IN A CITY WITH A growing habit of divesting public assets through backroom deals, it should be no surprise there’s more to the “lease”—which is, in effect, an outright sale—of the historic Pacific Medical Center. New documents show that the 99-year deal turns out to be three separate leases that can run as long as 149 years and include up to three years of free or low-cost rent to influential developer Wright Runstad & Co. (WRC). In return, WRC will remake the taxpayer-built, 10-acre Beacon Hill medical campus into a high-tech-business complex by building up to three new office buildings—one possibly 10 stories high—and a parking garage that will double the current commercial space to almost 500,000 square feet. WRC will collect extensive subleasing revenues from Internet bookseller Amazon.com and other thus-far-undisclosed tenants, earning up to 25 times its lease payments for use of the public property. At the same time, the payments by Wright Runstad to PacMed are configured in such a way as to cut by approximately half the struggling medical provider’s promised $1.5 million annual lease profit for at least the first 11 years.
by Rick Anderson
These are among the devilish details PacMed and City Hall did not disclose to the public prior to the August 26 signing of the lease between PacMed and Wright Runstad. August 26 was also the day of a belated public hearing at which the deal was rubber-stamped by Pac-Med’s board. The commercial takeover of the magnificent public property has been quietly cooking since at least January, and was mapped out in private by powerful corporate and political allies. It now turns out that a private business partner of the mayor sits on the Amazon.com board, but city officials say there are “no records” that he and the mayor ever discussed the deal..
City officials, PacMed, and corporate executives had promoted the lease to the public by claiming it would earn $1.5 million a year in payments from Wright Runstad—a profit that would be used to offset costs and provide health care for the region’s underserved consumers. That earnings would be only half that over the lease’s first decade, and that even those half-payments won’t begin for at least another year, was not materially revealed until the day of the signing.
The Wright RunstadPacMed lease is actually a series of documents: They include a lease for the 65-year-old tower building and a lease for the north parking lot area, which details Wright Runstad’s plans for “the development of up to three additional office buildings collectively containing approximately 225,000 square feet of space,” and a two-story parking garage on the south (front) side of the hospital. WRC also plans a $25 million renovation of the 260,000-square-foot main hospital and 14-story tower.
Under the main lease, Wright Runstad will pay $10,000 per month and a pro rata share of campus expenses for approximately a year (starting in November) while it is refinishing the tower, and pay no rent for up to three years on its north lot lease. The latter lease holds the promise of immense profit: WRC will begin paying just $1.35 per square foot to PacMed for space in new structures on the north lot that will be subleased at $25 or more per square foot.
THERE IS A THIRD lease as well, in which Pac-Med—Wright Runstad’s landlord—becomes Wright Runstad’s tenant when its new $4.5 million clinic opens in the remodeled tower building. WRC will build and pay for the clinic by subtracting half the lease payments it owes Pac-Med over the lease’s first 10 years. While Pac-Med will eventually pay an immaterial rent of $1 a year, it also will pay sub- stantial amounts in pass-through cost—one-twelfth of Wright Runstad’s overall operational, maintenance, and tax costs annually—a figure PacMed officials say they can’t yet calculate.
Although publicly presented as a 99-year lease, the deal, which has two 25-year renewable clauses attached, and which allows WRC to fund its construction projects through a lease mortgage on public land, is tantamount to a commercial sale of the venerable art deco hospital.
PacMed officials dispute that view, contending that the health-care provider will retain ultimate ownership and earn millions at a fair market lease rate to support its low-cost medical services.
PacMed is an independent municipal corporation chartered by City Hall under public development authority regulations to provide charity medical care. It was formed in 1981 when the old Public Health Service hospital was deeded over by the federal government, along with $26 million in funds; another $10 million in public funds was approved to upgrade the hospital 11 years ago. That same year, PacMed effectively shut down the facility and now operates 15 clinics in the region, one of which is at the hospital site.
Jim Gore, PacMed’s chief administrative officer, says that, contrary to a report in Seattle Weekly (“Hill of a Deal,” 9/3), the deal is not “a rip-off.” He insists the first 10 years of the contract will net more than the bargain-basement $4 per square foot from WRC, as reported in the Weekly. In a recent session with this reporter (Gore tape-recorded it; he also brought along an aide to take notes), he provided a new report on base square footage, showing PacMed would be netting $8.27. With other costs tossed in, the lease is worth $27.19 per square foot—a “very favorable figure,” in Gore’s words. He provided a real estate report by consultant Wronsky Gibbons & Reily showing that the PacMed lease matches up to some similar projects.
However, a copy of the signed lease provided by Gore reveals that $4 per square foot is indeed the agreed-upon base net figure, as the Weekly reported, using a separate Wronsky study confidentially prepared for PacMed. As the lease states, for the “first 10 base rent years… tenant [WRC] shall pay landlord base rent in the amount of $771,000 per year, “or $4 per square foot.” That and only that, says the lease, will be PacMed’s initial bottom-line profit—not the publicly stated $1.5 million.
Gore says the WRC offer was the best he’d found in years of trying, and he thinks PacMed has “fulfilled its responsibility” to the public with a lease that will ultimately provide “new dollars to finance charity cases.” There is no going back, he adds. Wright Runstad has begun preliminary reconstruction and design work, and Amazon.com—set to lease 185,000 square feet in the tower—hopes to be moving into some of its renovated quarters next spring.
