The fate of two multifamily developments in the Puget Sound area hangs in the balance as they approach a foreclosure auction scheduled for July. However, the developers are optimistic about avoiding this outcome.
The first development is the Tacoma Trax apartments, a 115-unit project currently under construction at 415 E. 25th St. in Tacoma. The second is the Madison Plaza apartments, a 157-unit complex completed last year at 102 Madison Ave. in Kent. Both properties were placed into receivership on March 20.
DMG Capital and GIS Companies, formerly known as GIS International Group, are partnering on both projects through limited liability companies.
If no payment or settlement is made by July 10, the properties will be sold off in Pierce County on July 21. The outstanding loan balance for both properties, which share the same construction loan, amounts to approximately $36 million.
Eugene Gershman, CEO of GIS, acknowledged that the funding structure of the portfolio is causing complications in their efforts to raise additional capital. He cited skyrocketing interest rates and inflation as additional challenges, according to a report in the Puget Sound Business Journal.
The development partners are currently working to secure new loans before the July 10 deadline. Gershman expressed confidence in negotiating new capital and expects to have more information in the coming days.
Lender Parkview Financial initiated the foreclosure proceedings, as confirmed by Joseph Fanelli of J. Fanelli Properties, the court-appointed receiver for both properties. The developers owe Parkview a total of $2.5 million in past-due payments. Furthermore, Safehold, the owner of the land beneath the project sites, has filed a $3 million lien against the developers. Several other liens from contractors in King and Pierce counties have also been filed in recent months.
Gershman stated that their preferred outcome would be to refinance Madison Plaza, which is currently 80 percent leased, allowing them to retain ownership of the property for a few more years. According to King County records, the property has an assessed tax value of approximately $40 million.
Regarding Tacoma Trax, which is still under construction, Gershman acknowledged that finding a buyer for the unfinished project could present challenges. Nevertheless, GIS and DMG are hopeful to secure additional capital to recapitalize that project as well.
In November 2021, the partners secured a cross-collateralized $54.5 million construction loan for both projects through Los Angeles-based Parkview. At the time, Parkview CEO Paul Rahimian expressed confidence in the need for multifamily development in the Seattle area, given the region’s business and population growth.
GIS held a groundbreaking ceremony for Tacoma Trax in January 2022, which was attended by local dignitaries. The development aimed to be the first transit-oriented project in Tacoma’s Dome District neighborhood, situated across the street from a Pierce Transit hub. The plan included allocating a quarter of the Trax units for lower-income renters, with the city of Tacoma granting a 12-year multifamily tax exemption as part of an affordable housing development initiative. Additionally, the building was intended to house an indoor farmers market.
The commercial real estate sector is witnessing an increase in properties facing receivership due to inflation and rising interest rates, which make borrowing more expensive. Joseph Fanelli, a receivership specialist, noted that his workload has been busier than usual.