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News & ArtsMonday, November 23, 2009
Boom The Smart Solution for Vacancies
Posted by Dominic Holden on Mon, Nov 23, 2009 at 9:38 AM
Lynn Porter at the DJC reports that Opus's shiny new office building is still empty:
Opus Northwest is offering to sell its 205,000-square-foot 7th & Madison office building on First Hill. The nine-story complex, which was completed in April and has no tenants, is being offered at below replacement cost. ...This is a dismal market for sales and leasing. A number of speculative office buildings in downtown Seattle are vacant or almost vacant, and the downtown office vacancy rate is 18.5 percent.
This is exactly what Opus and other companies like it should do: liquidate their stock. Take a slight loss if they must, but don't sit on the property. Move on to the next project. Keep their developers employed, their architects drafting, their construction workers on job sites, and the economy plugging along. The alternative is death to the city. For instance, look at Murray Franklyn, which bought the property at Belmont Avenue and East Pine Street. It was the most vibrant block in Capitol Hill—a strip of bars and little stores—but the block-long parcel has been a gravel lot since April 2008. Murray Franklyn said in 2008 that it would develop that block in spring of this year, but this spring they said there were "really no plans." The project has had three managers, but the most recent project manager, Ron Boscola, won't return phone calls to answer questions about what will happen to that lot (I've called more than 12 times).
It appears that, because Murray Franklyn is so invested in its 14 exurban tract-housing projects (the company's Twitter background is actually a picture of clear cuts and housing developments), it can't afford to develop in the Pike/Pine neighborhood. They could afford to cut down forests to build shitty housing, but when they cut down a neighborhood in the city, they apparently couldn't afford to put up anything. Murray Franklyn should take the cue from Opus: unload its other stock and develop the block it destroyed.
1
The city should impose nuissance fines on undevelopped parcels, and they tax the bejeezus out of parking lots.
2
I agree.
Woo, did you get a cold chill running up and down your spine, Dominic? I sure did.
But yeah, I agree.
Woo, did you get a cold chill running up and down your spine, Dominic? I sure did.
But yeah, I agree.
3
Jesus fucking christ, would you people shut the fuck up about your bar and burrito place already? Yes, the vacant lot is unfortunate. But your contention that that block was "the most vibrant block on Capitol Hill"? Horseshit. It's just the block where your hangouts were. And your incessant mewling about its loss makes your, "NIMBYs in other places need to suck it up and realize that density is good and public transit is good and their lifestyle is bad and they should allow taller buildings and blah blah blah," sound like the rank hypocrisy it is.
Those buildings you were so enamored of? Inefficient single-story shitboxes from the 30s and 40s. No loss, and it would cost about $50 bucks to build new ones if the city code still allowed that kind of construction -- which it mostly doesn't. Something new will go in there when the economy recovers in 10 years or so.
Jesus. Get over it.
It was the most vibrant block in Capitol Hill—a strip of bars and little stores—but the block-long parcel has been a gravel lot since April 2008.
Jesus fucking christ, would you people shut the fuck up about your bar and burrito place already? Yes, the vacant lot is unfortunate. But your contention that that block was "the most vibrant block on Capitol Hill"? Horseshit. It's just the block where your hangouts were. And your incessant mewling about its loss makes your, "NIMBYs in other places need to suck it up and realize that density is good and public transit is good and their lifestyle is bad and they should allow taller buildings and blah blah blah," sound like the rank hypocrisy it is.
Those buildings you were so enamored of? Inefficient single-story shitboxes from the 30s and 40s. No loss, and it would cost about $50 bucks to build new ones if the city code still allowed that kind of construction -- which it mostly doesn't. Something new will go in there when the economy recovers in 10 years or so.
Jesus. Get over it.
4
Or, maybe Murray Franklin could sell the the block they destroyed, and let a developer with resources build on it.
@1 good idea.
@1 good idea.
5
Liquidation by the developer is not very likely in most cases. What will happen is they will default on their loans and the bank will be left trying to unload an empty building. This is the tip of the iceberg in commercial real estate. The basis for financing these projects (the are all up to their tits in leverage) is not the intrinsic value of the property like with residential property, but the revenue stream from tenants. If occupancy falls, the bank can demand the difference based on loss of cash flow. A building doesn't have to be close to empty, like a lot of these are, for the loans to default.
As a result, companies like Opus can't just "move on to the next project." If the market is glutted with below cost of replacement, empty, brand new properties now owned by banks, there's not going to be any credit for new projects. This is going to get a lot worse in 2010.
As a result, companies like Opus can't just "move on to the next project." If the market is glutted with below cost of replacement, empty, brand new properties now owned by banks, there's not going to be any credit for new projects. This is going to get a lot worse in 2010.
6
The problem is that new development isn't needed. There is too much empty space now. Build more? So it can sit empty as well?
7
I think in the long term all this overbuilding will be good for the city, because there's going to be a plethora of empty living and commercial space going cheap. Developers didn't know they were going to be building cheap housing and commercial space, but in the end, they will have. Expensive to build, much cheaper to rent, that is.
8
There's going to be demand for more housing in the city, especially within walking distance of downtown. Building has been slow, so once the economy improves--and more people go for mortgages--there could even be a shortage. From an article I wrote last year:
The paradox in the doom-and-gloom forecast, however, is that demand is expected to resume at roughly the same moment supply disappears. "For year-to-date, we're effectively balanced for total condo sales as the past years," says Dean Jones, president of Realogics, one of Seattle's preeminent development consultants. But, he says, "We'll have a real dearth of condos by 2010."
10
@4: You got it right...My hope is they sell to a smart/good/neighborhood friendly developer who will design and construct a building/buildings that look good and serve the needs of the 'hood. Murray Franklyn is just a greedy piece of shit company that builds ugly-ass, inappropriate for the neighborhood buildings that add NOTHING to the development of community, which in the long run, raises the VALUE of the land and buildings in the neighborhood in addition to the quality of life.
I hope the fuckers go bankrupt.
I hope the fuckers go bankrupt.
11
I think Murray Franklin is a POS developer and would love for them to sell their fancy parking lot to someone else - but I'm with Judah on this. 500 Pine was NOT the most vibrant block on Cap Hill, not by a longshot. And the Stranger's 2 favorite places on the block are up and running in new locations so y'all can still get your incredibly bad burritos (bonus: now you don't ahve to walk as far from the office!).
12
ain't nobody building shit anytime soon. 2015 is the current prediction circulating among market analysts. this is going to get way worse - the hole at 2nd and pine is being FILLED IN.
13
Not sure unloading properties at a loss and financing new development really go well together.
As for vacancies, eh, it happens, and so long as developers keep up maintenance and security its not that big of a deal. Plus the resulting reduction in rents and costs makes it easier for new business to start or old ones to grow and expand. I am on the board of a non-profit and we were able to get some prime space for a short term thing at a fraction of what it would have cost a couple years ago.
This is how the economy works. We grow and in the process it becomes hard to break in and companies become inefficient. Then we have a downturn which forces greater efficiency and lowers barriers to entry for new players.
Just be patient.
As for vacancies, eh, it happens, and so long as developers keep up maintenance and security its not that big of a deal. Plus the resulting reduction in rents and costs makes it easier for new business to start or old ones to grow and expand. I am on the board of a non-profit and we were able to get some prime space for a short term thing at a fraction of what it would have cost a couple years ago.
This is how the economy works. We grow and in the process it becomes hard to break in and companies become inefficient. Then we have a downturn which forces greater efficiency and lowers barriers to entry for new players.
Just be patient.
14
Seeing as how most developers hereabouts have been dilligently working on turning Seattle into Bellevue over the past decade or so it is difficult to see how it would be 'death to the city' if they found themselves unemployed. As the Pike/Pine bullshit demonstrates what kills a city is a zeal for density (and sweetheart deals for developers) combined with practically zero incentives or other efforts made to preserve neighborhood integrity.
15
Even before the crash too many buildings or storefronts or vacant lots were allowed to sit empty in Seattle while owners waited for a chain or major company to pay excessive rents. I agree with #1, tax until the space is filled. If they can't find a Quizno's for the storefront under the condos, let a gallery or boutique or bookstore open a temporary space at low rent. Belltown or Pioneer Square or Broadway will never turn around with so many dead spots.
16
They should turn it into a gay sex park with a hedge maze, breath mint & condom vending machines, and Purell dispensers. Volunteer Park is, like, 8 whole blocks away and doesn't have anything in the way of amenities.
17
Another consideration is that the building we will get on that spot will have to be cheaply built to maximize the short term return. This means that we'll get another big ugly box instead of something nicely designed to be an important part of the neighborhood for decades to come.
The CRE vacancy issue is, like all real estate issues, local and in this case hyper-local. There is demand for small offices in walkable neighborhoods with parking. Small design studios, arts organizations, tech start ups, etc don't want to be in expensive inconvenient downtown highrises where their employees have a hard time getting to work. They're generally happier having a small office in a less bland building in a neighborhood where they can walk to coffee and lunch, but still find a parking spot. How many designers want to work in a cubicle on the 12th floor of a sealed box downtown?
The CRE vacancy issue is, like all real estate issues, local and in this case hyper-local. There is demand for small offices in walkable neighborhoods with parking. Small design studios, arts organizations, tech start ups, etc don't want to be in expensive inconvenient downtown highrises where their employees have a hard time getting to work. They're generally happier having a small office in a less bland building in a neighborhood where they can walk to coffee and lunch, but still find a parking spot. How many designers want to work in a cubicle on the 12th floor of a sealed box downtown?
18
@5 is right. There's no credit available for ANYTHING in commercial real estate or much of anything else. This part of the Bush/Obama recovery plan has largely failed; the banks got their bailouts but aren't lending. And the simple fact is that commercial real estate is worth half of what is needed to pay the loans. I think we're going to have another crash that will be just as loud as the residential one.
That 7th & Madison building might stand vacant for twenty years.
Murray Frankyn isn't going to build on that lot because there isn't a chance in hell of selling any units there. Those nasty houses out in the sticks will sell eventually. None of your beloved bars and burrito joints are ever going to return, because there's no way in hell they can afford the rents in new construction. I fully expect that lot to stand vacant for twenty years, too.
Your plan @1 resonates emotionally but wouldn't work in practice. The last thing you want is for the developers to flee the city and all these distressed properties reverting to the city. That's how you end up with a Detroit.
That 7th & Madison building might stand vacant for twenty years.
Murray Frankyn isn't going to build on that lot because there isn't a chance in hell of selling any units there. Those nasty houses out in the sticks will sell eventually. None of your beloved bars and burrito joints are ever going to return, because there's no way in hell they can afford the rents in new construction. I fully expect that lot to stand vacant for twenty years, too.
Your plan @1 resonates emotionally but wouldn't work in practice. The last thing you want is for the developers to flee the city and all these distressed properties reverting to the city. That's how you end up with a Detroit.
19
@18: I know it feels good for you to blame the banks, but the truth is banks ARE lending...to qualified applicants, using upgraded risk formulae. And the demand for credit is down, particularly commercial credit, even more particularly commercial real estate credit.
Please don't tell me you're one of those morons who think s that just because a bank got TARP funds, it should be lending to everyone with a filled-out credit app? I actually applaud the banks for lending judiciously because those are MY tax dollars and I don't want to see them being pissed down a hole on some loan for a shitty business plan.
Please don't tell me you're one of those morons who think s that just because a bank got TARP funds, it should be lending to everyone with a filled-out credit app? I actually applaud the banks for lending judiciously because those are MY tax dollars and I don't want to see them being pissed down a hole on some loan for a shitty business plan.
20
Dom- you have an activist background, what would it take to pass a law/ordinance/whatever to penalize "developers" like Opus, or whole in Greenlake, or the Sunset Bowl, or... or... It's a blight on the land, destroys neighborhoods, is an eyesore, depreciates the value of surrounding land, etc etc. There are a dozen different approaches, would any of them pass?
21
Why not "penalize" developers in a way that helps people in the city? For example, they could be required to turn vacant lots into community gardens while they wait to develop the lot. Or they could be persuaded to create community gardens with a credit against their property taxes by doing so....and perhapsa Seattle could be coaxed into allowing chickens and rabbits on the proeprty as well.
22
So was the injunction filed by Dennis Saxman about the Pike/Pine development ever resolved? I thought the original reason it became a parking lot was because of his filing the complaint about the city not following neighborhood input design guidelines.
And then, you know, credit sort of fell apart. The parking lot is lame and ugly, but I'm not entirely sure the fault lies with the developer.
And then, you know, credit sort of fell apart. The parking lot is lame and ugly, but I'm not entirely sure the fault lies with the developer.
23
@19, no, I'm one of those morons who's a little annoyed that the banks that got TARP funds immediately went out and spent a ton of it on multi-million-dollar bonuses and multi-million-dollar renovations to their offices and Carnegie Hill co-ops. And I'm one of those morons who wants to see money pumped into the economy for stimulus purposes. I was a strong supporter of TARP, in the face of some criticism here, but I think to some extent the banks have avoided their responsibilities and focused instead on increasing their profits via the stock market rather than constructive investment. You're right, too, but there IS a responsibility there.
I also would like to see a select handful of guys like the head of AIG Special Products and Kerry Killinger of WAMU lined up against a wall and shot. For instructive purposes.
@21, the problem is, we already have plenty of community gardens. What we need is shops that generate jobs, taxes, and other economic activity. But if you penalize these developers, who have already lost so much money they're contemplating suicide, you'll just drive them from the city permanently. It would be nice if we had regional authorities, to prevent the doughnut effect of exurban development, but we don't.
I've been doing some research into the commercial history of some areas of the city, and it's startling to see how debased our retail fabric has become. There used to be retail shops in every imaginable category, from shoe shines to furniture, in every neighborhood, sometimes every block, but they're all gone now. People buy everything on the internet or from big-box stores out in the burbs now. The only thing left for retail strips is stuff that requires your body, like nail and tanning salons, and restaurants. But even the diversity of eating and drinking places has almost completely withered away. If it wasn't for immigrants we would be a retail ghost town compared to 1960. There used to be DOZENS of cafes and taverns up and down every block. Now what? Cell phone stores and Mailboxes Etc.
More...
I also would like to see a select handful of guys like the head of AIG Special Products and Kerry Killinger of WAMU lined up against a wall and shot. For instructive purposes.
@21, the problem is, we already have plenty of community gardens. What we need is shops that generate jobs, taxes, and other economic activity. But if you penalize these developers, who have already lost so much money they're contemplating suicide, you'll just drive them from the city permanently. It would be nice if we had regional authorities, to prevent the doughnut effect of exurban development, but we don't.
I've been doing some research into the commercial history of some areas of the city, and it's startling to see how debased our retail fabric has become. There used to be retail shops in every imaginable category, from shoe shines to furniture, in every neighborhood, sometimes every block, but they're all gone now. People buy everything on the internet or from big-box stores out in the burbs now. The only thing left for retail strips is stuff that requires your body, like nail and tanning salons, and restaurants. But even the diversity of eating and drinking places has almost completely withered away. If it wasn't for immigrants we would be a retail ghost town compared to 1960. There used to be DOZENS of cafes and taverns up and down every block. Now what? Cell phone stores and Mailboxes Etc.
25
@24, you don't know the half of it. You should hear me talk. My superhero alter-ego is "Bull Fucking Shit Man".
26
A tag to identify articles of Capitol-Hill interest only (and a way to filter on tags) would be helpful. That way it would feel less like I'm reading a neighborhood blog.
27
@5 is right - the other related issue is that the ownership of Opus is so tangled, there are so many banks/PE firms/etc. in the mix, that just making any kinds of moves - reducing rent, partial sale, etc. - requires a myriad of huge, slow-moving bureaucracies to make decisions quickly. Opus could rent its space at the right price - they just can't get agreement to get to that price. The Giant Pool of Money means a Giant Pool of Problems when you need bond owners to make decisions.
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