development
10:12 am
Thu October 31, 2013

Deal or Debacle? Terms of PacMed Building Lease Raise Questions

The state of Washington is about to make a major real estate decision on a Seattle landmark that supporters say will transform health care training for the next generation.

The proposed lease of Seattle’s Pacific Tower, or the PacMed building as it's sometimes called, has been called “a nightmare.”

Powerful interests, including Washington’s Speaker of the House, want to turn the former Amazon headquarters into a training center for future health care workers and a hub for nonprofit groups. But internal state agency documents raise serious questions about the terms and cost of the deal.

A Health Care Innovation Center

Pacific Tower is a 14-story, art deco-style former public hospital that has been sitting empty since 2001, when Amazon moved out. On the eighth floor is a glass-walled auditorium that lends a panoramic view from the Olympics to the Cascades.

The eighth floor of Pacific Tower includes a common space with a panoramic view from the Olympics to the Cascades on clear days.
Credit Austin Jenkins

But the building has far more potential than its view for Tom Byers, a longtime community activist who has a vision for what this iconic Seattle building could become. His dream is that two years from now, this space will be humming with activity, with community college students preparing for careers in the health care field and employees of health and human services nonprofits trading ideas on how to improve the lives of their clients.

Byers’ working name for the place: “The Beacon Health College and Innovation Center.” He says he first walked into this building 42-years ago when it was a hospital. His friendship with Washington Speaker of the House Frank Chopp goes back almost that far, too. And that’s who Byers went to when he needed a patron for this vision.

“We took it to Frank, and Frank got very enthusiastic about it and started to champion the idea in the Legislature,” he said.

Chopp: A Smart Move to Repurpose Pacific Tower

The speaker has other personal connections to this project as well. His daughter is office coordinator for the preservation authority that owns Pacific Tower, but she was not allowed to work on this project. His wife runs one of the nonprofits on the list of potential sub-tenants. But Chopp says this has nothing to do with favors for friends or family, and in fact, there’s been no suggestion to the contrary.

“These are the issues I’ve been working on for, well, all my adult life basically,” Chopp said.

Chopp, a Democrat, says it’s a smart move to repurpose Pacific Tower as a health college run by Seattle Central Community College, especially since so many more people will get insurance because of the Affordable Care Act. 

“That expansion will create about 10,000 new jobs, and the goal of this project, in large part, was motivated by the desire to provide training for students to get those jobs in health care,” he said.

So this year, the speaker championed language in the budget that authorizes the Washington Department of Commerce to lease the building.

Money: Where the Vision Meets Reality

There’s also $20 million to renovate Pacific Tower. This is where the vision runs into reality. The lease is described in internal state documents as “a significant departure from the state’s standard lease.” It’s longer than usual—30 years—and here’s another detail: the state, not the building’s owner, is obligated to pay to maintain and operate the building, meaning if an elevator breaks or the HVAC goes out, that’s ultimately on the state.

The total cost of the deal has been estimated at more than a $250 million over 30 years. Dan McConnon, deputy director at the Department of Commerce, says his agency had a legislative mandate to make the deal work.

“When it came to lease negotiations, yeah, we didn’t really have the ability to say, ‘No, we’re done.’ We just had to drive the best bargain we could,” McConnon said.

McConnon’s focus now is on filling the more than 200,000 square feet of office space. The income will help offset the cost of the lease. Think of Pacific Tower as a shopping mall, he says. The health college is the anchor tenant, like Macy’s.

“So that’s what we’re wrestling with right now, is: How do you fill the rest of the mall?” McConnon said.

So far, Commerce has identified nearly a dozen potential sub-tenants. But there are still a lot of details to be nailed down, including the price per square foot. The nonprofits on the list don’t even know if they can afford the move. As one potential tenant told me, at this point, “it would be like asking someone to buy a pig in a poke.”

McConnon does have a back-up plan. State agencies could always move in.

“It’s not the preferred path, but it does give us an insurance policy,” he said.

A Good Move for the State?

The fact Washington’s Department of Commerce is trying to fill a building the state doesn’t even own gives Senate Majority Leader Rodney Tom heartburn. He notes the previous leaseholder, Wright Runstad, defaulted after Amazon.com moved out of Pacific Tower.

“Why do we want to become landlords when there’s been really good landlords who haven’t been able to lease it? All of a sudden we’re going to get in the landlord business. That’s crazy,” he said.

Tom, who has a background in real estate, believes the proposed lease is a bad financial move for the state.

“For all the social service networks, it is a great deal. For the citizens of Washington state, it’s a terrible deal,” he said.

But Chopp insists otherwise.

“It’s just not true,” he said. “It’s just not true.” 

The speaker says in the end, the deal will pencil out. And he notes there’s a long list of organizations and leaders who’ve endorsed it. He’s especially pleased with what the lease means for the building’s owner. It’s a hospital district whose mission is to fund low-income health care in the Puget Sound region.

Currently, Washington’s Office of Financial Management is wrapping up a formal 90-day due diligence review. Assuming the deal goes forward, the state will assume responsibility for Pacific Tower on Jan. 1.

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