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					THE SOUND REVIEW
A W e e k l y N e w s D i s t r i b u t i o n o f L o c a l , N a t i o n a l a n d I n t e r n a t i o n a l R e a l E s t a t e N e w s & Tr e n d s
                                                                                                                Week Ending February 26, 2010

    For Landlords, the Numbers Are Starting to Look Better
    By M.P. McQueen, WSJ.com                                                                                                Contact
                                                                                                                                                 Us
    Home prices are falling, rents are tumbling, and apartment vacancies are rising. So why are
    thousands of small investors becoming landlords?
                                                                                                                              Philip Assouad
    Because real-estate prices have fallen much faster than rents, the math of buying a rental has                            Associate Vice President
    actually improved substantially in most parts of the country. Money invested in an apartment                              T: 206.398.2279
    complex today typically generates annual returns of 7% to 8% right off the bat, up from less
                                                                                                                              M: 206.941.4400
    than 6% at the peak of the housing bubble in 2006.
                                                                                                                              passouad@gvakm.com
    If your property appreciates in value or rents rise, you could end up with double-digit annualized
    returns when you sell it. But higher returns usually come with higher risks. If you overpay for a                         Giovanni Napoli
    rental property or you buy in the wrong market at the wrong time, you can lose a lot of money.                            Associate Vice President
                                                                                                                              T: 206.398.2278
    In general, landlords should pick communities where real-estate prices and rents appear to
                                                                                                                              M: 206.214.8715
    have nearly bottomed out, and jobs are stabilizing. Some of the best deals are in places like Fort
    Worth, Texas, or Columbus, Ohio, where prices never went wild. Markets like Las Vegas and                                 gnapoli@gvakm.com
    Phoenix, both plagued by overbuilding, and Detroit, hurt by auto-industry woes, still look dicey.

    But other markets like San Francisco or Chicago can still be attractive for landlords who find
    the right neighborhoods. Fred Bertucci, 50 years old, has been investing in small apartment                               GVA Worldwide U.S. Office
    properties in the Chicago suburbs since 1990. In August, he and his business partner, Kevin                               Locations
    Moriarty, 54, bought a six-unit apartment house out of foreclosure for $280,000. It brings in                             Atlanta             Orlando
    about $25,000 per year in net operating income, he says, or about a 9% yield on the dollars                               Baltimore           Panama City
    invested. That’s up from roughly a 5% yield several years ago when prices were higher, he says.                           Bellevue            Philadelphia
                                                                                                                              Boston              Pittsburgh
    Being a landlord now isn’t easy. You need good credit and plenty of cash—as much as 50%                                   Chicago             Portland
    of the purchase price—because banks are still skittish about lending. You need extra cash for                             Dallas              Raleigh/Durham
    handling repairs and vacancies, and you must have the patience to deal with difficult renters.                            Delaware            Redwood City
                                                                                                                              Destin              Richmond
    If you buy an investment property, you should expect to hold it for three to five years or more.                          Detroit             San Francisco
    Much of the big money from quickly flipping properties already has been made, and conditions                              Fredericksburg      Santa Clara
    now favor long-term owners who want an investment that will throw off income and slowly                                   Jacksonville        Seattle
    gain value over time.                                                                                                     Long Beach          Studio City
                                                                                                                              Los Angeles         Tacoma
    “It’s a great time for someone who is focused on increasing his net worth, rather than doubling                           Minneapolis-St.     Tallahassee
    his money in a short period of time,” says John Burns, a real estate consultant in Irvine, Calif.                         Paul                Tampa
                                                                                                                              New Jersey          Virginia
                                                                                                                              Southern            Northern
    Geoffrey Koblick, 55, who has been investing in residential and commercial real estate for many
                                                                                                                              Newport News        Washington, DC
    years, recently scooped up two apartment buildings in Northern California. He didn’t buy any
                                                                                                                              Norfolk
    properties from 2003 through 2007, when “prices were too high based on the income the
                                                                                                                              Orange County
    properties were generating,” he says.

    Mr. Koblick says he and his partners paid $3.3 million in May 2009 for a 23-unit building in                              GVA Worldwide serves key markets
    Berkeley that generates $199,500 in net operating income, for a 6% return. They are upgrading                             in 25 countries including offices in
    the property, and Mr. Koblick expects its value to increase dramatically over the next seven to                           Asia and Europe.
    10 years, when he hopes to sell it. Since they bought the building with a 33% down payment,
    he projects the partners will end up with an annualized return of 15%.
                                                                                                                              www.gvakm.com
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Philip Assouad & Giovanni Napoli


 Of course, things often don’t go as planned in real estate. J.P. Botha, 33, bought a new one-bedroom condo in Manhattan
 for $775,000 in 2007. Property values were rising, and he figured he’d sell it for a profit. Instead, its value on completion fell
 more than 25%. So he rented it out. His first tenant bailed after five months when she lost her job. He had to make a price
 concession to find and keep a second tenant.

 “I’m hemorrhaging over a grand a month,” said Mr. Botha, who took out a 30-year mortgage to finance his investment. Still,
 he says he is taking the long view on his investment: “Once I pay off the loan I will have an income-generating property for
 the rest of my life.”

 Commercial Sales Jump
 By Christina S.N. Lewis, WSJ.com

 The number of commercial real-estate sales rose sharply in December, triggering fresh debate about whether the sector has
 reached bottom.

 Property sales, a gauge of market health, rose 75% in December from the prior month, according to Real Capital Analytics.
 The end of the year traditionally sees an increase in volume. But the recent increase is significant even after adjusting for that,
 says Neal Elkin, president of REAL, a research firm that analyzed the data.

 The Moody’s/REAL All Commercial Property Price Indices, or CPPI, which track values, measured a 4.1% increase in December.
 This followed an increase of 1% in November, which was the first time since 2007 that there were two consecutive months
 of rising values.

 But Moody’s and REAL agreed that it is too soon to conclude that the market has hit bottom.

 “It makes me feel very confident that the dramatic violent price movement that we saw in the first part of 2009 is over,” says
 Mr. Elkin of REAL. “But I would never be so bold to say that we are going straight up from here.”

 There were 716 transactions in December, according to the CPPI. That compares with more than 1,600 deals in December
 2007.

 Sales activity has been in the doldrums for months because of a dearth of financings and sellers’ unwillingness to put property
 on the block when prices are down sharply from a few years ago. That means competition can be fierce when prime buildings
 are put up for sale.

 Earlier this month, an institutional real-estate fund run by J.P. Morgan Asset Management bid on a large $100 million-plus
 rental-apartment property in Washington. Seventeen other buyers submitted offers, says Kevin Faxon, head of U.S. Real
 Estate for J.P. Morgan Asset Management.

 “We are actively in the market seeking to acquire properties,” Mr. Faxon says. “We are not on the sidelines. We’re not taking
 a view that prices are going to be cheaper tomorrow than they are today.”

 Also, some healthy properties are still commanding decent prices. In Boston, a nearly 200,000-square-foot office and retail
 property called One Brigham Circle is in contract to sell for $97 million to AEW Capital Management, according to a person
 with knowledge of the deal. Brokers for Cushman & Wakefield are representing the seller, the Rappaport family’s New
 Boston Fund.

 The cap rate, an industry term for the buyer’s nonleveraged yield on the property at current net rents, is less than 6.5%, a
 return that is comparable to property prices in 2005 and 2006, according to local brokers. The building is fully leased.

 The conflicting market signals come at a time when the commercial real-estate sector faces significant challenges. The
 economic fundamentals, such as anemic hiring, mean that office rents are likely to continue falling while vacancies continue
 to rise. Meanwhile, apartment rents also are low, driven down by record low home prices and increased supply from investors
 stuck with unsold properties who have put them on the rental market.


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      Week Ending February 26, 2010   l   Philip Assouad & Giovanni Napoli   l   601 Union Street, Suite 4720, Seattle, WA 98101   l   206.296.9600
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Philip Assouad & Giovanni Napoli


 In addition, many top-of-the-market real-estate deals are still expected to go bad, like Peter Cooper Village and Stuyvesant
 Town, a sprawling Manhattan residential complex that is in default on $4.4 billion in debt.

 Market bulls agree that the sector continues to perform badly. But they argue it is doing better than people thought it would.
 Therefore, real-estate assets are undervalued and prices are going up, they say.

 “No one believed me that values were going to go up so soon,” says Dan Fasulo, head of research for Real Capital Analytics.
 “But there’s enough anecdotal evidence now that we’ve come well up off the bottom already.”

 Commercial Mortgages Ailing in February
 By Prabha Natarajan, WSJ.com

 The performance of loans bundled in commercial mortgage-backed securities deteriorated sharply in February, raising fears
 that the coming wave of distressed loans may be much higher than expected.

 As of the end of last week, 30-day delinquencies surged to 6.93% from 6.4% in January, according to Barclays Capital. That
 is well above the normal level of less than 1%, and a key indicator of future delinquencies suggest that they may rise even
 further soon.

 Loans moved into special servicing have risen by $2.2 billion so far this month. That represents another 0.3 percentage point
 of the $770 billion market for commercial mortgage-backed securities. Loans are moved into special servicing when property
 owners are still current on their mortgage payments but are unable to refinance maturing loans or indicate they wouldn’t be
 able to keep up with future payments.

 Analysts forecast that the delinquency rate will peak between 10% and 15% later this year.

 Credit Suisse researchers suggested that the pipeline of distressed loans may surge to $60 billion by the end of 2010,
 assuming that $2.7 billion of loans turn troubled each month.

 Commercial mortgages have been pegged as the last stage of the credit crisis. A combination of low sales at retail stores,
 shrinking offices as the ranks of unemployed grow, and lack of financing for new loans and refinancing of existing loans have
 contributed to the bleak outlook for this sector.

 The sale of three new commercial mortgage-backed securities late last year and support provided by the Federal Reserve’s
 Term Asset-Backed-Securities Loan Facility seemed to suggest the market was thawing. But there has been no fresh issuance
 this quarter, and total new issues for the year is expected to be modest, perhaps $20 billion, Barclays said.

 Market participants say a couple of multi-borrower deals are in the works, as banks including RBS, Deutsche Bank AG and
 Goldman Sachs Group Inc. look for loans to be pooled into securities.

 “Available liquidity remains limited, which is making refinancing large loans more difficult even when they are performing,”
 said Mary MacNeill, managing director of Fitch Ratings.

 As a result, more loans approach maturity with no option to refinance or extend. The problem is likely to linger as special
 servicers, awash in transferred loans, struggle to keep up.

 “One likely consequence of this is longer recovery lags, which to date have averaged 15 months for smaller loans (i.e., below
 $10 million) and 25 months for larger loans in 2009,” according to the Credit Suisse report, which was led by analyst Gail
 Lee.

 Fitch estimates that more than $43 billion spread over nearly 2,500 loans are already in special servicing. Retail loans lead the
 field with more than $15 billion in 842 loans.




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      Week Ending February 26, 2010   l   Philip Assouad & Giovanni Napoli   l   601 Union Street, Suite 4720, Seattle, WA 98101   l   206.296.9600
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Philip Assouad & Giovanni Napoli


 Still, some economists had expected the home-ownership rate to stabilize or even rise slightly in the fourth quarter, because
 of the Obama administration’s tax credit for first-time home buyers. The tax credit fueled a home-sales jump in September,
 October and November. But economists now believe that the number of foreclosures during the quarter overwhelmed rising
 home sales. “Had it not been for the tax credit, the home-ownership rate would have fallen even further,” said Thomas
 Lawler, an independent housing economist.

 The decline in home ownership reached all regions of the U.S. but was most pronounced in the South, where the level fell
 to 69.1% from 69.8% a year ago.

 Meanwhile, the pending home sales index in December was 10.9% higher than its level of 87.1 in December 2008. Pending
 sales of existing homes include single-family homes and condominiums. A home sale is pending when the contract has been
 signed but the transaction hasn’t closed. Pending sales typically close within one or two months of signing.

 The tax credit helped sales last year, as did low prices and mortgage rates. The tax credit was due to run out Nov. 30 but
 was extended and expanded, through April 2010. But the market is still facing the problems of high unemployment and the
 difficulty many borrowers are having obtaining loans. While a Federal Reserve survey of senior loan officers Monday showed
 that banks had largely stopped tightening loan standards, residential mortgages were an exception. Some 17% of banks said
 they were making mortgage-approval standards tougher even for borrowers with high credit scores and well documented
 credit histories.

 By region, pending sales in the Northeast rose 2.3% in December and were 14.9% higher than a year earlier. The Midwest
 rose 5.2% in December and was 8.7% higher than a year earlier. The South climbed 2.2% in December and was 5.5%
 higher than December 2008. The West fell 3.8% in December but was 18.6% above a year earlier.

 Kennedy Wilson Venture Buys $342M Loan Portfolio
 By Bob Howard, GlobeSt.com

 A venture of locally based Kennedy Wilson and an international financial institution has acquired a $342 million portfolio
 of loans from a large regional bank.The portfolio is composed of residential, hotel, retail, office, land, multifamily and other
 assets predominantly located in Southern California.

 The acquisition is the first by a newly formed investment platform that Kennedy Wilson has created with an international
 financial institution. The venture will focus on acquiring sub-performing and non-performing commercial real estate loans
 and originating commercial whole loans and bridge/permanent multifamily loans.

 Mary Ricks, vice chair of Kennedy Wilson, calls the acquisition “a game-changing transaction for our company,” which is
 sourcing deals through a proprietary network, including its existing banking relationships. According to William J. McMorrow,
 chairman and CEO of Kennedy Wilson,the company sourced and closed the deal in 30 days, start to finish.

 The acquisition of the $342 million loan portfolio is the latest in a series of steps that Kennedy Wilson has taken in recent
 months with respect to the distressed asset markets. The company said in September, for example, that it would become
 a subsidiary of Naples, FL-based Prospect Acquisition Corp. under a reverse merger to combine new capital from Prospect
 with its existing capital to “support and acquire distressed assets” in a business plan designed to take advantage of market
 conditions created by the latest downturn in the real estate cycle.

 Following the merger with Prospect, Kennedy Wilson reported that it raised $110 million in new equity via the merger. It said
 at the time that the merged company would have “significant capital to take advantage of distressed opportunities in the
 real estate market and grow its auction services and property management businesses.




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      Week Ending February 26, 2010   l   Philip Assouad & Giovanni Napoli   l   601 Union Street, Suite 4720, Seattle, WA 98101   l   206.296.9600
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Philip Assouad & Giovanni Napoli


 Seattle high-end condo developers say, “Let’s make a deal!”
 By Jeanne Lang Jone, Puget Sound Business Journal - Seattle

 The owners of Seattle’s most costly luxury condominium project, the Four Seasons Private Residences, have taken a sharp
 knife to prices, whittling costs on some unsold units by more than 45 percent.

 The price pruning is a testament to continued slow sales at new condominium projects in downtown Seattle and Bellevue.
 So far just over one-fourth of the 1,588 units offered for sale at six major condo projects in downtown Seattle and Bellevue
 have sold, according to data provided by the King County Department of Assessments for closed sales on completed units
 through Feb. 8, 2010.

 With the meter running on repaying their construction loans, developers are slashing prices and offering a range of incentives
 to move units. The incentives range from help with the mortgage to a buyback guarantee to a Smart Car.

 Developers say potential buyers are still sitting on the sidelines, either because they can’t sell the house they’re in or because
 they are waiting for the housing market to hit bottom. But some developers are hopeful that sales will step up this spring,
 pointing to a recent increase in sales of less expensive condo units in their projects.

 Sales of higher priced units in these six upscale condo projects have been particularly challenging. With fewer banks willing to
 make jumbo loans,“We’ve seen dramatically declining demand in terms of transactions above $1 million in the single family
 world,” said Matt Gardner, of Seattle consulting firm Gardner Economics LLC.

 Molly Gleason, director of private residences for the Four Seasons, notes there were just two really high-end residential sales
 in downtown Seattle last year. The Four Seasons has closed one sale since last summer, a $1.8 million sale in November that
 brought total sales at that complex to $123.9 million.

 Prices have been chopped on the downtown Seattle project’s remaining 13 units — anywhere from 8 percent for a
 4,000-square-foot, two-bedroom unit with water and city views to 47 percent for a 2,073-square-foot, one-bedroom condo
 with water and city views. The reductions have cut the average price on remaining units from $2,088 to $1,464 a square
 foot.

 Gleason is not discouraged: “We’re very happy to have 23 units that have sold and only 13 left, given the overall market,”
 she said.

 Over at Escala on Fourth Avenue, just six of the 269 condominiums have sold since last November. The developer, Lexas
 Cos., recently hired Rennie Marketing Systems, of Vancouver, British Columbia, to reposition the project, and it will reset
 prices next month, with the new lower prices offered to the 67 prospective home buyers whose sales are pending, Rennie
 Marketing principal Bob Rennie said.

 With so few sales to compare, figuring out unit prices isn’t easy, said David Thyer, president of Seattle development firm R.C.
 Hedreen Co. The developer already has reduced prices on some units at its Olive 8 project in Seattle between 10 percent
 and 15 percent.

 To encourage sales, Hedreen is offering a buyback guarantee, agreeing to buy units back at their purchase price for up to five
 years. Meanwhile, the developer has gotten a two-year extension on its construction loan. Thyer anticipates the firm will be
 able to repay the loan by late 2011.

 On the bright side, Thyer said he’s seen an uptick in sales, starting in late 2009, mostly among first-time buyers purchasing
 units at Olive 8 in the range of $300,000 to $600,000.

 Mike Nielson, regional vice president for the Northwest for Wasatch Development, also noticed a recent bump in sales to
 about five a month at the firm’s Washington Square project in downtown Bellevue.

 “If we sustain the same momentum we had in the later half of 2009 through 2010, 60 units by the end of the year is not an
 unreachable goal,” Nielson said. He’s hoping to be completely sold out in 2012 — four years later than planned.

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      Week Ending February 26, 2010   l   Philip Assouad & Giovanni Napoli   l   601 Union Street, Suite 4720, Seattle, WA 98101   l   206.296.9600
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Philip Assouad & Giovanni Napoli


 With eight sales pending, Nielson expects Wasatch to pay off its approximately $160 million construction loan by mid-April
 through a combination of additional sales and equity from shareholders. The shareholders will make a loan on a dozen units
 which the company will hold for later sale.

 “If we have a great spring, we may not have to do that loan,” Nielsen said.

 To boost sales, Wasatch has offered financing for jumbo loans and a lease to own program that has resulted in six sales. The
 project also recently became a Federal Housing Administration-approved project so buyers of units priced under $570,000
 can make purchases with just 3.5 percent down.

 Nearby Bellevue Towers expects to get similar FHA approval in a few weeks. The developer is hopeful the FHA program will
 help it complete some of its 85 pending sales, spokesman Nate Cole-Daum said in an email.

 Meanwhile, Fifteen Twenty One Second Avenue in Seattle is within five sales of paying off its construction loan, said William
 Justen, of developer Justen Co. LLC in Seattle. Justen represented Samis Land Co. in selling the property to the project’s
 Bellevue-based developer and owner, Opus NW.

 Justen is heartened by the sale of 40 homes priced at more than $500,000 in the Puget Sound region last month.

 To encourage sales and highlight the project’s environmentally friendly features, the developer is offering a Smart Car to
 anyone who buys a unit between now and the end of April.

 When the thaw in sales does come, developers expect the housing market to rebound quickly because there are no new
 projects in the offing.

 Rennie, for one, believes there’s enough demand for downtown condos — what’s lacking is confidence.

 “Consumers need to get to the point,” Rennie said, “where you can say, ‘I bought this’ and your friends will not make fun
 of you.”

 Condo sales
 Here’s how sales are going at the six major condominium towers built in Bellevue and Seattle in recent years.

 Project Address                           Units sold by Feb. 8       Total units             Date of first sale            Total sales

 Four Seasons Private Residences                   23                     36                      May-08                    $123.9M
 99 Union St., Seattle

 Fifteen Twenty-One Second Avenue                  94                     143                     Nov-08                    $172.2M
 1521 Second Ave., Seattle

 Olive 8                                           51                     228                     Apr-09                    $30M
 737 Olive Way, Seattle

 Washington Square                                 206                    378                     Jan-08                    $142.7M
 833 108th Ave. N.E., Bellevue

 Bellevue Towers                                   79                     534                     Jan-09                    $63.9M
 10655 N.E. 4th St., Bellevue

 Escala                                            6                      269                     Nov-09                    $8.9M
 1920 Fourth Ave., Seattle

 Source: King County Department of Assessments



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       Week Ending February 26, 2010   l   Philip Assouad & Giovanni Napoli   l   601 Union Street, Suite 4720, Seattle, WA 98101   l   206.296.9600
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Philip Assouad & Giovanni Napoli


 68 new apartments going in on the old Chubby & Tubby site
 By Katie Zemtseff, Daily Journal of Commerce - Seattle

 South East Effective Development’s Claremont Apartments & Claremont Place are back on track after being delayed for a
 year. The project broke ground in December and should be completed a year from now.

 Claremont is being built on the former Chubby & Tubby store site at 3333 Rainier Ave. S.

 The 58-unit multifamily building will have one floor of underground parking, retail on the ground level and five stories of
 housing above. It will be wood-frame construction over concrete. Chubby & Tubby’s former parking lot across an alley will
 be used for an eight-unit flat and duplex.

 Together, the complex will have 68 units of workforce housing.

 The $18 million project was originally due to be completed this spring. Because of the recession, Claremont couldn’t get tax
 credits and funding dried up. Now, the project is moving forward with some minor changes.

 Earl Richardson, executive director of SEED, said Claremont did not end up using tax credits so a number of organizations
 stepped in to fill the funding gap. U.S. Bank agreed to help finance the project, and the city, state and finance commission
 all increased their funding.

 The team also shaved $2 million off the original $20 million budget by eliminating one level of parking and cutting other
 costs.

 Richardson said construction costs fell about 18 percent.

 “Those things made it possible,” he said. “I can’t tell you how good it feels to finally be in the ground.”

 Apartments will rent for 50 percent to 80 percent of the area’s median income. Rents will range between $790 for a one-
 bedroom unit to around $1,200 for three-bedroom units.

 The building will have 5,400 square feet of retail on the ground floor. One space is 1,500 square feet and could be used by
 a restaurant or another service-type establishment. The rest of the space is flexible. The retail area has double height space.

 SEED recently received a $215,000 grant from the federal stimulus through the state Department of Commerce. The money
 is being used to clean up a portion of the site that is contaminated with gasoline. Richardson said the team is waiting until
 cleanup is complete in about a month to begin work on that area.

 Claremont is four blocks away from the McClellan Link light rail station, and is on major bus routes. Access to transportation
 is critical to Richardson, who said he’s a strong believer in creating density on major arterials and near transit.

 Richardson said he has big plans for Claremont.

 “This project has all the right elements for helping to jump-start and creating more activity (in this area) and being a catalyst
 for more development activity that hasn’t been seen in a long, long time if it has ever been seen at all,” he said. “We see this
 as helping to build residential development in close proximity to shopping, light rail service and the metro bus line.”

 He said it will likely be five to 10 years before the potential of the area is realized and development begins taking off.

 Richardson said he’d like to begin looking for another project in the neighborhood as soon as Claremont is finished. “I like
 that area. I see it as growth.”

 Inter-City Contractors is general contractor. Johnson Braund Design Group is architect.

 For more information and to see a full list of organizations funding Claremont, go to www.seedseattle.org/econ_dev/
 claremont.html.
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      Week Ending February 26, 2010   l   Philip Assouad & Giovanni Napoli   l   601 Union Street, Suite 4720, Seattle, WA 98101   l   206.296.9600
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 New owner to restart Green Lake apartment project
 By The Seattle Times

 A half-built apartment building on the site of the landmark Twin Teepees restaurant near Green Lake has a new owner, who
 says it plans to resume construction and have the 24 units ready for leasing by June.

 GramorDevelopment of Seattle purchased the property at Aurora Avenue North and North 72nd Street this week for $2.14
 million, according to county records.

 Work on the four-story project, Tyee at Green Lake, stopped a year ago when the previous developer, Bristol Homes, ran into
 financial trouble. A receiver was appointed to manage the project last March.

 5th & Madison condos to be auctioned off
 By Daily Journal of Commerce - Seattle

 5th & Madison is the latest Seattle condo project to auction off units that haven’t sold.

 Eighteen units will be sold at 1 p.m. March 28 at the Grand Hyatt Seattle, 721 Pine St.

 Real estate auctioneer Kennedy Wilson touts “huge savings” on the condos, with starting bids of $195,000 for a one-
 bedroom condo.

 The units had been priced from $399,000 to $899,000. The lot includes a two-bedroom penthouse that had been listed for
 $1.995 million. Bidding for the penthouse will start at $995,000.

 The 24-story, steel-and-glass tower was marketed as a “green living” project. Seattle architecture firm Ruffcorn Mott
 Hinthorne Stine designed the tower to be 20 percent more energy efficient than industry standards.

 Turner Construction was the general contractor.

 Condo auctions have been common over the last year in Seattle as the market has tanked. At Gallery in Belltown starting bids
 were as much as 58 percent off the previous price. Dean Jones of Realogics Sotheby’s International Realty said 44 Gallery
 condos sold at an average of 32 percent off their original list prices.

 Boston-based Beacon Capital Partners bought the former Union Bank of California Center in 2004 for $100.7 million. In early
 2006, the company began building 5th & Madison on the north side of the site and renovating the office tower.

 A year later, Kennedy Wilson and KW Fund I, in a joint venture with RREEF, acquired the office and condo development for
 $300 million.

 The deadline to register for the auction is March 25.




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      Week Ending February 26, 2010   l   Philip Assouad & Giovanni Napoli   l   601 Union Street, Suite 4720, Seattle, WA 98101   l   206.296.9600
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 Hydra Developments expands with focus on hotel, housing
 By Marc Stiles, Daily Journal of Commerce - Seattle

 Hydra Developments, a Seattle firm owned by Abu Dhabi-based Royal Group, is launching a division that will build single-
 family homes on the Eastside.

 Hydra Manager and CEO Micah Pittman said the firm, which opened in Seattle in 2007, also plans to eventually develop
 multi-family/retail projects in Seattle. But for now the focus is on the Bellevue Park Hotel and the new Hydra Homes division.

 The nine-story boutique hotel will have a 90-seat restaurant/bar, 5,000 square feet of meeting space and a lobby bar. It will
 be built in Old Bellevue at Northeast First Street and 102nd Avenue Northeast.

 Construction could start in about a year, though the timing hinges on the economy.

 Pittman said Hydra Homes is acquiring single-family lots in Bellevue, Issaquah, Sammamish, Kirkland and Redmond. He
 declined to say how many lots the company plans to buy, though he did say that Hydra is purchasing ready-to-build parcels
 and is getting good deals.

 Most of the lots were taken back by banks or acquired through short sales, he said.

 The home division is launching its Web site, hydrahomesusa.com, today. It expects to start building houses in four to five
 months. Pittman said they’ll be in the $350,000 to $700,000 range, depending on location. Most will cost in the mid-
 $500,000s so they’re within the conforming loan limit, which regulators have set at $567,500 in King County.

 Hydra Homes hired an in-house architect, Gary Nash, who will work with Shugart Bates, on the homes. Hydra has not hired
 anyone to market the residences.

 Hotel next

 Seattle-based Shugart Bates is also designing the 108-room Bellevue Park Hotel. Dirty Lines of San Francisco is the interior
 designer. GLY Construction has been providing pre-construction services, and is the front-runner to be the general contractor,
 Hydra officials say.

 Pittman said he’s attracted to what he calls the boutique character of Shugart Bates, and appreciates that one of the firm’s
 principals, William Charles Shugart, remains actively involved in projects.

 Pittman wants the design to project what he calls a “classic, refined” character with modern-but-timeless interiors. “I would
 say not trendy.”

 Pittman said he hopes to get the permit at the end of this year, start construction in February or March of 2011 and open in
 the summer of 2012. If company officials feel the economy is not strong enough, the project will be delayed.

 “We are in no rush to build,” Pittman said. Hydra has no debt on the 15,044-square-foot property, which he bought from
 Wallace Properties for $5.2 million in the summer of 2007. “We might finance it. We might build it all cash.”

 Pittman said Hydra hasn’t selected a hotel operator, but MTM Luxury Lodging is at the forefront of the group of competitors,
 which also includes Kimpton and Starwood Luxury Collection.

 He wants the restaurant to be “chef-driven nouveau American cuisine” and the bars to be lively.

 “This you typically don’t see in Bellevue,” he said.




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THE SOUND REVIEW
Philip Assouad & Giovanni Napoli


 No debt

 Hydra’s parent company, Royal Group, is headed by His Highness Sheikh Tahnoon bin Zayed Al Nahyan and has more than
 10,000 employees. Royal Group is a conglomerate of 60 medium and large companies that work in diverse sectors, including
 property development, hospitality, communications and manufacturing.

 “We have no debt as a company,” said Pittman, who noted that Abu Dhabi, the capital of the United Arab Emirates, is
 booming. The emirate makes up 87 percent of the UAE’s land mass and holds more than 9 percent of the world’s oil reserves.

 “Abu Dhabi is booming,” he said. “It’s a very different story than Dubai.”

 Last year’s news that government-owned Dubai World, a conglomerate with interests in real estate and other businesses,
 was in financial trouble sent shock waves through financial markets. Abu Dhabi eventually came to its neighbor’s rescue with
 an infusion of billions in cash.

 Pittman, who is originally from San Diego, moved to Abu Dhabi 15 years ago to work for the Royal Group. The company
 considered several U.S. cities for a Hydra office, and chose Seattle because Microsoft, the Gates Foundation and other global
 groups are headquartered here.

 Hydra started with a condo project called Essex on the Park, but changed it to Bellevue Park Hotel when the condo market
 started sliding.

 In addition to single-family development, the company also plans more hospitality projects as well as multi-family projects —
 five-stories of housing above commercial — in Seattle’s South Lake Union, Eastlake and Capitol Hill neighborhoods, Pittman
 said. He said Hydra has three or four apartment projects planned.

 Seattle housing market hits new low: Report
 By Puget Sound Business Journal - Seattle

 Although other U.S. housing markets are improving, Seattle’s housing market posted a new four-year low in December,
 according to the latest Standard & Poor’s/Case-Shiller Home Price Indices study.

 In the year from December 2008 to December 2009, home prices in Seattle fell 7.9 percent, according to the latest monthly
 report that tracks home prices in 20 major U.S. cities. Seattle’s level fell to an all-time low of 147.54 in December, down 0.7
 percent from November.

 Charlotte, N.C., Tampa, Fla., and Seattle all posted new low index levels in December measured by the past four years.

 “Any gains they might have seen in recent months have been erased and December is now considered their current trough
 value,” said Standard & Poor’s, in a statement.

 The survey tracks changes in the value of the residential real estate market by comparing sale prices of specific sample homes
 in a city at two different times.

 The survey assigns an index number to each city and does not report actual home prices. The index is a measure of how
 much home prices have gone up or down in each market since January 2000, which has been assigned a price index of 100
 in that market.




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      Week Ending February 26, 2010   l   Philip Assouad & Giovanni Napoli   l   601 Union Street, Suite 4720, Seattle, WA 98101   l   206.296.9600
THE SOUND REVIEW
Philip Assouad & Giovanni Napoli


 Rainier Pacific Bank brought down by a big investment gone bad
 By Drew DeSilver, The Seattle Times

 Oregon’s Umpqua Bank scooped up its second troubled Washington bank in as many months Friday evening, buying the
 operations of Tacoma-based Rainier Pacific Bank.

 By adding Rainier Pacific’s 14 branches (three in Federal Way, the rest in Pierce County) and $446.2 million in deposits to the
 business it picked up last month with Seattle’s Evergreen Bank, Umpqua becomes one of Washington’s 20 biggest banks in
 terms of deposits.

 The deal also marks the end of the line for a 77-year-old institution that began as Tacoma Teachers Credit Union, became a
 mutual-savings bank in 2001 and converted to stock ownership two years later.

 Unlike most of the six other Washington banks that have failed in the past two years, loans to developers and homebuilders
 were not a major factor in Rainier Pacific’s troubles, state banking director Brad Williamson said.

 Rather, it was a large and spectacularly ill-timed investment in complex securities called trust preferred collateralized debt
 obligations — bundles of debt issued by banks and insurance companies, similar to the instruments at the root of the financial
 meltdown.

 After the market for such securities evaporated, accounting rules forced Rainier Pacific to write down their value. The
 portfolio of CDOs, originally valued at $108.8 million, was worth just $17.1 million at year’s end.

 The repeated write-downs had the same effect as loan write-offs at other banks — sucking dry Rainier Pacific’s capital
 reserves.

 “Basically quarter after quarter they’ve been writing these things down,” Williamson said. “If they hadn’t gone so heavily
 into these CDOs, they would have made it.”

 The bank lost nearly $70 million last year, and in its fourth-quarter and year-end financial report acknowledged that it was
 “critically undercapitalized” and unlikely to be able to raise new capital.

 Rainier Pacific was one of just two U.S. banks shut down Friday, the traditional day for bank closures. The other one was
 Carson River Community Bank of Reno, Nev.

 The pace of closures has slowed lately: After 15 institutions around the country were shuttered in January, just seven banks
 failed this month.

 In addition to assuming all of Rainier Pacific’s deposits, Umpqua agreed to purchase approximately $670.1 million of the
 failed bank’s assets. The Federal Deposit Insurance Corp. said it would retain the remaining $47.7 million in assets for later
 disposition.

 The FDIC also agreed to absorb most of any losses on Rainier Pacific $564.1 million loan portfolio and certain other assets.
 Although details of the loan-sharing agreement weren’t immediately made public, such agreements typically involve the
 FDIC covering 80 percent of losses up to a certain level and 95 percent beyond that.

 The agency estimated that Rainier Pacific’s failure will cost it $95.2 million.

 Rainier Pacific’s parent company, Rainier Pacific Financial Group, went public in October 2005 at $10 a share as part of the
 bank’s demutualization. On Friday, those shares closed at 18.3 cents.

 Last month, regulators seized three Washington banks: Evergreen Bank, Horizon Bank of Bellingham and American Marine
 Bank of Bainbridge Island.



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      Week Ending February 26, 2010   l   Philip Assouad & Giovanni Napoli   l   601 Union Street, Suite 4720, Seattle, WA 98101   l   206.296.9600
THE SOUND REVIEW
Philip Assouad & Giovanni Napoli


 The state’s banking sector, which is heavily exposed to a wobbly housing market, soured development and construction loans
 and declining commercial real-estate values, is one of the weakest in the nation.

 Twenty-seven of the remaining 91 banks and thrifts based in the state, or nearly 30 percent, are operating under varying
 degrees of enhanced regulatory scrutiny.

 Survival of the fittest

 Rainier Pacific

 Founded:           1933, as Tacoma Teachers Credit Union

 Headquarters:      Tacoma (Parent company is Rainier Pacific Financial Group)

 Assets:            $718 million

 Branches:          14 — three in Federal Way, others in Pierce County

 Umpqua Bank

 Founded:           1953, as South Umpqua State Bank

 Headquarters:      Roseburg, Ore. (parent company, Umpqua Financial, is based in Portland)

 Assets:            $10.5 billion, including Rainier Pacific

 Branches:          176 in Oregon, Northern California and Washington, including Rainier Pacific

 Source: Company reports




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