Not everyone's happy with Magnuson Park compromise
The tenants of Building 11, including artists and water-sports groups, oppose a deal that Mayor Mike McGinn's office struck with private developers, saying it benefits investors to the detriment of the public good. The agreement goes to the City Council next.
building11.org
The fate of Building 11, a former naval facility at Magnuson Park, remains up in the air because a compromise between the city and a private developer has upset the building's current tenants — people the city had hoped it would please by striking the deal. The city also recently received a letter from the developer's attorney threatening legal action if the city insisted on accommodating the tenants.
The building has acted as a lightening rod for debate about the role of parks and public spaces, especially as the city looks to private investment as a solution to budget shortfalls.
A 2008 lease agreement gave control of the two-story, 58,000-square-foot lakeside building, sturdy but in disrepair, to a development group named Building 11 Investors. In exchange, the developers agreed to renovate the space, bringing the building up to code and lining up commercial clients. The company was promised rental credit from the city in exchange for its investment.
Some people criticized the deal, though, citing a lack of financial benefit to the public and questioning a plan to sublease the waterfront parkland to tenants like Virginia Mason and Bright Horizons, a high-end daycare center. The critics have resisted the idea of evicting the building’s current tenants, which include a cadre of artists, a non-profit sailing school, and retail boat shop. Current tenants pay the city about $240,000 a year, collectively, for the space.
Building 11 Investors submitted information about their financing to the city Monday (May 23), said Acting Parks Department Superintendent Christopher Williams. U.S. Bank is the primary lender, he said. A group of citizens critical of the project are filing a request for that information, said artist and current Building 11 tenant Perri Lynch. They hope to assess whether the financing is as solid as it has been portrayed.
"This is significant because [the developers] have missed several deadlines in the past, and it could give the city a chance to void the lease," Lynch said.
To go forward, the developer also will need to receive an exemption from the State Shoreline Board and the Seattle Department of Planning and Development, related to regulations banning medical facilities close to the shoreline, Williams said.
The proposed amendment to the deal came after the city received a letter from the developer's lawyer, threatening legal action.
"If Sail Sand Point and Hobie Cats Northwest do not sign leases thereby leaving their commitment in doubt, they can go someplace else. Your insistence that they be accommodated as a condition of the lease amendment is a breach that is immediately actionable if not unreservedly withdrawn," said the letter, dated May 12.
Sail Sand Point is a nonprofit that offers community sailing lessons at low cost, and Hobie Cats Northwest is a retail outfit that often works in tandem with Sail Sand Point.
The developer is clearly anxious to take possession of the property. In its letter to the city, dated May 12, the group claimed all its obligations had been met. “The only issue that the City has to confront is whether or not it will honor its contract; or whether, on the other hand, it wishes these matters to be resolved in court,” the developer wrote.
Written by Bruce B. Babbitt, of Jameson Babbitt Stites & Lombard, the letter on behalf of the developer also questioned whether the proposed changes even need a formal amendment, and pronounced both Hobie Cat Northwest and Sail Sound Point “incapable of satisfaction as long as my client is developing the project.”
It was shortly after the city received the letter that Williams released a statement outlining the terms of the proposed compromise. Released online Friday (May 20), it said the amendment includes language to:
- Set aside enough space in the building to accommodate the artists for the duration of the agreement at a rent that is comparable with other artist space in Seattle.
- Ensure that there are water-related tenant spaces for the life of the agreement.
- Allow the city parks department to capture $1 million in additional rent over the term of the agreement through historic tax credits.
The statement also outlined specific changes to the lease terms offered to Sail Sand Point, such as allowing that group to retain revenue from the dry-dock boat storage it provides.
The City Council received the draft compromise from Mayor McGinn's office Monday, and it likely won't be discussed in committee until mid-June, a staff member at Councilmember Sally Bagshaw’s office said.
The city wants to not only avoid litigation, but also send a message to other developers that the city is a good partner, Williams said: “We have a contractual relationship with Building 11, and our concern and their concern is breach of contract. We would rather not go there, mainly because the Parks Department is in this state where we need public-private partnerships,” he said.
The department's budget was cut by $11 million this year and must cover $250 million to $350 million in maintenance, he said.
Meanwhile, some of the building’s tenants, whom the amendment is presumably meant to accommodate, say the devil is in the details. Sail Sand Point declined to comment for this article, but artist Perri Lynch, who has created several public works for the park and who has advocated for the artists, said the proposed compromise was not beneficial.
For example, while some of the artists are being offered a total of about 5,000 square feet of space in the building, 3,000 square feet of water-recreation space is being lost in the compromise, Lynch said. The area the artists are being offered was at one point offered to Hobie Cats Northwest, which needs that corner of the building for safe access to the water, she said. "This puts us in a terrible position.”
Hobie Cats Northwest co-owner Dan Carpenter agreed with Lynch's assessment.
Back when the lease was signed, city representatives encouraged the artists to support it, and they were promised space within the park.
Now, of the 30 artists who once occupied the building, about 18 are left. (The city in March served eviction notices, which were later rescinded.) The proposed space could probably accommodate about 10, she said, however none have yet to sign a lease agreement, and now everyone is nervous about getting a letter like the ones served to their neighbors, Lynch said.
Additionally, rental rates would go up, Lynch said. The artists would be charged for hallway and connecting space, which would up the rents between 3 and 8 percent above what’s being quoted, she said.
A major partner in the development deal, Darrell Vange, with Ravenhurst, counters that rates offered to the artists are lower than in the city at large, and are going to be set at only 65 percent of the rates for his commercial clients.
Ravenhurst was associated with development at Westlake Center, as well as a recent stalled project to build a mall in Little Saigon. In the early '90s, the group was involved in a development debacle at Aurora Village.
A community member and outspoken advocate of the current tenants, Gail Chiarello, cited the exclusive nature of some of the incoming tenants as cause for complaint, including Virgina Mason and Bright Horizons, which is an enrollment-only, employer-funded operation, she said.
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Comments:
Posted Wed, May 25, 11:17 a.m. Inappropriate
The best bet for the City may be to buy out the developer. If there is basis for finding the developer in default that could be used as leverage to keep settlement cost fair. A fair settlement for the developer would alleviate concern about scaring off future partners for other deals.
The present plan is great if one wants a business park, but terrible if one wants a public park. It would limit more publicly beneficial uses for almost a half century. Rents would be more affordable for artists and other future tenants if improvements are limited to the $3 million or so necessary to meet code and to maintain building integrity, instead of the $8 million or so for a plush commercial building with 50 medical exam rooms.
Although some commercial tenants are probably needed at present, there needs to be a mechanism and options for future change to ones more consistent with typical park uses such as arts, culture, environment, and recreation in the future if they become feasible (and probably more affordable as would result from more modest development of the building). Waiting a half century for them is too long.
Other costs to the public are also associated with the present deal because it will generate much vehicle traffic for short medical apointments and parents picking up and dropping off kids. Although the developer may fund some improved access via a new park entrance, odds are it will ultimately require several hundred thousand dollars for a new stop light and access to the National Oceanic and Atmospheric Administration's entrance roadway.
Maintaining Sail Sand Point was the only reason most people gave this deal a pass in 2008. Because of that loss of Sail Sand Point would be a terrible twist.
Posted Wed, May 25, 11:21 a.m. Inappropriate
Mr. Vange, the "big picture" is that you are putting a medical facility on the shores of Lake Washington on park land. IT'S A PARK! If Virginia Mason needs space, there are record numbers of vacancies of commercial real estate all over Seattle. There is a reason that the Shoreline Management Act SPECIFICALLY bans medical facilities from shoreline space in Washington State.
Posted Wed, May 25, 12:08 p.m. Inappropriate
"The big picture is that we are going to take a dilapidated building that is only partially occupied…
At no cost to the city, we’re going to bring it up to code, and fill it with active tenants.” Vange
estimated that about $2.5 million of the projected $9 million investment will be required to make
the building code-worthy."
The LLC seems to be not only a sue-crazy bully threatening the City and current tenants, but they dissemble as well.
The lease is written such that the improvements made to the building are written off against the rent due the city for the life of the loan. In effect, the city is paying for the improvements and maintenance of the building.
This foregone revenue to the City amounts is between $9M and $11M based on various pronouncements by the LLC.
So this sweetheart deal starts with a ridiculously low base rent ($4/ft) then allows all improvements and maintenance made over the life of the lease (45 years) to be offset against rent. As tenants come and go, and interiors are built out to support them, other building maintenance, whatever, all those monies may also be offset against the rent. Why the citizens of Seattle need to in effect pay for new restaurant interiors or Virginia Mason's medical facility is beyond me. And how the Mayor and the Parks Department can think this is win-win is even more distressing. With all the rhetoric from Mayor McGinn about protecting the citizens' financial interests from the deep bore tunnel, this one sure slipped under his radar.
The lost revenue that the Building 11 deal reflects is not only quite substantial, but the LLC incurs no cost as the tenants typically pay for their space improvements. This is what some call “double dipping”. The citizens of Seattle pay (through foregone rent) and the tenants pay. And the LLC makes money on everything the tenants do to improve their spaces.
Also important to bear in mind: the amount of work that Parks has indicated is necessary to “refurbish” Building 11 is a fraction of the amount the developer will be able to offset. At the end of 45 years, it is uncertain what tenants and uses will be in the building, so the city receives a “refurbished building” which may in reality require substantive cost to repurpose it back to Parks and Rec uses.
Finally, it is promoted that “not a penny of city money” will be used on this project, but that does not include the amount of Parks staff overheard to manage the lease and its various reporting requirements. The calculations I saw by Deputy Budget Director Hall Walker shows nearly $2M in staff costs over the life of the lease.
Certainly, if the citizens of the City really understood this deal, I would say your headline is quite correct.
Posted Wed, May 25, 12:56 p.m. Inappropriate
This is an excellent deal. This saves Sail Sand Point, provides 5,000 square feet of artist space, and includes massive renovations to an unsafe building, while opening the building up to uses that will bring more of the public into Magnuson Park.
Is there a fundamental question that needs to be answered before being able to support this? Yes. And that is whether or not you support public-private partnerships. I, for one, do. Especially given the economic climate, and the ongoing structural issues with funding for parks and capital improvements.
The opponents of this deal throw around the idea that "it's only a few million dollars, the City could do it!" It is not that simple. The facts are these:
The method by which the City raises CIP funds has basically evaporated.
The Parks department has been asked to cut their budget by 8%.
There is a $200+ million backlog of major maintenance all across the city.
There is no money.
The reality is that the options here are limited: Go for the deal that was struck, raid money from community centers and maintenance needs from parks across the city to subsidize private artist studios, or just close the building altogether, and evict all of the tenants.
This compromise is a best case scenario for Magnuson Park, the Parks Department as a whole, and the people of Seattle. I am glad the Mayor's office was able to put this together.
Posted Wed, May 25, 1:11 p.m. Inappropriate
Here's the scoop on the new medical facility at Magnuson Park, from Virginia Mason's own website: "The new Magnuson Park Clinic will offer a full range of primary and specialty care services, including internal medicine, pediatrics, dermatology, and orthopedics. The clinic also offers dietitian services, laboratory facilities, X-ray and mammography." Corporate medical centers evidence an alarming appetite for expansion. At what point would the new Virginia Mason Magnuson consume the entire Building 11? This is a totally dangerous precedent for a public park.
Posted Thu, May 26, 5:07 p.m. Inappropriate
@_MichaelP, sadly you are misinformed and misinforming.
Sail Sand Point (SSP) is not "saved", and have not yet signed with the LLC. In fact there have been threats of lawsuits from the LLC against SSP to force them to sign, but those loving terms of endearment do not bode well for the success of this arrangement.
The 5,000 sq ft of artist space represents about a third of what was there, and no artists to date have indicated a willingness to sign with the LLC, and all indication is that they too are hard pressed to find something wonderful about the partner in this glorious P-P-P and are afraid of being themselves sued in the future. Council is now scrambling to find a way to perhaps insulate these primary parks tenants from the LLC.
As far as other options, there are other options. Valid, funded options. Where the city and parks does not pony up money. The question is, can the LLC be pried off of their lucrative prize to get to those other options?
For example, does Virginia Mason know that their use is illegal and that they require an arduous journey through the State's Shoreline Management Act and appeals that could run another six months before construction can begin on their project? Would they still stay involved if they have to wait? They certainly can't stay involved if that use remains illegal unless they move to less desirable points in the building - have they shown an interest in that outcome?
No one has an issue with private engagement with the Parks to manage buildings. The issue is that the LLC has not prioritized a positive relationship with tenants that should be in our parks. And instead they are focused on a medical center that is currently an illegal use in the shoreline zone.
Posted Fri, May 27, 10:36 a.m. Inappropriate
@south_downtown -
"As for other options, there are other options. Valid, funded options."
Name one.
Not once has anyone been able to state a clear way to secure funding. Rather, it has been "Nick Licata has said he'd be willing to float a bond issue," but not a single other council member has publicly signed on to such an endeavor.
At this point, with the budget getting worse and worse, the option is either this deal, or mothballing the building, kicking out all of the tenants.
We now have an opportunity to turn Building 11 around, and start focusing on other buildings at Magnuson that need work (Building 30, for one, which may have more support for a bond, and could house the remaining artists).
This has come down to an all-or-nothing argument by those opposed to this deal. They would rather kill the deal, and mothball the building, then have this compromise, and save Sail Sand Point.
These are the facts.
Posted Fri, May 27, 5:07 p.m. Inappropriate
First, I am not opposed to commercialization within our Parks. I understand the budgetary constraints we face and that things are going to be different. I hope future developments can also be different because Building 11 has not enjoyable.
As someone who has been involved with this park, I understand the frustrations felt. We want our parks to be accessible but we also want the decision-makers to be accessible as well.
Posted Fri, May 27, 7:38 p.m. Inappropriate
@MichaelP - "This has come down to an all-or-nothing argument by those opposed to this deal. They would rather kill the deal, and mothball the building, then have this compromise, and save Sail Sand Point.
These are the facts."
you really are quite misinformed.
Posted Thu, Jun 2, 10:27 a.m. Inappropriate
@south_downtown - "you really are quite misinformed" is not an argument, and in no way provides any details to support your cause.
I have time and time again made clear that I would be supportive of killing the deal if presented with facts to back up the claims by opponents of the deal that the building doesn't really need to be brought up to code, or that there is a reliable and ready funding source to ensure that what fixes they believe are needed can be paid for, and time and time again am presented with nothing.
We can stand by and watch as Building 11 is mothballed, or we can see this building not only brought up to code, but fixed up to take away the large swaths of eyesore, and replace them with multiple uses - a daycare, a pediatric clinic (only on the second floor of the north side), Sail Sand Point, a restaurant, 5,000 square feet of artist studios...this is a great project that is saving one of the dilapidated buildings at Magnuson Park, while saving a significant amount of taxpayer-subsidized private artist studios and Sail Sand Point.
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