire construction portfolio of about 120 loans valued at $4.5 billion, according to a news release on the action.
A group of investors led by Starwood Capital, including Perry Capital and WLR LaFrak, then acquired an equity interest in a limited liability corporation that purchased Corus’ construction loan portfolio from the FDIC at a substantial discount.
This put real estate transactions at the Town Square complex on hold while Urban Partners navigates a byzantine financial maze.
“There are a number of individuals and businesses that have tried to get a deal in this project and nothing is going to happen until â€¦ distant investors can reach an agreement, amicable or otherwise,” Daniel Keane recently told The B-Town Blog.
Keane and his wife, Melinda, have wanted to move their Market Place Salon & Day Spa (BTB Advertiser) to Town Square since the project began. But they are among the businesses and organizations that have found themselves bogged down in a quagmire of uncertainty.
Market Place Salon
The Keanes’ experience in trying to acquire space for their salon and spa in Town Square opens a window to the frustration experienced by businesses dealing with real estate agents and financial institutions representing Urban Partners.
“We were very excited when the Burien Town Square project was announced, and were subsequently approached as possible tenants in the project,” Keane recalled.
But after initial discussions with Urban Partner’s original real estate agent, “we determined that the price was too high and told them so.”
The Keanes continued doing business in their location at Five Corners, and “when the economy began to sour we were approached again to consider leasing in the project and we negotiated again.”
During this process, a change was made in leasing real estate agencies. Soon afterwards, the Keanes’ bank and accountant both suggested they try to purchase space for their business.
After they looked at a couple of freestanding buildings, Urban Partners approached them “with the idea of buying commercial space in their [Town Square] building.
“Before the holiday season in 2009, we met with [managing principal] Paul Keller from Urban Partners and discussed a possible deal, to which he was in agreement and asked us to secure our financing and plan so that he could see that we were legitimate buyers,” Keane said.
“We shook hands and went our separate ways to do the parts we had agreed upon.” The Keanes began the process of securing financing from the Small Business Administration and Chase Bank, and also were qualified by Timberland Bank.
“We sought a designer and began to plan our space,” he added. “We created our plan and contacted our current landlord to make them aware of our plans. We communicated all of this to [Urban Partners] directly and through their [real estate] agent.”
The Keanes waited for a response – and heard nothing. “After many failed attempts to contact Paul Keller, we finally heard through [the agent] that they were considering our offer but there were some issues they were working on.”
Keane emphasized that throughout the negotiations, despite their frustration with the process, “we have been very happy with our [real estate] agent and his efforts. The disappointment is with the communication from the building’s agents.”
The next news the Keanes received was not good. Starwood Capital had bought the foreclosed bank’s discounted portfolio, leaving Urban Partners in no position to lease or sell space in its condo/retail complex until its loan can be renegotiated.
And, observed Keane, “these negotiations going on far from Burien have left anybody interested in getting into the project out in the cold, and have left our small city with a big empty building.”
“Urban Partners is a well-funded developer with a good track record on many projects around the country as well as in the Northwest,” Keane noted. “The bank they chose for this specific project unfortunately was not strong enough to survive the economic downturn.”
Agreeing with this assessment, Dick Loman, Burien’s economic development manager, added emphatically, “Urban Partners is not in default” on this construction loan. They are “not leaving town” and will remain the city’s private developer for future Town Square buildings.
Urban Partners still owns the Town Square complex, Loman said. The only thing that has changed is the financial group holding its construction loan.
The Starwood investors bought 40 percent of Corus’ construction portfolio – including the loan for the Town Square development – for 50 cents on the dollar.
Loman said this bargain rate, coupled with a current value on the building that is 25-30 percent below its appraisal three years ago, has put the brakes on leasing and selling space.
“Everybody wants a bargain. They don’t want to move in, to lease or buy, and pay the old appraisal rates that are higher than the building’s current value,” he continued.
Urban Partners is now working with the FDIC and Starwood Capital to negotiate “a new loan that reflects the current market,” Loman said. Until such an agreement is reached, Urban Partners is in no position to reduce prices for either retail space or condominiums.
The Catch-22 in which Urban Partners is snared, Loman observed, is that it needs a new loan agreement for the Town Square building, yet there is nothing the FDIC can do independently to change the terms of a loan unless that loan goes into default.
“That’s what’s happening throughout the entire country,” he said. “It just goes around and around and around – the FDIC doesn’t move quickly, and this has been the problem here.”
In the meantime, Loman said last fall, Urban Partners is “trying to do the right thing. I know that Urban Partners wants to meet the market, but they can’t act until they receive a green light for moving forward.”
Keller did not respond to a request for comment from The B-Town Blog.
And Dan Rosenfeld, whose Northwest ties (he still has an interest in the Burien Plaza at SW 148th St. and 1st Ave. S.) helped Urban Partners land the development contract, has left the company.
Established in 1991, Connecticut-based Starwood Capital Group was one of several investment groups “whose leaders profited from the 1990s savings and loan crisis.” Today it is “among firms buying assets from the Federal Deposit Insurance Corp. for as little as 22 cents cash on the dollar,” according to an April 14 report at Bloomberg.com.
Starwood Capital is described on its website home page as “a private investment firm”; Since its inception, Starwood Capital has completed more than 300 transactions representing assets in excess of $20 billion. Public companies created by Starwood Capital have gone on to acquire, often with Starwood’s assistance, an additional $20 billion in assets.
A Bloomberg Businessweek company overview says Starwood acquisitions include “asset and financial restructuring,” with investments that include multi-family, office and luxury retail.
Because the federal government “was faulted two decades ago for letting bank assets go at fire-sale prices, [it] is planning to profit along with investors” in the wake of bank closures during this economic crisis, according to Bloomberg.com.
“Instead of selling the loans outright [such as Corus’ construction loan portfolio acquired by Starwood Capital], the FDIC kept stakes of 50 percent or more in at least five loan portfolios sold since September. It’s also demanding as much as 70 percent of any gains.”