by Ralph Nichols

Condo sales have resumed at Burien Town Square.

The sales, which began in October, are the first since ST Residential became owner of the seven-story condominium/retail complex with 124 residential units.

They are also the first since building developer Urban Partners was forced to suspend sales in 2009 when the Federal Deposit Insurance Corp. (FDIC) shut down the bank holding their construction loan.

“Since re-launching sales at Burien Town Square in October, we are pleased to report that there have been 11 contracts executed, of which five are with buyers who previously had pre-sale contracts in place,” Peter Marino, spokesman for ST Residential, told The B-Town Blog.

“We have closed three of the 11 contracts at this point,” Marino noted.

“Throughout the country, sales traffic typically slows down during the holiday season and in the early winter months,” he continued.

“We are encouraged by the response and interest in Burien Town Square. We look forward to a strong year of sales in 2012, but we don’t anticipate sales traffic to really pick up until late winter or early spring.”

These new sales are “good news” for the city, said Burien Economic Development Manager Dan Trimble. “I think it will help move completion of the Town Square project forward.”

The second and third phases of Town Square remain undeveloped. Urban Partners owns both parcels, located north of the condo/retail complex and the Library/City Hall building.

Urban Partners has until late January to submit plans for phase two development to the city.

“The other impact” of renewed condo sales “is that merchants on 152nd and 153rd streets and elsewhere downtown will have more customers,” Trimble added.

“That was one of the intentions” for the Town Square project. Merchants and restaurants “have been very patient and hopefully they will see that pay off.”

Only six condos in the complex, which includes 20,000 square feet of still-vacant ground-floor retail space, were sold before sales were halted in 2009.

The resumption of condo sales is ST Residential’s primary focus. The investment group has yet to announce leases of retail space.

In August, David Ploger, first vice president of ST Residential, told Burien City Council members that, even with lingering uncertainties in the housing market, they hoped to have a public launch of condo sales before year’s end.

Expressing confidence at that time in the marketability of the condos, Ploger described them as “very efficient. The floor plans are state of the art. I’ve looked around and I’m not aware of a better condominium complex in the South Seattle area.”

But to help move sales, he also said then that ST Residential would respond to market conditions by lowering condo prices well below the original 2009 prices.

Construction of the Town Square complex, then owned by Urban Partners, the city’s private developer for the project, was completed in June 2009.

But that September, condo sales were halted when the FDIC closed Corus Bank, which had financed construction of the building with a $38.5 million loan.

After the FDIC seized the bank’s assets, including Urban Partners’ loan, ST Residential became holder of its residential construction loan portfolio.

ST Residential is comprised of the FDIC, which holds a 60 percent share of that portfolio, and Starwood Capital Group and four other several private investors.

Urban Partners eventually transferred ownership of the condo/retail complex – avoiding a trustee’s sale of this property, which was in foreclosure – to ST Residential. The FDIC earlier had rejected an offer by Urban Partners to buy back its construction loan.

Urban Partners has since been waiting until after ST Residential resumed condo sales to propose a development plan for phase two of the Town Square project.

Read more of our extensive coverage of Burien Town Square here.

by Ralph Nichols

Despite recent notice of a pending foreclosure action against the condominium/retail complex in Burien Town Square, negotiations between Urban Partners and ST Residential have progressed to the point where a settlement appears imminent.

“We’ve completed our negotiations and the final agreement and various exhibits are being circulated and reviewed now,” Paul Keller, managing partner of Urban Partners, the private developer of Town Square, told the B-Town Blog on Aug. 17.

“I firmly believe that within a couple of weeks, the agreement will be signed,” Keller said. “When I stood before the city council in May, I told them we would see this to fruition. Today I stand by that statement.”

He declined to discuss specifics since the agreement is still under review. “I can only tell you what Urban Partners anticipates will happen.

“Very simply put,” Keller continued, “Urban Partners anticipates its continuing participation in this project through the sale of condominiums and the leasing of ground-floor retail space.”

Urban Partners built the Town Square complex with a $38.5 million construction loan from Corus Bank of Chicago. But the bank was closed and its assets seized by the Federal Deposit Insurance Corporation on Sept. 11, 2009 – three months after the six-story building opened.

The nation’s housing market had collapsed about a year before Corus Bank failed – as the complex was nearing completion and only eight months before it opened in June 2009, along with the new Burien Library/City Hall building and adjacent park.

“I firmly believe that within a couple of weeks, the agreement will be signed" - Paul Keller.

The FDIC kept a 60 percent interest in the Corus construction-loan portfolio and sold the remaining assets to Starwood Capital Group and four other private investors. Together all parties formed ST Residential, which is holding and renegotiating those commercial loans.

When Keller updated the city council on the progress of negotiations in May, he noted, “The FDIC entity does not lend itself to any quick resolution.” Yet in the meantime, “We have people waiting to close escrow and move into the building, but they’re stymied.”

He added this week, “There are all kinds of internal processes they [ST Residential] have to go through that I’m not privy to and then they have to report back to the FDIC” before resuming discussions with Urban Partners.

ST Residential also has its home office in Chicago and a former employee of Corus Bank, who managed Urban Partners’ Town Square construction loan, has continued to be involved with the developer during the negotiation process.

“That’s who we have had to deal with,” Keller said. “So there’s been a continuity.”

With negotiations between Urban Partners and ST Residential, which were initiated last fall, moving slowly, a legal notice of foreclosure was filed on July 26, stating that if Urban Partners does not pay $3.5 million by Sept. 1 its Town Square complex will go into foreclosure.

Urban Partners still owes approximately $34.8 million on its loan from Corus Bank. Foreclosure would affect the 118 unoccupied condos that have not been sold as well as ground-floor retail space and parking. Six condos sold last year would not be impacted.

Keller noted that the foreclosure action and the $3.5 million payment “are all included in the agreement.”

During negotiations with ST Residential, Urban Partners has attempted to renegotiate down its construction loan so prices of condos and retail space can be reduced to reflect current market rates.

Peter Marino, a spokesman for ST Residential, said in response to an inquiry from The B-Town Blog, “at this point, we are a few weeks away from being able to comment publicly about [the Town Square] property. We will let you know as soon as we have something to say.”

Urban Partners may bring a 10-screen cinema, with an additional stage for community theater and dance, to downtown Burien.

Town Square Cinema Next?
Beyond the anticipated agreement – and resumption of condo and retail-space sales – Keller said Urban Partners is “absolutely” committed to continued involvement in the private development of Town Square.

“Urban Partners has been diligently working with Galaxy Theatres for a transaction that can be advanced and can satisfy all the requirements of the downtown plan.

“I’m cautiously optimistic that very soon I will be able to report back to the Burien City Council and the Burien Economic Development Partnership of fruitful progress on a Galaxy Theatre” for Town Square.

The recent approval of financing for Burien’s Transit-Oriented Development parking garage by Sound Transit and the King County Council “is a big step forward, a critical component,” for the proposed multiplex cinema project, he said.

If built, it would bring a 10-screen multiplex cinema, with an additional stage for community theater and dance, to downtown Burien at the southwest corner of SW 150th St. and 4th Ave. SW where the old city hall building is located.

A 10-screen cinema would be built at the corner of SW 150th St. and 4th Ave. SW where the old city hall building is located.

The parking garage, which would provide needed evening and weekend parking for movie goers, will be built near the northeast corner of SW 150th St. and 4th Ave. SW. Construction is expected to begin in late summer or early fall with completion in about a year.

Council approval would be required for a cinema, since it would represent a significant change in plans from Urban Partners’ current Town Square agreement with the city for development of another condo/retail complex on that site.

PREVIOUS COVERAGE:

• REPORT: Burien Town Square Facing Foreclosure
• “We Can Be Proud Of What We Did” Town Square Developer Dan Rosenfeld
• Is Town Square’s Urban Partners Becoming A “Silent Partner” To Burien?
• What Is Urban Partners Planning To Do With Burien Town Square?
• Here’s Why Burien Town Square Sits Vacant Less Than A Year After Opening
• 10-Screen Multiplex Theater May Be Built At Old City Hall Location
• Cinema Reps Make Their Pitch To Burien City Council
• Will Condo Prices Be Lowered Now That Burien Town Square’s Lender’s Assets Have Been Sold?
• Are Reports Of The Demise Of Burien’s Town Square True? Take Our Poll
• Over 1,000 Witness Burien Town Square Grand Opening

by Ralph Nichols

As work on the six-story condominium/retail complex in Town Square neared completion, principals of Urban Partners held their breath, month by month, until troubled Corus Bank of Chicago paid each draw on the construction loan.

“The good news is we made it to completion. They funded every construction draw,” Dan Rosenfeld, a founder of Urban Partners – Burien’s private developer for Town Square, told The B-Town Blog last week. “Then they went bust.”

Corus Bank was closed and its assets seized by the Federal Deposit Insurance Corporation on Sept. 11. Now the Urban Partners construction loan is held by a joint venture of Starwood Capital Group and the FDIC.

“If we do nothing else in our lives, we can be proud of what we did with this project in this community,” Rosenfeld continued. “In our hearts, we know we have done a great thing in Burien. We took empty parking lots and turned them into a world-class project.”

But the condo/retail complex – which opened last June at the same time as the new Burien City Hall/King County Library – remains only partially occupied with six residential units sold, due to complex financial entanglements completely removed from the control of Urban Partners.

“Every sale or lease of space requires lender approval,” Rosenfeld said. But since the failure of Corus Bank, “there is no one to approve leases or sales. There is no one to even approve prices.”

Starwood currently seems”unwilling or unable” to do that, “but this won’t last forever,” he continued. The financial issues resulting from the bank failure will be resolved, and he expects that most of the condos will be sold and the retail space leased or sold by the end of this year.

Trading Places
Although no longer a principal with Urban Partners, a Los Angeles-based development company, Rosenfeld remains involved with Town Square as “an active partner and investor” through Urban Ventures – a related company that actually owns this property with other investors.

[Note: Because Urban Partners submitted the original private proposal for Town Square, the name Urban Partners is used throughout this story.]

Rosenfeld became concerned in 2007 “that the real estate market was increasingly fragile, and we needed to take a more conservative approach. It was time to get out. But I didn’t want to let this one go.”

Keeping his Burien investments – including Town Square – in his portfolio, he sold his shares in Urban Partners and many other investments to his partners in the development company, Paul Keller and Matt Burton.

“I stayed loyal to Burien,” he added. “It’s a great community.”

In the meantime, Urban Partners, with Rosenfeld no longer a principal, has continued with its other investments and development projects, including the Terry Avenue Apartments in downtown Seattle.

Rosenfeld formally left Urban Partners last year to join the staff of Los Angeles County Supervisor Mark Ridley-Thomas, a friend of 20 years.

Dan Rosenfeld now works for Los Angeles County Supervisor Mark Ridley-Thomas.

As a senior deputy responsible for economic development, land use, sustainability and transportation issues, he now oversees a $1.7 billion light rail project and the $700 million replacement of hospitals that don’t meet seismic codes, just in Ridley-Thomas’ district.

“Transit-oriented and community development remain my great interest,” he said. “The time to develop new real estate will someday return.”

While his personal interest and connections in the Northwest helped him sell the Burien City Council on Urban Partners at the inception of the Town Square project, Rosenfeld admits the L.A. investors face an uncertain future here.

Urban Partners future role?
“Starwood [Financial Group] has very strong rights” to the condo/retail complex, he conceded. “They bought the [construction] loan –with the FDIC after it closed Corus Bank. They control the note.”

The FDIC sold a 40 percent interest in the bank’s construction loan portfolio to the Starwood group for about 50 cents on the dollar – while Urban Partners was attempting to buy its Town Square construction loan directly from the federal agency.

Now Urban Partners is negotiating with Starwood and the FDIC for a restructuring of its construction loan that reflects current financial conditions. “The market has changed since the project started,” Rosenfeld said. “Nothing is easy today.”

He hopes the negotiations will result in either a partnership or similar relationship between Urban Partners and Starwood for ownership and management of the building, or its outright purchase by Urban Partners. The development company’s other investment partners are also involved in the negotiations.

While Starwood and the FDIC own the note on the construction loan for the condo/retail complex, “Urban Partners knows Burien and the project better than anyone else,” Rosenfeld said. “It would be hard for Starwood to focus adequately on this one project in the Corus portfolio,” especially since many of their projects are in the Sunbelt.

With these factors in mind, he speculated that Starwood might seek a partnership or joint management role with Urban Partners for the Town Square building. “Urban Partners has credibility [in Burien]. No one can do a better job for Starwood, or for the community.

“Let’s each bring our strengths to this and get the project sold out. Sell the condos with pending buyers and then sell the rest.” Six condos closed last year, with serious interest from buyers in 34 others despite the fact the sales can’t be closed at this time.

Land for Sale
For now, Urban Partners still owns the three remaining parcels of land on the northern half of the Town Square site. But the group recently listed two of the undeveloped parcels for sale with a commercial broker “to test market interest,” according to Rosenfeld.

The largest parcel, located south of SW 150th St. and east of 6th Ave. SW, is listed for $1.8 million. Immediately beyond the condo/retail complex, this land – originally designated for phase two development of the project – was occupied by the Burien/Interim Arts Space last year.

A vacant half block south of SW 150th St. and west of 6th Ave. SW is listed for $330,000.

At this time, Urban Partners shows no indication that it would let go of the third large undeveloped parcel it owns in Town Square, located south of SW 150th St. and west of 4th Ave. SW, still occupied by the old city hall building.

A proposal for construction of a 10-screen cinema on that site is under study. Yet nothing is carved in stone for Urban Partners, either the parcels it might sell to the right buyer, or the future use of each parcel.

All Options Considered
“We’re looking at all choices,” Rosenfeld said. In the future, Urban Partners could end up developing mixed-income housing or a medical office building or a hotel on the remaining parcels. “All are possibilities. It’s a matter of time and economic recovery.”

Any new buyer of vacant land in Town Square will be obligated, legally, to conform to the original development agreement that Urban Partners signed with the city, according to Dick Loman, Burien’s economic development manager.

City Manager Mike Martin noted last month that Burien “has no money invested” in the private development components of the Town Square, “so the city will not lose any money” if Urban Partners is unable to continue and new investors don’t move in to complete the project.

Rosenfeld remains optimistic. “I don’t know what will happen in the future, but, with our long history here – my family has been active in business in Burien for 47 years – we have made commitments. We set the bar high. Eventually phases two and three will be built.”

Although he provided input to the original Burien City Council when a town square was first discussed, as far back as 1995, “I had no idea I would bid on the site someday, let alone build on it. We are very proud of what we have done together.”

Town Square today – the King County Library/Burien City Hall building, the condo/retail complex and the park between them – is “recognized around the country as a textbook example of first-tier suburban revitalization,” he said.

“It took a lot of determination, and it happened because of the dynamic intervention of the city ten years ago. When we started, parking spaces along [SW] 152nd [St.] were empty after five o’clock.

“Now, with new restaurants and businesses on the street, it’s busy well into the evening,” Rosenfeld added. “We have changed Burien significantly – for the good. Nothing worthwhile is easy, indeed.”

PREVIOUS COVERAGE:

• Is Town Square’s Urban Partners Becoming A “Silent Partner” To Burien?
• What Is Urban Partners Planning To Do With Burien Town Square?
• Here’s Why Burien Town Square Sits Vacant Less Than A Year After Opening
• 10-Screen Multiplex Theater May Be Built At Old City Hall Location
• Cinema Reps Make Their Pitch To Burien City Council
• Will Condo Prices Be Lowered Now That Burien Town Square’s Lender’s Assets Have Been Sold?
• Are Reports Of The Demise Of Burien’s Town Square True? Take Our Poll
• Over 1,000 Witness Burien Town Square Grand Opening

by Ralph Nichols

“Now Leasing Retail,” reads the message on a street-level storefront window in Burien’s still-new Town Square condominium/retail complex at SW 152nd St. and 6th Ave. South.

Other window signs advertise 20,000 square feet for shops and restaurants in the stand-alone building at this prime location for business downtown.

Yet no business has located there – and only five condos have been sold – since the complex opened last June, despite several serious offers to lease or buy available commercial space.

The barrier to these real estate transactions, as first reported by The B-Town Blog last October (read the story here), stems from the failure of Corus Bank – the construction lender for Los Angeles-based Urban Partners, the city’s private developer for Town Square – which financed this complex.

Corus, headquartered in Chicago, was closed on Sept. 11 by the Federal Deposit Insurance Corporation (FDIC), which took control of the bank’s assets and acquired its entire construction portfolio of about 120 loans valued at $4.5 billion, according to a news release on the action.

A group of investors led by Starwood Capital, including Perry Capital and WLR LaFrak, then acquired an equity interest in a limited liability corporation that purchased Corus’ construction loan portfolio from the FDIC at a substantial discount.

This put real estate transactions at the Town Square complex on hold while Urban Partners navigates a byzantine financial maze.

"Negotiations going on far from Burien have left anybody interested in getting into the project out in the cold." - Daniel Keane, owner of Market Place Salon.

“There are a number of individuals and businesses that have tried to get a deal in this project and nothing is going to happen until … distant investors can reach an agreement, amicable or otherwise,” Daniel Keane recently told The B-Town Blog.

Keane and his wife, Melinda, have wanted to move their Market Place Salon & Day Spa (BTB Advertiser) to Town Square since the project began. But they are among the businesses and organizations that have found themselves bogged down in a quagmire of uncertainty.

Market Place Salon
The Keanes’ experience in trying to acquire space for their salon and spa in Town Square opens a window to the frustration experienced by businesses dealing with real estate agents and financial institutions representing Urban Partners.

“We were very excited when the Burien Town Square project was announced, and were subsequently approached as possible tenants in the project,” Keane recalled.

But after initial discussions with Urban Partner’s original real estate agent, “we determined that the price was too high and told them so.”

The Keanes continued doing business in their location at Five Corners, and “when the economy began to sour we were approached again to consider leasing in the project and we negotiated again.”

During this process, a change was made in leasing real estate agencies. Soon afterwards, the Keanes’ bank and accountant both suggested they try to purchase space for their business.

After they looked at a couple of freestanding buildings, Urban Partners approached them “with the idea of buying commercial space in their [Town Square] building.

“Before the holiday season in 2009, we met with [managing principal] Paul Keller from Urban Partners and discussed a possible deal, to which he was in agreement and asked us to secure our financing and plan so that he could see that we were legitimate buyers,” Keane said.

“We shook hands and went our separate ways to do the parts we had agreed upon.” The Keanes began the process of securing financing from the Small Business Administration and Chase Bank, and also were qualified by Timberland Bank.

“We sought a designer and began to plan our space,” he added. “We created our plan and contacted our current landlord to make them aware of our plans. We communicated all of this to [Urban Partners] directly and through their [real estate] agent.”

The Keanes waited for a response – and heard nothing. “After many failed attempts to contact Paul Keller, we finally heard through [the agent] that they were considering our offer but there were some issues they were working on.”

Keane emphasized that throughout the negotiations, despite their frustration with the process, “we have been very happy with our [real estate] agent and his efforts. The disappointment is with the communication from the building’s agents.”

The next news the Keanes received was not good. Starwood Capital had bought the foreclosed bank’s discounted portfolio, leaving Urban Partners in no position to lease or sell space in its condo/retail complex until its loan can be renegotiated.

And, observed Keane, “these negotiations going on far from Burien have left anybody interested in getting into the project out in the cold, and have left our small city with a big empty building.”

Urban Partners
“Urban Partners is a well-funded developer with a good track record on many projects around the country as well as in the Northwest,” Keane noted. “The bank they chose for this specific project unfortunately was not strong enough to survive the economic downturn.”

Agreeing with this assessment, Dick Loman, Burien’s economic development manager, added emphatically, “Urban Partners is not in default” on this construction loan. They are “not leaving town” and will remain the city’s private developer for future Town Square buildings.

Urban Partners still owns the Town Square complex, Loman said. The only thing that has changed is the financial group holding its construction loan.

The Starwood investors bought 40 percent of Corus’ construction portfolio – including the loan for the Town Square development – for 50 cents on the dollar.

Loman said this bargain rate, coupled with a current value on the building that is 25-30 percent below its appraisal three years ago, has put the brakes on leasing and selling space.

“Everybody wants a bargain. They don’t want to move in, to lease or buy, and pay the old appraisal rates that are higher than the building’s current value,” he continued.

Urban Partners is now working with the FDIC and Starwood Capital to negotiate “a new loan that reflects the current market,” Loman said. Until such an agreement is reached, Urban Partners is in no position to reduce prices for either retail space or condominiums.

The Catch-22 in which Urban Partners is snared, Loman observed, is that it needs a new loan agreement for the Town Square building, yet there is nothing the FDIC can do independently to change the terms of a loan unless that loan goes into default.

“That’s what’s happening throughout the entire country,” he said. “It just goes around and around and around – the FDIC doesn’t move quickly, and this has been the problem here.”

In the meantime, Loman said last fall, Urban Partners is “trying to do the right thing. I know that Urban Partners wants to meet the market, but they can’t act until they receive a green light for moving forward.”

Keller did not respond to a request for comment from The B-Town Blog.

And Dan Rosenfeld, whose Northwest ties (he still has an interest in the Burien Plaza at SW 148th St. and 1st Ave. S.) helped Urban Partners land the development contract, has left the company.

Starwood Capital
Established in 1991, Connecticut-based Starwood Capital Group was one of several investment groups “whose leaders profited from the 1990s savings and loan crisis.” Today it is “among firms buying assets from the Federal Deposit Insurance Corp. for as little as 22 cents cash on the dollar,” according to an April 14 report at Bloomberg.com.

Starwood Capital is described on its website home page as “a private investment firm”; Since its inception, Starwood Capital has completed more than 300 transactions representing assets in excess of $20 billion. Public companies created by Starwood Capital have gone on to acquire, often with Starwood’s assistance, an additional $20 billion in assets.

A Bloomberg Businessweek company overview says Starwood acquisitions include “asset and financial restructuring,” with investments that include multi-family, office and luxury retail.

Because the federal government “was faulted two decades ago for letting bank assets go at fire-sale prices, [it] is planning to profit along with investors” in the wake of bank closures during this economic crisis, according to Bloomberg.com.

“Instead of selling the loans outright [such as Corus' construction loan portfolio acquired by Starwood Capital], the FDIC kept stakes of 50 percent or more in at least five loan portfolios sold since September. It’s also demanding as much as 70 percent of any gains.”

by Ralph Nichols

With only five of the 124 condominiums at Town Square sold to date, more than five months after the grand opening of this complex in June, prospective buyers and those anticipating future downtown development in Burien wonder if condo prices might be lowered.

This question has been raised in the weeks since Chicago-based Corus Bank – the construction lender for Urban Partners, the private developer of the condo/retail complex in Town Square – was seized by the Federal Deposit Insurance Corporation (FDIC) on Sept. 11.

Corus Bank’s deposits were sold, then the FDIC conducted a private auction for the remaining assets. Now Starwood Capital Group, TPG Capital, Perry Capital and WLR LaFrak have acquired an equity interest in a limited liability corporation that will hold the construction loans and real estate-owned assets of Corus.

“The $4.5 billion portfolio consists of more than 100 loan and (real estate-owned) assets linked to high-quality condominiums, multi-family housing, office properties, and land representing nearly 23 million square feet,” according to a recent news release from this investment consortium.

Urban Partners, however, has yet to comment publicly on whether it might reduce the prices of its Town Square condos’ phase one of the planned Town Square project. A primary reason for this is that it’s not a simple matter of lowering those prices, despite the fact that the investment consortium purchased the construction loans of Urban Partners and others well below their original value.

Two or three or even more banks usually are involved in large construction and real estate loans, notes Burien Economic Development Manager Dick Loman. This, in turn, creates a slow and involved process for a developer to obtain permission from lenders before it can make a corresponding reduction in its housing prices.

In the meantime, Loman says, Urban Partners is “hanging in there. They’re not leaving town. They’re trying to do the right thing. I know that Urban Partners wants to meet the market, but they can’t act until they receive a green light for moving forward. This means that (Town Square condo) prices aren’t going to go down without permission from the bank.”

Burien City Manager Mike Martin emphasizes that “no public money is involvedâ” in the Town Square condo-retail complex. “There is no financial to the taxpayers” because the Urban Partners’ development is privately financed.

But, he adds, “We do want to see them fill up sooner than later.”