Developer still ‘bullish’ on Tacoma despite foreclosure threat on Dome District project

Another high-profile development in Tacoma has run into financial trouble, but the developer believes his project could be back on solid footing in the coming months.

Construction of Tacoma Trax, 415 E. 25th St. next to the Tacoma Dome Station, is facing multiple lien filings, according to Pierce County Assessor-Treasurer records online.

The developers are also the focus of two separate cases filed in King County Superior Court seeking to recoup money owed on loans and construction equipment rental.

The Trax liens and court action were first reported this month by the Seattle Daily Journal of Commerce.

A notice of trustee sale recorded in Pierce County on March 31 announces a July 21 foreclosure auction for Tacoma Trax and the developers’ completed Madison Plaza project in Kent, which is also part of the court filings.

Eugene Gershman is CEO of GIS International Group, which in 2021 entered into developing Trax along with DMG Capital Group. DMG Capital was selected a few years earlier by the city and Pierce Transit to develop the site, formerly owned by Pierce Transit.

GIS and DMG developed the Kent and Tacoma sites as Madison Plaza LLC. The Tacoma site is a five-story, 115-unit project that started construction last year, while the Madison Plaza is a seven-story, 157-unit building that celebrated its grand opening in September.

“The two projects are tied to the same construction loan and same ground lease. So that’s why they’re both being affected,” Gershman told The News Tribune this week.

Last year, he described the 99-year ground lease with Safehold as a development-financing vehicle.

The ground lease for Trax “allowed us to get this project funded by splitting up the grounds and the building,” he told The News Tribune in 2022. “It wasn’t always the plan. … There are multiple different ways to finance the project, and this was one of them. In the long term, the value is primarily from the operations of the project, not the land that it’s built on.

“When we sold the land, we received some cash for the building and then we supplemented that with a construction loan.”

Court filings describe what happened next.

Details of court filings

One of the King County cases against the Trax developers was filed in February by their lender, LA-based Parkview Financial, over claims of nonpayment totaling more than $38.2 million on a $54.5 million loan.

The unpaid total includes a principal of more than $36.2 million, accrued unpaid interest of more than $1.4 million and default interest, fees, costs and other amounts of more than $550,000, according to the filing.

“On February 23, 2023, the Lenders commenced a non-judicial foreclosure of the Properties through service of a notice of default in the required statutory form on Madison-Trax and others,” the filing stated. “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 states that Madison-Trax stopped work on the Tacoma property in December.

“On February 10, 2023, the Administrative Agent notified Madison-Trax of its determination that work at the Tacoma Property had fallen more than 30 days behind the construction schedule and demanded that Madison-Trax reschedule construction in a manner acceptable to the Administrative Agent within 10 days,” the filing states. “Madison-Trax failed to timely reschedule construction.”

The second case in King County was filed in April by Sunbelt Rentals, a North Carolina-based construction equipment rental company, also seeking reimbursement for various claims listed in the filing covering breach of contracts, foreclosure of lien claim and action on contractor’s bond.

Gershman told The News Tribune regarding the potential foreclosure for both Trax and Madison Plaza, “I think our lender’s being a little aggressive.”

“I’m feeling fairly confident that we’ll get through it,” he added. “We have several term sheets that we’re evaluating on refinance, or even possible sale of Madison Plaza. So I’m pretty confident that before July, we’ll get it resolved.”

He described where Trax construction is for now.

“The concrete podium is about to be finished,” he said. “We have two decks above ground of the concrete podium. It’s got one more deck to go. And then it would switch to wood framing.”

Market conditions

The activity against Trax follows recent news of potential foreclosure involving a portion of Tacoma Town Center. Court records in that case contend developers still owe the project’s architect hundreds of thousands of dollars despite an earlier settlement agreement.

The case has been continued to April 21 in Pierce County Superior Court.

Overall, the pace of new multifamily projects seeking tax exemptions has slowed in Tacoma, with just eight multifamily property tax exemption requests from developers submitted for City Council consideration or listed as “agenda ready” so far this year on the public docket.

By the end of April of last year, nearly 20 new MFTEs had been approved.

As for what’s behind Trax running into financial trouble, Gershman pointed to “post-COVID” market conditions, including “labor shortage and cost escalation that affected us, just like it did everybody else.”

“Cost of construction has gone up,” he added. “And a lot of projects are not penciling.”

He noted that despite current headwinds, his development team is “still bullish on Tacoma.”

“We’ve got other projects in the pipeline in Tacoma that we’re looking at,” he added. “And I think the the greater Seattle area is definitely poised for success long term.”