The bank that holds the mortgage on downtown Tacoma’s Old City Hall is unlikely to take on water damage repairs, at least until the foreclosure process is resolved in the next few weeks, lawyers say.
Meanwhile, the building owner said this week that cleanup work has started.
“The first phase of this assessment work is complete,” Stratford Group CEO George Webb wrote in an e-mail Wednesday. “Removal of wet materials will begin imminently as soon as any required permits can be obtained and the crews mobilized. As soon as removal is complete, we will be able to fully assess the situation and make a plan to address the damage and to re-occupy the building.”
A thawed sprinkler pipe burst at the 117-year-old historic building the day before Thanksgiving, flooding the iconic structure. Community outcry at the lack of immediate emergency cleanup led Tacoma City Manager Eric Anderson to tell the City Council a few days later that there was nothing the city could do.
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“We can’t just go into a (private) building and clean it up without an immediate public danger,” Anderson said Nov. 30.
Once the headquarters of city operations, the building has been in private ownership for decades. It was full of commercial tenants until 2005, when Seattle-based Stratford bought the building and forced tenants to vacate with ideas to convert offices to condominiums.
Since then, the building has fallen into financial distress.
San Francisco’s Union Bank inherited the mortgage from Frontier Bank when that bank failed. Union Bank then began the foreclosure process, indicating its intent to sell the building at auction on Jan. 7. Documents filed with Pierce County show the foreclosure is based on the owners owing about $156,000 in missed monthly interest-only payments since February; about $126,000 in property taxes; and about $38,000 in accrued interest, late charges and fees.
Webb said in an interview Tuesday that he is negotiating with the bank over loan payments, and that it knows about the flood. He also said he has told the bank that Adjusters International has been working with Fireman’s Fund, Stratford’s insurance company, and to conduct water mitigation and environmental studies at the building at 625 Commerce St.
The water soaked carpets and is dripping through asbsetos-lined ceilings, Webb said, so repair isn’t as simple as ripping everything out. The studies will point toward the next step in repair.
“We’re trying to do the right steps so we don’t add insult to injury here,” he said.
He said he doesn’t think the flood will affect his negotiations with the bank, and that he’s confident he’ll be able to work out a deal.
Does he expect the foreclosure auction to happen? “I do not,” Webb said.
A regional spokesman for Union Bank said it was referring all comments about Old City Hall to the owner.
“Under Washington law, the lender really can’t do much right now,” Milt Rowland, an adjunct professor at the Gonzaga University School of Law and a lawyer with Foster Pepper in Spokane, said Tuesday.
Rowland and W.H. Knight, a law professor at the Seattle University School of Law, said the bank has few options without opening it up to larger legal liabilities.
“At this point, (Union Bank has) begun mortgage foreclosure proceedings, but that doesn’t give them the right to engage in self-help remedies,” Knight said. Someone besides the bank could go to court and “intervene as a concerned party, but I’m not sure that would net you very much. Most courts would say it’s in the process of being foreclosed, so let’s work through that process first and then see who can do what.”
Rowland said the bank could ask a court to appoint a receiver care for the building.
“Given the short time frame of sale, it seems unlikely that the bank would be willing to spend the money between now and then,” he said. “It’s a question of how much additional damage the bank thinks is likely to happen before Jan. 7, and where that fits in the bank’s longterm planning.”
An outside possibility is the bank intervening under the idea that the building owner isn’t protecting the mortgaged property from deterioration, Rowland said. But acting this way, before the foreclosure process is complete, opens up “a whole raft of legal issues that (the bank) could have avoided by waiting four weeks and buying it at trustee sale.”
Since the owner has taken action and gotten his insurance involved, the bank has less motivation to get involved, Rowland said. If the bank does complete foreclosure, and ends up owning Old City Hall, Rowland said the bank almost certainly would repair the water damage.
“I can’t imagine a scenario in which the bank would allow continued deterioration of its asset,” he said. “It would be a public relations disaster for the bank. It would also be perceived internally as irresponsible. The bank’s board is going to want to see staff with good ideas about how to make use of this asset rather than simply write it off.”
Webb said water mitigation and environmental studies were conducted at Old City Hall to determine the extent of the damage.
A water damage expert not connected to Old City Hall said Monday that repair costs “can run into the hundreds and hundreds of thousands of dollars.”
Ernie Dittmann, commercial accounts manager for ServiceMaster of Greater Tacoma, spoke generally about commercial water damage. ServiceMaster is running the cleanup at the United Way building, another historic building in downtown Tacoma flooded by a broken sprinkler pipe during the Thanksgiving cold snap.
Drying the building out is just the first step, he said. “Depending on how much (demolition) they have to do, that’s where the big bills come in,” Dittmann said. “The replacement cost is what could skyrocket.”
Webb said he didn’t know the specific terms of his insurance policy.
“That’s what Ajduster’s International does. They’re working in close concert with Fireman’s Fund,” he said. “I’m hopeful that they’ll be able to cover anything. I haven’t heard anything to the contrary yet.”
City Councilman David Boe is among city leaders expressing concern about how Old City Hall has been maintained. His offices are nearby, and he told The News Tribune a few days after the flood that he’s been noticing problems there for awhile.
“Ripped canopies, boarded-up windows, birds living inside, which implies other things living inside,” Boe said in a Nov. 30 column by Peter Callaghan that explored the issue of “demolition by neglect,” which happened last year with the historic Luzon building downtown.
Webb said in the Wednesday e-mail that Old City Hall isn’t just a moneymaking venture for his company.
“The owners have immense appreciation for the historic integrity and value of the property. That is a key reason why we bought it (by purchasing it we have a much larger commitment to the property than anyone else),” he wrote. “Although we do hope to earn a profit for our investors from re-positioning the building for the future (as has been our plan all along, interrupted by the Great Recession), it has been a labor of love not of profit for all the years since we purchased the property.”
Kathleen Cooper: 253-597-8546 firstname.lastname@example.org