When Hyatt Regency Lake Washington opened in Renton's waterfront campus complex in 2017, the elegant hotel was hailed as a turning point for the Seattle suburb best known for its Boeing 737 assembly line.
Part of a $590 million mixed-use project called Southport that includes luxury apartments and a huge office complex, the 347-room Hyatt will attract tourists and business travelers while also becoming a property in its own right. considered to be a major employer.
In fact, employment was central to hotel financing. Nearly 200 foreign investors, many from China, contributed $500,000 each under a federal program that grants U.S. residency in exchange for investments in job-creating projects.
There have been fewer celebrations in Southport lately. Creditors took over the project's three office towers last year after Seattle developer Michael Chryst had trouble finding tenants.
And while the Hyatt Regency reportedly draws a lot of customers and creates a lot of jobs, according to a new lawsuit, Christ is currently selling the property. According to the company, foreign investors' $100 million worth of stake will almost disappear.
The lawsuit, filed this week in King County Superior Court on behalf of 49 Chinese investors, alleges how Christ left investors vulnerable when they had to put the hotels on the market at expected prices. claims to have managed the financing of the hotel project. loss.
The lawsuit alleges that Christ and other defendants defrauded investors and seeks $26.95 million in damages.
Mr. Christ and his Renton-based company, SECO Development, through their lawyers, rejected the investors' claims and cited high interest rates and the commercial real estate market as reasons why the hotel's foreign investors would not be “fully recovered” from the sale. criticized the situation. of the property.
Hyatt, which manages the location but does not own the property, did not respond to questions about the lawsuit or the sale.
The suit is the latest twist in a long-standing effort by Christ and others to bring Seattle's tech boom to the blue-collar South End community long defined by Boeing.
According to reports in the Puget Sound Business Journal and other media, in the late 1990s Christ was a 17.5-acre property owned by Puget Sound Power & Light (now Puget Sound Energy). It is said that he paid approximately $7 million for the company.
According to Christ, Christ eventually embarked on a mixed-use project with two “resort-style luxury” apartment buildings (completed in 2002 and 2008), followed by a hotel and a 720,000 sq. ft. building in three towers. ft.'s “Class A,” or high-end office space. Company documents and media accounts.
Christo, an experienced developer with numerous residential and mixed-use projects in Seattle and the Eastside, plans to build Southport's upscale mix of office, retail, residential and hotel rooms, as well as amenities such as high-speed fiber. Because of this, Renton believed that he could “captivate people.'' As the Seattle Times stated in 2015:
It seemed like a smart bet at a time when Amazon and other tech companies were taking up nearly all available office space in the Seattle area, worsening congestion and affordability on both sides of the lake. . As Christ later told the Puget Sound Business Journal, in Renton, “I think we needed to give this market an opportunity to look at alternatives.”
Many of the alternatives would be backed by foreign capital. According to the complaint, in 2013, SECO Development and other defendants began soliciting foreign investors to help finance Hyatt under the federal government's EB-5 program. The program allows foreigners to obtain permanent resident green cards in exchange for investing in projects for the purpose of creating or sustaining projects.
Ultimately, 199 EB-5 investors each contributed $500,000 (plus $50,000 in management fees) to the Southport hotel project, according to the complaint.
According to the complaint, investments totaling $99.5 million were placed in Southport Hotel EB-5 LP, a limited partnership managed by Christ. The partnership then loaned the money to build the hotel to another SECO partnership, Hotels at Southport LP, which owned the land, according to the lawsuit and state and federal filings.
Construction of the hotel began in 2014. The following year, Crist said groundwork had begun on the office project, which was also partially financed through the EB-5 program, according to media reports.
Southport's various projects seemed to be progressing well. In July 2017, the Hyatt Regency Lake Washington held its grand opening welcoming local dignitaries and then-Seattle Seahawk Doug Baldwin. His 12-story design for the hotel is said to “pay homage” to the “12th Man,” a nickname for Seahawks fans who train at the Renton facility.
The hotel also enjoyed strong bookings thanks to its elegant waterfront location and robust convention center facilities, despite an office tower under construction next door.
“It's been very well received and really strong out of the box,” said Brent Kaman, who runs hotel industry consulting firm BEC Asset Management Services and worked on the Southport Hyatt Regency project until mid-2018. '' he said.
An office complex that opened in 2019 also showed early promise. SECO was in talks to lease the entire office complex to a single tech tenant in 2020, according to interviews with multiple commercial real estate officials last year, all of whom declined to name the tenant.
SECO purchased nearby property for $23.5 million and appears to be planning more office space, Puget Sound Business Journal reported in February 2020.
Importantly, the Hyatt project is an investment project, according to the website of Seattle Family Regional Center, the federally designated EB-5 agency that is promoting the Southport project and shares the Renton address with SECO Development. It also created “all the jobs necessary” for the family to pursue permanent residency, he said.
This was a welcome achievement at a time when the EB-5 program was in the spotlight after a series of scandals, including one in Bellevue that allegedly defrauded investors and another in Renton that allegedly defrauded investors. Ta.
Then things started falling apart. Former SECO executive Kip Spencer told the Seattle Times in April that the office tower was unable to attract enough tenants and was largely empty.
By then, the office project's lender, Miami-based Starwood Capital Group, plans to auction off an “indirect interest” in the office campus and recoup the $288.2 million loan balance, according to auction documents. It is said that he was standing there.
Starwood announced in June that it had hired a management company to maintain the office building and find a tenant, Puget Sound Business Journal reported. SECO had sold the condo in 2021 for $191 million.
While the Hyatt Regency seemed largely unaffected by SECO's office problems, trouble was brewing behind the scenes.
Early in the financing process, EB-5 investors are advised that the EB-5 funds lent to the hotel will be given “priority” over other investments in the hotel, meaning that the EB-5 investor will It was guaranteed that it would be repaid. According to the complaint, the defendants recouped their investments in the project.
According to the complaint, EB-5 investors were also told that the only portion of the project financing that would take precedence over the EB-5 loan was an individual construction loan of “$19 million or less.”
Instead, starting around 2017, Christ and others withdrew their own funds from the hotel project and took out another $73 million loan in its place, which was, importantly, larger than the EB-5 loan, according to the lawsuit. It was a high priority.
The new loan has been refinanced several times, most recently in 2019 with a $130 million loan maturing last month.
In response to subsequent questioning from EB-5 investors, Crist and the other defendants stated that “unanticipated cost increases in project development ultimately ballooned total development costs to more than $250 million.” '', requiring a $73 million construction loan and various refinancings. According to the complaint.
According to the complaint, the defendants said the costs increased due to upgrades to the “original hotel design to meet the requirements of the Hyatt Regency brand.”
But Christ and other defendants were unable to refinance the $130 million loan, defaulted on the loan, and planned to sell the hotel property to repay the lender, according to the lawsuit.
It is unclear how far along the sale process is or who will buy the property and at what price. Real estate valuation in 2023 was $97 million, down from $110 million in 2017.
However, according to the lawsuit, when EB-5 investors were recently informed of the hotel's plans to sell the hotel, they were told that the sale proceeds would “repay both the $130 million senior loan and the $99.5 million EB-5 loan.” “It's not enough,” he said. .
On the contrary, the defendants estimated that investors would receive $11 million, representing less than 10% of the principal and interest they received.
Through their attorneys, Christ and SECO acknowledged that EB-5 hotel investors will not be able to fully recover their investments as a result of the hotel sale.But SECO argues that the shortfall reflects poor conditions in the current commercial real estate market in addition to high interest rates, according to Angus Nee, a partner at the New York firm Moreau. To, said in an emailed statement Thursday.
Nee said “some” of the EB-5 hotel investors chose to litigate “despite good faith efforts to explain to them the market realities and the history of the project.”
“We sympathize with their feelings, but the allegations in this lawsuit are completely wrong,” Nee said, adding that the suit “is likely to be based overseas, and for example, how much of the city is being built. It reflects the misconceptions of people who do not have enough information about how much it costs.” There are complex issues with a hotel of this size and scale, the U.S. real estate market, and many others. ”
Matthew Sava, one of the attorneys representing EB-5 hotel investors, had a lively response.
“Any suggestion that my client does not understand the market or the economics of the project is false and comes from a fiduciary with a responsibility to protect investors and act in their best interests. “This is a problem,” Sava, the litigation director, wrote. New York-based Reed & Wise said in an email Friday.
A trial date is set for March 10, 2025.
