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Sunday, June 10, 2012 - Page updated at 07:30 p.m.
Redmond exporter is collateral damage in Iran sanctions; latest seller makes bundle on Mastro building
The ever-stricter U.S. sanctions on Iran are intended to prevent the production of nuclear weapons, not diapers.
That distinction hasn't been much help to Fred Harrington, though.
The Redmond entrepreneur has a license — from the same U.S. Treasury office that enforces the sanctions — to sell to Iran the kind of wood pulp used to make the absorbent core of diapers and sanitary napkins. It was a good business, accounting for most of the $27 million in gross revenues last year at Harrington's American Pulp and Paper.
But he and others who export permitted humanitarian goods such as food and medicine to Iran became collateral damage when President Obama issued an executive order Feb. 6 barring businesses here and abroad from dealing with virtually all Iranian financial institutions.
Suddenly, the $3.7 million owed to Harrington for earlier shipments to his Iranian customers was caught in a monetary no man's land. The usual two-stage pipeline through which he'd been paid was severed as banks in Iran and Switzerland stopped delivering on his buyers' letters of credit.
"Our customers are all honorable people, really they are. It is the banks that have messed up the whole thing, along with the sanctions," Harrington says.
Any further business also was disrupted unless customers could somehow pay him up front: "In simple words — no grapes, no wine," he says.
Despite the vise being tightened around official Iran to force compliance with international mandates on nuclear materials, it is not U.S. policy to deter humanitarian shipments of agricultural products, hospital supplies and a few other basics.
But that's been the practical effect, say trade experts.
Treasury officials "say they continue to be in favor of humanitarian exports," says Cari Stinebower, a former Treasury official who is now an international trade attorney at Crowell & Moring in Washington, D.C. But they "haven't been very helpful in terms of reaching out to counterparties and saying, 'Go ahead and process transactions.' "
"Their priority is tightening the noose on the bad actors."
Though dealing with a small handful of Iranian financial institutions is still allowed, banks in Europe and elsewhere "are afraid that somehow or another they'll cross the line and be subject to massive penalties" in the U.S., Stinebower says. "Some people are managing to get paid and some avenues exist — but fewer and fewer."
Humanitarian trade with Iran amounted to $300 million in 2010, according to the latest available data, says Richard Sawaya, director of the National Foreign Trade Council's USA*Engage program, which advocates against unilateral U.S. sanctions against other nations.
Big companies such as ag-products merchant Cargill and pharmaceutical-maker Abbott also sell to Iranian customers under federal authorization.
"We take great care to ensure that these sales respect both the spirit and the letter of the law while trying to make sure that ordinary people are not deprived of basic foodstuffs," says a Cargill spokesman.
But these global players have their own ways of arranging payment, Sawaya says.
Small exporters like Harrington are less fortunate.
Born in Iran as Farhad Fouroohi, Harrington left in the early 1970s and became a U.S. citizen in 1986. He took an American name, he says, because he knew he would live and die here.
And despite his business ties, he hasn't been back to Iran since summer 1978, before the Islamic revolution: "Me and the ayatollahs — under one sky, we won't fit."
Harrington was held hostage for four months after he arrived in Kuwait on a business trip the night before Saddam Hussein's forces invaded the tiny Gulf state in 1990.
He doesn't like to complain about the U.S. "I love this country more than my life," he says.
But Harrington is deeply disappointed that officials seem indifferent to his problem.
He wrote a letter to Obama in February, copying it to members of the state's D.C. delegation and Gov. Chris Gregoire. "Nobody responded or asked what they could do," he says.
The letter politely and cogently itemized the negative impact on his company, his suppliers and employees because American Pulp can't get paid for the product which it has already shipped.
Not all policymakers are ignoring the predicament of exporters such as Harrington. Sen. Tim Johnson of South Dakota, chairman of the banking committee, said on the Senate floor a couple weeks ago that the Obama administration "should do more to make it clear that no U.S. sanctions will be imposed against third-country banks that facilitate (Treasury) licensed or exempted humanitarian trade."
Says Sawaya: "We've been working without success to get such a statement out of the U.S. Treasury."
Harrington has managed to dig himself partway out of the hole he was thrown into in February. By finding Turkish or Middle Eastern banks through which some of his former Iranian customers could pay him, he's whittled the unpaid amount down to about $1.8 million. And he's found new customers in Africa and elsewhere.
Still, business is down and he's laid off two employees, leaving six.
Harrington hopes to see Iran, which he terms "a rogue country," acquiesce to international nuclear inspections so sanctions could be lifted and he can go back to business as usual.
Short of that, he'd at least like the U.S. government to spell out more clearly to banks that his particular trade with Iran can be accommodated.
"We are not asking for anything that is not ours," he says. "Everything we are doing is legal."
Latest seller makes
a bundle on Mastro
A 4-year-old, four-story office building in the shadow of the Aurora Bridge in Fremont changed hands earlier this month for the third time in its short history.
It's called Lake View at Fremont. Its ownership changes tell the story of the Seattle office market's fall — and rise — in microcosm.
The 100,000-square-foot building was built by a longtime Seattle developer who since has become a household name: Michael R. Mastro. He financed its construction with a $30 million loan he obtained in 2007 from Bank of America.
Mastro, of course, was pushed into bankruptcy in mid-2009 after his far-flung real-estate empire's spectacular collapse.
A few months later, BofA moved to foreclose on Lake View, saying Mastro had stopped making payments and still owed $29 million in principal, plus interest.
The bank repossessed the building in March 2010, then sold it eight months later to Stockbridge Capital Group of San Francisco for $19 million.
You do the math.
Tom Abbott, a senior vice president with brokerage CBRE, was part of the team that marketed Lake View for BofA. The building was only about 40 percent leased then, he says, and by the time the sale to Stockbridge closed the occupancy was down to 30 percent.
"We had a lot of interest in the building," Abbott says, "but there were a lot of people who thought it was worth a lot less than Stockbridge did."
Lake View wasn't Seattle's only troubled office building in 2010. The shaky economy, coupled with Washington Mutual's collapse, pushed the vacancy rate to a record high that year.
But the market slowly improved, driven by the growth of Amazon.com and other tech companies. The vacancy rate fell.
Last year Stockbridge filled Lake View; it's now 100 percent leased. And this month it sold the building to Kilroy Realty of Los Angeles, one of the busiest buyers of Seattle office space, for $39 million. That's double what Stockbridge paid just 19 months ago.
Stockbridge's actual profit probably is something less, Abbott says. It had to pay brokers' commissions and foot the bill for tenant improvements.
Still, he says, the seller realized a healthy return. Lake View's sale is an indication of just how highly out-of-town investors regard the Seattle office market, he adds:
"The investment market is very different now ... It's very exciting when an international or national investor comes to town and we can show them the 12 or 13 company headquarters we have in Seattle."
So Lake View's story isn't just about real estate, Abbott says. It's also about Seattle's resurgent economy.
— Eric Pryne, email@example.com
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