Even on nuclear submarine jobs, the profit margin for a forge/turning shop like that is going to be very small. The current owners are strictly money men, who bought it out of bankruptcy, and they are used to gigantic profits- If a smooth running Jorgensen made 5% a year, I would be amazed. Whereas the profit on turning this real estate over, once, is in the tens of millions. Short term financial thinking, aided by the hot real estate market.
Geographically, as mentioned, Seattle is not the best location for military shipbuilding- most is done in the gulf and on the east coast. The west coast naval shipyards do refits, but not much building vessels from scratch.
We actually have a thriving shipbuilding industry in the NW, but its on a smaller scale, usually topping out at ships around 300 feet long, so we have decent infrastructure for that size vessel, but not much call for battleship parts. Jorgensen was built by the government, during WW2, to diversify geographic locations of defense industries, when they thought there was a realistic chance the Japanese would actually attack the mainland USA. It was not located in Seattle due to commercial economic reasons, but because Puget Sound was a nice protected inland bay to build and repair naval vessels for the Pacific Theater. After the war, in the fifties, it became a sort of charity case for the Defense department- they wanted to keep essential manufacturing both operating and geographically distributed during the cold war, so "your tax dollars" supported big defense industry sites all over the country. But commercially, there was never enough work to keep this facility in Seattle, even in the fifties. As the government stops building the same type of giant steel weapons, and switches to littoral combat ships, there just isnt the same need to keep open a network of big government run shipyards- we are seeing the same forces that cause Jorgensen to close affecting the current auction of the battleship anchor chainmaking facility at the Boston Naval shipyard- that auction is running right now.
So- Real Estate prices in Seattle certainly are partly to blame, shortsighted turnaround finance guys are partly to blame, but, mostly, its the changing way military weapons are designed and built, and the switch from government owned facilities to private ones, which has been going on for fifty years now.