News Column

Amazon.com Rethinks Leasing, Buys Office Space

Nov. 5, 2012
Office Buildings

Vulcan Real Estate's Ada Healey offered a previously unmentioned reason for her company's decision to sell its 11-building Amazon.com office complex when she was asked about the blockbuster deal at a real-estate industry forum this past week:

Political uncertainty.

Vulcan decided to sell this year, Healey said, not only because it wants to diversify its portfolio, but also because it's concerned capital-gains tax rates could increase Jan.?1.

"Nobody knows what's going to happen," she said.

The tax on capital gains, now capped at 15 percent, is one of several taxes and fees slated to rise by default if Congress and the President don't find a way to dodge the "fiscal cliff" that looms at year's end.

And, in Vulcan's case, any capital-gains rate increase could cost tens of millions.

The company is selling the 1.8 million-square-foot South Lake Union complex to tenant Amazon for a whopping $1.16 billion.

It's the biggest real-estate transaction in a year of big deals for Seattle.

Just how big a role is the capital-gains question playing in the surge in investment sales?

"It's a factor," said Greg Johnson, president of Seattle developer Wright Runstad, "but I wouldn't say it's a driver."

Wright Runstad, Beacon Capital Partners and Shorenstein Partners sold 55-story 1201 Third Avenue this past week for $549 million, the biggest sale in King County so far this year, at least until the Vulcan/Amazon deal closes.

Lender Sentenced

Todd Hoss, a Seattle hard-money lender convicted of mail fraud, was sentenced Oct. 26 to eight years in prison and three years of supervised release, and was ordered to pay $4.2 million in restitution.

The 47-year-old was found guilty on five counts of mail fraud in April after a 10-day trial.

Through his business, Hoss Mortgage Investors, he diverted more than $2 million for his personal expenses, according to the U.S. Attorneys Office in Seattle. With investors' money, Hoss offered short-term loans to commercial property developers who couldn't get bank loans. Hoss falsely told investors their money was secured by liens on properties, when in fact that money was being used to pay off other investors in a ponzilike scheme, prosecutors said.

In some cases, Hoss sold investors loans that didn't even exist, and didn't pay investors back when a loan was paid off or canceled. Many of the investors were elderly who trusted Hoss because they had invested with his father, officials said.

"Your fraud is a crushing blow to these elderly victims," said U.S. District Judge Ricardo Martinez at sentencing. "They didn't sign up to be sacrificed on the altar of your greed. You treated them like sheep waiting to be shorn so you could wear wool."

Creditors Fighting

While a court-appointed receiver works to fix and fill one of the Seattle area's emptiest, most neglected collections of office buildings, the portfolio's longterm future is playing out in court.

In Delaware.

That's where a German bank that holds one slice of the defaulted mortgage on the 11 buildings sued the owner of another chunk of the nonperforming debt last month.

The German bank contends its adversary, Chicago-based Walton Street Capital, is trying to restructure the loan to create a windfall for itself at the expense of the other debt-holders.

It's a complicated case. One's thing for certain: There's not enough money to make everyone whole.

A Goldman Sachs affiliate, Whitehall Street Global Real Estate, borrowed a total of about $900 million to buy the portfolio back in the heady days of 2007, before the crash. An appraiser valued the buildings at $617 million after Whitehall defaulted this spring when the interest-only loan matured.

Some of the debt already has been sold for well under face value.

The buildings include downtown Seattle's 34-story 1111 Third Avenue, downtown Bellevue's 25-story Symetra Financial Center and 21-story One Bellevue Center, and the woodsy Bellefield Office Park in South Bellevue.

The portfolio totals about 2.6 million square feet, and is about 40 percent vacant.

Bill Pollard of Seattle's Talon Portfolio Services, the receiver who has managed the buildings for the past four months, says what's happening in Delaware hasn't affected his company's efforts to breathe new life into them.

"We have a mandate to do our best to stabilize the properties and lease them up to protect the collateral," Pollard said. "We don't report to the lenders. We report to the court."

Talon, appointed by a King County Superior Court commissioner at the request of the servicer representing Whitehall's lenders, is doing things Whitehall didn't, he said ? paying brokers leasing commissions, funding tenant improvements and taking care of long-deferred maintenance.

It's doing all this with a reserve fund it inherited from Whitehall, Pollard said.

Servicer reports indicate that fund may contain as much as $73 million; Pollard would only say it's in the "tens of millions."

Data from Office-space.com shows about 60,000 square feet has been leased since Talon assumed control in early July.



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Source: (c) 2012 The Seattle Times


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