Goldman affiliate loses control of 11 Seattle and Eastside buildings
Receiver appointed to oversee 2.6 million-square-foot real-estate portfolio at the request of lenders who are owed about $900 million.
Seattle Times business reporter
A Goldman Sachs affiliate lost control of 11 Seattle-area office buildings and complexes Monday, three months after it defaulted on the giant loan it took out in 2007 to buy them.
King County Superior Court Commissioner Nancy Bradburn-Johnson appointed a receiver to oversee the 2.6 million-square-foot portfolio at the request of lenders, who said the troubled collection was at risk of becoming a rudderless ship.
The turnover is a sign that, despite recent improvements in the local office market, the fallout from the commercial real-estate crisis of 2008 and 2009 isn't over yet.
Whitehall Street Global Real Estate, a Goldman Sachs real-estate arm, borrowed about $900 million to buy the 11 buildings five years ago, before the recession hit.
Since then the portfolio's occupancy has dropped from 96 percent to about 60 percent, according to commercial real-estate database Officespace.com.
A recent appraisal valued the buildings at about two-thirds what Whitehall owes.
Whitehall didn't repay the interest-only loan when it matured in April and all the principal came due. It did not object Monday to its lenders' bid to hand over control to a receiver, Talon Portfolio Services, which will manage the buildings under court supervision.
The properties 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.
CT Investment Management of New York, the servicer representing Whitehall's lenders, said a receiver is needed because occupancy in the buildings continues to decline with little or no response from Whitehall.
Appointing a receiver would "avoid having these major office buildings fall farther and farther down the precipice," said Kevin Bay, CT's lawyer.
What's more, he said, an interim management agreement is to expire next Monday, and without a receiver in charge the properties would become "a rudderless ship."
Three German banks who together hold $143 million of Whitehall's debt agreed a receiver is needed but objected to the appointment of Talon.
They said one of its principals, Bill Pollard, has a longstanding relationship with Walton Street Capital of Chicago, which holds $347 million of more-junior debt and is expected to end up owning the portfolio.
Talon is likely to pursue a strategy that would mean more money for Walton and less for them, the banks charged.
Pollard, a former top office broker, has worked as a consultant to Walton Street on the Whitehall portfolio, and real-estate sources say he's in line to manage it if Walton assumes ownership.
Scott Osborne, one of the German banks' lawyers, said he understands Talon would end up owning a piece of the portfolio with Walton.
But lawyers for CT, Walton and Talon said Pollard's knowledge of the buildings gives Talon an advantage over any other potential receiver in turning them around.
"Walton does not control Talon," said Charles Shigley, Talon's lawyer.
While Bradburn-Johnson ultimately did appoint Talon, she required it to obtain court approval before modifying loan documents or selling any buildings.
It's too soon to say whether the German banks will appeal, said Denise Ashbaugh, another of their lawyers.
As for the portfolio's long-term future, Whitehall's lenders haven't moved to foreclose yet.
But that remains a "possible future remedy," CT has said.
Eric Pryne: 206-464-2231 or email@example.com