As Warren Buffet likes to say about poker: “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”
Yet again, the Federal Way mayor and City Council have proven that they are the patsies and they have no business playing poker, or in this case, buying commercial real estate.
Just a few months ago the city made the impulse decision to purchase the old Target building that sits adjacent to the Transit Center and Performing Arts and Conference Center site. Reasonable people may debate the merits of buying yet another property, especially as their dreams of a Crystal Palace have turned into a parking lot disguised as a park.
What no one has been willing to debate, discuss or justify is why the city paid an extra $2.4 million for a property that for the last four years nobody else wanted.
Naturally, the mayor’s office publicly insists that the $8.4 million they paid for the property was a good deal. Privately, it is rumored that they almost immediately realized they had been suckered into overpaying, which is one explanation for why they have been lashing out at anyone who questions their rationale (like me).
For those of you not following the commercial real estate market, the property in question is the old Target building just uphill from the Transit Center. Despite the promise (or threat) of being adjacent to the Performing Arts and Conference Center, nobody was willing to pay the asking price of $6 million.
After sitting on the market for four years at this price, the property owner had allowed himself to fall $300,000 behind in property taxes. For all but the most inexperienced investors, this was an obvious case of a desperate seller who deserved nothing more than a lowball offer (like maybe $4 million).
Given the seller’s apparent desperation, why was the city so willing and anxious to pay an extra $2.4 million above the listing price for the property? Unfortunately, the mayor fell victim to a timeless poker strategy — the bluff. Out of the blue, an allegedly wealthy Chinese investor walked into the mayor’s office stating that he was going to purchase the old Target building for approximately $8 million.
There were three reasons or “tells” that this was a bluff.
First, our Chinese friend had put no money in escrow, only an IOU for $300,000. This gave him the ability to officially claim he was buying the property, with nothing to lose other than an IOU that would be nearly impossible to enforce. In other words, if the city didn’t fall for the bluff, he could walk away from the deal having lost nothing.
Second, our Chinese friend claimed to be paying all cash. Anyone with $8 million cash would be smart enough to know that the seller was desperate and that the property was at best worth $6 million. The city’s own appraisal confirmed that the value was just $5.8 million.
Third, our Chinese friend had just completed a different multimillion dollar real estate deal with the same seller. Their first deal could have easily included a verbal agreement to make a no-risk bluff against the city to buy the old Target building.
Now admittedly, if our Chinese friend is as wealthy as he claims, his ability to bluff a deal is probably quite good, especially when compared to our mayor and council, who despite their many strengths, likely have little or no experience with commercial real estate (at least not with their own money).
How do we know for certain that our Chinese friend was bluffing? Because he walked away from a binding selling agreement. Once he knew that someone made an offer higher than his (and it was obviously the city), why would he walk away from the deal? Why wouldn’t he buy the property for the agreed $8 million and then turn around and sell it to the city for $8.4 million or even more? Why not? Because he was bluffing all along and likely knew that the appraised value was $5.8 million.
The tragedy here is not that the mayor and council played the role of the patsy, but rather that they wasted another $2.4 million of your hard earned money in the process. To put this in perspective, this is enough money to hire 20 extra police officers for a year to catch the punks that keep breaking into our cars, or the scumbags running human trafficking rings in our community.
While this money is likely lost forever, we can only hope that the mayor and council will finally recognize that they need to put down their Kool-Aid, stop chasing their delusions of grandeur and instead focus on the things that really matter to the citizens of Federal Way.
Most importantly, they need to learn how to recognize when they are the patsy at the poker game.
Contact Federal Way resident Matthew Jarvis at jarvismp@outlook.com.
