New cornerstone of Burien's downtown stuck in financial limbo

The past year has not been a good one for the condos at Burien Town Square.

Their completion last June touched off a civic celebration in Burien. Boosters hailed the seven-story complex — part of a public-private redevelopment plan a decade in the making — as a catalyst for reviving the postwar suburb's downtown.

But the project now is in a state of suspended animation. Its story presents all the elements of the nation's financial crisis in microcosm.

Buyers have purchased six of Burien Town Square's 124 units. No sales have been recorded since October. All ground-floor retail space remains unleased.

Urban Partners, the project's Los Angeles-based developer, defaulted on its construction loan late last year. Weeks earlier, the federal government had shut down its lender, Corus Bank of Chicago, which made big-time gambles on condo construction in markets across the country during the real-estate boom — and lost.

The project's predicament "is just indicative of the environment we're in right now," said Mike Martin, Burien's city manager.

Until Urban Partners reaches some agreement with the company that holds the loan, it can't reduce asking prices to start filling the building.

"There's really not much we can do until we restructure," said Paul Keller, a principal with the firm.

Urban Partners could lose the project. A spokesman for ST Residential, the company now handling the loan, said it hopes "to have a resolution in the very near future."

Some who signed up as buyers before construction began are tired of waiting. One has filed a lawsuit.

"The fundamental issue is, we can't do anything," said Nate Wilson, another buyer, who placed deposits on two units as investments in 2007. "We want our money back."

The city of Burien has no financial stake in the condos. Still, it has invested plenty of civic energy in Town Square.

"We still have vacant property there," Martin said. "We're not happy about it."

10 downtown acres

Burien Town Square got its start more than a decade ago when city officials, looking to give the city the center it always had lacked, focused on 10 underdeveloped downtown acres, mostly parking lots.

A redevelopment plan was pieced together for a higher-density, transit- and pedestrian-friendly neighborhood with homes, shops and outdoor and indoor public spaces. The city slowly acquired all the property, then selected Urban Partners as its private-sector development partner in 2003.

The firm specializes in mixed-use development, often with a mass-transit orientation. In 2007, it bought most of the 10 acres from the city, which kept land for streets, a park and a new City Hall and library.

Those projects were completed last year.

To build the first of three planned phases of condos at Burien Town Square, Urban Partners borrowed $38.5 million in August 2007 from Corus, one of the nation's leading condo-construction lenders.

That exposure proved the bank's undoing. Its borrowers — many in such onetime real-estate hot spots as South Florida and Southern California — began defaulting on loans when the housing market collapsed.

The Federal Deposit Insurance Corp. shut Corus down and seized its assets in September.

A month later the FDIC established a new corporation to extract what value it could from Corus' $4.5 billion in real-estate loans, most of them nonperforming. The federal agency kept a 60 percent stake in the portfolio and sold the remainder to ST Residential, a consortium led by Starwood Capital of Greenwich, Conn.

The idea is for ST to manage the 101-loan portfolio and maximize the return for itself and the FDIC.

Prices at Burien Town Square ranged from the mid-$200,000s to the mid-$600,000s when it opened.

And the minimum prices specified in Urban Partners' 3-year-old loan agreement now are badly outdated.

But Urban Partner can't charge less without ST Residential's assent.

Keller said his firm began negotiating with ST to restructure the loan agreement last fall, around the time it defaulted. He characterized the talks as "complex and lengthy."

The logjam could break soon, a spokesman for ST indicated in an e-mail.

"ST Residential is committed to maximizing the potential of this property," he wrote.

Sales should resume before the end of the year, Keller predicted.

Would-be buyers have put down deposits on about 45 of the 124 units, Urban Partners said last year. But most signed contracts in 2007, before the market tanked. If the experience of similar projects is any indication, some buyers could walk away instead of closing.

One presale buyer, Catherine Sands, suggested in a recently filed lawsuit that Burien Town Square was in trouble months before Corus Bank failed.

Sands was ready to close in May 2009 at the price she agreed to in 2007, said Rand Koler, her attorney — but, while she qualified for a loan, no lender would touch the project. Her lawsuit seeks return of her earnest money, plus $10,000 from Urban Partners and its marketing representatives.

Keller wouldn't discuss pending litigation. But he did say the six sales have been all-cash deals.

Closings at other condo projects have been stalled by a Federal Housing Administration requirement that at least half the units be presold before it will insure buyers' mortgages — almost a prerequisite for sales these days.

Keller said the FHA's requirement is "a concern, but I wouldn't say it's a problem."

Change of plans

Meanwhile, Urban Partners and Galaxy Theatre Group are working with the Burien City Council on a proposal for a 10-screen cinema on another corner of the land the developer bought from the city in 2007.

The deal hinges on construction of a 500-stall garage across the street, at the Burien Transit Center, where moviegoers could park on weeknights and weekends. The King County Transportation Department hopes to break ground before the end of the year, a spokesman said.

The cinema property originally was slated for more condos and retail, "but we all know that's not going to fly," said Martin, the city manager.

Burien Town Square has earned praise despite its troubles. It won an award last month from the Puget Sound Regional Council, a four-county planning agency that promotes green, innovative development.

When condo sales do resume, "we just know that ultimately they will sell," Martin said. "This is a finished product. It's high quality."

Burien Town Square's civic components seem to be doing fine. The park was dotted with sunbathers on a recent sunny afternoon. Children cavorted in a fountain. Farmers-market vendors sold roasted corn, candles, cookies and cherries on a barricaded street.

But at the condo complex that loomed above them, the only sign of life was the patio furniture on three or four units' decks.

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