The One Seattle Sector Where Investment May Be Risky

Capital loves Seattle real estate. And with good reason. But it isn’t blind love. Investors still see some risk here, especially in new multifamily development because there’s been so much of it.

The speakers at our Seattle Capital Landscape event at the Four Seasons were clear: there’s plenty of capital looking for deals in Seattle. Seattle is particularly attractive because of its employment fundamentals, strong tech sector, and a growing international reputation (one of the biggest movies in China now features characters not from LA or San Francisco, but Seattle). Even so, the lessons of the late 2000s haven’t been completely forgotten, especially the fact that a robust market always has the potential to turn ugly fast. So investors are a little more circumspect.

Security Properties managing director Ed McGovern and Talon Private Capital managing principal Bill Pollard. New development, especially complicated mixed-use projects, still pose a fair amount of risk, our speakers note. Investors are also nervous about multifamily overdevelopment and may switch from development deals to acquisitions—and redevelopment. Seattle has a lot of commercial product built in previous decades, and making those properties competitive again is a major opportunity for investors.

Cairncross & Hempelmann attorney Sandip Soli, who moderated, CrowdStreet VP Ian Formigle and Fundrise VP Katlin Jackson. Crowdfunding has a bright future here because real estate has a bright future, the panelists point out. If there’s a good sponsor and a good project, and a need for capital, crowdfunding can be a viable source. It’s still something of a novelty, but in many ways it isn’t so different from more conventional sources.

With crowdfunding, good deals tend to be funded quickly because the online platform helps expose them to investors that might not otherwise find out about them. Other advantages are its flexibility--it can provide any part of a project’s capital stack, for instance--it’s scalability to accommodate large and small investors, and the fact that investor management can largely be automated. Pictured: Timber Oaks Apartments in metro Dallas. CrowdStreet is raising funds for its acquisition (about 13.8% of the total investment).

Peng & Weber co-founder Cletus Weber and Daniels Real Estate president Kevin Daniels. Another rising funding source is EB-5, in which foreign investors receive US residential visas under specific and exacting rules. It’s complex and the rules change periodically without much warning. The majority of investors coming to the United States under the program are from China. It isn’t magic money--it won’t make a poor real estate deal into a good one—and it’s also typically only part of the capital stack; the program doesn’t stipulate where other capital can come from.

Homeier & Law PC partner Michael Homeier and Wailian Overseas Consulting Group EB-5 consultant Hong Yu. EB-5 isn’t specifically for real estate, but Chinese investors often prefer that kind of investment. As they’ve familiarized themselves with the program, investors have become much more sophisticated, and aren't looking just for a visa, but also solid returns. There’s also a focus among EB-5 investors on major projects in gateway cities--Hudson Yards in New York, for instance, raised a lot of EB-5 capital. Seattle definitely counts as a gateway with major projects on the way.