Category: Development

Development, homelessness, housing, land use, Mayor Durkan, public disclosure

Unredacted Documents Reveal Initial Megablock Proposal Was for Ground Lease, Not Sale

A newly unredacted version of Alexandria Real Estate’s initial proposal for the Mercer Megablock shows that the winning bidder to buy the three-property parcel initially proposed a ground lease—not a sale—that would have included a $31 million initial payment, followed by annual rent payments that would have started at $2.6 million a year. Renting the land out under a long-term ground lease would have kept the 3-acre parcel in public ownership, but could have been less lucrative for the city, which ultimately sold the land to Alexandria outright for $138 million, plus a $5 million payment for future homelessness programs.

The original request for proposals for the site made it clear that the city “has a strong preference to structure the transaction for the site as an unsubordinated long-term ground lease” but would consider a sale. “The value differential that we saw was really, really large between what was being offered on the lease relative to the cash up front,” city budget director Ben Noble says.

Alexandria’s initial proposal estimated the net present value of a ground lease—that is, the amount those annual payments would be worth in 2019 dollars by the end of the lease term—at $69 million, for a total value along with the initial payment of $100 million. This was a bit more than Alexandria’s initial proposal to buy the land outright for about $98 million. Since Alexandria’s offer to buy increased nearly 40 percent, however, it seems likely that their best and final offer for a ground lease would have increased, too, raising the total value of the bid to a level similar to what the city will get from the sale. It’s unclear whether Alexandria’s best and final offer included a ground lease option; I’ve requested a copy of this offer from the city.

Alexandria’s unredacted proposal, which is being published here for the first time, includes a number of details that have not been previously known about the real-estate firm’s plans for the three megablock properties.

The document Alexandria originally provided to the city included extensive redactions that concealed all of the information about the ground lease proposal. The company also blacked out details about what will go in the planned commercial space (including a business incubator and conference center), the address of a project in San Francisco that the company is currently building (88 Bluxome), the amount of open space that’s included in an Alexandria project in Cambridge (2.2 acres), and the height of each floor in its proposed life sciences buildings (13 feet).

My request for the documents, filed on August 7, led to a considerable amount of back-and-forth with the mayor’s office, which responded to my questions selectively and incompletely. (I still have several unanswered questions, for example, about the way the mayor’s office handled both Alexandria’s “proposed redactions” and my request.) Initially, the city informed me that if I wanted the unredacted documents, the mayor’s office would exercise their discretionary option to inform Alexandria so that the company could seek an injunction to keep them secret, exposing me to the potential for “lengthy litigation.”

The project will include 730 parking spaces—more parking than most of the other proposals, except for one (from Touchstone) which called for a massive underground parking lot for 1,000 cars. Tishman Speyer’s proposal included just 50 parking spots.

The city did not respond to followup questions. Instead, more than two weeks after I made my initial request, the budget office informed me that an email from me that included the phrase, “I am interested in seeing the materials redacted in Alexandria’s proposal,” followed by a list of questions asking what the implications would be if I did make a formal request for the redacted information, constituted a formal request that would trigger the third-party notice to Alexandria. Continue reading “Unredacted Documents Reveal Initial Megablock Proposal Was for Ground Lease, Not Sale” →

Development, housing

Here’s a Look at All the Megablock Proposals (Including a Redacted Plan from the Winning Bidder to Keep the Land in Public Hands)
Alexandria Real Estate’s proposed development at 800 Mercer

Here are the six proposals for the Mercer Megablock, including the one that the city chose, by Alexandria Real Estate. Alexandria’s proposal, like several of the proposals that were not chosen, includes an option for a ground lease, which would have allowed the land to remain in public hands. Ground leases are typically for about 99 years, include a rent escalation factor so that rent goes up each year, and can sometimes be renegotiated at different points during the lease term.

Alexandria Real Estate 

Vulcan

Touchstone

BioMed Realty

Tishman Speyer

Kilroy

Bidders that included a ground lease option included Kilroy (which did not provide details); Touchstone (which proposed an initial annual rent of $7.7 million if the project didn’t include affordable housing, and $4.675 million if it did, escalating 10 percent every five years); Tishman Speyer (which proposed a $70 million downpayment and initial rent of $4 million without affordable housing, and an initial payment of $40 million with affordable housing and initial rent of $2.75 million, both escalating annually at 2 percent) and Alexandria.

Here, in stark contrast, are the details Alexandria provided about its ground lease proposal:

The city budget office told me that I had the right to request an unredacted version of the proposal—which, to be clear, was redacted by Alexandria, not the city. However, they cautioned me that they would exercise their right under RCW 42.56.540 to inform Alexandria that I had asked for this information, at which point Alexandria could seek a court injunction to withhold the redacted records from public view.  “If they chose to pursue an injunction, you will likely be named as a necessary party to the lawsuit and lengthy litigation may ensue,” a city public disclosure officer warned.

I believe these records are of interest to the public, as many advocates argued that the land should remain in public, rather than private, hands. I have asked the city for a more detailed explanation of the process for finding out what’s behind all those black bars.

Development, homelessness, housing, Mayor Durkan

Mercer Megablock Sells to Real Estate Equity Firm for $143 Million

Mayor Jenny Durkan announced today that the city will sell the “Mercer Megablock” property—three parcels in South Lake Union totaling just under three acres—to Alexandria Real Estate for a total of $143 million. (I was first to report that the city had chosen Alexandria as the buyer last month.) The sale of the property, one of the largest undeveloped properties in South Lake Union, will net $78 million for various affordable housing uses (including both low-income and middle-income housing); pay back several loans the city took out against the future sale of the property; and provide $5 million for unspecified homelessness-related programs—including, perhaps, the restructure of the city and county’s homelessness response systems into one regional agency.

The $143 million price tag includes a $38 million “discount” in exchange for Alexandria’s guarantee to provide affordable housing; the price without affordable housing would have been just over $171 million. “It’s a new benchmark number in terms of price for square foot” on the portion of the property Alexandria plans to develop, Steven Shain, from the city budget office, told reporters during a briefing on the plan last week. “I think we did a great job negotiating. … I don’t want to characterize in the press that they’re overpaying [but] they are going way above to make sure that they won this project.”

During last week’s briefing, Mayor Jenny Durkan called the deal “one of the most consequential property deals the city of Seattle has ever done. … I think it will be one of those things that people look back and say, that really was a generational opportunity for the city of Seattle and they were able to seize it and make our city better because of it.”

Here’s a detailed look at what the project will look like and where the money from the sale will go.

What will be included on site:

The project will primarily be a life-sciences campus like the ones Alexandria has already developed in cities like San Francisco, San Diego, and in South Lake Union—”creating … hundreds of new jobs, if not thousands of new jobs, that will lead to our ability to be the city that cures cancer and other things like that,” Durkan said.

In addition to commercial space, the project will include a community center of up to 30,000 square feet, according to Shain, at no rent to the city, and will a single, large building (up to 12 stories tall) combining 175 units of low-income housing—the minimum number the city asked for in its original request for proposals—with about 38 moderate-income units built under the city’s Multifamily Tax Exemption (MFTE) program, which grants developers a property tax break if they keep units affordable to moderate-income households for 12 years. (City officials who briefed reporters on the plan last week said the developer could build as many as 190 units in addition to the affordable ones, but has not committed to a specific number, which will determine the exact number of MFTE units).

The affordable units, according to Shain , would be distributed throughout the same building as the market-rate apartments—”there wouldn’t be two separate doors”—and would be available to people making less than 60 percent of the Seattle area median income, or about $45,600 for a single person. The new units would mostly be studios and one-bedrooms, not the family-sized units that are most lacking in Seattle, particularly in the downtown core.

Alexandria would also be responsible for building two blocks of protected bike lane on Mercer St. and to open a pedestrian path through the campus on the block between Mercer and Roy. The company has agreed to pay for pay for environmental remediation on the site, which has been the site of a dry cleaner and a gas station, among other things; Shain said the cost would probably be a “significant eight-figure number.” Continue reading “Mercer Megablock Sells to Real Estate Equity Firm for $143 Million” →

City Council, Development, Elections, Historic Preservation, Morning Crank

Afternoon Crank: Showbox Landmarked, “Freelance Bill of Rights” Booster Uses Freelance Labor

1. The Seattle Landmarks Preservation Board voted unanimously last night to designate the downtown Showbox building a historical landmark, after dozens of speakers spoke in favor of the move using the usual combination of hyperbole (one speaker compared the two-story building on First Avenue to “the manger where Jesus was born), cheeseball sincerity (the crowd sang backup while singer Mark Taylor-Canfield went way over time with his “Save the Showbox” song), and insistence that the building, which has been heavily altered throughout its history, is an “irreplaceable” cathedral of music along the lines of the Ryman Auditorium in Nashville or Carnegie Hall.

Jack McCullough, the attorney for the Showbox building owners, argued during his presentation opposing the landmark nomination that the “history” that “Save the Showbox” proponents want to preserve took place in very recent history, during the late ’90s, rather than in the preceding 60 years, when the building was heavily altered and frequently shuttered. “If we were sitting here 20 years ago would we be having this conversation?” McCullough asked rhetorically. “The building had been a pastiche of other things for the past 60 years. … Really, what we’re talking about here is what has occurred in this reconstructed building in the last 20 years.”

The vote was a foregone conclusion—one board member, Russell Comey, showed up with a poem he’d written that began “Showbox forever” and bowed to the applauding audience after the vote—but the future of the Showbox building is not.

Although many of the (unanimously pro-landmarking) public commenters made a point to mention Duke Ellington’s stint there during the segregated 1940s (according to the Seattle Daily Times archives, Ellington played at several other clubs in town during that decade, including the Civic Ice Arena and the Palomar), many of the speakers also inadvertently proved McCullough’s point, by name-dropping bands that played there during the grunge era, like Soundgarden and Nirvana. “That thing you’re feeling is a combination of hopes and dreams, milestones and history,” one commenter told the landmark board. “It’s impossible to replicate these kinds of spaces.”

The vote was a foregone conclusion—one board member, Russell Comey, showed up with a poem he’d written that began “Showbox forever” and bowed to the applauding audience after the vote—but the future of the Showbox building is not. As I reported  last month, the owners of the building (who originally planned to build apartments on the property, which the city recently rezoned for that explicit purpose) have terminated Showbox operator AEG Presents’  lease when it ends at the beginning of 2024,  and recently won a major victory in their lawsuit challenging legislation that put the Showbox building inside the Pike Place Market Historical District, severely restricting its future use. Landmarking places controls on the building, but not on its use; a landmarked building can still be torn down or used for a different purpose. To “Save the Showbox,” at this point, will likely require a group to raise tens of millions of dollars to purchase the land from its owner, who has valued the property at around $40 million. Historic Seattle, which has expressed an interest in buying the property, has not yet indicated how or whether it plans to raise that kind of money.

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2. Shaun Scott, a Democratic Socialists of America member running for city council in District 4 (Northeast Seattle), has proposed a “freelancers’ bill of rights” that would guarantee  new rights to independent contractors and gig workers, including a written employment contract, pay within 30 days, portable benefits, and a ban on non-compete clauses guaranteeing that they won’t work for a competitor within the same market. “Gig economy workers deserve the same rights as unionized employees and laborers in traditional fields,” Scott said in the announcement.  In addition to the issues that would be addressed by the “bill of rights,” freelancers also pay both employer and employee taxes, usually pay for health care out-of-pocket, and don’t have access to unemployment benefits or L&I compensation. (Full disclosure: As a freelancer, I know all of this from experience.)

It was somewhat surprising, then, to learn that instead of hiring his campaign staffers on a permanent basis and offering them all those benefits, Scott himself is using independent contractors for much of his campaign work. Scott says his staff are all paid “at least $16 an hour” and are currently “in the middle of unionizing, having just submitted their letter of recognition asking me to recognize their bargaining unit in affiliation with the Campaign Workers Guild.”

It was somewhat surprising, then, to learn that instead of hiring his campaign staffers on a permanent basis , Scott himself is using independent contractors for much of his campaign work. Scott says his staff are all paid “at least $16 an hour” and are currently “in the middle of unionizing, having just submitted their letter of recognition asking me to recognize their bargaining unit in affiliation with the Campaign Workers Guild.” (The election is on August 6.)

Scott says that all his campaign staffers are paid “at least $16 an hour,” that the two full-time campaign workers have vacation benefits, and that “everyone is eligible for transit and data reimbursements that will hopefully become even more robust after demands are presented and we agree on a contract.” Scott’s campaign finance reports only show one expenditure on transit (a $10 Sound Transit light-rail ticket), and none for data reimbursement or cell phone costs. They do include more than $2,200 spent on Lyft.

“Campaign work can be just as grueling and uncertain as freelance work in the arts, tech, and journalism,” Scott says. “If progressive campaigns can’t support their own workers, they will be in no position to truly advocate for the broader labor community.”
Affordability, City Council, Density, Development, housing, Mayor Durkan, neighborhoods, Renters, Urbanism

Durkan’s Backyard Cottage Plan Would Have Kept Some Old Restrictions, Imposed New Ones

Mayor Jenny Durkan planned to propose her own accessory dwelling unit (ADU) legislation that would have restricted homeowners’ ability to build second and third units on their property, going far beyond the limitations in the legislation the city council passed unanimously yesterday afternoon.

The restrictions Durkan proposed would have been more lenient than previous regulations, which had resulted in just a handful of ADUs per year, but would have included many provisions requested by ADU opponents, including parking requirements for second ADUs, preserving the current owner occupancy requirement, and imposing new limits  on the size of backyard units.

Ultimately, as I reported this morning (item 2), Durkan did not propose her own legislation, and the bill the council passed yesterday does not include any of these restrictions. Still, Durkan’s ADU proposal gives a glimpse into her thinking about how much the city should limit how many people (and what kind of people) should be allowed to live in single-family neighborhoods.

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Sorry to interrupt your reading, but THIS IS IMPORTANT. The C Is for Crank is a one-person operation, supported entirely—and I mean entirely— by generous contributions from readers like you. If you enjoy the breaking news, commentary, and deep dives on issues that matter to you, please support this work by donating a few bucks a month to keep this reader-supported site going. I can’t do this work without support from readers like you. Your $5, $10, and $20 monthly donations allow me to do this work as my full-time job, so please become a sustaining supporter now. If you don’t wish to become a monthly contributor, you can always make a one-time donation via PayPal, Venmo (Erica-Barnett-7) or by mailing your contribution to P.O. Box 14328, Seattle, WA 98104. Thank you for keeping The C Is for Crank going and growing. I’m truly grateful for your support.

This report is based on documents I received through a records request filed in March. The mayor’s office provided unredacted versions of these documents this morning.

First, the mayor set out her goals in drafting her own ADU legislation: “1. Encourage ADUs—especially affordable ADUs—throughout Seattle’s single-family neighborhoods. 2. Prevent speculative development and the demolition of existing single-family homes.” Her plan also laid out a set of “principles,” which included “Retain existing single-family neighborhood character.”

To those ends, here’s what the mayor’s proposal (which, again, was never sent to the council as legislation) might have done:

1. Imposed a cap of 1,000 accessory units permitted per year. (The legislation the council passed includes no such restriction.)

2. Required homeowners building a second ADU to sign a legally binding document stating that they would never use that ADU as an Airbnb (a new restriction that would allow someone to own two houses on adjoining lots and rent one as an Airbnb, but would ban a neighbor with two ADUs from renting out their backyard unit).

3. Required two years of continuous ownership before a homeowner could build a second ADU, such as a backyard cottage in a house that already has a basement apartment. This restriction went further than council member Lisa Herbold’s proposal for a one-year ownership requirement, which failed; the legislation the council passed does not include any ownership-related restrictions on ADU construction.

4. Required homeowners to build one off-street parking space when they build a second ADU. Notes from staff on the mayor’s proposal indicate that “many infill parcels, especially those without alley access, cannot easily accommodate off-street parking, making this requirement a significant impediment to ADU development.” The legislation that passed yesterday includes no parking mandate.

5. Imposed a new floor-area ratio (a measure of maximum density) on detached units while eliminating the previous minimum lot size of 5,000 square feet. Although getting rid of maximum lot sizes sounds like a good thing, in practice, this measure would have little practical impact while imposing a new restriction on what people on smaller lots could build. I’ve explained this in a bit more detail below*, but the impact would be that any lot smaller than 5,000 square feet would have to build a backyard unit smaller than 1,000 square feet—and the smaller the lot, the smaller the cottage. In contrast, O’Brien’s legislation allows backyard cottages of up to 1,000 square feet on all lots, subject to the city’s existing maximum lot coverage of 35 percent.

Although getting rid of the minimum lot size entirely might seem preferable, the impact would be tiny—according to the city, just 7 percent of the single-family lots in Seattle are smaller than 3,200 square feet, and ADUs on very small lots are unlikely for the reasons I explain below.

6. Required a homeowner or a homeowner’s family member to live on the property for at least six months out of every year. O’Brien’s legislation got rid of the existing six-month owner occupancy requirement because it effectively banned renters from living in at least one of the units on lots with an ADU (suggesting that backyard-cottage renters require owner supervision.) Durkan’s proposal would have continued to prevent renters from occupying every unit on lots with ADUs, but allowed family members to serve as owner proxies. The proposal doesn’t define “family member,” but other elements of the municipal code limit the number of people who can live on a single lot unless they are “related,” a term that is undefined in the code.

Because I filed my request for these documents in March, they don’t include any discussions that happened after April 1 that might shed light on why Durkan decided not to propose her own ADU legislation. The mayor’s office did not immediately respond to a question about why they dropped the proposal this afternoon.

*Two hypothetical examples illustrate the impact of this change on lots of two different sizes.

A homeowner with a 4,000-square-foot lot could cover a total of 1,400 square feet of that lot with buildings, subject to the maximum height limit of about 30 feet. That could include, say, a 1,600-square-foot two story house (covering 800 square feet of the lot) and a two-story, 1,000-square-foot backyard cottage (covering 500 square feet). Under Durkan’s proposal, though, the backyard cottage would also be restricted by the 0.2 FAR, limiting it to a total of 800 square feet no matter how the rest of the lot is configured. This is the limit that existed before O’Brien’s legislation raised it to 1,000 square feet, so in this case Durkan’s proposal would have preserved the old status quo.

A homeowner with a 2,500-square-foot lot, who couldn’t build a backyard cottage under the rules adopted yesterday, would theoretically be able to do so under Durkan’s proposal. But the restrictions would make this exceedingly unlikely, because the backyard cottage would be limited to a total of 500 square feet—on a lot where only 875 square feet can be developed in the first place. Playing this out presents some very unlikely scenarios, such as a tiny front house towered over by a narrow two-story backyard tower. The point is, the effect of these restrictions would have been primarily to limit the size of backyard units, not to expand homeowners’ ability to build them.

Affordability, City Council, Density, Development, housing, Mayor Durkan, Morning Crank, neighborhoods

Morning Crank: “I Have Not Seen Any Speculative ADU Bubble”

1. The city council finally adopted legislation to loosen regulations on backyard and basement apartment construction Monday, 13 years after the city allowed homeowners to build backyard cottages in Southeast Seattle on a “pilot” basis in 2006.  The city’s analysis found that the new rules, which would allow homeowners to build up to two accessory units (such as a basement apartment and a backyard cottage) on their property, will add up to 440 new units a year across Seattle, or about one unit for every 80 acres of single-family land.

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Sorry to interrupt your reading, but THIS IS IMPORTANT. The C Is for Crank is a one-person operation, supported entirely—and I mean entirely— by generous contributions from readers like you. If you enjoy the breaking news, commentary, and deep dives on issues that matter to you, please support this work by donating a few bucks a month to keep this reader-supported site going. I can’t do this work without support from readers like you. Your $5, $10, and $20 monthly donations allow me to do this work as my full-time job, so please become a sustaining supporter by signing up to make a monthly contribution through Patreon now. If you don’t wish to become a monthly contributor, you can always make a one-time donation via PayPal, Venmo (Erica-Barnett-7) or by mailing your contribution to P.O. Box 14328, Seattle, WA 98104. Thank you for keeping The C Is for Crank going and growing. I’m truly grateful for your support.

The city expanded its initial backyard cottage pilot to include the rest of Seattle in 2009, but it never took off in a major way, thanks in large part to restrictions on lot and unit size, owner-occupancy requirement, and parking mandates that made accessory dwelling units, or ADUs, difficult and expensive to build. Efforts to make it easier to build second and third units ran against the usual objections from single-family homeowner activists, who claimed that changing the law would turn Seattle’s exclusive neighborhoods into triplex canyons, and from left-leaning development opponents, who claimed  that loosening the rules would lead to a frenzy of speculative development, with builders snatching up affordable single-family rental houses and destroying them to make way for new houses with two additional units, which they would rent out at higher prices or turn into Airbnbs.

Litigation by a group of homeowner activists dragged the process out for years, but the city prevailed in May, enabling the legislation to finally move forward. Although council members generally supported the proposal, some of them wanted to add new restrictions, such as owner occupancy and ownership requirements and even a ban on leasing the units as short-term rentals, which would have subjected backyard cottages and basement apartments to more stringent anti-Airbnb rules  than any other kind of housing in the city.

Ultimately, the only one of those amendments that saw the light of day on Monday was Lisa Herbold’s proposal to require homeowners to own a property for one year before building a second accessory unit—a provision Herbold said was necessary “to address the speculative market that will flip these units”—with even socialist council member Kshama Sawant saying that she saw no reason for the restriction. While she is concerned about “corporate developers” building luxury apartment towers, Sawant said, “I have not seen any speculative ADU bubble anywhere.”

The legislation, which Sightline called “the best rules in America for backyard cottages,” passed 8-0, with council member Bruce Harrell absent.

2. Often, when the council passes a piece of legislation they have been working on for some time, Mayor Jenny Durkan sends out a press release praising the council for passing “the Mayor’s legislation.” That didn’t happen with the ADU bill that passed yesterday—not because Durkan didn’t have her own version of the proposal, but because she never sent her own version of the ADU legislation to the council. Instead, after a team of staffers spent months working on draft legislation and crafting an outreach plan for an alternative proposal, the mayor apparently decided to support O’Brien’s legislation after all.

It’s hard to quantify how much staff time the mayor’s office and city departments dedicated to drafting legislation that never saw the light of day, but the sheer volume of communications in the first three months of 2019 suggests it was a substantial body of work. (I filed my request at the end of March and received redacted records in mid-June, which is why I don’t have any documents dated later than March 31).

At the moment, it’s also hard to know what problems Durkan had with O’Brien’s proposal, since most of the documents her office provided about her strategy and legislation look like this:

I would show more, but it just goes on like this.However, series of text messages between two mayoral staffers that were provided without redactions shows that one of the changes Durkan was considering was an even longer ownership requirement than what  Herbold proposed—two years, rather than one, before a homeowner could build a second accessory unit.

I’ve asked the mayor’s office for unredacted versions of the documents I received in  and will post more details about her proposal  when I receive them. In the meantime, here’s one more page from those redacted documents—this one a list of ideas the mayor’s office had to “further allay concerns” about “speculative development.”