Monorail sale could bail out Seattle taxpayers

A hot real-estate market is going to help Seattle residents cut their losses as the city shakes off the collapse of the Seattle Monorail Project.

Odds are good that this month's sell-off of 33 of 34 unused lots — which the SMP purchased for stations, a maintenance base and some tight corners along the track route — will recover at least the $62 million spent to buy them. If so, the monorail's citywide car-tab tax, which began in 2003, would be repealed by early fall.

In Ballard and West Seattle, where commuters would have boarded trains from a platform three stories high, the leftover lots seem likely to be redeveloped as "mixed-use" buildings, with retail shops on the street and apartments or condos overhead.

The liquidation of the monorail dream couldn't happen at a better time, at least for making money. Commercial property values in King County have increased 14 percent since 2004.

"What the monorail has going for it is a real-estate market in the city of Seattle like we've never seen," said Art Wahl, managing director of the commercial real-estate firm CB Richard Ellis. "There's never been anything close to this. There's a high demand for real estate, and in truth, not a lot of product." Wahl's firm was one of several that vied to serve as SMP's broker for the land sell-off. GVA Kidder Matthews was selected to handle the land sales.

The monorail's ground game

In its land sale this month, the Seattle Monorail Project is trying to recover the $62 million it invested in property for stations and track corridors. Here are some issues expected to play a part in how much money the sell-off will yield:

Hot market: Commercial property values have increased since the properties were bought in 2004-2005.

Cold feet: Some argue that the fast-approaching deadline might force bidders, loath to pay so much cash upfront so quickly, to offer less money for the properties.

Big lots: In several places, SMP's deals combined separate small lots into one large group, making them more valuable, because developers can construct a larger building.

Competition: Officials think the sale will attract hundreds of offers, driving prices high.

Past prices: In some places, SMP may have paid too much because it was desperate for a particular location along a fixed route — so its chances of making a profit are low. In other places, the agency may have paid less because sellers were eager, or were afraid to fight the agency — so the odds of making a profit are better.

— Mike Lindblom

Hundreds of investors are expected to submit their bids in sealed envelopes by Friday. They can try for a small lot or multiple lots on the same block. The agency will figure out the most lucrative combination of bids. After a review by brokers from GVA Kidder Mathews and the monorail staff, the SMP's governing board could conduct a second round of bidding for some lots, to drive up the price.

While observers think SMP will turn a profit, some believe the sale will fail to collect top dollar because of the fast-approaching deadline. Investors won't have city permits — creating uncertainty. And SMP would prefer cash rather than lengthy "contingencies," where money is delivered months later when development plans become solid. If investors get jittery about paying cash up front, they will lower their bids, the theory goes.

"The only way to sell it that way is to sell for less, because the buyers take more risk," said Larry Smith, a Seattle land-use attorney.

But John Miller, branch manager for the real-estate services firm Cushman & Wakefield, says buyers will consider the lands a safe investment and bid high, because city government has a "pro-development mentality" and clear land-use rules.

The hot market validates one strategic gamble by SMP: It bought property early, before prices soared higher.

But the land deals are one reason SMP took on $110 million in debt. The agency has paid off $21 million from car-tax proceeds, and land sales are expected to cover most of the remaining $89 million. Residents continue to pay an average $126 annually per vehicle, until the debt is gone.

Even after SMP recovers its land costs, taxpayers will still wind up spending about $130 million for a project that never materialized.

A 34th property — a gravel parking lot near Qwest Field — is the only property to be used for transportation. It is being condemned so that it can be part of a King Street Station expansion for long-distance Amtrak trains. The other sites along the 14-mile route are up for grabs.

Bull market

Brokers expect strong competition for the Monorail properties. GVA Kidder Mathews reports getting 30 to 50 inquiries a day, and has already received four sealed bids. The monorailproperty.com Web site has attracted 480,000 hits since mid-January, said Jonathan Buchter, SMP's chief operating officer.

In addition to a strong market, SMP should also profit because it has bought up clusters of adjoining lots, which are worth more when assembled into larger parcels.

Experts call the area around Denny's restaurant in Ballard a gold mine because someone could buy a combined four-lot package at a busy intersection. The winner could erect a six- to eight-story building — after demolishing the restaurant, a six-unit apartment building and parking lot. It's expected to fetch more than the $9.6 million SMP paid.

Other high-potential sites are in Sodo, the neighborhood south of Qwest Field, which is metamorphosing from a home for weathered warehouses into a retailing center.

Wahl believes SMP got a bargain for four First Avenue South parcels at $3.3 million, and will make money reselling them as a package. But Henry Liebman, a Sodo landowner and likely bidder, predicts SMP will barely break even there, in part because lucrative housing isn't allowed in the area.

The agency might also lose money in some spots where it had no choice but to buy a lot, and therefore paid dearly.

Next to West Seattle Stadium, the SMP paid more than $2.1 million for a small corner parcel needed for trains to make a tight turn. The price was high because owner Mike Mastro already had permits for a big project that included 60 apartments and retail stores.

Only one site, Alaska Junction, seems likely to run into neighborhood resistance. It's now a parking lot with a vacant house. Junction merchants fear that big development could cover the parking slots and discourage shoppers. Still, developer Charlie Conner says he'll bid, in hopes of combining that site with an eight-story project he's planning up the block.

In Ballard, neighborhood groups hope that buyers rebuild quickly, rather than leave vacant storefronts that create blight.

The big piece

The largest property is the 7.7-acre former Northwest Center campus near 15th Avenue West in Interbay, which SMP bought for $16.5million as a maintenance base. Just to the south, plans are under way for a redevelopment anchored by Whole Foods.

The "general industrial" land zoning at SMP's site allows a range of uses from restaurants to pet grooming to cargo loading.

Ron Sudderth, a broker doing business as Urban Commercial Properties, thinks the land could fetch a $9 million profit — if SMP were to extend its deadline and seek a rezone for housing.

That's not going to happen, so he believes SMP will merely break even, or lose money, at Interbay, while turning a profit in the rest of the city.

Rick Osterhout, senior vice president at GVA Kidder Mathews, doesn't think the deadline will hurt bid prices.

Among other advantages, the SMP compiled environmental studies and title reports to save time for buyers. He's confident the sales will turn a profit, but won't say how much.

"We're kind of like throwing the fishing net in the ocean," he said. "We don't know what kind of fish we're going to catch."

Mike Lindblom: 206-515-5631 or mlindblom@seattletimes.com