Politics & Government

Documents reveal finances behind proposals for Tacoma’s Old City Hall

In its bid for Tacoma’s Old City Hall, McMenamins wants city leadership to consider a first: A so-called public benefits agreement that could slash the price of the building in exchange for the Portland company providing free public access to pools and a meeting room.

Those details and more are revealed in documents the city released in December after a lawyer for The News Tribune challenged the city’s legal reasoning for withholding financial portions of four bids for Old City Hall.

The city bought the building last year for $4 million to save it from further neglect and asked developers to pitch their ideas for the iconic building’s restoration and reuse.

Records reveal that of the four proposals, only one — a pitch to convert the 123-year-old landmark into a brand-name hotel — would put $1 million in Tacoma’s hands nearly from the start. Another proposal, by a Seattle developer who wanted to renovate the building into office space, asked the city of Tacoma for an allowance of more than $2 million to replace broken heating, elevator and electric systems.

The city has opted for neither proposal, instead announcing in December that it would begin negotiating an agreement with Portland-based brewpub operator McMenamins, which is renovating the nearby Elks Temple.

McMenamins’ pitch for Old City Hall would provide free access to basement soaking pools, a small community meeting room and presentations about local history for 15 years. The public amenities are worth $2 million, the company wrote in its proposal in 2015.

McMenamins used a public benefits agreement on its last project, which opened in October. When the city of Bothell sold the historic Anderson School property to McMenamins, the purchase price was reduced by public benefits valued at $4.7 million.

Tacoma has never before entered into a public benefits agreement, said Elly Walkowiak, business development manager for the city of Tacoma.

The value of the public benefits agreement could be hashed out in coming weeks as the city and company tussle over the fine print in any agreements the two might sign.

“Just because they propose it doesn’t necessarily mean that is something we are going to accept,” Walkowiak said. “That needs to be discussed.”

Walkowiak said the city drafted a counter-offer and sent it to McMenamins last week. The City Council could vote on agreements with the developer in February.

Judging by the McMenamins’ proposal and the others proposals, the city isn’t likely to immediately recoup the $4 million it spent for the building at 625 Commerce St.

The building was appraised for $1.6 million before the City Council decided to pay more to get the crumbling landmark out of the hands of an owner reluctant to make critical repairs. The city drew from a designated fund for economic and urban development to make the purchase.

But money isn’t all that is on the city’s mind, as it explained to developers when it invited them to pitch their ideas for the iconic building’s restoration and reuse.

“It is the City’s preference to attract uses that create synergy with surrounding development, maximize tax revenues, recoup its investment, result in new jobs and draw pedestrian traffic to the area,” the request for interest stated.

McMenamins’ vision for the property and its track record for renovating historic buildings pushed its plan for Old City Hall above three others, Walkowiak told The News Tribune in November.

The company’s chief financial officer said McMenamins is driven to invest in communities, not necessarily major metropolitan markets.

“We look at the community of Tacoma and there’s a lot to like,” said McMenamins CFO Chris Longinetti. “… We are extremely excited about the property.”

McMenamins will first work on the historic Elks Temple, a 46-room hotel with restaurants, a brewery, bar and event space slated for a summer 2017 opening, across the street. The company is seeking investors for the Elks renovation, which could cost an estimated $25 million. McMenamins attracted $6.3 million in private investments for its Bothell property two years ago.

If the city and company can come to an accord, the Old City Hall property — with bars showcasing the jailhouse, clock tower and rooftop greenhouse; a rooftop restaurant; soaking pools; community/private meeting and event spaces; and a gift shop — could open as soon as late 2019, according to McMenamins’ proposal to the city.

McMenamins hotel

McMenamins’ proposal says city residents would benefit from its public spaces to the tune of $2 million over 15 years. The company would provide free daily access to basement soaking pools, free music events and “history pub” presentations showcasing local history. The hotel would also make a 700-square-foot community room available for exclusive public use.

According to the McMenamins proposal, the company could take a year to develop a cost estimate to build its project and to draft a construction design. By year two the company will have demonstrated its ability to pay for the project. If three years pass without construction, then either party could end the lease under McMenamins’ proposed terms.

The company wants to lease Old City Hall rather than buy it — at least initially. McMenamins proposes a 20-year initial lease, with three options to renew for three, 10-year extensions for a total of 50 years.

McMenamins would also have first dibs on buying Old City Hall should the city choose to sell it. If so, McMenamins would have someone appraise the building’s value, and deduct the cost of the improvements it made and the value of the public benefit to arrive at a purchase price. State law requires governments to get a fair-market-value appraisal before selling property.

Eventually, the company would pay up to $20,000 per month in rent — what the company identified as full-price rent and which the company said would be a 6 percent return on investment over time on the city’s $4 million purchase price of the landmark.

But for the first two years McMenamins wants to pay nothing for the Old City Hall lease. In year three, McMenamins would pay half of the full rent. By year four, the company would pay up to $20,000 per month. Starting in year five, rent would rise by inflation.

The tenant would be responsible for all costs, including permit fees, taxes, utilities and its own operating expenses under the proposal. The city would assist McMenamins in applying for historic tax credits to pay for improvements, the document states.

Starwood Aloft hotel

Grace Pleasants of Tacoma’s The Boulevard Group thinks Tacoma is missing a chance to diversify. She proposed a 110-room Starwood hotel with a covered outdoor swimming pool. Adding a Starwood hotel to Tacoma’s existing inventory would have lured business and international travelers who want to take advantage of the company’s loyalty program, Pleasants said.

The Starwood chain has more than 1,200 hotels. An international hotel brand could make Tacoma more attractive and credible to regional investors, who often have a “thumbs down, nose up” attitude about investing in Tacoma, Pleasants said.

“Tacoma already has a McMenamins,” Pleasants said. “… When you have an opportunity — which Tacoma did have an opportunity — to shore up another global hotel hospitality brand, I was really surprised that they didn’t take that opportunity.”

Pleasants’ proposal outlines spending $25.5 million to make Old City Hall ready for a summer 2018 opening. It proposes a Starwood Aloft by W hotel, an affordable brand that caters to a young, tech-savvy clientele.

The proposal offered a $1 million payment to the city when the group’s construction loan closed. It said Tacoma could recoup the remaining $3 million of the city’s investment in taxes collected from hotel stays over 10 years.

The proposal did not ask for incentives from the city, but the group wrote that it expected to take advantage of historic renovation tax credits, which other proposals also included.

Office space

Nitze-Stagan and Seattle-based Daniels Real Estate proposed high-end office space for Old City Hall. The developers also touted public benefits: “It is possible that the office space will create new jobs, draw pedestrian traffic, improve the aesthetic of the neighborhood and kick off gentrification of other buildings.”

The companies said they would make an offer for the building after doing more research, but that “the purchase price ... will likely not exceed the appraised value of $1.6 million.”

The companies could have ended up paying nothing for the building. The proposal assumed the city would pay a $40-per-square-foot tenant improvement allowance to replace the building’s outdated heating and electrical systems, its elevator and possibly other items. The county assessor says the building has 55,505 square feet, putting the allowance’s price at more than $2.2 million.

The proposal said the city could recoup some of its $4 million over time through the taxes the development would generate.

The companies, which have redeveloped other historic buildings including the Starbucks Center and Union Station in Seattle, said a renovated Old City Hall would be ready to open in early 2019. A company representative did not return a call seeking comment.

Ralph Lauren Polo Bar

Another unsuccessful concept by former state Sen. Larry Faulk pitched a Ralph Lauren store and bar, paired with a New Orleans-based antique shop.

Faulk said he planned to pay for the development by asking for money from the Ralph Lauren organization, seeking $5 million from the state capital budget, soliciting money from the grandchildren of the Mars candy fortune and convincing 100 people from the Tacoma area to each invest $100,000.

Kate Martin: 253-597-8542, @KateReports

How The News Tribune got these records

In early November, the city of Tacoma declined to provide copies of the four Old City Hall proposals, saying state law allowed it to withhold information regarding “real estate information.”

The News Tribune appealed the decision, which led to the city releasing the documents with some sections blacked-out. The paper appealed again, and the city in turn released the documents with fewer redactions.

Finally, in mid-December, The News Tribune’s lawyer, James Beck, wrote to the city. In his letter, he challenged the city’s use of a public disclosure exemption shielding “documents prepared for the purpose of considering the minimum price of real estate...”

Beck argued the documents could not construed as the city considering a sale price for Old City Hall since the documents were drafted by the companies bidding for the building, not the city itself.

The city released the proposals in full three days later.

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