Investment firm runs afoul on historic Seattle projects

A Seattle real estate firm behind historic remodel projects reshaping Pioneer Square has a reputation for spending money, playing loose with state laws and giving tenants short shrift.

Seneca Ventures, billed as a real estate investment firm, and its principal, Kurt Fisher, offered investors a chance to buy into upscale remodels of both the 128-year-old J&M Hotel and the Metropole building. But in so doing failed to properly register with the state and didn’t disclose risks to investors who poured more than $2.5 million into the two projects, according to an order filed with state financial regulators.

The company was also behind the purchase of an apartment building in Seattle's Westlake neighborhood where tenants' rents were hiked as much as 121 percent amid remodel work that made the building "uninhabitable," according to several tenants who lived there at the time. Remodel work there started without proper permits, and rent increases, while legal, were initially issued improperly.

Now, the company has scrubbed the five investment offerings off its website and appears to have halted any efforts to continue work on the Pioneer Square projects. The J&M building is up for sale. Meanwhile, a judge in October ordered what amounted to a $105,000 lien on the property while a lawsuit filed by the Westlake apartment building tenants moves forward.

Fisher has not responded to requests for comment.

Read our accompanying story about how the company failed to pay contractors here

Struggling projects

From the outset, both the J&M Hotel project and the Metropole project had big hurdles to overcome.

The Metropole, badly damaged by fire before Seneca purchased it, needed retrofitting to bring it up to code for earthquake safety and more -- work that halted the previous owners plans to remodel it themselves.

Over at the J&M, while the ground floor held the still-open J&M Cafe and Cardroom, the rest of the building had been disused for decades, with upstairs rooms in disrepair. Remodel plans would see two floors added to the J&M and shutter the existing restaurant and bar during the process.

In all, the J&M project would cost at least $10 million, beyond the $3.2 million Seneca spent in 2014 to buy it. The Metropole building, which Seneca bought for $4 million, would cost another $12 million to rehab.

But Fisher had already struggled just to buy the Metropole building.

NBL II agreed in 2015 to sell the building to Seneca for $4 million, but Fisher came up short on the purchase price. To help make up the difference, NBL II took a $350,000 stake in Metropole Capital Group, the company created for the project, according to court records.

To protect their investment, the sellers made Fisher agree to give the former owners the option to demand Fisher buy them out at any time.

But when NBL II asked for its stake a few months later, Fisher didn’t pay up, according records filed in King County Superior Court. NBL sued Fisher and his wife for their stake plus interest and, in February, the former owners were awarded more than $467,000 in a judgment against Fisher. The owners, Shannon and Reyn Yates, could not be reached for comment and their attorneys in the suit declined to comment.

RELATED: Historic J&M Hotel plans could be scrapped

Just days after that judgment was issued, both properties went into foreclosure and were nearly sold in May before Seneca secure new financing intended to resuscitate the work.

Investigation

At the time, Seneca was still advertising the J&M, the Metropole, the Westlake apartment building (dubbed "The Brittany," presumably after Fisher’s business partner Brittany Shulman) and one other property as potential investments.

Calls to the Washington State Department of Financial Institutions (DFI) turned up no registration for Seneca Ventures or any of the associated LLCs at the time. But those calls did have another impact.

After receiving calls from SeattlePI, DFI’s Faith Anderson, chief of registration and regulatory affairs, referred the case to the organization’s enforcement unit, where an investigation began.

Janet So, a financial legal examiner who headed the investigation, found that Seneca was offering investments in two projects with no registration and no exemption, meaning it was in violation of state law.

Furthermore, Seneca had mislead investors and failed to disclose the risks of the projects to investors, according to the consent order.

Investors had poured $1.24 million into the Metropole and another $1.32 million into the J&M with a promise of a 20 percent annual return on investments and the option to be repaid at the end of one year. But Seneca "had failed to disclose that the return on investment would be dependent on the success of the property development ventures and that (Seneca and Fisher) did not have any funds reserved to repay the investors," the order read.

And the many risks associated with the projects -- lack of capital to finish, dilution of shares, project delays, and more -- were not disclosed to investors, the state found.

The violations -- which Seneca and Fisher did not admit to but promised not to continued violating in the consent order -- did not necessarily represent a malicious attempt to defraud investors or hide activity, So said. Such violations are common in real estate deals by people who aren’t experienced in investment law.

"I can’t say for sure, but it certainly gives the appearance that he (Fisher) might not have known what he was doing," So told SeattlePI.

Under the consent order, Fisher and Seneca agreed to pay $1,500 in fines -- one $750 fine for failing to register and one for failing to disclose risks -- without admitting any guilt. Should the company or Fisher continue to violate either clause of state law, it would amount to a criminal violation, the order read.

Fallout

To date, neither the Metropole or the J&M has seen any construction work begin. Not any demolition, not any hauling of trash, nothing aside from a Native cleansing ceremony in the J&M performed in what looked like a media showcase shortly after the building was purchased.

When a SeattlePI reporter asked around at the J&M Cafe bar in June, a bartender dismissed the plans for the building. He had never seen any indication of work moving forward, and the cafe had a long lease.

Seneca’s efforts seemed potentially revived once the company staved off a foreclosure auction set for June 2, but the new financing at least in part went to pay outstanding debts, like the $100,000-plus owed to BuildingWork architecture, after the company put a lien against the property.

As of Dec. 13, the J&M Hotel building was listed for sale on LoopNet for $6.75 million, more than twice what Seneca paid for it three years earlier. The Metropole didn’t appear to be listed for sale at the time, but was listed earlier in the year.

With permits and other approvals in place, the project could move ahead under new ownership, something architect Matt Aalfs said he would like to see.

"My hope is that these two projects can advance in some other fashion with a new owner," said Aalfs, a co-founder at BuildingWork who worked on the project until October 2016, when he and other contractors halted their efforts after being unpaid since the project started.

"I find a lot of meaning and enjoyment saving old buildings," Aalfs said. "It’s so important at a time when so many neighborhoods are being torn down and replaced."

Daniel DeMay covers Seattle culture, city hall, and transportation for seattlepi.com. He can be reached at 206-448-8362 or danieldemay@seattlepi.com. Follow him on Twitter: @Daniel_DeMay.