Office-to-apartment conversions seem to carry a positive political message in light of the vacant office space across many central business districts in the country. However, successfully executing such transformations can be harder than anticipated, and unforeseen costs can bring the projects to a standstill and, in some cases, lead to dire financial circumstances.
In one such example in Seattle, Unico Properties has been met with significant headwinds in its attempt to convert the historic Colman Building in downtown Seattle. According to a recent report in the Puget Sound Business Journal, the local development and commercial real estate investment firm is risking default on the mortgage connected to the property. Earlier this year, the $22.4 million CMBS-backed loan, which matures in March of 2025, was transferred to a special servicer due to an “imminent monetary default,” as stated in the loan servicer notes dated June 15, according to the report.
Unico Properties filed plans as early as June 2021 to transform the building into a residential property, according to a report in the Daily Journal of Commerce. The company submitted plans along with its architect, BuildingWork, for a renovation/addition valued at $55 million. The six-story, 160,164-square-foot Class B office property located at 811 1st Ave. has been in the company’s portfolio since May 2019, according to the company, when it paid $37 million for the property. Before the work started, the property was roughly 148,000 square feet.
The seller of the property at that time was Goodman Real Estate, a multifamily and commercial real estate company also based in Seattle.
The Business Journal report stated that the loan servicer notes indicated that it intended to foreclose on the property by Oct. 31, which may change depending on the ongoing negotiations with the special servicer. Information from the servicer shows that at least two recent withdrawals were made from the loan’s reserve funds for monthly installments. The report also states that the property’s annual cash flow plummeted to $471,774 last year, representing roughly half of the building’s annual debt service.
Earlier this year, a report from the special servicer stated that the aftermath of the COVID-19 pandemic and the ensuing transition in commercial real estate occupancy across the city significantly impacted the borrower. The loan servicer’s “watchlist” has included The Colman Building for most of the past two years. The loan was marked as delinquent in May, according to the report from the special services, and that next steps will be evaluated.
Unico is presently facing financial difficulty in Portland as well. According to reporting from The Registry, the company, which is a major landlord in the city and owns eighteen properties in Rose City, is seeking a reduction in its tax bill for two buildings it owns in Portland’s Pearl District. Due to similar causes cited in Seattle, Unico claims that the values of two of its properties in Portland have been significantly reduced and has filed lawsuits to reduce the assessed values of these properties.
The Colman Building in Seattle, a historic six-story building located at 811 First Ave., offers a mix of office, retail, and storage space. Located just two blocks north of Seattle’s historic Pioneer Square neighborhood, the original Colman Building first opened in 1904 and was named for James Murray Colman, an early Seattle pioneer and entrepreneur.
The building was built in several stages, with a design change between 1889 and 1906, according to the building’s Wikipedia page. James Murray Colman, who arrived in Seattle in 1872, would later build Seattle’s first brick office building (1875) and Colman Dock, originally the city’s main coal shipping point. Colman owned large tracts of lands along Seattle’s waterfront and was instrumental in bringing the first railroad (Seattle and Walla Walla Railroad) to the city and helping start the city’s first streetcar line, according to the site.