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What are the financial "instruments" ? The main claims from the article seem worrysome, IN particular, the 37% vacancy rate, as well as multiple buildings unde

What are the financial "instruments" ? The main claims from the article seem worrysome, IN particular, the 37% vacancy rate, as well as multiple buildings underwater[3], etc. Now, lets dissect the claims that this is part of some cycle, and not the result of new city hall management. The reality is that with Jumpstart, and with the vacancy rate, enterprises are not renting. But, the owner is stuck with the asset in what is now a hostile jurisdiction. So, even if owner may not be able to change terms on their mortgage, they certainly can charge less for rent. Empty units do not contribute to cash flows to pay the building mortage. I understand there may be consequences to lowering rents, but those consequences are coming home anyway: The building will need to be sold, at a loss, by the bank to a new owner. And as you said, that process takes time. And the jurisdiction seems hellbent to make it harder. Now, as buildings sell, this in turn lowers the appraised value, which is key to the Seattle tax base. So, the downtown core is going to produce far less in property taxes in the foreseeable future, with fewer tenants paying (at least in short term) occupancy taxes, etc. This is going to play out in a decade. According to this, commercial property taxes are about 26 %[1] of the Seattle budget Let's assume appraisals go down 50% for those impaired offices. This is not crazy, there's precendent for it[2]. That means the Seattle budget must be cut by 13%. This is not even factoring other losses from job loss, sales tax lost, etc. Maybe that's not "Seattle is dying" , but sound pretty bad ? [1] https://www.seattle.gov/documents/departments/financedepartment/19proposedbudget/revenueoverview.pdf https://www.seattle.gov/documents/departments/financedepartm... [2] Seattle/downtown office properties lost ~$10–15+ billion in assessed value since 2020 (46–48% drop) . https://cdn.downtownseattle.org/app/uploads/2026/06/New-Report-JumpStart-Promised-Growth.-Seattle-Got-an-Economic-Slowdown-1.pdf https://cdn.downtownseattle.org/app/uploads/2026/06/New-Repo... [3] https://www.king5.com/article/money/business/downtown-seattle-association-business-climate-report/281-58f97cb0-b256-4444-a9b6-385dafe830ff https://www.king5.com/article/money/business/downtown-seattl...

Schiendelman 3mo ago
The financial instruments are commercial real estate loans. Those loans often do not allow the borrower to charge lower rent. Property taxes are not calculated that way. The property tax rate for a given year is backed into (a "mill rate") based on approved dollars of spending divided by total property value. If total citywide property value drops by 50%, the property tax rate doubles that year. So no, the property value changes aren't really an issue.
- hedgehog 3mo ago
  I'll add a few bits. Commercial leases are typically "triple net" so taxes are passed pretty much directly through to tenants and land lords don't need to worry too much about them. A very visible part of the "dead downtown" effect is due to small businesses that have terrible margins, high fixed costs (including rent), and don't survive losing 20% of their customer base. And finally, anyone paying attention saw that Seattle core downtown is a highly concentrated bet on office rental to the exclusion of almost any other use of space or reason to go there. A few years back I did an art installation in one of the storefronts at the 2+U building and in the process got to study up on some of the issues and talk to a few people, the general theme was that everyone had a vested interest in focusing on possible causes that were external and fixable within a short time. I don't think that's reality.
- lotsofpulp 3mo ago
  >Those loans often do not allow the borrower to charge lower rent. I have never seen it substantiated that a promissory note in commercial real estate has a clause that dictates how the borrower can price their products or services. There will be terms for the borrower to be in default if they lose too much revenue or their expenses go up too much, such as leaving spaces empty: https://www.investopedia.com/terms/d/dscr.asp https://www.investopedia.com/terms/d/dscr.asp Whether a lender wants to foreclose on a borrower in default is far from guaranteed. Often times, they are loathe to take over management of a building so they simply work out a new agreement with the borrower.
  - bruce511 3mo ago
    No there won't be clauses about rental amounts. It's not that straightforward. It boils down to collateral for the loan. A building has a value based on future rents. The owner borrows from the bank based on that value. The building is collateral for the loan. The rental rate (not occupancy) determines the current building value. (Occupancy affects cash-flow, but not building value.) Reducing rent improves cash flow, which may help paying the loan, but loan payments here are not important. What is important is that the collateral covers the loan. Reducing the rent triggers a re-evaluation of the building value, which in turn affects the loan. There's no discretion here, it's just math. On the other hand, as long as the owner continues to pay the installment on the loan, and as long as the building remains the same value, the banker doesn't have to do anything. Yes, there are ways the price can be fudged a bit (bundling services, remodeling allowances and so on) but the "list price" of the rent can't come down without (automatically) triggering loan problems. Since property companies tend to have multiple properties, cash flow is sufficient to pay the loan. So that's a lot better than triggering a revaluation. In short commercial real estate does not behave like residential real estate.
adam_arthur 3mo ago
An increase in vacancies across the board is reduction in demand, plain and simple. That the new equilibrium price to re-tenant all the buildings is lower is evidence of that. But the OP is correct that when enough of the building owners default on their debt, the building will be foreclosed, sold for less and asking rents will go down towards the new equilibrium price. Thus occupancy is likely to improve again down the line. But, yes, this is not a bullish situation for Seattle. Office generally hasn't been doing well nationally, so it's more of a question of relative performance.
- Schiendelman 3mo ago
  Honestly, I think is a bullish situation for Seattle. With vacancy this high we're likely a more attractive place to start a small company, as recollateralization and foreclosure put square footage on the market at competitive prices. For those who compare to Bellevue - in 2025 we grew population at 0.8% to Bellevue's 0.2%. You'd never know that from the vacancy reporting.
  - adam_arthur 3mo ago
    Drop in rents is drop in demand, plain and simple. Fewer businesses want to invest and move into Seattle at the price it used to cost. It's true that if occupancy is poor, then a recovery in occupancy will bring more activity. It's bullish in the same way that cheaper housing due to increased crime and decline in quality of life draws in new residents. Again, office is doing poorly nationally, but it does seem particularly worse in Seattle than other hubs. If I'm not mistaken, Seattle has the worst office vacancy in the country by a decent margin, aka the most demand destruction.
    - Schiendelman 3mo ago
      If you look back at my original comment, you'll note I mentioned that sublets at appropriate pricing are filling quickly. Occupancy isn't appropriate for current demand. Occupancy is depressed by owners avoiding recollateralization.
toast0 3mo ago
> So, the downtown core is going to produce far less in property taxes in the foreseeable future, with fewer tenants paying (at least in short term) occupancy taxes, etc. This is going to play out in a decade. > According to this, commercial property taxes are about 26 %[1] of the Seattle budget In WA state, the property tax collected isn't related to the total of the assessed value. The total tax billed across all existing properties typically goes up 1% per year (the "levy lid"), unless voters have allowed a "levy lid lift". That total is apportioned amongst the properties by value. So if everybody's property values drop in half, their property tax rate doubles (plus a little) and their tax bill stays about the same. Of course, if commercial property assessments drop and residential assessments stay the same or go up, commercial bills will drop and residential bills will go up. But the total tax bill will still be 1% more than last year.

Schiendelman 3mo ago

The financial instruments are commercial real estate loans. Those loans often do not allow the borrower to charge lower rent. Property taxes are not calculated that way. The property tax rate for a given year is backed into (a "mill rate") based on approved dollars of spending divided by total property value. If total citywide property value drops by 50%, the property tax rate doubles that year. So no, the property value changes aren't really an issue.

hedgehog 3mo ago
I'll add a few bits. Commercial leases are typically "triple net" so taxes are passed pretty much directly through to tenants and land lords don't need to worry too much about them. A very visible part of the "dead downtown" effect is due to small businesses that have terrible margins, high fixed costs (including rent), and don't survive losing 20% of their customer base. And finally, anyone paying attention saw that Seattle core downtown is a highly concentrated bet on office rental to the exclusion of almost any other use of space or reason to go there. A few years back I did an art installation in one of the storefronts at the 2+U building and in the process got to study up on some of the issues and talk to a few people, the general theme was that everyone had a vested interest in focusing on possible causes that were external and fixable within a short time. I don't think that's reality.
lotsofpulp 3mo ago
>Those loans often do not allow the borrower to charge lower rent. I have never seen it substantiated that a promissory note in commercial real estate has a clause that dictates how the borrower can price their products or services. There will be terms for the borrower to be in default if they lose too much revenue or their expenses go up too much, such as leaving spaces empty: https://www.investopedia.com/terms/d/dscr.asp https://www.investopedia.com/terms/d/dscr.asp Whether a lender wants to foreclose on a borrower in default is far from guaranteed. Often times, they are loathe to take over management of a building so they simply work out a new agreement with the borrower.
- bruce511 3mo ago
  No there won't be clauses about rental amounts. It's not that straightforward. It boils down to collateral for the loan. A building has a value based on future rents. The owner borrows from the bank based on that value. The building is collateral for the loan. The rental rate (not occupancy) determines the current building value. (Occupancy affects cash-flow, but not building value.) Reducing rent improves cash flow, which may help paying the loan, but loan payments here are not important. What is important is that the collateral covers the loan. Reducing the rent triggers a re-evaluation of the building value, which in turn affects the loan. There's no discretion here, it's just math. On the other hand, as long as the owner continues to pay the installment on the loan, and as long as the building remains the same value, the banker doesn't have to do anything. Yes, there are ways the price can be fudged a bit (bundling services, remodeling allowances and so on) but the "list price" of the rent can't come down without (automatically) triggering loan problems. Since property companies tend to have multiple properties, cash flow is sufficient to pay the loan. So that's a lot better than triggering a revaluation. In short commercial real estate does not behave like residential real estate.

adam_arthur 3mo ago

An increase in vacancies across the board is reduction in demand, plain and simple. That the new equilibrium price to re-tenant all the buildings is lower is evidence of that. But the OP is correct that when enough of the building owners default on their debt, the building will be foreclosed, sold for less and asking rents will go down towards the new equilibrium price. Thus occupancy is likely to improve again down the line. But, yes, this is not a bullish situation for Seattle. Office generally hasn't been doing well nationally, so it's more of a question of relative performance.

Schiendelman 3mo ago
Honestly, I think is a bullish situation for Seattle. With vacancy this high we're likely a more attractive place to start a small company, as recollateralization and foreclosure put square footage on the market at competitive prices. For those who compare to Bellevue - in 2025 we grew population at 0.8% to Bellevue's 0.2%. You'd never know that from the vacancy reporting.
- adam_arthur 3mo ago
  Drop in rents is drop in demand, plain and simple. Fewer businesses want to invest and move into Seattle at the price it used to cost. It's true that if occupancy is poor, then a recovery in occupancy will bring more activity. It's bullish in the same way that cheaper housing due to increased crime and decline in quality of life draws in new residents. Again, office is doing poorly nationally, but it does seem particularly worse in Seattle than other hubs. If I'm not mistaken, Seattle has the worst office vacancy in the country by a decent margin, aka the most demand destruction.
  - Schiendelman 3mo ago
    If you look back at my original comment, you'll note I mentioned that sublets at appropriate pricing are filling quickly. Occupancy isn't appropriate for current demand. Occupancy is depressed by owners avoiding recollateralization.

toast0 3mo ago

> So, the downtown core is going to produce far less in property taxes in the foreseeable future, with fewer tenants paying (at least in short term) occupancy taxes, etc. This is going to play out in a decade. > According to this, commercial property taxes are about 26 %[1] of the Seattle budget In WA state, the property tax collected isn't related to the total of the assessed value. The total tax billed across all existing properties typically goes up 1% per year (the "levy lid"), unless voters have allowed a "levy lid lift". That total is apportioned amongst the properties by value. So if everybody's property values drop in half, their property tax rate doubles (plus a little) and their tax bill stays about the same. Of course, if commercial property assessments drop and residential assessments stay the same or go up, commercial bills will drop and residential bills will go up. But the total tax bill will still be 1% more than last year.