Martin Selig Defaults on $240M Secured by Seattle Towers

Martin Selig Real Estate has defaulted on a $240 million loan tied to two of its most valuable office buildings in Seattle, hammered by rising office vacancy.

The locally based developer led by Martin Selig failed to repay the debt secured by a new 15-story tower at 400 Westlake Avenue N in South Lake Union and the former Federal Reserve Building converted into 11 stories of offices at 1015 Second Avenue in Downtown, the Seattle Times reported.

The 2019 loan matured in September last year, according to a filing by lender Acore Capital, based in San Francisco. The default could lead to a trustee sale of the buildings.

It’s a kick in the shins for Selig, a prominent Seattle developer that once owned a third of the city’s Downtown offices, including its tallest building, the 76-story Columbia Tower.

Since a broad shift to remote work, the Selig firm has reeled from high vacancies at its more than 30 office buildings, while struggling to pay its bills.

This year, a $239 million loan backed by seven of its office buildings was turned over to a special servicer and flagged for “imminent maturity default,” after Selig failed to refinance the note, according to Trepp.

Seattle office market insiders told the Times the default could be the beginning of its demise.

For its delinquent loan, Selig owes $221 million in principal, plus $60 million in interest and late charges for a total of $282 million, according to Acore.

The 204,000-square-foot Federal Reserve Building, converted to offices in 2020, was assessed the following year at $98 million. This year, it was assessed at $57 million.

The value of the 226,900-square-foot trophy tower built atop the historic Firestone Building in South Lake Union was assessed this year at $74 million, from $111 million last year.

Selig may transfer the two buildings to Acore “as part of a broader strategy to restructure our existing debt and divest select assets,” an unidentified spokesperson for the firm told the Times in an email.

Selig isn’t alone in facing the mounting challenges posed by empty workplaces, as the same trends have impacted office landlords in large cities across the nation.

In Downtown Seattle, office vacancy has hit 35 percent, according to CBRE, with rents declining. That’s worse than during the Great Recession, when the Downtown vacancy was 21 percent, according to the Times.

In the first nine months of the year, surplus offices in Downtown grew by nearly 1.5 million square feet, or around 4 percent of the total, according to Colliers.

The rising vacancies and falling rents have pushed down office values, sometimes below the value of loans taken out on the buildings. Many of the loans are coming due.

But because interest rates are still high, landlords struggle to find refinancing.

“It’s hard, in a market like this, to understand how some of these properties (won’t) default,” Steven Bourassa, chair of the Runstad Department of Real Estate at the University of Washington’s College of Built Environments, told the newspaper.

With interest rates high and building values in decline, he asked, “who’s going to refinance?”

Martin Selig Real Estate, founded by Selig in 1958, is the largest independent developer in the Pacific Northwest, with a commercial portfolio of 31 buildings and 4.9 million square feet, according to its website.

— Dana Bartholomew