Wednesday, September 15, 2010

Seattle's Columbia Center - Debt Modification

The Columbia Center Tower is the tallest building in Seattle. It is called a trophy property. It's location is what is clearly trophy worthy. It sits up the hill from the Seattle waterfront and its height creates office views that are spectacular on a clear day. Today in the Seattle Times Newspaper, an article on the financial condition of the Columbia Center debt references an observer of the commercial mortgage-backed securities market saying this debt is the nation's largest delinquent commercial mortgage-backed securities loan. It also describes how this one potential CMBS foreclosure that is so widely anticipated may become much less formidable, until the extensions and modifications come due for the borrower. There is still a widely held view in the real estate industry that real estate prices will recover and will return to annual growth trends. The Columbia Center modification is betting on a recovery of 45% in the value of the building by 2017, just to cover the reported debt of $480 million. The commercial real estate recovery better be underway if the modification is going to work out.

The local director of leasing for Cushman Wakefield has this to say in their 2Q10 market assessment of the downtown Seattle office building market. "Although momentum is picking up, it will be some time before downtown Seattle reaches a turning point from and tenant’s to a landlord’s market. The overall vacancy is well above the previous record of 16.5% set in 2003, and the market must absorb more than 5.8 msf before it reaches a level of equilibrium. With modest gains in office-using employment forecasted over the next two years, vacancy rates will stay elevated and asking rents will remain flat for the foreseeable future." Chances are this is an optimistic statement.