Four Seasons Hotel owner restructures debt after 2009 loan default

Downtown Seattle's ultraluxury Four Seasons Hotel & Private Residences is out of financial trouble, its developer said Tuesday, thanks to a fresh infusion of cash from its original investors that allowed it to restructure debt.

Developer Seattle Hotel Group (SHG) also revealed for the first time just how deep its troubles went.

The firm said it had defaulted on its construction loan in December 2009, and until last week the 21-story, $180 million complex was at risk of foreclosure or bankruptcy.

Now, however, "the cloud over this project has lifted," telecom magnate and Four Seasons investor Bruce McCaw said in a prepared statement. "This landmark development is solidly back on track."

McCaw and his wife, Jolene, Four Seasons residents, led the investor group that put together the debt-restructuring deal. They also head a new management board that has assumed control of SHG, according to a prepared statement.

The Four Seasons, at First Avenue and Union Street, features 36 condos — many with spectacular views — atop a 147-room hotel.

It was no secret the project was ailing.

The building was finished in late 2008 just as the economy tanked, and has been plagued by slow condo sales, despite steep price cuts.

After construction was completed, the project's general contractor and subcontractors filed numerous liens and lawsuits, claiming they hadn't been paid.

According to a news release and county records, the McCaws and other investors in the project loaned SHG $26 million last week to pay down its debt to construction lender Washington Real Estate Holdings. Almost all of the Four Seasons' 15 original investors participated, SHG spokesman Roger Nyhus said.

Seattle-based Washington Holdings, in return, agreed to reduce the interest rate and extend the maturity date on its loan.

Craig Wrench, Washington Holdings' president and CEO, said his firm "expects a full and profitable recovery on our loan."

The McCaw investors' $26 million loan is subordinate to the Washington Holdings debt. It's not clear what that loan's balance is.

County records indicate SHG took out two loans to build the Four Seasons: a $138 million first mortgage from a consortium led by Morgan Stanley Mortgage Capital, and a $41 million second mortgage from Washington Holdings.

The first mortgage had been paid down "significantly" by early 2009 after pre-sale buyers closed on 22 of the 36 condos, according to county records. Seattle-based Washington Holdings acquired the balance of the loan from Morgan Stanley that May.

SHG also said Tuesday it has settled a lawsuit and liens filed more than a year ago by general contractor Lease Crutcher Lewis and its subcontractors.

Lewis said in its lawsuit that it still was owed $24 million for its work on the project.

"Everyone gave up something [in the settlement], which was challenging, but ultimately this is a reasonable outcome for all parties," Bill Lewis, Lease Crutcher Lewis' president and CEO, said in a prepared statement.

Terms of the settlement were not released, and no document reflecting it had been filed with King County Superior Court as of late Tuesday afternoon.

The management group led by the McCaws assumed control of SHG from a team that included hotel-chain executive John Oppenheimer, former Seattle Mayor Paul Schell and venture capitalist Tom Alberg.

Those three support the change, SHG said, and Alberg remains on the board.

The change was made, Nyhus said, because "there was a recognition that the project needed a clear path forward and a clear direction for success."

The Four Seasons generated considerable buzz when it opened in fall 2008.

It marked the return of the swanky Four Seasons hotel brand to Seattle after a five-year absence.

And the condos, ranging from 1,300 to 10,000 square feet, were perhaps Seattle's most expensive multifamily residences on a square-foot basis.

All the presold units had closed by February 2009, for prices ranging from $1.26 million to $11.4 million.

Since then, however, just three have sold, including an unfinished, two-story, 5,300-square-foot penthouse that sold last fall for 33 percent less than its original $10.8-million price tag.

Eleven condos remain on the market. No additional price cuts are planned, Nyhus said.

SHG said in its statement that the hotel, whose management and Four Seasons affiliation will not change, has been exceeding expectations.

In addition to McCaw, Four Seasons condo buyers have included high-tech entrepreneur and investor Peter van Oppen; Space Needle co-owner H.S. Wright III; arts patrons Bagley and Virginia Wright; retired Nordstrom Chairman John McMillan; and former Sonics owner Barry Ackerley, who died recently.

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