Construction of the luxury 1 Hotel & Residences is on hold until at least late summer while the $200 million downtown Seattle project undergoes a redesign to become more appealing to lenders...
Construction of the luxury 1 Hotel & Residences is on hold until at least late summer while the $200 million downtown Seattle project undergoes a redesign to become more appealing to lenders, its developer says.
The project — first in Seattle to offer “condo-hotel” units — has been stung by slow sales and the national credit crisis, Paul Brenneke said Thursday. “It’s obviously a difficult credit environment out there,” he said, “and we’re trying to position this project in the best possible light.”
Work on the 23-story building stopped six months ago, leaving a deep, empty hole on Second Avenue between Pine and Stewart streets and sparking a host of rumors about the project’s status.
The proposed redesign will eliminate 132 of the project’s 176 individually owned condo-hotel suites, Brenneke said. They will be replaced with 192 smaller, conventional hotel rooms.
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Only 20 or 21 of the condo-hotel units have sold, he said.
The makeover won’t affect the 51 traditional, residential condominiums on the building’s top floors. Buyers have made commitments on 20 of them, Brenneke said.
The new strategy seems sound, said Seattle land-use economist Matthew Gardner. “The term ‘pioneering’ is not something that lenders want to be hearing right now,” he said.
The redesign would spread risk across three “product types” — conventional hotel rooms, condo-hotel suites and residential condos — “and that certainly bodes well for them,” Gardner said.
While the condo-hotel concept is well-established in places like Florida and Las Vegas, the 1 was the first to market it in Seattle. Individual buyers purchase hotel units, then let hotel management rent them to overnight guests when the owners aren’t using the rooms themselves.
“We had more reservations than units at one point,” Brenneke said. But that changed late last year, he added, as credit tightened, prices for the suites increased to reflect rising construction costs and prospective buyers were asked to make nonrefundable deposits.
The 1’s problems aren’t unique. The credit crunch has hit condo-hotel projects hard nationwide.
“Many of the projects we’ve watched have just come to a standstill,” said Bob Waun, president of a second-home lending firm in Detroit and a board member of the National Association of Condo Hotel Owners.
A year ago, lenders were asking condo-hotel developers to presell 30 percent of their units to qualify for construction financing, he said.
Now they have upped that requirement to 50 or 60 percent — difficult to achieve because prospective buyers also are having more trouble getting financing.
Hawaii builder and Seattle native Dan McEvoy said he backed out of his reservation at the 1, even though “I still think they have a good product.”
When the time came to commit cash in November, McEvoy said, he learned lenders would require a much larger down payment than he had anticipated.
The 1’s developer, AvStar Seattle, is a partnership of Brenneke’s Portland-based Avalon Holdings and Starwood Capital Group of Greenwich, Conn., which will operate the hotel.
The project’s retail space is 100 percent filled, Brenneke said. Tenants include a restaurant, grocery, 40,000-square-foot fitness center and day spa.
The 1 probably could have obtained construction financing with its original design, he said, but not under favorable terms: “It doesn’t do you any good to buck the national trend and try to convince lenders you’re unique.”
After the redesign, he said, less than 40 percent of the project will be residential.
Both Brenneke and Gardner noted that no major condo project has broken ground in downtown Seattle since the credit crisis erupted last summer. “We’re witnessing natural selection in real estate — only the best projects will get built,” Brenneke said.
There’s widespread evidence that the overall downtown Seattle new-condo market has cooled.
Earlier this month, in a bid to jump-start sluggish sales, the developer of the Olive 8 project offered new buyers an unprecedented price guarantee.
And Murray Franklyn, which was to develop the condos in the mixed-use, office/residential Seventh at Westlake Building, pulled out of that project last year. Clise Properties, the remaining partner, says the project is on hold unless a big office tenant signs.
Brenneke said the 1’s construction hinges on city approval of the redesign. That includes permission to build a skybridge across an alley to connect the building with the Macy’s parking garage, which AvStar also owns and is redeveloping.
A new “flagship” retail tenant for the garage’s ground floor at Third Avenue and Pine Street has been signed and will be announced soon, he said.
AvStar has paid cash for all work so far on the 1 project and owns the site debt-free, Brenneke said. Condo-hotel suites in the project start at $500,000, residential condos at $1 million.
Eric Pryne: 206-464-2231 or email@example.com