7/8/2010 Local News | Seattle developer Mastro …

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Seattle developer Mastro has

huge debts, bankruptcy papers
show
By Eric Pryne
Seattle Times business reporter
For four decades, Michael R. Mastro enjoyed a successful
career as a prolific developer of mostly low-profile real-estate
projects: suburban office parks, exurban subdivisions, low-rise
apartment complexes. ERIKA SCHULTZ / THE SEATTLE TIMES
Developer Michael R. Mastro ow es more on The Lakeview
office building in Fremont than the complex is w orth.
But now the longtime Seattle developer and landlord has been
forced into bankruptcy, and his case is so large and complex
that the court-appointed trustee says it could take five or six years to resolve.

"It may be the biggest case in the history of the [Western Washington] district," said James Rigby, appointed by the
federal bankruptcy court last month to oversee the liquidation of Mastro's assets.

Mastro's lawyers filed a voluminous statement of his financial affairs with the court this week. It shows nearly $587
million in liabilities — including more than $100 million owed to individual investors and local organizations such as
the Italian Club of Seattle that could lose all of their investment.

Against those debts of more than a half-billion, Mastro reported assets of $249 million.

The financial documents indicate Mastro, 84, borrowed heavily from dozens of banks to finance his projects, while
also loaning millions to other developers.

"His aggressive tactics led him to the success he had, and they led to his demise when the market turned," said Kip
Spencer, co-founder of the commercial real-estate database Officespace.com.

Mastro's properties apparently couldn't generate enough revenue to cover his debt payments, Spencer said, and
some of his creditors also ran into trouble and couldn't pay him. "He kind of got caught up in a double whammy."

Even as the bankruptcy unfolds, Mastro's dealings with individual investors are being investigated by the state
Department of Financial Institutions' securities division.

Mike Stevenson, division director, said Mastro sold more than $100 million worth of "investment-type securities" to
more than 175 investors characterized as "friends and family" over the years.

Those securities weren't registered with state or federal regulators, as state law ordinarily requires, Stevenson said.
The question is whether Mastro's offerings were exempt.

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The division plans to meet with Mastro soon, Stevenson said earlier this week.

A long, successful run

Until recently, Mastro's real-estate dealings apparently compensated him well. His gross income in 2007 and 2008
combined was more than $56 million, the bankruptcy filings show.

But this summer Mastro was forced into involuntary Chapter 7 bankruptcy — which leads to liquidation rather than
restructuring — by three banks that claimed he owed them $9.7 million and wasn't paying his debts on time.

After initially resisting, Mastro agreed to enter bankruptcy last month. He is scheduled to appear in bankruptcy court
Tuesday to be questioned under oath by Rigby, the trustee, and attorneys for banks and other creditors.

Mastro's attorney, Thomas Bucknell, did not return a call Thursday.

The Web site of Mastro's company, Mastro Properties, alludes to his "billion-dollar career."

Twenty years ago, he and his then-partner, the late Eugene Horbach, were involved in what was then the second-
largest property transaction ever in King County, selling 10 South King County office buildings and two garages to
Boeing for $211 million.

In the early 1990s, Mastro almost bought the property where Safeco Field now stands. He had a contract to buy the
land and planned to build a 700,000-square-foot office complex, but withdrew his bid. King County acquired the
property soon after.

Mastro sold apartment complexes in Lake Stevens and Federal Way in the 1990s to a budding Republican politician
named Dino Rossi, financing both purchases, and later was an early donor to Rossi's unsuccessful gubernatorial
bids in 2004 and 2008.

Complex holdings

Mastro's real-estate holdings, mostly in Western Washington, are extensive. He summarized them in a declaration
filed in King County Superior Court earlier this year: about 11 commercial properties, plus interest in more than 60
other properties held for development, including more than 3,000 residential lots.

He said he was a member or partner in about 36 partnerships and limited liability companies, and that he held about
32 real-estate sale contracts and 30 promissory notes payable to him.

Columbia State Bank, First Sound Bank and Venture Bank filed the petition that forced Mastro into bankruptcy after
other banks and creditors began filing lawsuits in state courts against him, contending he had defaulted on loans.

Some had won judgments against Mastro, or persuaded judges to appoint third-party receivers to take over
properties secured by the unpaid debts, before the bankruptcy petition put a hold on most other legal proceedings.

Mastro is listed as a defendant in at least 17 lawsuits filed since Jan. 1.

The financial statement Mastro filed in bankruptcy court indicates most of his $249 million in assets consists of debt
others owe him.

One document shows dozen of properties in which he has an interest, many now worth less than their mortgages.
Among the largest:

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• Lakeview, a recently completed 110,000-square-foot office building in Seattle's Fremont neighborhood. Mastro's
filing lists its value at $20 million, but says he owes Bank of America $27.2 million.

• Emerald Ridge, a subdivision in Pierce County. Mastro's filing lists its value at $15 million, but says he owes two
banks $30.6 million.

• Park 120, a four-building office complex in Bellevue. Mastro's filing lists its value at $15 million, but says he
owes two banks $15.6 million.

Of the $587 million in Mastro's listed liabilities, the documents show $468 million is owed to banks and other
creditors whose claims are secured by property. Such debtors stand to recover part of what they are owed.

"Friends and family"

But more than $118 million is owed to creditors holding "unsecured nonpriority claims" — the last group to get paid
when Mastro's assets are liquidated. Most of those creditors appear to be "friends and family" investors who have
loaned him money for his real-estate ventures.

Among them: The Italian Club of Seattle, whose Web site lists Mastro as a former president. The financial statement
shows Mastro owes it more than $775,000.

Several individual investors have filed lawsuits against Mastro in King County Superior Court, saying he has told them
he can't return their money. Their promissory notes from Mastro indicate he promised them 9 percent annual
interest, with the principal to be repaid on demand.

One individual investor, who spoke only on condition his name not be published, said investors like him would be
better off if the three banks hadn't forced Mastro into bankruptcy.

"My general feeling was that he'd bail out of it — I just wish he'd had the chance," the investor said. "The man's
been in the business for 40 years. He's made some very good real-estate moves ... .

"I like Mike. The guy was a victim of the whole economy."

The investor said he, too, received 9 percent annual interest on money he invested with Mastro. "He never missed an
interest payment. Right on the first of the month, it was always there."

The last check came in early July, the investor said, just before the bankruptcy petition was filed.

Eric Pryne: 206-464-2231 or epryne@seattletimes.com

Copyright © The Seattle Times Company

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