Renton hotel developer sued for fraud by dozens of foreign investors

When the Hyatt Regency Lake Washington opened in 2017 on a mixed-use waterfront campus in Renton, the elegant hotel was hailed as a turning point for a Seattle suburb best known for its Boeing 737 assembly lines.

Part of a $590 million mixed-use project, called Southport, that included high-end apartments and a huge office complex, the 347-room Hyatt was seen as both a magnet for visitors and business travelers and a major employer in its own right.

Indeed, jobs were central to the hotel’s financing: Nearly 200 foreign investors, many from China, each put in $500,000 under a federal program that grants U.S. residency in exchange for investment in projects that create jobs.

These days, there’s less celebration at Southport. Last year, creditors took over the project’s three office towers after the Seattle developer, Michael Christ, struggled to find tenants.

And while the Hyatt Regency reportedly has plenty of guests — and has generated lots of jobs — Christ is now selling the property in a deal that, according to new lawsuit, will largely wipe out the foreign investors’ $100 million stake.

The lawsuit, filed this week in King County Superior Court on behalf of 49 Chinese investors, alleges that Christ managed the hotel project’s financing in ways that left the investors vulnerable when he had to put the hotel on the market for what is expected to be a loss.

The suit said Christ and other defendants defrauded investors and demands $26.95 million in damages.

Through their attorney, Christ and his Renton-based firm SECO Development rejected investors’ allegations and instead blamed high interest rates and the state of the commercial real estate market as the reasons the hotel’s foreign investors won’t be “made whole” by the sale of the property.

Hyatt, which manages the location but doesn’t own the property, did not respond to questions about the litigation or the sale.

The suit is the latest twist in long-standing efforts by Christ and others to bring the Seattle tech boom to a heavily blue-collar South End community long defined by Boeing.

In the late 1990s, Christ paid around $7 million for a 17.5-acre site owned by Puget Sound Power and Light, now Puget Sound Energy, according to the Puget Sound Business Journal and other media accounts. 

Christ eventually embarked on a mixed-use project with two “resort-style luxury” apartments (completed in 2002 and 2008), followed by the hotel and 720,000 square feet of “Class A,” or premium, office space in three towers, according to company documents and media accounts.

Christ, a seasoned developer with numerous residential and mixed-use projects in Seattle and on the Eastside, believed Southport’s upscale mix of offices, retail, housing and hotel rooms, along with amenities such high-speed fiber, would allow Renton to “lure a big tech tenant,” as The Seattle Times put it in 2015.

It seemed a smart bet at the time when Amazon and other tech firms were taking up virtually any available office space in the Seattle area, and congestion and unaffordability were worsening on both sides of the lake. As Christ would later tell the Puget Sound Business Journal, “I think we needed to give this market a chance to see an alternative” in Renton.

Much of that alternative would be backed by foreign capital. In 2013, SECO Development and other defendants began recruiting foreign investors to help finance the Hyatt under the federal EB-5 program, according to the lawsuit. The program lets foreigners earn a permanent resident’s green card in exchange for investing in projects that create or preserve projects.

Eventually, 199 EB-5 investors each contributed $500,000 (plus a $50,000 administration fee) to the Southport hotel project, according to the lawsuit.

In all, $99.5 million in investment was put into a limited partnership, Southport Hotel EB-5 LP, managed by Christ, according to the lawsuit. That partnership then lent the funds to build the hotel to another SECO partnership, Hotel at Southport LP, which owned the land, according to the suit and to state and federal filings.

Hotel construction began in 2014. The following year, Christ said foundation work was starting on the office project, which also had partial financing via the EB-5 program, according to media reports.

The various Southport projects appeared to be going well. In July 2017, the Hyatt Regency Lake Washington had a grand opening with local dignitaries and then-Seattle Seahawk Doug Baldwin. The hotel’s 12-story design was said to be “a nod” to “the 12th Man,” a nickname for fans of the Seahawks, who train at a Renton facility.

The hotel also enjoyed strong bookings, despite the under-construction office towers next door, thanks to its elegant waterfront location and robust convention center facilities.

“It was very well received, just out-of-the-box strong,” said Brent Camann, who runs hotel industry consulting firm BEC Asset Management Services, and was part of the Southport Hyatt Regency project until mid-2018.

The office complex, which opened in 2019, also showed early promise. In 2020, SECO was in negotiations to lease the entire office complex to a single tech tenant, according to interviews last year with several commercial real estate insiders, though all declined to name the tenant.

SECO appeared to be planning still more office space with the purchase of nearby properties for $23.5 million, the Puget Sound Business Journal reported in February 2020.

As important, the Hyatt project also generated “all jobs needed for” investors to pursue permanent residency, according to the website for Seattle Family Regional Center, the federally designated EB-5 entity that promotes Southport projects and shares a Renton address with SECO Development.

That was a welcome achievement at a time when the EB-5 program had come under growing scrutiny after a series of scandals, including a Bellevue developer who allegedly cheated investors and a Renton developer who deceived investors.

Then things started to fall apart. The office towers were never able to attract enough tenants, former SECO executive Kip Spencer told The Seattle Times in April, and were largely empty.

By that time, the office project’s lender, Miami-based Starwood Capital Group, made plans to auction an “indirect interest” in the office campus to recover an outstanding loan balance of $288.2 million, according to auction documents.

In June, Starwood said it would retain the office buildings and had hired a management firm to find tenants, the Puget Sound Business Journal reported. SECO had sold the apartment buildings in 2021 for $191 million.

The Hyatt Regency appeared to be largely unaffected by SECO’s office problems, but trouble had been brewing behind the scenes.

Early in the financing process, EB-5 investors were assured that the EB-5 funds being lent for the hotel would be “senior” to other investments in the hotel — that is, the EB-5 investors would be repaid before Christ and other defendants recovered their own investment in the project, according to the suit. 

EB-5 investors were also told that the only part of the project financing that was senior to the EB-5 loan would be a separate construction loan of “no more than $19 million,” according to the suit.

Instead, starting around 2017, Christ and others withdrew their own funds from the hotel project and replaced those funds by taking out a separate loan for $73 million that, importantly, was senior to the EB-5 loan, according to the suit. 

That new loan was refinanced several times, most recently in 2019 with a $130 million loan that matured last month.

In response to subsequent inquiries by EB-5 investors, Christ and other defendants said the $73 million construction loan and various refinancings were necessary due to “unexpected cost increases in developing the Project, which eventually escalated the total development costs to over $250 million,” according to the lawsuit.

Defendants said costs had increased due to an upgrade in “the original hotel design to satisfy the requirements of the Hyatt Regency brand,” the lawsuit said.

But Christ and other defendants were unable to refinance the $130 million loan, which went into default, and planned to sell the hotel property to repay the lender, according to the suit. 

It’s unclear how far along the sales process is, or who might buy the property and at what price. In 2023, the property was assessed at $97 million, down from $110 million in 2017.

But when the EB-5 investors were recently informed of the planned hotel sale, they were also told that sale proceeds “would not be sufficient to repay both the $130 million senior loan and the $99.5 million EB-5 Loan,” according to the suit.

To the contrary, defendants estimated that investors would receive $11 million, or less than 10% of what they say they are owed in principal and interest, according the suit. 

Through their attorney, Christ and SECO concede that the EB-5 hotel investors won’t fully recover their investment as a result of the hotel sale. But SECO contends that any shortfall reflects the poor conditions in the current commercial property market, along with high interest rates, said Angus Ni, a partner at the New York firm Morrow Ni, in an emailed statement Thursday.

Ni said a “subset” of the EB-5 hotel investors had opted for litigation, “despite good faith efforts to explain market realities and the history of the project to them.”

“While we sympathize with their sentiments, the lawsuit’s allegations are simply wrong,” Ni said, adding that the suit “reflects the misconceptions of people who likely reside abroad and do not have sufficient information about, for example, what it costs to build a hotel of this scale and size, the real estate market in the U.S., and many other complex issues.”

That drew a brisk response from Matthew Sava, one of the attorneys representing the EB-5 hotel investors.

“The suggestion that my clients do not understand the market or the economics of the project is wrong and, coming as it does from a fiduciary responsible for protecting the investors and acting in their best interests, is troubling,” Sava, head of litigation at the New York firm Reid & Wise, wrote in an email Friday.

A trial date has been set for March 10, 2025.