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Imminent $239 Million Office Property Default Expected, This Time in Seattle

A $239 million loan by Martin Selig Real Estate, a major player in Seattle's property market, has been sent to a special servicer. The loan, tied to seven office buildings, faces challenges as occupancy rates of the buildings backing the loan dropped from 92% in 2017 to 69% in 2023. Martin Selig’s struggle highlights the tough market conditions, posing a significant challenge even for prominent developers.



A $239 million loan by Martin Selig Real Estate, an established real estate investor in Seattle, has been sent to a special servicer under the terms of a loan agreement tied to seven of its office buildings.


Loan modifications (e.g., refinancing) will be challenging due to diminished asset valuations caused by a general economic climate marked by high interest rates and declining property values, particularly office properties in major U.S. cities.


The seven properties backing the loan have experienced occupancy drops from 92% in 2017 to 69% in 2023. Average vacancy in the buildings rose from 4% in 2019 to 27% in 2023, with monthly net operating income falling from $2.1 million to $1.6 million over the same period.


For context, Seattle's overall vacancy in its downtown at the end of 2023 was 26%. It was recently ranked 40th out of 44 major U.S. cities in "post-pandemic performance of their central business districts."


 

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According to an article from Puget Sound Business Journal, one of the seven buildings, located at 635 Elliott in downtown Seattle, saw net operating income dip to $525,209 in 2023 from $6.2 million in 2014. The steep deterioration was due to a partial exit by Amazon from the building.



It should be noted that the interest-only loan payments of $950,000 per month have all been made in accordance with the loan terms. The move to a special servicer suggests the issue may lie in repaying the upcoming principal payment or in refinancing, given the valuation challenges of the underlying buildings.


Martin Selig has managed prior market fluctuations in Seattle and is one of the largest independent developers in the Pacific Northwest region with a portfolio of 31 buildings and 4.9 million sf (i.e., 455k sm). One of the buildings it previously developed was the Columbia Center, Seattle's tallest building. For a period in the 1980s, Selig owned one-third of the office space in Seattle; today, best estimates are that the firm owns 10%.

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