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Magnuson Park – Can a Public-Private Partnership Work for Building 11?

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On Monday, August 8, the Council approved a proposed revision to the lease agreement for Building 11 at Magnuson Park, but the investors who are currently renovating the building under a 30-year lease with the City have publicly stated that they will not sign the new agreement. 

The investors initiated the process to revise the lease in order to take advantage of historic preservation tax credits that will help them in financing the seismic retrofit and other building improvements.  However, in reviewing the proposed new lease, the Council received a great deal of input from the community and decided that the revisions should include substantially improved public benefits, which presumably makes the revised lease less attractive to the investors.

What will happen next?  The investors could proceed with the renovations under their current lease.  They would not get the improved financial package, and the public would not get the additional benefits.  Alternatively, they could decide to sign the new lease after all, concluding (as the Council did) that the new terms still are financially workable for them.  Or they could terminate the relationship by walking away from the project.  Litigation is an option, perhaps in combination with any of the above options.

How did we get into this difficult situation?  And how can we prevent such situations from happening in the future?

Magnuson Park has long been a challenging project for the City.  When the City acquired the Sand Point Naval Air Station after the federal government declared it to be surplus, there were many competing visions for what would happen.  Ultimately, the City approved a plan that converted most of it to parkland, with a mix of active and passive recreation and restored ecosystems.  Some of the buildings were converted to low income housing.  Many of the large buildings – especially the former hangers – are in very bad shape and require extensive renovation in order to be used safely.  The City has gradually worked out ways to manage most of the office buildings, mainly by leasing them to nonprofits such as the Mountaineers and Cascade Bicycle Club.  However, several challenging buildings remain, including Building 11.

Building 11 is a long, low building with some 58,000 feet of floor space.  It requires $8-11 million in renovations to be fully usable.  Some of the space has been occupied by water dependent uses such as Sail Sand Point, and a number of artists have also rented space in the building.

Because the City could not afford to renovate and operate the building, in 2008 the City approved an agreement with private investors.  The agreement included a number of provisions to protect the public interest, including requiring water depended uses to be retained, and it allowed the investors to manage and rent the renovated building. The investors have taken possession of the building and begun issuing subleases under the terms of the 2008 agreement.

While the investors have submitted a financing package showing that they could manage the renovation under the terms of the 2008 agreement, last year they approached the City with a proposal to revise the agreement so that they could get a more favorable financing package.  As the Council reviewed this proposal, Councilmembers heard from community members who suggested that the 2008 agreement was too favorable to the investors and did not provide enough benefits to the City.  Ultimately, the Council agreed with this, and Councilmember Bagshaw, as Chair of the Parks Committee, entered into negotiations to craft a new version of the lease.  Unfortunately, as noted above, these negotiations ultimately broke down, and the future fate of Building 11 is now uncertain.

There are some lessons to be learned from this experience:

  • While Councilmember Bagshaw did an incredible job in working on this issue, it really doesn’t work well for the Council to renegotiate an agreement that the Executive has already signed off on.  When a public-private partnership was under consideration for the Aquarium, the Council passed a resolution prior to the negotiations commencing delineating the major areas we wanted covered in the agreement.  We may need to take such a path more often.
  • Our standards for public benefit coming from public-private partnerships need to be clearer.  We should develop a policy framework for defining what we are looking for.
  • Redeveloping the buildings at Magnuson Park will continue to be a significant problem, and the City should create a more detailed long-range plan to how to manage the remaining buildings, what we intend to do with them, and how renovations will be financed.

We should never waste a good crisis.  Our goal should be to turn the struggle over Building 11 into a learning experience that informs future decision making.

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