Panelists: Bob Mahon (SLU Panel Chair), Jan Hendrickson, Greg Sundberg, Dinah Thoreson

City Staff: Sara Levin (P4 Coordinator), Bill Alves (Council Central Staff), Geri Beardsley (Council Central Staff), Lee Belland (City Budget Office/CM Drago’s Office), Layne Cubell (Design Commission Coordinator), John Eskelin (Dept. of Neighborhoods), Bryon Glynn (City Attorney’s office), Dave Haworth (Council Consultant), Jim Reinhardsen (Heartland, City’s real estate consultant), MaryJean Ryan (Office of Economic Development), Nathan Torgelson (Office of Economic Development), Karen Tsao (Fleets and Facilities.), JoEllen Warner (Office of Economic Development)

Guests: Estell Berteig, Heidi Dietrich, Greg Easton, Mike Foley, Shirley Mesher, Dan McGrady, Kery Murakami

Welcome and introductory comments (Bob Mahon)

Bob Mahon introduced himself as Chair of the South Lake Union P4 review panel. The other Panelists and guests introduced themselves.

Questions and Answers for City Staff

The focus of this meeting was for Panelists to ask clarifying questions about the Purchase and Sale Agreement (PSA) between the City and City Investors for eight properties in South Lake Union.

Bob Mahon began by asking a series of questions, several of which were from a memo he distributed earlier. Bob’s questions focused on three areas: the appraisal, the protocol, and the "mechanics of the agreement". The questions and responses are summarized below.

1. Do the appraisals consider the environmental conditions of the properties?

The appraisals specifically exclude environmental conditions. Deducts were made to the value of the property (Parcel 14-17) with the high water table, but this is independent of environmental conditions. The City does have a geotechnical report as backup information. (Jim Reinhardsen and Karen Tsao)

2. Have there been any changes in market conditions which would make the appraisals out-of-date?

The market has stayed flat. The City and appraisers have looked at comps since the time of the original appraisals – they are comfortable that the values are still fair. For the parcels near the park, the appraisals were updated in August. Geotechnical information was also incorporated. (JR)

3. How do the appraisals take into account that the City/government is the owner of the property, especially given the real estate excise tax savings to the buyer when the seller is a government rather than a private party? Does the buyer end up paying it anyway?

The appraisals were done as if the sale were between private parties. The City does not have to pay the real estate excise tax (normally the seller has to pay). In negotiating the deal, that deduct fell off the table. (KT)

Other questions:

How did the City select the appraisers and do they keep a list of approved appraisers on file? (Jan Hendrickson)

City staff keep a list of appraisers who are sensitive to the needs of a public entity. With this complex transaction, three firms were invited to discuss the properties and the appraisers were selected based on their competence, depth of knowledge, experience in the neighborhood. In addition, one had a BA in geology, and understood the need for a geotechnical analysis. Geotechnical issues are important in this case. (KT and MaryJean Ryan)

Jan Hendrickson responded that she feels that the way in which the environmental issues were structured and managed were creative – she had no more questions on the topic.

Did City Investors do their own appraisals and share them with the City? (Dinah Thoreson)

Yes, they did, and their values were significantly lower than the City’s appraisal. (JR)

The additional public benefits presumably have a cash equivalent. If these items weren’t quantified, how does the City know that CI is the best partner/investor for this deal? (Bob Mahon)

In its negotiations, the City worked to achieve the objectives in Resolution #30080, one of which was to optimize the price for the properties. The City deliberately chose to deal with the properties, and get an agreement on price, separately from the additional commitments. The additional elements were negotiated separately from getting the full value of the properties, and the City then reassessed their progress. The additional elements do have a value, however they are in additional to the appraisal value for the properties. (MJR)

This question also gets at who was selected for negotiations. City Investors was selected for two reasons: 1. they are the major landowner in the area and have an interest in the area and 2. City Investors and the City’s interests are aligned; through the selection process, the City learned that CI is very aligned with the goals of Resolution 30080 – this means that negotiating the commitments above the purchase of the properties was better. (JR)

As became clear through the neighborhood plan, the neighborhood, City Investors, and the City are all aligned in getting high quality investment in the area. (Nathan Torgelson)

Did the City get the best in the universe of buyers? (Bob Mahon)

City Investors will not make commitments that aren’t in their interest, that won’t improve their portfolio. The City is very comfortable that they got the best deal. There is absolutely economic value to the other elements of the deal – the values are significant to different people (ie. the neighborhood, the City, CI). These can’t be turned into dollars because of the wide range of how the additional elements could happen. Turning them into specific dollars would mean less value. The City also took a "performance approach" – if you’ve agreed to do this, do it. (JR)

Some things in the PSA are goals, some things are enforceable. Why not put a dollar value on the items that are a binding commitment? (Bob Mahon)

This issue has been raised before. As to affordable housing, there are many conclusions as to what the monetary value would be – ranging from $10-30,000 per unit. How you get to those conclusions is complex. Because of the broad range of possible values, you want a result, but don’t want to try to agree on a dollar amount. (JR)

The variables include cost of land, size of units, level of affordability, duration of commitment, etc. In addition, the Mayor is recommending that $2 million of the proceeds be invested in affordable housing in the area. (MJR)

Most developers would see the intangibles as deducts, reducing the appraisals accordingly. It is clear that these are items that the City negotiated in addition to the purchase price. (Greg Sundberg)

Because of who was at the table, it was in their interest to negotiate in this way. It is an unusual purchaser who can talk about influence on the rest of the neighborhood. As for the cultural space, the numbers are significant. There are a lot of ways to get there. Almost more important than the value is the commitment to do it. (JR)

There was a policy context in which the intangibles were negotiated. At this point, no one has the level of detail, nor would it make sense to or be appropriate to negotiate at that level. (KT)

It is important that the package add up to a fair package to the City. (Bob Mahon)

The decision to go to fair market value was a joint decision. Fair market value was the starting point; the add-ons came after that. (JR)

Did anyone ever quantify the add-ons as hurdles to development and offer to give cash if the City would do them? (Bob Mahon)

City Investors is not directly in the business to do these things, they need to be able to attract co-developers. They can’t be too specific on details because this will limit the range of partners. They must, however, agree on the level of commitment. (JR)

Public works contracting adds 30-35% to the cost of a project – the City doesn’t do these projects cheaper. (KT)

Does the City plan to partner on the goals, or are there plans to have other public parties involved? (Greg Sundberg)

One area in which there will be collaboration is parking. (MJR)

Regarding the tax questions raised in the memo issued to OED, there are possibly some errors in tax estimations. This can be addressed later. (Bob Mahon)

This doesn’t go to the transaction itself, this goes to the add-ons. (JR)

Leasehold excise tax is charged on current leases and reflects the buildings’ condition and the short-term nature of the leases. The City receives a small share of the LET. (KT)

Bob raises good points on the tax questions. City staff will go back through the questions and rethink the answers on the protocol. The tax yield is a positive benefit, not a driver. Those sections of the protocol will be revised. (MJR)

If City staff had to look over the past year of negotiations, what are three reasons you think this is a good deal for the City? (Not presuming that this is a good deal). (Greg Sundberg)

When you look at where the whole process started, with the neighborhood plan and public objectives – this was a challenge. There were competing expectations and a need in the neighborhood for reinvestment of proceeds. The three reasons are: (1) the price achieved – the money allows for investment in the neighborhood, especially the ability to do transportation improvements; (2) the achievement of additional commitments; (3) the City took action on a process springing from a neighborhood plan (MJR)

This is also significant in that it ends 30 years of development limbo – the City has held onto the properties for decades (Nathan Torgelson)

Other comment on this question: Mike Foley of the SLU Planning Committee had circulated a memo to the Panel with the Committee’s comments on the PSA and proceeds allocation. Mike called the deal "excellent", and feels that the partner (City Investors) shows commitment to the area. The most important part of the deal is that development in the Valley/Mercer area will double the value of the park, and the development that surrounds the park will impact the ability to get to the park.

The process was also important. This is a critical project for the City, there was enormous oversight, involvement of people with different perspectives, alignment of goals. (JR)

With all of the public benefits, how is the City going to ensure that the landowner performs? This has been an interest since the beginning of P4 involvement in this project. The City is a very willing seller at this point. What is the status of the other properties that CI may purchase? (Jan Hendrickson)

The PSA requires that permits for the additional commitments be applied for within 24 months of assemblage of adjacent private parcels; no later than 6 years after closing. (MJR)

(Nathan Torgelson showed a map indicating who owns which properties in the area.)

The map shows a lot of property owned by City Investors. Is there any concern over a single landlord dominating the area? Who has control over shaping this? (JH)

Overall, there is not concern over this. There is not unanimity on this issue in the neighborhood, however. Some property owners are concerned about gentrification, and the businesses being forced out of the neighborhood. The neighborhood plan developed a set of improvements related to Mercer Street. After the Commons transfer of property, Vulcan sat in on the neighborhood’s process. At that point, Vulcan did not have mass holdings in the area; they became engaged in the neighborhood planning and City commitment. Vulcan brought in talent and consultants and were very helpful in the process; they recognized that it is a great area for business activity. (Mike Foley)

What is the motivation behind the appeal of the text amendment? (Bob Mahon)

The appeal focuses on the legislation that set up the exception for the additional height. (Bryon Glynn) (A representative from the group filing the appeal was present, but did not wish to comment.)

It is still not clear how performance will be measured. (Bob Mahon)

This language will be clarified in the agreement. (JR)

Given that the Nordic Heritage Museum was one of the two organizations which submitted responses to the RFQ, does City Investors have any plan to collaborate with them on the cultural use? (Bob Mahon)

No. (MJR)

Who draws against the litigation fund? (Bob Mahon)

City Investors draws against it. The City Attorney’s office does not. Filing fees and other joint costs will be paid for from it. (JR)

How is the City going to combat the negative press re: the freeway? (Dinah Thoreson)

Before this project began, the City looked again at transportation issues in the area. They had only looked at how fast vehicles move through the neighborhood, not within the neighborhood. With I-5 and 99 there, questions were raised as to what is best for the neighborhood – a giant 8-lane Mercer St.? A Bay Freeway? These options would cut off the park. Seattle Transportation has been studying this issue, and the SLU neighborhood plan focused more than any others on transportation improvements. The Fairview/Valley realignment will be started soon. Pedestrian and bike connections and car travel time need to be improved, especially as the SLU Park master plan moves forward. (MJR)

Transportation analysis shows that with multiple corridors, one can be improved but that impacts the others – costs can be exorbitant. (Mike Foley – who also added that his father-in-law was the leader of the lawsuit against the Bay Freeway)

How is the City going to get the message out – people still think that a freeway will be built. (DT)

Public comment

Shirley Mesher had several comments and questions, which Panelists asked be directed at them, rather than at the City staff present. These included: is there a true valuation of public property? What are the actual/assured public benefits? Are there financial contributions that Vulcan will make to pedestrian crossings and the park? Is the 20,000 square feet of cultural use all at one location, or will it be broken up? Is there an assurance of parking? Parking needs to be within 800 feet of what? How will the City assure that it is parking for the park? Would a garage be constructed on the shoreline? Why is the contamination amount of $600,000 a flat figure? What does it mean to jointly recover contamination costs on Parcel 14, and how is it joint if the City is paying all costs including the developer’s attorney fees? To whose benefit is this? Is this the most cost-effective way to attain public parking? What is public parking? The transportation studies are not completed. Where is the coordination between the City and other jurisdictions? What are the alternatives to disposition of the property? What happens to the businesses that are displaced? Is the City maximizing money and public benefits? Are there really guarantees for these and other public benefits? This reflects a lack of overall planning. The PSA needs to be looked at in more detail.

Mike Foley commented that he has a memo sent to City staff with the SLU Planning Committee comments. Their primary concern is where the affordable housing is located.

Wrapup, next steps

Bob Mahon summarized the Panel’s information requests thus far: clarification of performance measures; updated protocol reflecting clarification of tax questions

He suggested that the Panel frame a response/outline in response to the letter that Council President Pageler sent to the group, asking for their input on a few areas. Jan Hendrickson suggested that the group address her first question (the P4 Panel’s view of the overall package) in this meeting.

Jan started by saying that the process between the City and the neighborhood was a very collaborative approach to problem solving and redevelopment. The deal has excellent value to the City. She had some hesitancy going into the process with the initial RFQ – would there be a developer who would take on the public benefits? The City has reason to be pleased with its work. They did a good job negotiating on the price, and were helped by the public scrutiny.

Dinah Thoreson agreed with Jan. She thinks that the enhancements to the rest of the neighborhood are crucial – this will spur development in the rest of the neighborhood.

Greg Sundberg also agreed. The City used a market-based approach and got the public benefits it requested. This is a wonderful example of the true benefits of public-private partnerships. Jan Hendrickson added that this respects the collaboration and investment with the neighborhood – the neighborhood was a partner in this project as well.

Bob Mahon thinks that the deal is overall very positive. He still has concerns about the appraisal and price, and the marriage of seeking the highest price and other public benefits. He is also concerned about the lack of quantification – things can be reduced to a price, and this combination mixes a couple of things up. In the P4 report, Bob would like to call out the areas to Council that he is less comfortable with. Some areas can be clarified in the protocol or by amending the agreement.

Bob also voiced concerns about the stage at which the P4 Panel was involved with the project – it’s more difficult for the group to second guess the deal and other information after the fact.

The Panel decided to accept citizen comments until 6/1, and to expect a response from the City addressing their questions by the same date. A public hearing on the PSA will be held 6/19, and Panelists will be asked to comment.