Tue November 12, 2013
Terms And Cost Of Pacific Tower Lease Raise Questions
The state of Washington is about to make a major real estate decision that supporters say will transform healthcare training for the next generation. The deal has also been called “a nightmare.” We’re talking about a proposed lease of Seattle’s Pacific Tower - former headquarters of Amazon dot com. Powerful interests – including Washington’s Speaker of the House – want to turn the Seattle landmark into a training center for future health care workers and a hub for non-profits. But internal state agency documents raise serious questions about the terms and cost of the deal.
Pacific Tower is a 14-story, Art Deco style former public hospital. Ever since Amazon moved out in 2011, it’s been empty. Tom Byers is a longtime community activist who has a vision for what this iconic Seattle building could become. We take the elevator to the eighth floor and walk out into a glass-walled auditorium.
Austin Jenkins: “This is where the wow factor comes in. Look at the view.”
Tom Byers: “I hope so. I thought you’d like it.”
It’s a crystal clear fall day and we’ve got a panoramic view from the Olympics to the Cascades. But Byers didn’t just bring me here for the view. His dream is that two years from now this space will be humming with activity. Community college students preparing for careers in the health care field. Employees of health and human services non-profits trading ideas on how to improve the lives of their clients. Byers’ working name for the place:
Tom Byers: “The Beacon Health College and Innovation Center.”
Byers says he first walked into this building 42-years ago when it was a hospital. His friendship with Washington Speaker of the House Frank Chopp goes back almost that far too. And that’s who Byers went to when he needed a patron for this vision.
Tom Byers: “We took it to Frank and Frank got very enthusiastic about it and started to champion the idea in the legislature.”
Chopp has other personal connections to this project as well. His daughter is office coordinator for the preservation authority that owns Pacific Tower, but she was not allowed to work on this project. His wife runs one of the non-profits on the list of potential sub-tenants. But Chopp says this has nothing to do with favors for friends or family – and, in fact, there’s been no suggestion to the contrary.
Frank Chopp: “These are the issues I’ve been working on for, well, all my adult life basically.”
Chopp, a Democrat, says it’s a smart move to repurpose Pacific Tower as a health college run by Seattle Central Community College – especially since so many more people will get insurance because of the Affordable Care Act.
Frank Chopp: “That expansion will create about 10-thousand new jobs and the goal of this project in large part was motivated by the desire to provide training for students to get those jobs in healthcare.”
So this year, the Speaker championed language in the budget that authorizes the Washington Department of Commerce to lease the building. There’s also $20M to renovate Pacific Tower. This is where the vision runs into reality. The lease is described in internal state documents as “a significant departure from the state’s standard lease.” It’s longer than usual - 30 years – and here’s another detail: the state, not the building’s owner is obligated to pay to maintain and operate the building. That means if an elevator breaks or the HVAC goes out, that’s ultimately on the state. The total cost of the deal has been estimated at more than a quarter-of-a-billion dollars over 30 years. Dan McConnon is deputy director at the Department of Commerce. He says his agency had a legislative mandate to make the deal work.
Dan McConnon: “When it came to lease negotiations, yeah, we didn’t really have the ability to say ‘no we’re done.’ We just had to drive the best bargain we could.”
McConnon’s focus now is on filling the more than 200-thousand square feet of office space. The income will help offset the cost of the lease. He says think of Pacific Tower as a shopping mall. The health college is the anchor tenant – like Macy’s.
Dan McConnon: “So that’s what we’re wrestling with right now is how do you fill the rest of the mall?
So far, Commerce has identified nearly a dozen potential sub-tenants. But there are still a lot of details to be nailed down. Here’s a big one. The price per square foot. The non-profits on the list don’t even know if they can afford the move. As one potential tenant told me, at this point, “it would be like asking someone to buy a pig in a poke.” McConnon does have a back-up plan. State agencies could always move in.
Dan McConnon: “It’s not the preferred path, but it does give us an insurance policy.”
The fact Washington’s Department of Commerce is trying to fill a building the state doesn’t even own gives Senate Majority Leader Rodney Tom heartburn. He notes the previous leaseholder – Wright Runstad – defaulted after Amazon.com moved out of Pacific Tower.
Rodney Tom: “Why do we want to become landlords when there’s been really good landlords who haven’t been able to lease it. All of a sudden we’re going to get in the landlord business. That’s crazy.”
Senator Tom – who has a background in real estate – believes the proposed lease is a bad financial move for the state.
Rodney Tom: “For all the social service networks, it is a great deal. For the citizens of Washington state it’s a terrible deal.”
Frank Chopp: “It’s just not true, it’s just not true.”
Speaker Chopp says in the end the deal will pencil out and he notes there’s a long list of organizations and leaders who’ve endorsed it. He’s especially pleased with what the lease means for the building’s owner. It’s a [hospital preservation authority] hospital district whose mission is to fund low-income healthcare in the Puget Sound region. Currently, Washington’s Office of Financial Management is wrapping up a formal 90-day due diligence review. Assuming the deal goes forward, the state will assume responsibility for Pacific Tower on January 1st.