1918 Eighth Avenue. Credit: Kelly O

The College Club of Seattle, a social club founded a century

ago, sold its sand-colored building on Fifth Avenue and Madison
Street in the winter of 2008 to Schnitzer West, an ambitious local
developer, for $10 million. Schnitzer laid out plans for a sleek
37-story office tower on the site. Added to a bundle of other office
towers and lofty condos the company was building, Schnitzer was poised
to hit a grand slam.

But the company now appears to be striking out. Schnitzer’s
construction crews are finishing hundreds of new condos and scads of
office space just as the real-estate market is bottoming out.

“They either had the foresight to be the only game in town, or they
had no foresight at all and they didn’t know the economy was going to
crash the way it did,” says James Stroupe, a downtown residential
real-estate agent. Indeed, many developers, foreseeing the economic
crunch, postponed large projects, such as the 38-story AVA condos on
Eighth Avenue and Pine Street (proposed by the Fana Group and the
Executive Development Group) and the block-long Pine and Belmont
building (proposed by Murray Franklyn). According to developers and
market analysts contacted by The Stranger, Schnitzer has more
real estate in development than any other company in the area.

“They are one of the largest developers on the market today—if
not the largest—in terms of the number of units,” says Matthew
Gardner, principal of real-estate analysis firm Gardner Johnson. As the
new inventory sits unsold and unleased, he says, Schnitzer must pay
property taxes, interest on construction loans, and other costs. “The
longer a project takes to sell, the more that leaches from profit
margins,” he says.

And Schnitzer’s condos are barely selling. At Gallery in Belltown,
which began presale in October 2006, deposits have been put down on
fewer than half of the 233 condos, and King County tax records online
show that buyers have closed on only 22 of those condos—less than
10 percent. Brix Condos on Capitol Hill, which has 141 units, also
started preselling in fall 2006; so far, according to a sales
representative, fewer than half have sold. And at the Equinox on
Eastlake Avenue, a sales representative says people have signed
contracts for fewer than 30 percent of the 204 condos in the building,
which is still under construction. Meanwhile, Schnitzer’s Bravern,
which is under the crane in Bellevue, has contracts on fewer than
one-third of its 450 condos.

But at least those condos have some tenants. In February, Schnitzer
managing investor Dan Ivanoff told the Daily Journal of Commerce that the company has zero tenants for a 660,000-square-foot,
36-story office tower under construction at Eighth Avenue and Virginia
Street. And a 14-story office tower that Schnitzer opened last year,
also at the northern edge of downtown, is still 35 percent
unrented.

Martin Selig, a veteran office developer who built the Columbia
Center, says Schnitzer may have erred by building office towers on the
“outskirts” of the central business district. “If somebody wants
downtown, they want downtown,” says Selig. “You can’t misplace it.”

But the College Club site is in the center of
downtown—and it isn’t viable either. Schnitzer put the property,
along with its pending permit to build the 37-story office tower, up
for sale in February.

But Selig says that when the market picks up in a few years, demand
for Schnitzer’s projects could surge. “This is not the first time we
have been through the cycle,” says Selig. “We have been through five or
six of them, and we always end up okay.”

On the other hand, this recession is far worse than the recent
dot-com dip: Financial markets have fallen lower, and because this
recession was caused in large part by flawed real-estate
investments, developers and buyers will find it harder to secure
financing in the future. If the investment market snaps back in the
next year, Schnitzer could come out swinging. But if the recession
lasts several years, it’s unclear how long the company can survive.

Stroupe says that people in the local real-estate industry “feel
that there is going to be a shake-up high up in the company.”

Schnitzer West’s Dan Ivanoff declined repeated requests for comment.
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17 replies on “Schnitzer Hits the Fan”

  1. I don’t quite get it… what is the significance of this one company in the general picture? Or is the whole point just to pass along the rumor that there are shakeups coming at the top?

  3. Dude, seriously. In the Netherlands, it’s against the law to have empty housing when people are in need of it and squatters can’t get kicked out unless the gov’t offers them affordable housing. Let’s occupy some buildings and force local laws to follow suit!

  5. insightful piece but regardless of the bad press, the impact of their large “risk” should be taken with some perspective considering the amount of total assets the company has. their “hit” was merely a brush in the wind that the writer overlooked.

  7. For the record, Gallery had about 50 condo sales last I looked at the KC property records. Including mine.

    PS, we’re not being charged dues until it fills up more. Part of me wants the building to fill up and part of me sort of likes it this way!

  8. THE INFOMATION REGARDING SCHNITZER “HIT THE FAN” IS ABOUT AS ACCURATE AS THE GOVENOR’S PROJECTED BUDGET FORECAST WHILE CAMPAIGNING. IT’S NOT ACCURATE. THE PERCENTAGE OF LEASED CONDOS IS NOT ACCURATE AND THE ONLY THING THAT MIGHT GET SHAKEN UP IS ANOTHER COMPANY MOVING THEIR HEADQUARTERS OUT OF WASHINGTON LIKE BOEING AND OTHERS. THE VACANCY RATES ARE A DIRECT RESULT OF BOTH STATE AND NATIONAL FINANCIAL CRISIS…AND THE CITY OF SEATTLE. WITH THE HIGH COST OF FUEL, LACK OF TRANSPORTATION, SCHITZER SELECTED LOCATIONS BASED ON RESERCH AND LISTENING TO THE NEEDS OF BOTH COMPANIES AND HOME OWNERS. SCHIZER IS COMPLETING CURRENT PROJECTS AND HAS NEW PROJECTS ON THE TABLE. THEY’RE NOT LEAVING HOLES IN THE GROUND LIKE OTHER DEVELOPERS DID DURING THE DOT.COM BUST. SELIG MIGHT WANT TO TAKE A DRIVE AND SEE WHAT’S GOING ON AS DOWNTOWN IS MOVING FOOT-BY-FOOT TOWARDS LAKE UNION. EAST OF LAKE WASHINGTON IS HOME TO LARGEST EMPLOYERS IN THE STATE AND SCHITZER IS HITTNIG THE TARGET WITH MICROSOFT TAKING THE ENTIRE BRAVERN. WITH INTEREST RATES AT ALL TIME LOWS, AND THE PRESIDENT/FEDERAL RESERVE TELLING AMERICA TO BUY HOMES/CONDOS, THE VACANCY RATE WILL DISAPEAR FASTER THAN MOST THINK. HOW LONG DOES IT TAKE TO BUILD ANYTHING IN THE SEATTLE AREA? SHOULD DEVELOPERS JUST SIT AROUND AND WAIT FOR THE COST OF MATERIAL/LABOR/PERMIT FEES, AND EXPENSIVE FUNDING TO RISE…RESULTING IN HIGHER COSTS AND PRICES? OR WAIT FOR A BRIDGE TO NO WHERE?

  9. wow….. Thank you Schnitzer spokesperson! Now we know what your heartfelt dreams are. Good luck with building your ideal reality. Don the Crane? nice disguise.

  11. Build a New World, you have a good point. we need affordable housing in the city, someone benevolently built it for us. We should look at getting homeless into these vacant homes.

  14. This is interesting as I just heard that Schnitzer had replaced the Sales & Marketing Companies at each its projects because it could no longer afford to pay them.

    A friend of mine who is an Agent has a pending transaction at one of the sites, she said they had hired new agents that had just received there license and had no experience.

  16. I was able to save 150k off the purchase of my westside view condow because I researched the zoning (as should anyone who buys a condo in the city) and I found that a tall building could be built on the adjacent lot. So I don’t fee like I got ripped off because I was able to talk my price down on my purchase!

    Next time spend some time researching about the area you are wanting to move into instead of waiting and complaining after the fact! When I read this article, it is politically motivated and really is just an attempt to try and complain about the buildings that have gone up in the Deny Triangle. Be thankful they don’t build a jail on your north side!

    Cheers!

  17. Re karmadoesexist’s posts on Cosmo condo views – Much of Cosmo did not lose views because it never had them. At the time of the Cosmo presale plans were already well underway for an office tower directly across the alley, which was zoned to allow a 300-ft tall building, no tower spacing at that time. The full scoop is in my comments to the SeattleCondoReview blog entry that you linked to, and the details are still on the DPD website. It also had been posted on the property at the time, too – I walk by there several times a week – which is why I was puzzled by all the fuss later.

    If you think you’re buying a view, better check the zoning and DPD website first. Knocking the developer may be satisfying, but this is a case where complaining buyers could have saved themselves a lot of grief if they had done some basic due diligence first.

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