Smith Tower put in hands of court-appointed receiver
The historic but mostly empty Smith Tower was placed under the control of a receiver, underscoring the landmark building's financial troubles.
Seattle Times business reporter
A court-appointed receiver took control of Seattle's mostly empty Smith Tower this week as the new holder of the mortgage on the troubled landmark moved to foreclose.
King County Superior Court Judge John Erlick signed an order Tuesday putting Goodman Real Estate of Seattle in charge of the historic tower.
The move was requested by an affiliate of CBRE Capital Markets of New York, which says in court papers that building owner Walton Street Capital of Chicago has defaulted on its $42.5 million loan.
Court documents provide new details of the Smith Tower's dismal financial state.
According to CBRE:
• The 42-story tower is 70 percent vacant.
• Monthly rents total just $250,000.
• The rents aren't adequate to pay the 257,000-square-foot building's monthly operating expenses, and CBRE has been advancing Walton Street money to make up the difference.
"It's unfortunate, because it's a great building — it's iconic," said Kip Spencer, co-founder of commercial real-estate database Officespace.com.
"It's obviously severely underperforming."
The Smith Tower, which opened in 1914, was Seattle's first skyscraper and remains among the city's best-known buildings.
CBRE purchased the mortgage in September. The following month, according to court filings, it sent Walton Street a "notice of default" — the first step in the foreclosure process.
Court papers say the loan Walton Street took out when it bought the building in 2006 matured this April, and the firm now owes a total of $43.3 million in principal, unpaid interest dating to July 2010, late fees and other charges.
Walton Street's local operating partner did not return a call. The company didn't participate in court proceedings leading to appointment of the receiver, documents indicate.
Deborah Crabbe, CBRE's Seattle attorney, declined to comment.
Walton Street Capital paid Seattle-based Samis Foundation $44 million for the tower and an adjacent two-story building, borrowing most of that.
In 2007, less than a year after it bought the tower, Walton Street sought — and ultimately received — the city's approval to convert the entire building to condos, a move prompted in part by the impending departure of the tower's two largest office tenants.
Michael Allmon, Walton Street's local operating partner, told the city's Pioneer Square Preservation Board in March 2007 that residential use probably made more sense because most office tenants wanted buildings with more space per floor and other features the Smith Tower just couldn't offer, despite extensive upgrades in the late 1990s.
When the downtown condo market began to cool later in 2007, Walton Street scaled back its condo-conversion plans to just the top 12 stories. But it didn't pursue that either.
"Walton Street basically stopped marketing the building" to office tenants for several years, said William Justen, former managing director of real estate for Samis, the Smith Tower's former owner.
Despite a declining office market, the new owner wouldn't lower its asking rents, Justen said. "I know tenants that left that wanted to stay because Walton Street wouldn't give them more than month-to-month leases."
The tower was 100 percent leased when Samis sold it, Justen said, "and there's no reason it can't be leased up again. All that needs to be done is to start marketing it."
Goodman Real Estate, the recently appointed receiver, is one of the Seattle area's biggest real-estate developers and investors. The firm did not return a call seeking information on what's next for the Smith Tower.
But one of Goodman's directors said in a court filing that it was hired by CBRE before that firm purchased the Smith Tower mortgage to examine the building's condition, leases, marketing issues and potential tenant improvements.
The tower hasn't been on most brokers' radar for some time, Spencer said: "Maybe a new perspective would be good for that building."
Eric Pryne: 206-464-2231 or firstname.lastname@example.org
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