Online auction may set PacMed tower's future
The leaseholder of the Beacon Hill landmark is delinquent on a $20.5 million mortgage note that will be sold to the highest bidder in mid-April.
Seattle Times business reporter
The future of the PacMed building, Amazon.com's former headquarters on Beacon Hill, could be decided this month — in an online auction.
The holders of the delinquent $20.5 million mortgage on the 16-story, mostly empty landmark have put the loan up for bids through Auction.com, a California company that sells real estate and real-estate debt at online and live auctions across the country.
A new owner of the note could end the financial limbo in which the building has been stuck since the borrower, Seattle developer Wright Runstad, defaulted on the loan last summer.
The debt could be renegotiated. Or the new owner could move to foreclose — as CBRE Capital Markets did after it acquired the nonperforming mortgage on another Seattle landmark, the Smith Tower, last fall.
Whatever the eventual outcome, an online auction involving a prominent building is something new for Seattle, said land-use economist Matthew Gardner: "I've never seen anything like this before."
The PacMed note auction on Auction.com is to start at 10 a.m. April 16 and conclude 24 hours later. The starting bid — $2 million — is less than 10 percent of the balance Wright Runstad owes.
Complicating the situation: Unlike the Smith Tower, the PacMed loan isn't secured by the building itself — Wright Runstad doesn't own it — but by the developer's long-term lease on most of the building.
Servicers of delinquent, securitized real-estate loans sometimes conclude it's better to get what they can for the note holders they represent and get out, said Eric Paulsen, co-CEO of Auction.com Commercial.
Otherwise, "you could be digging yourself a pretty deep hole," he said.
The "special servicer" for the PacMed loan, LNR Partners of Miami, could not be reached Tuesday. Wright Runstad executives were not available for comment.
The brick Art Deco tower, a former hospital, sits above Interstate 5 and Interstate 90 at 1200 12th Ave. S. It's owned by the quasi-public Pacific Hospital Preservation & Development Authority.
Wright Runstad leased most of the building from the authority in 1998 for 99 years, then converted it into office space and subleased it to Amazon.
For financing, the developer borrowed $23 million in 2000 from Credit Suisse First Boston, which then packaged the loan with others into commercial mortgage-backed securities.
Wright Runstad still owes $20.5 million on the 30-year loan, according to servicer reports.
But fast-growing Amazon moved out when its lease expired last spring, and Wright Runstad hasn't found a new tenant.
A proposal to relocate King County's juvenile court and jail there fell through last year. City University of Seattle considered moving into the building, but relocated to Belltown instead.
An appraiser valued the PacMed Building last summer at $6.25 million, down more than 80 percent from its 2000 value.
Wright Runstad stopped making loan payments last August. LNR said in a September note to investors that it was "proceeding with foreclosure at this time."
But there's no indication foreclosure proceedings have begun.
Several Seattle-area real-estate analysts expressed doubts last fall that LNR really wanted to repossess the empty building and assume responsibility for filling it and making lease payments to the landlord, the Preservation & Development Authority.
They also speculated Wright Runstad may have stopped making loan payments to pressure lenders to renegotiate the mortgage.
Paulsen of Auction.com said LNR has committed to accept the highest bid offered at the auction.
That's in contrast to most banks and loan servicers, which agree to sell assets only if the high bid exceeds an unpublished, predetermined "reserve price," he added.
"What it's basically saying is, they're going to let the market decide what this is worth."
Auction.com sold real-estate assets with a total list price of more than $3.5 billion last year, Paulsen said, and the company auctioned a $55 million apartment complex in Virginia last month.
"You're seeing more and more people comfortable with the auction method," he said.
Eric Pryne: 206-464-2231 or firstname.lastname@example.org