The big story at the mayor’s March 17 press conference might have been the one that went untold. Surrounded by cameras, supporters, and a children’s mariachi band, Greg Nickels announced a promised $10 million charitable contribution from Vulcan, the development company of Microsoft co-founder and billionaire Paul Allen. The money would go to the Seattle Parks Foundation’s drive to expand South Lake Union Park. The mayor characterized Allen’s $5 million for park construction and $5 million in a challenge grant as the largest private donation ever given for a Seattle public park. Ada M. Healey, a mayoral campaign contributor and Vulcan’s vice president, dubbed it a civic partnership.
What they didn’t make clear is that the Allen contribution is also a business deal designed to leverage legal and financial concessions from the city and that, on paper, the mysterious billionaire might be the one to benefit most from his “gift” to the city.
Allen owns 58 acres in the South Lake Union neighborhood, which cost at least $250 million. Besides the $10 million tax deduction from the foundation contribution, his Vulcan holding company is seeking another $10 million in contractual changes involving some of that acreage, which still must be approved by the City Council. Nickels, who recently structured sweetheart city real-estate and parking-garage deals for the Bill and Melinda Gates Foundation and Sonics owner and Starbucks CEO Howard Schultz (see “The Keys to KeyArena,” March 23), didn’t spell out how the donation would affect an existing, already favorable real-estate package for Allen at South Lake Union. That deal was drawn up in 2001 during the Paul Schell administration and would effectively be rewritten, it turns out, if the city accepts the $10 million Allen is dangling for the park. A close look at the complicated 2001 real-estate contract raises a number of questions about today’s so-called donation.
In 2001, the city sold eight South Lake Union properties to one of Allen’s 25 real-estate subsidiaries operating under Vulcan’s command—in this case, the subsidiary called City Investors XI. (These various subsidiaries all own South Lake Union property and share the City Investors name, distinguished by Roman numerals.) Allen got the eight parcels for $20.1 million after a $600,000 discount for environmental cleanup. The properties are spread over the three blocks bounded by Fairview and Westlake avenues and Mercer and Valley streets, across Valley from the lake. It’s the best undeveloped property in South Lake Union. They are partly vacant, industrial-like sites and include parking lots.
According to city planning documents, most if not all of the $20.1 million Allen paid for the land will be reinvested by the city in his neighborhood, mostly for transportation improvements. At least some parcels he bought were once privately owned. They were obtained by the city for the proposed Bay Freeway, which would have replaced Mercer with a double-deck expressway. (After approving a tax hike to fund it, wise voters killed the freeway plan in 1972.) The land was returned to private ownership when the city sold it to Allen. Except that the city now might buy back some of the property from Allen or swap for it. Building on Schell’s lead, Nickels wants Mercer Street widened and turned into a two-way boulevard. Valley would be narrowed to two lanes, and the confusing turn at Fairview Avenue North would be reconfigured. The intent is to improve the area for development and possibly relieve the legendary “Mercer Mess” traffic congestion. The plan could cost up to $75 million—part of a $258 million South Lake Union transportation proposal by the mayor—even though a $350,000 study, commissioned by Nickels, shows that his Mercer plan arguably could worsen congestion. Allen would benefit from the Nickels transportation plan if he sold or traded parts of his eight parcels back to the city for the Mercer widening, then obtained additional footage on the lake side when Valley Street is downsized. He would wind up with property closer to the park and lake, surrounded by safer, attractive streets.
Allen’s 2001 property deal with the city requires him to build at least 50 units of affordable housing in South Lake Union. Vulcan is leading the development there of a mixed-use mecca of biotech, retail, and residential projects over the next decade. The city plans to spend an estimated $500 million on infrastructure, utilities, and amenities to help bring Allen’s dream to life. The City Council recently approved his plan to construct 35 lower-rate rental units in a new neighborhood development. It replaces a 33-unit vintage low-income building, the Lillian Apartments, which Allen hurriedly tore down in 2002 despite protests. The new structure’s lowest rents—$740—will be three times the Lillian’s lowest rents. Yet, while partially fulfilling a contractual agreement as part of the 2001 sale, Allen was also able to grab about $3 million in city tax breaks for providing the “low-rent” units. Theoretically, that also reduces his costs of the 2001 deal to $17 million.
Another legal condition of the 2001 sale is for Allen to “develop a minimum of 20,000 square feet of new space” in the neighborhood for cultural use, such as libraries, performance-arts facilities or theaters, galleries, or museums. There is no mention of parks. On March 17, Nickels announced that Allen’s company would fulfill that contractual commitment with the $5 million given for construction of the park. The contract language, calling for cultural “venues and facilities,” was apparently drawn loosely enough to allow Vulcan to define what constitutes culture in South Lake Union.
Allen demanded another concession for his charitable donation: Before he hands over the first $5 million, he wants the 2001 contract rewritten, moving to 2013 from 2008 the date by which he must begin building on the former city parcels. The other $5 million contribution also came with conditions: that the Seattle Parks Foundation successfully raise its half, $10 million, of the remaining park development costs; that the city actually commit to narrowing and improving Valley Street before it gets the money; and that Allen’s donation be listed as a credit against future development “impact” fees the city might levy for neighborhood improvements.
It is quite the savvy contribution by Allen’s company, which has given $2,300 so far to the mayor’s 2005 re-election campaign. “We believe that the entire region will benefit from this park,” says Vulcan veep Healey. “This neighborhood has a rich history, and we’re committed to making sure the future is every bit as bright as its past.” For Allen, at least, it might be. He can claim a $10 million tax write-off from the nonprofit parks foundation, and by also leveraging the money for contractual changes and credits ($5 million in cultural commitment, $5 million in impact fees), he could gain perhaps another $10 million in benefits. That would be $20 million in returned value.
If that is hypothetically applied to the net $17 million he paid for the land, Allen’s ahead by $3 million without turning a shovel. Good Lord. Can the city afford to let him start building?
Sir Park-a-Lot
Public-private parking-garage deals are becoming a habit around here. Paul Allen’s 2001 land purchase guarantees him up to $55,000 per parking stall from taxpayers if City Hall elects to add up to 160 South Lake Union parking spots. Costing up to $8.8 million (in 2001 dollars), the money, according to the contract, could be used by Allen to build a garage that could include both public and private parking. Allen would share some revenue with the city after operation and maintenance costs. The garage could stand alone or be part of the complex of six-story buildings he plans along Valley Street. The Seattle Seahawks owner reaps similar benefits from his master lease at publicly owned Qwest Field. His Experience Music Project at Seattle Center will likewise benefit from a new $15 million city garage built mostly for use by the Bill and Melinda Gates Foundation (see “The Billionaire Club,” Feb. 2). Such government parking operations are reliable moneymakers, though not necessarily for taxpayers.
Rick Anderson
