Development deal for downtown Tacoma approved to jumpstart project
Story has been updated.
Plans to complete development of the long-anticipated Tacoma Town Center faced final City Council action Tuesday, and was approved.
Getting to that stage has been a learning curve in what the city can actually do with a project whose land sale and contract terms were set ahead of the current skyrocketing real estate market.
Under the proposal, Boise, Idaho-based Galena Equity Partners will step in to shepherd the $303 million project as an Opportunity Zone investment, pending council approval.
The project, bordered by South 21st to South 23rd streets from Jefferson to Tacoma avenues, is just south of the University of Washington Tacoma. The project stalled after North America Asset Management was unable to generate sufficient financing including EB-5 investment.
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.
Members of the City Council raised questions at their May 25 study session as to how Tacoma got to this point with the project, and why the city did not just exercise its rescission rights, start over and seek new bids.
“The concerns I’ve heard from the broader development community is we’re underselling ourselves in terms of the value of the property ... the property’s worth more than what we initially bargained for,” said council member Conor McCarthy at the session.
Getting answers meant council action was pushed to Tuesday’s meeting, after previously being scheduled for approval at its May 25 meeting.
CITY’S EXPLANATION
A statement drafted by city staff, which the deputy city manager sent to all City Council members, sought to explain not only the project’s history, but why a contract rescission was not the best path forward.
Elly Walkowiak, assistant director for the city’s Community and Economic Development Department, shared a copy of the statement with The News Tribune on Friday.
According to the statement:
“In 2015, after full public process including City Council approval, the 6.4-acre unimproved Town Center site was sold to North America Asset Management (NAAM) at its then fair market value of $12.37/sf and governed by a Development Agreement with land use covenants. The rights the City retains under the Development Agreement are expressly and exclusively for the purpose of ensuring that NAAM as property owner completes the project in accordance with the development terms.
“The property has not been in City ownership for six years. Throughout those six years, the developer has invested funds into securing entitlements as well as in site and building development. In addition, City staff and the developer have agreed to amendments to the Development Agreement to facilitate the project’s completion.
“At the present time, while City staff and the City Attorney’s Office believe NAAM to be in default on certain obligations, NAAM and its counsel vigorously dispute that assessment.”
The statement continued:
“Rather than litigate the issue, incurring unknown costs and create investment uncertainty in Tacoma’s market, the City has remained focused on its core goal of pursuing completion of the project. The proposed amendment to the Development Agreement ensures sufficient capital to advance and improve the City’s position by delivering a project aligned with the development covenants and helps meet Tacoma’s critical affordable housing needs and enables the creation of livable wage jobs.”
Under the second amendment to the development agreement, the project is to be tackled in phases, with completion the end of May 2025 with a public plaza and one of the buildings.
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.
QUESTIONS FOLLOWING INITIAL APPROVAL
During the council’s May 25 meeting, the motion to approve an assignment of interest in the purchase, sale and development agreement from North America Asset Management Group to Tacoma Town Center Parcels, was forwarded to its June 8 meeting. The action came after some members of the council raised questions during that day’s council study session about how the new deal came to be, despite the recommendation for full council approval at the May 11 Economic Development Committee meeting.
The main question raised at the study session was why the city didn’t exercise contract rescission rights when the project first went into default. It also was noted the land is worth more now than it was when an original deal came to pass in 2015.
“We did have that option based upon the initial agreements,” Jennifer Hines, assistant division manager with the city’s Real Property Services, explained at the session. “However ... we work very hard not to exercise a right of rescission. Because the city of Tacoma wants a development, we want the project to move forward. If we were to rescind ... it almost starts the clock all over. We have to then go into our process of seeking out new development and going through all of the contracting process and agreement negotiations.
“What we really wanted is to save time and get this project completed for the city. And in order to do that, we worked very closely with our partners within NAAM and with our partners in Galena.”
Other issues at play were council members hearing from developers that they felt left out of the loop when they might have wanted to take the project on.
Walkowiak reminded the council that NAAM owned the property, and one of the city’s attorneys noted that Tacoma wasn’t in the business of “match-making” for developers.
“Regarding the value of the property, we have to keep in mind that the city does not own this property,” Walkowiak said at the session. “This is a private transaction.
“The negotiation between NAAM and Galena is — they set that price based on the investment they put into that property, NAAM has put into it, and current market conditions. So that is really not within our realm to address.”
“In this case, for Opportunity Zone investment, you know, we broadcast that these properties were available,” she said. “Did we reach out to the development community locally, specifically? No, we did not. That was not our responsibility. And it was up to NAAM to figure out what partners it wanted to have.”
Steve Victor, part of the city’s legal team, explained further.
“The question of what the city could have done over the years is an unknown,” he said at the session. “What we know is we sold the property. This proposed amendment, which we do need to approve, would allow for this change in ownership and funding to complete the project. And at this point, what is proposed and this agreement exceeds the original City Council approved development goals. Any discussion of actual exercise rescission without getting into it too much — it’s a very extreme remedy. It is complex, and it is uncertain in terms of time, cost and outcome.”
The city’s authority in oversight in this project, Victor explained, “is to review it to be sure that the proposed new investor and partner is capable of performing the work. And we have done that and they are capable.”
The project under the new terms would include 98 affordable housing units with rents set at 80 percent area median income, along with 537 market-rate units and 200,000 gross square feet of Class-A office space on the corner of 21st Street and Jefferson Avenue. The previous standalone retail component of the project is not in the new plans, but there will still be 36,200 gross square feet of mixed-use retail in the buildings. And, there will be 1,000 parking stalls provided.
Dan Fullmer, chief investment and development officer with Galena Equity, told the council that taking time to better understand the project and terms would not jeopardize the project, with investment monies due within 31 months.
He added: “If people had additional piece of information they wanted from us to prove who we were, we could provide that. ... And yes, the dirt’s worth more today than it was in 2015, as is a lot of dirt in different places. But just me giving you that statement doesn’t mean I can build something on it.”
“We appreciate you wanting to invest in Tacoma. So, please know, we are grateful for that,” responded Mayor Victoria Woodards.
Councilmember Robert Thoms said he appreciated Fullmer’s candor during what essentially had become a session with members flatly wondering whether a better deal was out there.
“I mean, obviously, these things do change,” Thoms said. “it is disappointing for our local community that they may or may not have known more about this. It doesn’t change whether or not we could impact in one way or the other. But I do think there’s some benefits to broadly sharing that information with our local developers.”
As part of the back-and-forth of the council’s concerns over the project, the city’s Economic and Development Services Department on Friday was to “meet virtually with the primary developers who brought this matter to the Council’s attention,” according to Walkowiak, in response to questions from The News Tribune ahead of Tuesday’s council meeting.
As of Friday, Walkowiak’s office was not aware of any changes proposed by the council to the agreement.
As to the approval process in future projects, “Based on further discussions we intend to have with the regional development community, there may be changes to the approval process,” she said via email.
“We hope that the initially selected developer/owner will be able to move forward and complete the project as stated in the proposed agreement,” she added.
This story was originally published June 6, 2021 at 5:00 AM.
