The City of Tacoma and a private developer have reached a tentative agreement on how to go about building two 24-story towers of hotel rooms and condos downtown.
The deal will become final if the City Council approves it Tuesday. It says the developer, Yareton Investment and Management LLC, could build the $150 million complex in two phases.
The first phase, a four-star hotel with retail, a grand ballroom, a plaza and parking, could break ground by December 2016 on about two acres of city-owned land at the intersection of South 17th Street and Broadway, next door to the Greater Tacoma Convention and Trade Center.
“They could do it more quickly, but this is a comfortable window for them to perform,” said Elly Walkowiak, who works for the city’s economic development department and helped lead the negotiations with Yareton.
Albert Sze, Yareton’s project manager, did not return phone and email messages Thursday.
The hotel would have at least 300 rooms when completed by December 2018, according to the city’s timeline in documents it provided Thursday afternoon. The development agreement requires that the hotel be a “four-star” facility, but what that label means isn’t clearly defined.
“We are going to have to work that through,” Walkowiak said.
A possible second phase could include at least 200 residential condominiums, retail and office space, and more parking. The second phase is more tentative and will be based on market conditions when the hotel is completed.
A memo to the City Council says the development would be a “game changer” for downtown Tacoma. Construction of the hotel would create “1,000 construction and 200 full-time jobs,” and allow the nearby convention center to attract larger events, officials said.
According to the development agreement, the city will only sell the property after the developer meets three conditions for the first phase of the project:
• Prove it has 100 percent of the financing for the first phase, which is approximately $85 million, of which as much as 60 percent can be financed.
• Reach an agreement, acceptable to the city, with a hotel operator to run a four-star hotel for at least five years, and promise to maintain the four-star hotel for 25 years.
• Have construction permits ready to be issued.
One of the prerequisites for construction permits will be approvals from various oversight boards, including the city’s Landmarks Preservation Commission. The site is in two different historic preservation zones.
Yareton already has made adjustments to its design in anticipation of easing the architectural transition from the modern convention center to the historic buildings on the University of Washington Tacoma campus.
Its design in April called for a 34-story tower and a 18-story tower, and the most recent renderings envision two 24-story towers.
“This design will change, but we don’t know yet how,” Walkowiak said. “This concept is probably more palatable. Not blocking views is important to people.”
Yareton was the top company of five that submitted proposals to the city earlier this year. Company representatives said in April that it would seek half of its money from Chinese investors, who would spend money here because a federal program, called EB-5, could give them residency in exchange for their investment. That month, the council gave the city manager permission to negotiate a development agreement with the company.
While the council originally expected to review a development agreement by June, language and cultural issues delayed the process. Contracts had to be translated from English to Chinese and back, and reviewed by attorneys from both the city and Yareton, which is the Seattle-based subsidiary of the Shanghai Mintong Real Estate Co. Ltd.
City Council members remarked in the spring on the lack of city-required subsidy for Yareton’s proposal. Mayor Marilyn Strickland said in a September meeting that there would be no subsidies for the project.
“The 1980s model of tax incentives and tax breaks is broken,” she said. “There is mounting evidence that incentives do not work.”
The development agreement contains provisions that reflect that anti-subsidy sentiment. One provision deals with “shared use of existing city facilities at the convention center.” It requires that the developer pay a pro-rated share for operation and maintenance of any existing facility that benefits the new building.
For example, Walkowiak said, “it makes no sense for the convention center to have a loading dock, and for them to have a loading dock. It makes more sense to share.”
“We have to be very careful we are not letting them use public property for free,” she said.
While the arrangement of the towers has changed, both phases of the project include at least 200 parking spaces each. In addition, the city will have the option to add public parking if the developer can build it for the right price. The site now has about 160 surface spaces that will be displaced.
The city is not required to replace that parking, Walkowiak said.
If the city decides to pay for new public parking, it could use some of the proceeds of the sale of the property. The developer has agreed to pay fair market value, which currently is $6.3 million, but the value of various easements and other obligations will lower the final cost.
Under the city’s financing for the convention center, it is required to use any final proceeds from the sale on either paying back convention center debt, which now is about $111 million, or on a new public capital project, Walkowiak said.
City officials have pushed for a new hotel to help boost the use of the convention center.
While the Hotel Murano and Courtyard by Marriott are nearby, both businesses do not reserve hotel rooms exclusively for the convention center. Last year was the convention center’s best in its 10-year history, said Kim Bedier, director of public assembly facilities for the city, with events in the center 65 percent of the time.
A lack of open hotel rooms is the main reason conventions skip Tacoma, Bedier said.
The development agreement, though, does not guarantee rooms for the convention center. It requires only that the developer negotiate “to enable (the convention center) to obtain a long-term room block agreement for at least 250 rooms.”
Walkowiak said it wasn’t reasonable to ask the developer to guarantee rooms when it doesn’t know who the hotel operator will be.
“These things are as strong as we can get them,” she said.
If the council approves the agreement next week, the city will go through its process of legal review and signatures. Once everyone signs, the clock starts ticking on the deadlines set out in the agreement.
At that time, the developers are to pay $575,000 in earnest money. They have five months to determine if the project is feasible. If determined feasible, the project passes its first milestone.
Yareton then pays another $575,000. It hits the second milestone up to 18 months later, when the project needs to be ready to break ground. If the developer withdraws at any time up to that point, it is refunded all its earnest money except for $287,500.
If the developer proceeds, the earnest money will go toward the purchase of the property. Yareton must start construction no later than two years after the development agreement is signed. If it does not, the city has 90 days to buy the property back for the purchase price.
The developer is required to file quarterly project reports with the city every year until the project is done.