The art of the deal depends, in part, on how you frame it. Take the picture Mayor Greg Nickels sketched of the land sale between City Hall and the Bill and Melinda Gates Foundation. At a Jan. 13 press conference, Nickels characterized the agreement as a $50.4 million purchase of Seattle Center property east of Fifth Avenue and south of Mercer Street by the foundation, which would develop the site as its new headquarters. The mayor called it "great news."
To some, the agreement seemed questionable not for what taxpayers got but for what they gave away to a $33.6 billion charity. As the mayor outlined it, the city was returning $28 million of the $50 million to the Gates Foundation in the form of a parking garage and assorted other improvements. That would leave taxpayers with a net $22 million for a prime, 12.3-acre slab of Seattle real estate (see "The Billionaire Club," Feb. 2). What this blurry portrait didn't depict, however, was Nickels earlier giving Gates tens of millions of dollars in other reductions.
The $50.4 million property is in reality a $72 million property, according to city documents. But the mayor's office quietly agreed to reduce its initial value by $22 million through "significant conditions," or price cuts. The mayor then publicly presented it as a $50.4 million property and caused the credits he did announce to appear to be the only givebacks.
Based on a review of city planning papers and agreements last week, the mayor's concessions actually come in at $50 million, not $28 million, and that might not be the whole story, either. The mayor's office refuses to release all documents.
So instead of a $72 million deal with $50 million in reductions for a charity of the world's richest man, the mayor played it as a $50 million sale with "just" $28 million knocked off for Gates' prestigious foundation—which considered it strictly a hard-nose business transaction and even formed a new company, Iris Holdings, to handle the sale.
Nickels didn't have to face questions about all the up-front discounts. One, according to documents, involved unspecified millions of dollars in compensation to the foundation for the loss of 3 acres of developable space, where a city-owned parking garage will be built on the property. The foundation will then lease the garage acreage to City Hall for $1 a year.
"Since this portion of the property can be in use by the City for a parking garage for up to 65 years," a City Hall document outlining the deal explains, "its development value to the foundation cannot be released for sometime [sic] and this fact was reflected in a discounting of the price."
However, in a later section in the document, we learn that the garage "will either be a combined above/below grade garage or a facility fully below grade, possibly with surface parking." A below-grade garage could leave open the possibility that surface development could be realized after all. Planning has only just begun, with construction a year away.
Either way, Gates derives great benefit from a garage to be owned and operated by the city. Iris Holdings, in fact, will build the $15 million taxpayer facility with city money. The Gates Foundation then gets priority rental use of at least 300 stalls and the right to rent a total of 720—more than two-thirds of the 1,010 parking spaces. And the Gates garage, documents show, will leave a net reduction of 207 parking spots from the surface parking lot that now sits on the site. For at least the first four years, the city projects the garage will take in $60,000 less annually than the existing parking lot.
Another off-the-top price break for the foundation was for a slice of land along Mercer Street that the city wants to retain for possible street widening, with a proviso to return $1.5 million from escrow to the foundation if the street isn't widened, cutting the city's net to $20.5 million. A deduction was also granted because the foundation claimed it shouldn't have to pay full value for about 13 percent of the property that will be needed for roadways and utility infrastructure—which of course is infrastructure that can only benefit the foundation. And the city gave a discount for the Sonics' continued use of 1 acre for a practice facility; if use goes beyond 2010, the contract says, the foundation "will expect some monetary consideration" for that, as well.
Not counting the additional $22 million in garage and other property credits, giveaways worth $28 million reduced the square-foot price for the property from $134 to a bargain-basement $94. Two comparable properties in the area recently sold for $131 and $146 a square foot.
The sale was arranged, without a public bid, during private negotiations over the past year. Following the mayor's announcement and a few lonely public hearings, it was swiftly approved Feb. 28 by the City Council. The council was aware of the true value and all the discounts but made no public issue of them. Council member David Della, whose committee has oversight of the Center, commended the council for "due diligence."
Seattle Center's redevelopment director, Shelly Yapp, a friend of foundation co-chair Bill Gates Sr., structured the deal for the mayor's office. Yapp and the elder Gates have served the past five years as University of Washington Regents.
We asked Nickels' office last week why the mayor didn't mention from the beginning the $72 million price and the $22 million in up-front reductions. "I'm not the one to answer that," said communications director Marianne Bichsel. She said she'd have someone call.