Elks Update on Sirius No Go
This morning’s announcement by the TNT that Sirius Real Estate Group was withdrawing their offer on the Elks Lodge left us a little deflated. However, after a conversation with Jim Dugan, the project manager, we have some renewed hope.
The results of all of the tests on the physical structure came back positive. The building can be saved. Considering all its been through the structure is in great shape.
The roadblocks came in the form of financial hurdles. Without firm commitments from potential tenants and with investors nervous from the current state of the economy, Sirius was facing a short term funding gap. They decided against pushing forward on shaky financial ground, and are instead going back to look for the funding. If they can find their approximately $2 million piece of a much larger puzzle, the project could go on.
The answer we heard today wasn’t no. It was not now.
So now we continue to wait. Anybody got a spare $2 mil?
Previously on Exit133
Filed under: Developments
7 comments
I intacoma June 18, 2008
new suite 133??
R RR Anderson June 18, 2008
the motherfucking clear channel fine counter is up over 7 million by now. lets cash in those chips.
J Jesse June 18, 2008
2 Mil. That’s it? Hey Paul Allen, wanna be a hero???
R Roland June 18, 2008
Pardon my ignorance, but is the city/county actually looking at the elks lodge as a possible new transit center? Or was that a pie in the sky idea?
A $2mm funding gap on a project that size is quite large. And, what exactly is a “short term” funding gap on a real estate project? Are you talking about a construction loan?
In the CRE lending environment we have today, with banks (including regional banks) very carefully managing the CRE & construction portfolios, a project like this is going to need committed equity and long term takeout debt in place before a construction lender will commit to the deal.
And, the only way they’ll get the LT financing in place is to have LT sources of repayment in place in the form of leases from entities of acceptable quality.
So, at the risk of repeating myself, I’m not sure what the “short term funding gap” would be.
My guess would be they aren’t going back to look for funding, they need to find credit tenants for the building, or if they condo it committed buyers. If they had quality, committed, leases in place the deal would sell itself to a bank (given adequate equity).
Perhaps that’s the problem… not enough equity. That’s not a short term funding problem either.
Anyone over there at exit133 care to be more specific?
C crenshaw sepulveda June 18, 2008
Maybe the Puyallups will buy it and turn it into a high class casino for the high rollers.
R Roland June 18, 2008
Whitney @ 5,
Wow, I’m confused. The problem with this kind of back and forth is that I can probably ask questions from here to Sunday and you won’t have all the answers. Unless you’re involved in the deal, maybe you are, I don’t know.
That said, your post just created more confusion for me.
My original confusion was over a $2mm short term gap in financing. Unless a project is selling off inventory (think a condo project), there isn’t much in the way of shorter term financing apart from construction loan.
And, if you can’t raise the money for construction, or make up the delta with equity, where does that leave you?
A $2mm gap can seem pretty dang huge on a $50mm project if you don’t have the money. And if the City ponies up a short term loan of $1.5mm, you’re still not there. And even if the City does provide a 24 month loan (ala Luzon), that still has to be repaid, right?
In the Luzon case, the “loan” from the City was (doing some reasonable reading between the lines) really mezzanine financing – the City received no to little interest, got full repayment of principal, plus 50% of the profits. My guess would be that the City’s repayment was subordinate to the senior debt on the project, and Gintz’s profit was subordinate to the City’s position.
In the case of the Elks project, are we talking about inventory that will be sold off like the commercial condos in the Luzon? In your post, in the same sentence you reference signing leases and selling condos. It’s different. Is the Elks project a condo project?
If it is a condo project, I sort of understand what you mean by short term financing, although it’s not really short term, which is defined as less than one year. It’s actually medium term. In any case the critical issue for a bank is to understand the actual source of repayment for the loan – in a very concrete way. If you don’t have a defined and reliable source of repayment, you don’t make the loan.
But if the Elks is not a condo project, then you’re talking about a long term financing problem which is therefore going to depend on the tenants/leases.
It’s an observation made by many that you can’t do a spec CRE project of any size in Tacoma. Bellevue? Seattle? Somewhat more doable, depending on the deal.
But, contrary to what you imply about wet paint, there are, I believe, a number of CRE projects that have been done with committed tenants in this town. I’m not an expert, but how about the: Columbia Bank building, Federal courthouse, Courtyard by Marriott, USBank building on 13th & Broadway, and DaVita building?
And in the case of the Elks, if the City/County/Sound Transit is going in on the deal, there’s a credit tenant right there that could be committed prior to construction. You don’t need 100% of the space committed prior to funding a loan, but you need some real support for the cash flow to repay the loan.
And you still need to make up the delta with equity too. More of it today than two years ago. After a bank underwrites a CRE loan, the difference between the amount of that debt and the cost of the project is equity, in some form or fashion. If Sirius doesn’t want to “risk everything”, then they don’t have the required equity for the amount of debt that can be supported the way they initially structured the deal.
That’s an equity problem/issue. Maybe they can solve it by crafting a better, different, deal with more committed tenants that will support more bank debt.
I hope they do.
J Joe June 18, 2008
That’s really too bad. I pass this building every day on my way in to work. It has such potential to become great once again. I can only image was it was like in its prime.
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