Unfinished, high-profile apartment development in Tacoma Dome District headed to auction
.jpeg "Artist’s rendering of the Trax apartments, 415 E. 25th St.")
A high-profile transit-oriented apartment development in Tacoma is headed for foreclosure auction Friday, part of a sharply declining market for local apartment development.
Tacoma Trax, 415 E. 25th St., saw several liens filed against the project cleared in October, according to county records, but several other contractor liens remain.
Trax and another property, Madison Plaza in Kent, were originally scheduled for a July auction. The two sites are tied to the same financing arrangement, and their sale was repeatedly postponed as developers GIS International Group and DMG Capital Group attempted to dig out from accumulated debt.
Tacoma Trax is a 115-unit project that celebrated its groundbreaking in January 2022, while Madison Plaza is a 157-unit building that celebrated its grand opening in September 2022.
Tacoma City Council approved Trax for a 12-year multi-family property tax exemption in 2021. The incentive exempts projects from property taxes on the assessed improvement value over the assigned years. The 12-year version sets aside 20 percent of the units as rent restricted “affordable.”
The action memorandum provided to the council from the city’s Community and Economic Development Department estimated the projected completed assessed value of the Trax development in 2021 at $39 million. That figure was based on estimated construction costs.
While the development did receive a 12-year MFTE, the incentive program does not pertain to the land valuation, commercial space, or any units in existence at the time of application.
Officials with the Pierce County Assessor-Treasurer Office told The News Tribune on Wednesday Tacoma Trax was current with its property taxes. County records show more than $16,000 split in two payments received in May and October.
Money woes
The two properties now facing auction are tied to the same construction loan and ground lease. A 99-year ground lease with Safehold, a company that specializes in such leases, was part of the developers’ financing vehicle.
In 2022, GIS CEO Eugene Gershman told The News Tribune in an interview discussing Trax, “When we sold the land, we received some cash for the building and then we supplemented that with a construction loan.”
The Madison-Trax lender, Los Angeles-based Parkview Financial, filed an initial petition to appoint a receiver in February in King County Superior Court over claims of nonpayment.
According to the filing, “The notice of default declared Madison-Trax in default for lack of payment, for failing to meet the construction schedule with respect to the Tacoma property, and for defaulting on the Ground Lessor Development Agreement beyond any applicable grace and cure periods.” The complaint stated that Madison-Trax stopped work on the Tacoma property in December 2022.
More than $2.5 million was reported past due on the property in the original foreclosure notice, along with the principal loan amount of $36.2 million owed on the $54.5 million loan for the Tacoma and Kent properties.
The properties entered receivership in March.
In April 2023, Gershman told The News Tribune in response to the potential foreclosure for both Trax and Madison Plaza, “I think our lender’s being a little aggressive,” adding that he was “fairly confident” the developers would pull through and financing resolved by July.
He blamed post-pandemic economic issues, including “labor shortage and cost escalation that affected us, just like it did everybody else.” He also pointed to inflation and the rise in interest rates.
“Cost of construction has gone up,” he added. “And a lot of projects are not penciling.”
He did not respond Wednesday to a request for comment.
What’s next
The foreclosure includes the site’s leasehold and improvements on the site.
On Wednesday the county recorded a $4.2 million payment to a Safehold-affiliated LLC (Safehold is the property’s land lease-holder) from an LLC representing Parkview Financial.
Eisenhower Carlson PLLC is the site’s trustee. Attorney Darren Krattli with the firm told The News Tribune on Wednesday, “The beneficiary (Parkview Financial) is expected to bid at the sale, so there should be at least one bid for the properties.”
Krattli added, “I am not aware of any other interested parties so far.”
Joe Fanelli is receiver for Trax and Madison Plaza. Fanelli told The Puget Sound Business Journal this week that Bellevue-based Exxel Pacific is now the general contractor, and work will include completing the unfinished podium.
Tough market at present
On Tuesday, commercial real estate firm Kidder Mathews released its fourth-quarter research report of the area’s multifamily commercial real estate market.
Kidder Mathews executive vice president Dylan Simon, one of the authors, said in the report, “Once a darling investment market, transaction volume in Pierce County is a ghost of its former self. As such, we expect sales volume declines of nearly 75% compared to historic averages.”
The report added that “due to significant oversupply of new apartments in downtown Tacoma, pricing is softening – especially for newer vintage buildings where fewer investors are in the market and stepping to the plate.”
The Tacoma Trax-Madison Plaza sale is scheduled for 10 a.m. Friday. More details are available in the Notice of Trustee’s Sale.
This story was originally published November 16, 2023 at 5:30 AM.
