One of downtown Tacoma’s major employers announced Thursday it was moving about a third of its operations to Federal Way.
DaVita, the nation’s second-largest kidney care company whose business headquarters are in Tacoma, will transfer about 350 of its employees from the Columbia Bank Center on A Street to a building on the Weyerhaeuser campus by April. About 550 employees will remain downtown at 1423 Pacific Ave.
“We are still committed to Tacoma,” said Jim Hilger, the head of DaVita’s Tacoma operations who also is serving as the Denver-based company’s interim chief financial officer. He said the company plans to continue growing in both places, including at the Pacific Avenue building where it is in the second year of a 10-year lease.
“Ideally we want the whole company here,” said Bruce Kendall, CEO of the Economic Development Board of Tacoma-Pierce County. “It’s an unusual situation because they’ll be keeping the great majority of their folks in downtown.”
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About 40,000 people work downtown, including hundreds employed by the MultiCare and Franciscan health systems, which are the city’s largest private employers.
With the move, DaVita will be saving a significant amount on rent, though Hilger would not put a number on it. High office vacancy in Federal Way, driven almost exclusively by Weyerhaeuser’s shrinking operations, has driven rents down so far that downtown Tacoma building owners can’t compete. The building DaVita has chosen, at 32275 32nd Ave. S., has been vacant for years, though it still houses Weyerhaeuser’s data center.
Patricia Mullen, Greater Federal Way Chamber of Commerce chief executive, said DaVita’s decision was good news.
“It’s a tremendous announcement that they will be sharing their staff with both Federal Way and Tacoma,” she said.
DaVita’s rapid growth nationally has been reflected in its offices in Tacoma. In 2008, the company was operating in multiple downtown buildings and wanted to consolidate. It considered several options, including building a tower, but ultimately took over several floors in the Columbia Bank Center from Russell Investments when it decided to move to Seattle.
Like Russell, DaVita was the target of a massive incentive package to retain large employers downtown. The City of Tacoma has completed many of the items on that list, including turning a formerly contaminated site next to DaVita’s main downtown building into an employee parking lot for $850,000. More recently the City Council waived certain requirements for another building owner so the company could open its first health clinic on Pacific Avenue.
The company has been snapping up other businesses to expand beyond kidney dialysis, recently acquiring a California-based owner of physician groups for $4.42 billion. Hilger said that deal increases DaVita’s size by a third. It also will require growth in DaVita’s finance and accounting operations, he said, which is the group moving from about 80,000 square feet in Tacoma to 125,000 square feet in Federal Way.
“We didn’t want to go back to what we had before, which was six buildings across downtown Tacoma. That was inefficient, unproductive and was a poor environment for our teammates,” he said.
Last year, DaVita started hunting. The largest chunk of empty office space downtown is at the former Russell headquarters, but the company still has a lease in effect until next fall. The building’s financial position also is delicate, with its owner suffering the same effect as many underwater homeowners after the recession.
Still, Hilger said he considered it.
“Stylistically it isn’t appropriate, and economically it was not competitive,” he said Thursday. “That building is a wonderful, beautiful building. But it is not the type of space that DaVita typically occupies. It’s a very formal building. We’re not a super-formal organization.”
Besides the former Russell building, no other top office building in downtown had enough space in one place. Hilger said they might have stayed at Columbia Bank Center if there was space to be had, but there wasn’t.
“What I was unwilling to do was take that finance and accounting group and break that into pieces and put us in three buildings,” he said. So DaVita analyzed its workforce, doing a ZIP code analysis to determine just how employees would be affected by the change to Federal Way. Hilger said it was almost a split, where just more than half would have a worse commute than they do to downtown.
“We wanted to find the best all-around space,” he said. “The impact on teammates was acceptable, but not preferred.”
As part of DaVita’s search for space, city manager T.C. Broadnax sent a letter to Hilger in May with a proposal that “contains incentives designed to address your B & O tax liability (past, present, and future) as well as assist you with your parking needs.”
The bulk of the letter was a list of things the city already has done. The proposal itself was not disclosed because of an exemption in open records law pertaining to tax information. Last month, city officials would not comment, citing other state laws that prevent disclosure of tax information.
Hilger has made clear he’s bothered by the city’s business tax, which collects revenue based on gross profits of any revenue-generating operation within city limits. He said in an interview last month that it puts businesses at a disadvantage, and that his company has sometimes disagreed with the city on what DaVita owes.
Earlier this year, DaVita paid about $800,000 to resolve such a dispute. Sources familiar with the circumstances described it as a disagreement over classification that was discovered as the city combed its operations looking for revenue to resolve a budget shortfall.
Last month, Hilger would not elaborate on the city’s proposal other than to say “the city recognizes they are uncompetitive” on business taxes as compared with other cities, and that Tacoma “made an offer to mitigate some of that difference.”
On Thursday, he said the business tax was an element of the decision to move, but not the driver. The cost savings of the move was enough that “it makes the B & O tax question irrelevant.”
Phyllis Harrison, former president of the Downtown Merchants Group and co-owner of The Art Stop and LeRoy Jewelers in downtown Tacoma, said Thursday, “We’re always seeing change downtown. We’re always seeing people coming and going – and we’d always like to see more coming than going.”
Still, she said, “Downtown Tacoma is still the hub of the region, and I’m glad the majority of DaVita employees are staying here rather than moving.”
Staff writers C.R. Roberts and John Gillie contributed to this report.