After 3 years, $338M Renton office complex mostly empty, to be auctioned
When it opened in late 2019, the Southport Office Campus on the Renton beachfront seemed a smart play for the red-hot Seattle-area office market.
With many tech firms unable to find space in Seattle or Bellevue, the three-building, 720,000-square-foot complex, with its lake views, high-end finishes and proximity to the beach and I-405, truly seemed “poised as the next logical tech hub to emerge for the Puget Sound,” as its veteran Seattle-area developer, Michael Christ, told a reporter in 2020.
But that bold vision appears to be on hold, thanks in part to COVID-19, remote work and a chilled office market.
After three years of scarce tenants and empty floors, Southport is being auctioned in June by its lender, according to a document from the Newmark Group, the real estate company handling the auction, and other individuals familiar with the sale.
Southport was “just very much a victim of circumstance,” said Kip Spencer, a former director of leasing and marketing with Christ’s Renton-based company SECO Development and a longtime friend of Christ’s. “We had really good momentum going in February 2020 — and then March 15 of ‘20 hit and everything came to a pause.”
According to the document, which was viewed by The Seattle Times, the auction will enable a “secured” party to sell an “indirect interest” in the Southport Office Campus to recover an outstanding loan balance — $288.2 million.
Christ and SECO did not respond to several email and phone queries about the auction, which doesn’t appear to affect other SECO projects in the $598 million mixed-use development, including a Hyatt Hotel and convention facility and a 383-unit apartment complex that sold for $191 million in 2021.
The “secured party” is connected to Miami-based Starwood Capital Group, according to an interview Christ gave to real estate trade publication The Registry in 2021 and several other individuals familiar with the auction. Starwood declined to comment on questions about the auction or the office campus. Newmark did not respond to questions about the auction.
Although Southport’s leasing struggles were widely known — only around a third of the space is said to be occupied — even some companies involved with the project were stunned by news of the auction.
“We were completely caught off guard on this,” said Bill Bieber, vice president of Exxcel Pacific, the general contractor for the office project. Bieber said SECO had completely paid for the initial construction and some subsequent work, but had recently been late in paying for work.
On April 3, Exxcel filed a lien against the property for around $700,000 in unpaid bills, according to Bieber and public records.
Southport’s troubles come as the larger Seattle-area office market deals with a pullback and layoffs by tech firms and continued uncertainty around remote work, which has left many employers hesitant about committing to high-end office space.
In the past year, Amazon, Microsoft and Facebook have all pulled back on leasing or construction plans in the Seattle area.
At the same time, rising office vacancies and soaring interest rates are making lenders hesitant about financing new office construction or refinancing existing building loans that are expiring or rolling over.
“Some buildings that were purchased in 2018, 2019, 2020 are just not going to pencil anymore,” said Connor McClain, senior vice president and leasing expert at Colliers who is not involved with Southport.
“Some assets are ultimately going to be given back to the lender,” McClain said. “It’s inevitable.”
The auction marks a disappointing turn for a decades-old project that some hoped could help expand and diversify the economy of Renton, a heavily blue-collar community long defined by the 737 assembly lines just south of the Southport site.
SECO paid $7.1 million for the site, according to the Puget Sound Business Journal. Over time, plans evolved for a 17-acre lakefront mixed-use development, including a hotel, upscale apartments and a large, high-end, or “Class A,” office complex, which Christ believed “could lure a Big Tech tenant that wants waterfront views, access to 100-gigabyte-per-second fiber and proximity to residential, retail and hotel rooms,” according to a 2015 Seattle Times article.
According to the Business Journal, SECO financed the $590 project with its own equity along with foreign funds through a federal program, known as EB-5, that foreigners to invest in U.S. projects that either create or preserve U.S. jobs.
Two hundred EB-5 investors contributed $100 million to the hotel project, according to the website of Seattle Family Regional Center, a “designated regional center” under the EB-5 program. SECO construction is listed as a member of the Seattle Family Regional Center team.
In 2018, SECO secured a $285 million loan for the three-building office project from Apollo Commercial Real Estate Finance Inc. of New York City, according to media reports. Around the end of 2020, SECO “recapitalized” the construction loan and secured a $328 million loan from Starwood Capital, according to The Registry.
By then, the pandemic and remote work trend added to leasing problems. Several insiders said SECO had been close to leasing the entire office complex to a single tech tenant — all declined to name it — but that the pandemic had soured the deal.
As of March 2021, the Registry reported “no takers so far” for leases. Christ said then that leasing activity was picking up, which he attributed in part to project focus on “health and wellness,” with such features as windows that open , an unusual feature he’d borrowed from Amazon.
“I paid a lot of attention to what Amazon did, and I watched them put operable windows everywhere, so we just did it,” Christ told The Registry. “And it was a big bill on this, because we have so much glass, but I was also able to do it to look cool, and that all ties to the health and wellness.” He also dismissed reports that the project was for sale.
Real estate insiders say Southport wasn’t able to overcome the double-blows of the pandemic and remote work. Some also say its upscale pricing, the inconvenience of the commute may also have made the campus a hard sell. They requested anonymity because they were not authorized to discuss the auction or the project with the press.
Current tenants include gaming company Wizards of the Coast and two professional services firms, with several other tenants potentially coming aboard, according to several people familiar with the project.
It’s not clear when Starwood decided to pulled the plug, though Bieber and others say they were notified of the auction only during the past several weeks.
Brokers said they were confident Southport will bounce back, but will need to wait for a broader market recovery and especially a resolution of the remote work/in-person debate.
Many Seattle area brokers are banking on moves by major tech firms such as Amazon, which is requiring employees to be back in-office three days a week starting May 1, to help push the office market back into normal.
Other think it may take longer.
Matt Dennison, an independent tech worker who often uses the spacious Hyatt lobby as his remote office, says he’s long been a fan of the Southport project and is optimistic it will eventually fill up. “It’s brilliant,” he said of the mixed-use concept.
But he’s also acutely aware of the very real obstacle posed by workers like himself.
“The nature of virtual work right now, especially in tech, is just really not doing anybody any favors,” Dennison said, glancing at the near-empty office buildings across the street.
“I mean, there’s no reason I shouldn’t be in that office, other than the fact that I don’t have to be.”