Seattle's Biggest Owner Banks on Strategic Default

Seattle's biggest office owner, Boston-based Beacon Capital Partners, has already defaulted on one major loan and has stopped making payments on a $2.7 billion loan that it used to buy two major Seattle-area properties and 11 others in Washington, D.C., in 2007, at the height of the market.

According to a recent report by credit-rating agency Standard and Poor's (S&P), Beacon claims that in 2010, after subtracting expenses of operating the 20 buildings, its rents from the properties will cover just 20 percent of its debt payments. Beacon says that it won't pump any more of its own money into leasing, improving, or paying debt on the buildings without a “meaningful loan modification,” according to S&P.

Some experts say that this may be a move to get the interest-only loan modified and extended well before it matures in May 2012, not a sign of desperation. Experts frequently see commercial owners using these “strategic defaults” because lenders won't adjust loans to businesses that are paying their bills. Beacon hasn't made a payment since February, and handling of the loan was transferred in April to a special servicer at Beacon's request. The debt transfer was required by Beacon's lender before it would start restructuring talks.