Amazon to make giant move to South Lake Union

South Lake Union wasn't exactly in the development doldrums before Amazon.com's announcement Friday that it will move its corporate headquarters to the neighborhood.

Still, the online retailer's long-anticipated commitment to South Lake Union will elevate the fast-changing neighborhood's profile to a new level, observers of the local commercial real-estate scene say.

"This is a Fortune 500 company," said Stuart Williams, a principal with Pacific Real Estate Partners, a brokerage and consulting firm. "Other people will say, 'That neighborhood is good enough for a Fortune 500 company — it should be good enough for us.' "

David Yuan of the architectural firm NBBJ agreed. "I think it's a statement about the coming of age of South Lake Union," he said. "South Lake Union is now a legitimate business address."

Amazon has agreed to lease up to 1.6 million square feet in up to 11 new buildings to be constructed by developers Vulcan and Schnitzer West along Terry Avenue North and Boren Avenue North between John and Mercer streets. Construction on the first four buildings is scheduled to start next month, and all 11 should be ready for occupancy in 2010 and 2011, the companies said in a joint statement.

Amazon's local workers now are scattered in five buildings in and around downtown Seattle, including its current headquarters at the Pacific Medical Center on Beacon Hill.

The company does not disclose how many people it employs in the area. But city planners estimated this fall that Amazon could bring 6,000 employees to South Lake Union over the next five years.

Amazon spokeswoman Patty Smith said the company is pleased to be staying in Seattle and excited about South Lake Union. "We think it offers many amenities, not to mention great access to public transportation," she said.

"Plus, the fact that we have a unified headquarters will improve employee collaboration."

Transformation of the once-moribund South Lake Union neighborhood has been a high priority of Mayor Greg Nickels, who said Amazon's move "hails the great things happening in South Lake Union."

Since 2003, according to a recent city report, 2.4 million square feet of commercial space and 1,850 apartments and condos have been built or are under construction in the area. Nearly 7,000 jobs have been created, the report says.

Vulcan, owned by Microsoft co-founder Paul Allen, is by far the neighborhood's largest developer. The company says it has completed 1.7 million square feet of projects and has 1 million under construction.

Amazon isn't the first high-profile tenant to lease office space in South Lake Union. Microsoft has committed to 100,000 square feet in Vulcan's new Westlake/Terry Building. Group Health is moving its headquarters there.

Nor is Amazon the first company to make such a big commitment to the neighborhood. The Fred Hutchinson Cancer Research Center has 1.3 million square feet of lab and office space. The University of Washington's medical-research operations plan to occupy 850,000 square feet by 2018, spokesman Bob Roseth said.

Still, Williams, Yuan and others said, Amazon is South Lake Union's biggest catch yet. It is the second-largest publicly traded company headquartered in Washington, with a market value that now exceeds Starbucks, Washington Mutual and Nordstrom — combined.

"They could have gone anywhere," Williams said.

Most of South Lake Union's big tenants so far have been biotech companies, he added, and Amazon helps boost the neighborhood's appeal to other prospective tenants.

A major corporate headquarters such as Amazon in the South Lake Union area will have a spinoff effect, said Patrick Callahan, founder of the Urban Renaissance Group, a development firm. Amazon vendors and potential partners will consider locating nearby, he said.

Amazon also should spur more retail and residential development in the neighborhood, Callahan added. "Some people who work at Amazon will consider living there. They certainly will shop there."

Amazon's move had been rumored for months. Wright Runstad, the company's landlord on Beacon Hill, said last month that it had started showing the Amazon space to prospective tenants, even though the lease isn't scheduled to expire for more than two years.

The last apparent obstacle was removed Monday, when the City Council approved a land-use-code change Vulcan had sought to allow taller buildings — up to 165 feet — on some of the property slated for Amazon's campus.

The companies wouldn't discuss terms of the deal. But Amazon said in a filing Friday with the Securities and Exchange Commission that it had committed to lease about 800,000 square feet for up to 16 years for about $700 million.

It also said it had an option to lease another 800,000 square feet — including the taller buildings the City Council authorized Monday — for another $800 million, and would pay a $40 million termination fee if it chooses not to occupy that space.

Neither Amazon spokeswoman Smith nor Vulcan Vice President Ada Healey would say when Amazon must decide about the optional space. But the first of those buildings is scheduled to break ground in July 2009.

And Healey said Vulcan is confident enough about those buildings that it is starting design.

If all 11 buildings are built, they will include 1.635 million square feet of office and 100,000 square feet of street-level retail, Vulcan said.

The campus will include courtyards and public open space, Vulcan said. All the buildings will be within a block of stops on the new South Lake Union Streetcar.

Amazon's move to South Lake Union, together with Starbucks' expansion in Pioneer Square and the Gates Foundation's pending move to Lower Queen Anne, suggests downtown may be bigger than it used to be, Callahan said.

"In my opinion, downtown now is from Safeco Field all the way to Lake Union and the Seattle Center."

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source: seattletimes.nwsource.com

Let borrowers control yield-spread premiums

YSP (yield-spread premium) abuse, as explained in my column last week, arises when mortgage brokers steer borrowers into high-rate loans on which the broker collects a rebate from the lender without the knowledge of the borrower. To eliminate it, I suggested a simple and easily enforceable rule that would help the naive as well as the informed borrower. The rule is that lenders must credit all rebates to borrowers. The borrowers would then have to authorize the payment to brokers.

One of the important objectives of The Mortgage Reform and Anti-Predatory Lending Act of 2007 (HR 3915), which passed the House of Representatives Nov. 15, is to prevent YSP abuse. Will it?

The first version of the bill I looked at would indeed have prevented YSP abuse, but it also would have eliminated mortgage brokers. The version passed by the House, modified after suggestions were received from brokers, would not put them out of business, but neither would it prevent YSP abuse.

Section 123b1 reads as follows:

Amount of originator compensation cannot vary based on terms — No mortgage originator may receive from any person, and no person may pay to any mortgage originator, directly or indirectly, any incentive compensation, including yield spread premium or any equivalent compensation or gain, that is based on, or varies with, the terms (other than the amount of principal) of any loan that is not a qualified mortgage. ...

Let's start with the clearest part of this statement, which is the last phrase. Whatever restrictions are called for, they will not apply to qualified mortgages. A qualified mortgage, as defined elsewhere in the bill, is one with an interest rate that is no more than 3 percent above the comparable Treasury rate, or 1.75 percent above the average conventional rate.

This indicates that the framers of the bill believe that YSP abuse is a problem only for the highest-rate loans, which is absurd. The problem cuts across the entire market. Indeed, high-rate and high-cost are not the same thing — a loan with a rate only 2 percent above the average could be loaded with superfluous fees and charges.

Will the restriction on incentive payments at least eliminate YSP abuse on the high-rate loans to which it applies? The bill says that originators (which include loan officers employed by lenders as well as mortgage brokers) cannot be paid more on high-rate loans than on low-rate loans. Since YSP abuse is exactly that, this provision is right on target. It defines YSP abuse accurately and declares it to be illegal.

Unfortunately, this provision is unenforceable. The standard for determining whether compensation on a high-rate loan is excessive is the compensation received on a low-rate loan, which is unknown and in many cases unknowable. Originators collecting YSP on high-rate loans don't report what they would have charged on low-rate loans.

To enforce this rule, regulators would have to do a statistical analysis of the originator's charges on different loans to determine whether or not compensation is higher when a loan involves YSP. This is not feasible because there are too many originators and not nearly enough regulators. Even if it were feasible, it won't work for brokers who get paid only from YSP, which is very common, and it won't work for loan officers employed by lenders who originate at their own risk, for whom there is no YSP.

Indeed, the only originators who would leave a trail for the enforcement police would be the brokers who give their customers the choice of whether they want to pay the broker out of pocket or have the broker paid with YSP. Because these brokers offer borrowers a choice, fees will be shown with and without YSP, allowing a statistical analysis of whether there are any differences. There won't be, because these are the good guys. The bad guys will be beyond reach.

In contrast, a rule requiring lenders to credit rebates on high-rate loans to borrowers, who would have to explicitly authorize its payment to the brokers, would impact all brokers alike, and impose no onerous enforcement burden on regulators. Indeed, because wholesale lenders would welcome such a rule, there would be no regulatory burden at all. Poof, YSP abuse would disappear overnight.

To level the playing field between lenders and brokers, a comparable rule is needed that would prohibit loan officers from charging prices above those posted by the lender.

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source: seattletimes.nwsource.com

Senate OKs help for struggling homeowners

Reversing months of inaction in a single day, the Senate passed two major bills Dec. 14 that could help thousands of homeowners now struggling with unaffordable mortgages or heading for foreclosure.

The long-stalled FHA Modernization Act — which would reduce down payments and raise maximum mortgage amounts for Federal Housing Administration-insured loans — passed the Senate by an overwhelming 93-1 vote.

Senators also approved the Mortgage Forgiveness Debt Relief Act, which would remove the controversial tax on "phantom income" when lenders forgive portions of the balances on mortgages of financially stressed homeowners.

Versions of both measures had already passed the House. The differences between the Senate and House bills will need to be resolved by conference committee before being sent to the president for his signature.

Besides eliminating the phantom income tax for three years, the Senate's debt-relief bill also extends the tax deductibility of private and FHA mortgage insurance premiums through 2010. That benefit had been scheduled to expire at the end of this month.

The bill also provides capital-gains tax relief to surviving spouses who sell houses at substantial profits. Under current law, surviving spouses who have not wed again can only qualify for the full $500,000 tax-free capital gains exclusion if they sell during the tax year in which their husband or wife died. Otherwise, they qualify only for the $250,000 exclusion.

Under the Senate's bill, however, if a sale occurs no later than two years after the death of the spouse, and the residence met the eligibility tests for the full $500,000 "immediately before" the spouse's date of death, the survivor would still be eligible for the full $500,000 exclusion. Since surviving spouses typically receive the deceased spouse's stepped-up tax "basis" in the property, it was not immediately clear why the Senate bill's change to the tax code is needed.

The FHA modernization bill — once the House and Senate agree on a final version — should provide critical help to large numbers of homeowners stuck with subprime mortgages heading for unaffordable payment jumps.

Most important, the range of consumers assisted will extend to higher-cost areas of the country — especially California, the Northeast and the mid-Atlantic states.

The Senate bill raises the FHA's statutory loan amount limits to $417,000 — the same ceiling as Fannie Mae and Freddie Mac.

But the House version would tie the limits to median home prices and could authorize FHA-insured loans in excess of $700,000 in expensive markets, such as San Francisco and Seattle

The House bill also would allow FHA applicants to obtain loans with zero down payments; currently the minimum is 3 percent down.

The Senate's version would require down payments of at least 1.5 percent. The House bill authorizes the FHA to vary insurance premium levels by applicant risk categories; borrowers who make minimal or no down payments could be charged higher premiums.

The Senate bill would impose a one-year moratorium on a risk-based pricing system developed by FHA and currently scheduled to take effect Jan. 1.

FHA loans, which faded in popularity during the subprime boom years of 2001-2006, are now regaining their earlier market share.

Not only do FHA's fixed-rate loans cost much less than subprime alternatives — often by 3 to 4 percentage points or more — but they also come without prepayment penalties and have relatively flexible and generous underwriting terms.

Paul E. Skeens, head broker at Carteret Mortgage in Waldorf, Md., says FHA is far more lenient on credit history issues than any of its competitors, and routinely funds applicants who have prior bankruptcies and foreclosures in their files.

With a zero-down-payment option as in the House-passed bill, "FHA will be the best solution anywhere in the market" for people with moderate incomes, first-time purchasers and those with less-than-perfect credit, Skeens said.

He believes even many buyers with prime credit will apply for fixed-rate, consumer-friendly FHA insured mortgages once the higher loan limits kick in.

In a head-to-head comparison of a hypothetical new $417,000 mortgage with zero down payment and 6.25 percent fixed rate for 30 years, Skeens said an FHA-insured loan would have lower monthly payments that either Fannie Mae's or Freddie Mac's directly competitive nothing-down programs.

On such a loan, according to Skeens' estimates, FHA borrowers would pay $2,779.80 a month — including all insurance and fees — versus $2,877.57 a month for a Fannie Mae mortgage.

Individuals with high credit scores might be able to qualify for a Fannie Mae zero-down program that requires no separate monthly private mortgage insurance payments, but that would raise the interest rate from 6.25 percent to 6.75 percent.

In that case, says Skeens, the Fannie Mae option would be about $75 cheaper a month.

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source: seattletimes.nwsource.com

Oregon subdivision a ghost town

Buena Vista Custom Homes unloaded 141 homes last weekend in an auction the company says was the biggest residential home auction by a single builder in Oregon's history.

The 2,209 people who swarmed into the Oregon Convention Center over two days snapped up almost all of the unsold homes the Lake Oswego-based builder put up for sale in Portland's suburbs.

But in Bend?

Not one of the 29 homes Buena Vista put up for auction in its Forum Meadows neighborhood in east Bend sold, company spokesman Mike Higgins said.

It was the only one of the company's nine sales areas without a transaction and the subdivision now stands like a ghost town, with empty houses hovering over half-landscaped lots.

Buena Vista President Roger Pollock thinks distance might have played a role, Higgins said. Buena Vista's Bend subdivision was the only neighborhood in the auction east of the Cascades, and it reflected the poorest turnout.

Of the 385 people who registered to attend the auction and left their registrations at the Forum Meadows site in Bend, only about 15 percent attended the actual auction in Portland, he said. By contrast, about 95 percent of the registrants who filed their forms in Portland-area neighborhoods actually attended the auction.

Buena Vista may stage another auction later on in Bend to try to move the Forum Meadows homes, hoping that geographical distance was the biggest factor in the Portland auction's failure to move anything here, Higgins said.

Meanwhile, he said, the company has no plans to start any new neighborhoods in Bend, even though it still has options on some available home lots.

"The market has got to come back before that will happen," Higgins said. "I guess we don't feel too good about that market just yet."

Buena Vista's decision to aggressively bring houses out of the ground last year, despite the nationwide slowdown in residential real-estate sales, got it named the No. 1 single-family homebuilder in Oregon and Southwest Washington by the Portland Business Journal. The award was largely based on the estimated value of the 309 building permits the developer pulled in Oregon last year.

About 96 percent of the company's 141 homes that sold at the auction went for final bids below their reserve prices, which were set at Buena Vista's break-even level, Higgins said.

That means that the company lost money on the sales, despite the weekend's $65 million in income.

Still, in every place except Bend, the auction achieved what Pollock set out to do — get rid of expensive-to-carry housing inventory. And it gave him some cash to use on his next moves.

"The sale of the homes from the auction put us in a great position as a buyer," Pollock said in a news release. "There are some great deals to be had out there right now on lots."

Some of the Bend houses attracted bids, Higgins said, but none of the bids came close enough to meeting the reserve prices to justify finalizing sales on any of the homes, Higgins said.

"They were trying to steal them," Higgins said.

The company retained the right to reject any final bids below its unpublished reserve prices, Higgins said. It was obligated to close on any final bids that rose above that level.

Buena Vista had hoped to see bidding start at $189,000 for its 1,133-square-foot models in Bend and $229,000 on its 2,116-square-foot homes.

Original asking prices had been $349,500 and $443,950, respectively.

Tamara Christensen and her family live nearby. She had hoped the auction would work at least well enough to fill the houses with people who would landscape the bare-dirt backyards she sees out of her back windows.

But another nearby resident said she was OK with the way it is.

"I kind of like having fewer neighbors," Charlene Gossling said.

"It's quiet."

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source: seattletimes.nwsource.com

What to do when you meet a potential buyer

When you put your home on the market, you may feel you've invited the world to your doorstep. The phone starts ringing, and your agent may ask you to take the family and the dog for a drive while your home is shown to a potential buyer.

Among the reasons you have an agent is to take your place for showings, but sometimes it just happens that you're home when another agent brings a prospective buyer.

Try to get out of the house, if possible.

Assign each family member a room, hand him or her a basket that can be used to gather up all clutter, then quickly shoved under a bed or put into a closet.

When the showing is over, you can retrieve the baskets and put things in their proper place.

The main reason you want to be gone is that it allows buyers the opportunity to imagine themselves as the new owners of your home. It also prevents you from inadvertently saying something that could improve the buyer's negotiating position.

Like preparing a witness for trial, your agent has probably coached you on what to talk about and what not to talk about when you come face-to-face with a buyer.

Here are suggestions that may help.

• Stay off topics that could be sensitive such as churches, schools or neighbors.

• If you have pets, don't mention that or your buyer's eyes might immediately start searching the floors for stains.

• Don't talk about what you've done to the home. That's a no-win game in which you either did too much and the buyer doesn't want to pay for it, or not enough and the buyer wants to discount your home.

• Don't mention warranties or guarantees. Some of these may be negotiation points you'll need later.

• Don't offer personal information about you, your situation, your job or any family members.

• Don't mention other buyers or the number of showings you've had.

• Don't mention anything about the size of the house or its rooms. "Cozy" rooms may appear small to some buyers, while other buyers may be looking to downsize.

• It is your house, but the buyer may consider your presence an intrusion.

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source: seattletimes.nwsource.com