Life on a Floating Home at Wandesforde’s Dock, 2037 Fairview Ave E, Unit # B, Seattle, WA
So, I'm just gonna sit on the dock of the bay
Watching the tide roll away
I'm sittin' on the dock of the bay
Wastin' time…
Sittin' here resting my bones
And this loneliness won't leave me alone
It's two thousand miles I roamed
Just to make this dock my home
--Otis Redding, Sitting on the Dock of the Bay (Written on a floating home in San Francisco)
https://www.youtube.com/watch?v=rTVjnBo96Ug&list=RDKvC9V_lBnDQ&index=2.
When I went to law school, I had it in mind that I might become a real estate lawyer. I had worked for two years after college as an investigator for my local government landlord-tenant agency. As luck would have it, there was a pretty bad real estate recession caused by stratospheric interest rates and inflation, and no one was hiring in the field. Thus, I became a government contract lawyer, instead, because the story of that field was steady as it goes. That was likely serendipitous given that government contracts is more broadly varied, intellectually challenging, and less transactional than real estate.
But I have still dabbled in real estate anyway because I still worked on things affecting government contractors, and that means I had a chance to do just about every area of the law. I got to work on lease agreements for contractors and various real estate issues which involved the US Government. Also, by my nature, I was a jack-of-all trades, rather than a narrow specialist, and I consequently did many other things – including litigation, corporate law, employment law, some intellectual property, and, yes, even real estate. I handled commercial and residential real estate transactions for clients, other lawyers at my firm, and even once for a major political party campaign committee. I even recently litigated an eviction case through the King County, WA, Superior Court, and I can tell you that was a bizarre experience.
Currently, most of my real estate work has narrowed down to myself and my extended family. My children have both relocated to Seattle, WA, and I helped them purchase homes, and then I purchased a bigger condo near them on Lake Union near downtown Seattle for myself and my wife. It was an odd transaction because it is the only condominium development built over the lake waters on concrete piers. Back in 1968, the city changed the zoning law right after the construction started. My condo association leases aquatic rights from the State of Washington for our marina, where we have moorage for a small motorboat. That “water lease” dates back to the 1920’s when the city sold docking rights on the lake waters to help finance the Seattle Exposition of 1928. My lake-side condo offers unobstructed views of the Eastlake floating home community and the waters. It always amazes me how entertaining the water community is sitting right at the base of one of the more dynamic cities in America. Now, as my wife says, we are “bi-coastal” with homes on the east and west coasts of the United States.
Which finally brings me to the subject of my blog today – my most recent real estate transaction involving my “little” sister’s purchase of a floating home on Lake Union about a block from my condo. Last Fall my always adventurous sister settled into a small floating home on the Wandesforde’s Dock, at 2035 and 2037 Fairview Ave. E, in Seattle. See https://www.redfin.com/WA/Seattle/2037-Fairview-Ave-E-98102/unit-B/home/187258788. If you saw the movie “Sleepless in Seattle” you have some idea what I am talking about. Seattle has about 525 floating home permits, plus another 250 or so houseboats. They all now have permits authorizing them to live right on the lake. These floating homes rest upon wooden decks which float on 100 year old forest spruce logs, or more modern Styrofoam and air barrels. My sister’s home was originally built in the 1930’s and now floats on logs with extra support from plastic barrels filled with air.
Most of the floating homes are “owned moorage”, meaning they are docks and owned by cooperative or condominium organizations controlled by the floating homeowners. My sister’s slip at Wandesforde’s Dock, however, has a single moorage owner – a trust (James B. Wandesforde Trust) formed by the original grantee of the water rights. The trust rents out the moorage rights. So, my sister home is leased moorage. One of the local real estate agents writes that only about 15% of the floating homes are on similar leased docks. This results in some peculiarities, like you owned the structure and the permit for occupancy, but you lease the water rights on which it is sited. It is similar to many mobile home communities or the situation out West when people build on so-called “Indian Land,” and don’t own the property on which their home is built. This is the water community equivalent. You are in essence buying a leasehold interest, and, in almost every case on Wandesforde’s Dock, the lease is month-to-month.
My sister pays rent to the trust and she is a tenant with an expensive piece of personal property, i.e., her floating home. She is one of thirteen tenant homes on Wandesforde’s Dock. Now you ask, who in their right mind would pay big bucks for a month-to-month lease. Well, my sister reasons that the Washington State Good Cause Eviction Law, and the special City of Seattle landlord-tenant ordinances give her greater occupancy rights than ordinary tenants have. She ostensibly can’t be evicted unless she fails to pay her rent or breaches her lease agreement, which has been assigned to her with the consent of the moorage owner. As noted by a local real estate agent in a FAQ released for Unit # G sale: “The Equity Ordinance, a piece of legislation passed in the late 1970s and amended in the early 1980s, protects floating home tenants from arbitrary eviction. Eviction can only occur under specific circumstances, such as non-payment.” Based on that rationale, another person recently paid $1M to buy Unit # G at the end of dock slip. See https://www.redfin.com/WA/Seattle/2037-Fairview-Ave-E-98102/unit-G/home/193155491. Woo woo. If you want one too, someone is at the moment trying to flip a floating home leasehold interest for $500,000. See https://www.redfin.com/WA/Seattle/2035-Fairview-Ave-E-98102/unit-D/home/193816056.
There are other circumstances where the moorage owner can reclaim his slip, including if he wants to live there himself. Of course, the trust can’t do that for all thirteen slips it owns. And to move in would require that the moorage owner have a city permit for a floating home, and the Catch-22 of that is that the City of Seattle is prohibited by law from issuing any new permits. To have a permit, an owner would have to get it from an existing owner. Guess what – my sister isn’t selling her permit (unless of course the price is right)…. And as noted in the same FAQ cited above, “The Equity Ordinance provides rent control for floating homes, limiting rent increases to inflation and the costs necessary to run the dock.” Anyone who buys the moorage just buys an income stream of income which is rent-controlled to the rate of inflation.
This brings me to the current state of affairs. The trust has created a new cooperative and transferred the ownership of the thirteen Wandesforde’s Dock moorage slips to the cooperative. At the moment there is still just one owner of the co-op, however, which is the trust. But the trust has offered to sell the slips to the existing tenants, with different prices based on the perceived desirability of their slips. For example, the moorage owner reputedly wants more for the end of dock slips and less for the slips closer to shore. And he wants more for slips with wider water access and views. My sister’s slip #B is second from shore but on the wide water channel. The trust wants $1.6M for her slip. Or she can continue to rent the slip for a much more modest monthly rent payment. Tie up $1.6M of capital or rent the space for about $1,350. I know which choice I would make…. This is apparently an offer most of the tenants can refuse. Simply put, it is a far better deal to rent the moorage than buy it -- or put another way, marry the structure but date the moorage.
So, who will buy these cooperative floating home shares? The trust, with some element of avarice, is planning on marketing the slips to the public on the MLS, hoping that P. T Barnum’s maxim that “A sucker is born every minute” is true. At even 30 times earnings/rent (a rich multiple for rent-controlled real estate[1]) that should be something less (maybe considerably less) than a half-million dollar transaction per slip. It is difficult to see how the trust is going to get seven figure prices for its moorage rights. The only party who would be in a position to gain enhanced value from the moorage right is the existing floating home and permit owner, for whom the acquisition of the moorage rights would lead to more certainty and thus greater valuation. But the price the leaseholder would pay has to be weighed against the rental fee saved verses the enhanced value of joining the moorage and leasehold interests. The tenant has already purchased the leasehold interests, controls the permit, and thus can live there unmolested for the rather attractive existing rental costs.
In any scenario, buying moorage rights at a seven-figure price makes no economic sense. As a stand-alone investment, the moorage rights have limited value and appeal. Any moorage buyer would have to bear the landlord’s expenses of ownership. The new moorage owner must pay the administrative costs, taxes, dock maintenance, sewer, water, other expenses, etc. And don’t forget the pro-tenant Washington State and City of Seattle landlord-tenant laws. Even removing a tenant in breach of its lease could be an expensive legal burden, involving long legal proceedings, with weather-related seasonal stays of execution of any writ of eviction, and thus incurring substantial legal fees with dubious prospects for success. Thus, what fool would want to step into the moorage owner’s shoes and fork over $1.6M or more to get a stream of rent-controlled income currently around $1,350 a month. That is plain crazy.
I conclude with my usual real estate caveat emptor warning – as they say in poker, if you look around the room and you don’t know who the sucker is, it is probably you. Any future buyer of Wandesforde’s Dock moorage ownership rights needs to understand what they are buying. They are buying a limited rent-controlled stream of income and landlord obligations. They are being asked to pay millions for a cooperative share of a dock slip which they cannot occupy or use, and which they must rent to someone else for $1,350 a month. And note that the Seller doesn’t even own all the moorage. He rents part of that moorage from the State of Washington. For those units, the trust is only selling a leasehold interest too. And the floating homeowner have purchased a sublease. Does buying that sound like a good deal? If yes, then I have a bridge to sell you in New York City.
Don’t be an uninformed buyer. For any prospective deal, you aren’t buying occupancy rights unless you intend to marry the moorage ownership with the buyout of the tenancy and permitting rights. If it was so easy to get out of the rent-controlled lease, ask yourself why the current Seller has not already done that. And ask yourself why the Seller hasn’t been buying the many MLS leasehold, structure, and permit interests which have been offered for sale at attractive prices, and joining those interest to its moorage rights, rather than trying to pass off a partial interest to uninformed buyers. Accordingly, only when the landlord and the tenant get together and reach a mutual deal, and unite their interests, will it be possible to unlock the value in these rent-controlled leased floating home slips. If you are a serious buyer of what the trust is selling, then you need to open simultaneous discussions with the tenant/homeowner/permit holder about also buying out their interest. Otherwise, you are just buying a part of the real property interest. You would be a fool to just buy a moorage right for that kind of premium price. You would need to also negotiate and buy out the leasehold and floating home permit rights at the same time as you buy the moorage to unlock the discount inherent in the bifurcated ownership situation. I don’t see how a new moorage owner could take possession even for personal use without a floating home permit/medallion. And they aren’t issuing any more of those. So, the moorage value is likely limited to the paltry stream of rent controlled income less expenses. Unless the purchase of the moorage ownership can be joined with the leasehold rights and the floating home certificate, any sale of only moorage rights will continue to be “discounted” by the real estate market and should have diminished value due to the uncertainties. As it stands now, the moorage rights in isolation are simply not worth the prices sought by the trust.
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[1]When I google the average price-to-earnings (P?E) ratio of Real Estate Investment Trusts (REITs), Google AI tells me that: “The average price-to-earnings (P/E) ratio of REITs worldwide, as of March 2023, varied between 6 and 26, with the U.S. market having the highest at 26, according to Statista.”