Long-stalled, multi-block housing/office project in downtown Tacoma could see new life
Story has been updated.
A long-planned development for multiple city blocks in Tacoma is undergoing an overhaul both in financing and building plans, with its future in the hands of City Council with a vote next week.
As originally proposed, Tacoma Town Center was set to include new apartments, retail with a downtown grocer or cinema serving as the anchor tenant..
The project was introduced in summer 2015 in a development agreement between the city and North American Asset Management, a Bellevue firm led by Luo Xun Kun, a real estate developer from Wuhan, China. The plan was to redevelop a bundle of city-owned parcels spanning from 21st to 23rd streets and Jefferson and Tacoma avenues.
Investment funding woes have dragged the project to a near standstill for years.
Under a second amendment to the current development contract, Boise, Idaho-based Galena Equity Partners would step in to shepherd the project as an Opportunity Zone investment, pending City Council approval.
In the new proposal, more office space would replace standalone retail, and more parking would help support those offices with an aim to attract new employers here as the city deals with its latest growth spurt.
How the first plan ran aground
The city bought the 6.4-acre property in segments from 1998 to 2002 and once considered it for the headquarters of the Police Department. When that and other public uses didn’t pan out, the city made the land available for private use in 2012.
NAAM, after entering the development agreement in 2015, purchased the site from the city in October 2017 for $3.45 million. The property is directly south of the University of Washington Tacoma.
A portion of that funding plan was reliant on a federal EB-5 immigrant investment plan that never gained traction. The program offers a citizenship path for eligible immigrant investors to become legal residents as “Green Card” holders by investing in a U.S. business that will employ at least 10 U.S. workers.
As time wore on after its groundbreaking, the original developer was unable to pull together enough funding to roll out the vision of a mixed-use “urban village.”
“The first part of the project was developer equity, and primarily developer equity, and then a construction loan, but the buildout was really expected to involve quite a bit of EB-5 financing,” Elly Walkowiak, assistant director for the city’s Community and Economic Development Department, told The News Tribune in a phone interview this week.
“They did everything they could to get the designation,” she said. “You had to go through a fairly extensive application process. And then it probably took them a year or 18 months just to get that approved.”
Ultimately, she said, the EB-5 program lost favor “because of those unpredictable circumstances and the long wait time.”
The program, which had worked well in the past, Walkowiak said, faced emerging hesitancy in the investor market over the EB-5 program itself and a backlog of visas delaying actual path to citizenship, both proving to be a problem for the Tacoma project.
The project is now running three years behind its original 2022 completion date and the current contract is in default, Walkowiak said in a recent council committee presentation.
The then-estimated $125 million development has ballooned in cost to more than $300 million, according to a presentation May 11 to the City Council’s Economic Development committee.
Just one building is complete, the Jefferson Yards apartments at 409 S. 23rd St. The building offers 144 market-rate apartments and 6,000 square feet of retail space and was completed in March.
“The issues that we face today are that the developer needs substantial equity to complete the buildout,” Walkowiak told the council committee. “NAAM cannot do this project on its own. Project costs have escalated dramatically due to a project redesign ... and then material increases in charges over the years.”
The site was among those in Tacoma designated as Opportunity Zones in 2018, which gave the city and NAAM another tool in marketing for investors.
Opportunity Zone funds are set up to invest in properties and redevelopment in economically distressed areas. Investors can defer and potentially lower their capital gains taxes in exchange for the investment.
The redevelopment of the Washington Building, among others in Tacoma, is one example of such a project. The rehabilitation of 748 Market St., where TractionSpace coworking entity is now, is another.
“What we’re trying to do is find the best path forward to still allow for this project, but also then make sure that it really does support the council goals, and really bring that area to life,” Walkowiak told the council committee.
The new plan
Under a second amendment to the city contract, NAAM would retain ownership of “Building 2” (Jefferson Yards), and convey the remaining undeveloped property to a subsidiary LLC — Tacoma Town Center Parcels. TTC would then assign its interest to one or more LLCs created and controlled by Galena Equity Partners, according to the plans presented to the city.
Walkowiak told the committee that “NAAM would actually retain a very small interest in this project. Roughly about 2 percent or so.”
The new plan also would shift the mix of apartments and retail, offering 537 market-rate apartments and 98 affordable units with rents set at 80 percent area median income, for a total of 635 units. That’s a change from the original plans of 600 market-rate units. The new plan would offer 36,200 gross square feet of mixed-use retail, up from 36,000.
Walkowiak noted at the May 11 committee presentation that perhaps the most significant shift is the replacement of 180,000 gross square feet of standalone retail and 50,000 gross square feet of office space with “one or two” office towers totaling 200,000 gross square feet on the corner of 21st Street and Jefferson Avenue.
“This really makes a lot more sense with where we are in our evolution as a city, in terms of growing businesses here and expanding them — not only from the city itself but from other parts of the region,” Walkowiak told the committee.
Dan Fullmer, chief investment and development officer with Galena Equity, told The News Tribune in a phone interview this week that while it’s not known whether it will be one or two towers, whatever is built could be at least 12 stories to accommodate the square foot requirements.
He noted that his firm started looking at the site about 10 months ago after receiving a pitch from a local broker.
“Lots of different projects were pitched to us from across the Northwest, originally,” Fullmer said. “And then a local area real estate broker told us to concentrate here and that it was a great opportunity in Tacoma.”
Fullmer said, “In theory the school (UWT) plans to expand. I think this will give them more comfort knowing that there are large institutional investors putting a large amount of money next to their campus location.”
Walkowiak at the May 11 presentation noted the project’s shift holds the promise of more livable wage jobs than the previous plan and would give Tacoma a much-needed boost in Class-A office space.
“The most recent Class A office building was built in 2003,” she told the committee. “So, this would be amazing to add to the over a million-square-foot inventory.”
The last Class-A space built, according to Walkoniak, was the former Rainier Pacific Bank location on 1498 Pacific Ave., now the Umpqua Bank Building.
More parking is also coming to the project as a result of the changes, with 1,000 total stalls, up from the previously agreed upon 600.
Construction would be phased in:
▪ Buildings 5 and 6 would be completed in April 2023.
▪ Buildings 3 and 4 would be completed at the end of 2023.
▪ Building 1, which is the new office addition, and the public plaza would be completed at the end of 2025.
Galena Equity is currently touting Buildings 3, 4, 5, and 6 in the project on its website. The firm has been involved in other projects in Bremerton, Spokane and Vancouver, Washington, Fullmer told The News Tribune.
As for risk mitigation, the city includes plans to reacquire the property if the developer falls short in financing or the project runs into significant construction delays.
Fullmer told the council committee on May 11 that his firm considered the site the best to develop in Tacoma “because of the ease of getting on the freeway.”
“We’re a group with a lot of years of experience ... and we’re just excited to get to work.
“We’ve been in Tacoma eight times over the last multiples of months looking at lots of different sites and keep touring this site. And every time we’re there, we get a bigger and bigger smile, because it seems like something in Tacoma is growing again.”
The firm on its website notes that it looks to invest in cities that have “shortages of multi-family residences, rapid population growth in both urban and rural communities, emerging and growing commercial businesses in the area, and colleges in the area.”
The proposed contract amendment for Tacoma Town Center was forwarded from the Economic Development Committee to the City Council for approval at its May 25 meeting. It was subsequently moved to the council’s June 8 meeting.
If approved, the title transfer for the site would take place in June.
‘Never stand still’
Walkowiak sees the new plan for Tacoma Town Center as critical to keep the project moving forward, among the others already in the works in Tacoma, including Old City Hall. That project was slowed because of the pandemic.
“I’ve asked them to come before the Economic Development Committee to give an update on that, because they’re going to need a contract amendment as well, primarily related to the phasing of the project and the construction time frame,” she said of Old City Hall.
“COVID threw a monkey wrench into people meeting their deadlines, but obviously ... we can’t just say, ‘Oh yeah, we understand,’” she said. “You’ve got to make sure that the contract is enforced, but making sure that it’s reasonable given the circumstances that everyone has been under. And so we need to get those contracts revised according to the current realities.”
She remains both pragmatic and confident in both projects.
“We have to keep working because you can never stand still,” she said. “The market always changes, and you have to be aware of where those opportunities are.
“The government itself, whether it’s local, county, state, federal, we have to be enablers. And that’s critical for people to really thrive and for businesses to grow and develop. So that’s really what we’re trying to do through these various projects.”
News Tribune archives contributed to this report.
This story was originally published May 21, 2021 at 5:00 AM.
