Look for plodding pace on downtown office, residential projects

Despite the lousy economy, a few developers still plan to break ground on big new office and residential projects in the downtown Seattle area in 2009.

But there won't be many. You might be able to count them on one hand.

"With a few exceptions, if it's not under construction right now, it won't happen this year," said land-use economist Matthew Gardner, who consults for many developers.

The outlook for new construction is bleak. Lenders aren't lending. Condos in brand-new, high-end downtown towers aren't selling.

Office-vacancy rates are starting to climb as new buildings without signed tenants come on line and downsizing companies like Starbucks and what once was Washington Mutual cut back on space.

Not surprisingly, more than two dozen projects have been delayed or canceled.

And yet a few do plan to break ground this year. They fall into two camps: Apartment towers — considered by many the most promising sector in the commercial real-estate market right now — and office buildings that already have signed deals with tenants.

Vulcan Real Estate says it plans to start construction early this year on four more office buildings for Amazon.com in South Lake Union: two five-story buildings at 510 Terry Ave. N., and two 12-story buildings at 333 Boren Ave. N.

They are part of a headquarters campus of up to 11 buildings that Vulcan agreed to build for Amazon in late 2007 after the online retailer signed long-term leases. Five buildings already are under construction.

Amazon initially committed to lease just 800,000 square feet from Vulcan. Late last year, despite the deteriorating economy, it exercised options on 860,000 more. Demolition already has begun on the old structures the four new buildings will replace.

But "Vulcan is a special case," Gardner said. Other downtown office projects that haven't been pre-leased are on hold.

Daniels Development said this week that construction of its 43-story Fifth and Columbia Tower, originally scheduled to start this March but up in the air for months, won't begin until the office market stabilizes.

Schnitzer West has dropped plans for an 11-story addition to its office tower under construction at 1918 Eighth Ave., and won't start building its 40-story M5 Commerce Centre at Fifth Avenue and Madison Street unless it signs a big tenant.

"In this environment, I'd be really surprised if there was anything else coming this year," said Dan Ivanoff, Schnitzer West's managing investment partner. "The lending community is hunkered down."

That's also true for condos. "The terms of a construction loan today are so onerous (more equity, more guarantees, more presales, more interest, etc.) that it just doesn't pencil to build in most cases," said Dean Jones, principal with the condo-marketing firm Realogics, in an e-mail.

The outlook is somewhat brighter for apartments, however. "Fannie (Mae) and Freddie (Mac) are lending money for apartments," said Gardner. "They aren't lending money for condos."

The Pine Street Group could break ground as soon as April on a twin-tower, 24-story apartment complex on Sixth Avenue between Lenora and Blanchard streets.

The precise timing of the 654-unit project will depend on several variables — financing costs, construction costs, apartment-market projections — but "I can't imagine we wouldn't break ground in 2009," said Matt Griffin, Pine Street's managing partner.

Pine Street, which developed downtown's Pacific Place retail complex, plans to borrow less than half the money it needs to build the apartment project, Griffin said.

"Financing is available with that much equity, but it's expensive ... You hate to be the last guy who got the expensive financing."

California-based Laconia Development also plans to break ground this spring on Seneca Towers, a 310-unit apartment project on First Hill at Eighth Avenue and Seneca Street.

The project was supposed to be condos, but Laconia switched to apartments when condo financing dried up, said Senior Vice President Bob Kagan. Now it's working on getting financing insured by the Federal Housing Administration, he said. "Short of FHA, I don't know where anybody gets financing."

Seneca Towers would have two towers — one 25 stories, one nine — above a five-story parking-garage base. The old apartment building on the site is mostly demolished.

Security Properties said several months ago that it had financing and planned to break ground by early 2009 on Kinects, a 40-story apartment project on Minor Avenue in the Denny Triangle. Security officials did not respond to requests for information on the project's status.

Nor did developer Barrientos, which said last fall it planned to break ground in 2009 on the 80-unit Stadium Lofts Condominiums, across Occidental Avenue South from Qwest Field.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com