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December 04, 2014

More details emerge in Federal Way's purchase of former Target site | Update

Federal Way Mirror

Raechel Dawson

Public records show the Federal Way mayor wasn't the only one interested in developing the former Target site, 7.48 acres the city recently purchased for $8.2 million.

Although previously reported that the city had to act fast in purchasing the property because another $8 million offer was on the table, several people in the community speculated whether the city paid too much for land initially appraised at $5.8 million.

Some even questioned whether the other offer was legitimate.

Documents the Mirror obtained through a public records request indicate Wei Zhang was the first buyer to make an offer on the property, located at 2141 S. 314th St. in Federal Way, according to the back-up addendum to the purchase and sale agreement. Zhang is the managing director of Bellevue-based Winson Investment LLC (also known as Winson at Federal Way LLC) and the principal architect of BDCL Design International LTD.

Zhang has worked in the Northwest, Beijing and Hong Kong representing Winson Investment since 2011 and BDCL Design International based in Beijing and Canada for several years.

"I really like Federal Way," he said. "As an investor, there's great opportunity in Federal Way."

Zhang currently owns the property to the south of the former Target site called SeaTac Plaza.

According to King County property records, he purchased the property from Byung C. Park for $12 million in August.

"When we purchased the SeaTac [Plaza] property, we [were] automatically linked to the seller," Zhang said. "This is the second property they put on sale."

Park, the president of Pal-Do Company Inc., was the previous owner of the former Target site before he sold it to the city on Nov. 19.

Zhang told the Mirror since his purchase of the SeaTac property, he's envisioned the four corners of the city developed as well. The four corners he refers to make up the 21 acres the city wants to develop as "Town Center," with the former Target site occupying 7.48 of those acres. The properties of the Performing Arts and Conference Center, Town Square Park and the Transit Center comprise the other parts of Town Center.

"We were thinking that the program for development was mixed use - office, hotels, senior housing, apartments and condominiums - a mix of different components," Zhang said, adding that the land could be developed for high density.

But instead Zhang, thought to have hundreds of millions of dollars in assets, backed out of the deal.

Mayor Jim Ferrell said he met with Zhang in September to discuss his other property, SeaTac Plaza, when Zhang alluded interest in the former Target site.

Ferrell said Zhang wanted to relocate Deseret Industries to the former Target site, even though it is not adequately zoned for secondhand merchandise stores, per city zoning code.

Deseret Industries is a tenant of SeaTac Plaza and opened their thrift store in 2004, prior to the 2006 zoning code date, city spokesman Chris Carrel said.

Zhang said he was actually unaware of the zoning code restrictions but wanted to use the former Target site as a way to house the tenants at SeaTac Plaza while he develops that property.

"It would free up a lot of site to start development at SeaTac Plaza site," he said, adding that he would use ground floor retail at the Target site. "Right now we cannot develop, if we do, the number of parking [stalls] would be reduced."

Fearful the former Target property would sit land banked for years, the city hired Patrick Rhodes with Federal Way-based Power Property Consultants Inc. and Mark Clirehugh with Kidder Mathews to represent them in the transaction.

The mayor mentioned the city did this so that Park, his broker and Zhang wouldn't know it was the city who wanted to buy the property.

Carrel said Clirehugh was paid a retainer fee of $5,000, but it will be offset by the realtor's fees he receives from the seller because of the successful purchase.

Power Property Consultants worked under a $5,000 fixed fee and the city paid him $35,000, which was contingent on the deal closing. The contract also included reimbursable expenses for an appraisal and other closing costs, which totaled $13,295, Carrel said.

Rhodes has worked with the city in the past, as he donated a year's worth of rent-free space for the new police substation that opened in May.

According to Commercial Brokers Association documents, Zhang signed a purchase and sale agreement for the former Target property on Sept. 15 for $8 million with a promissory note of $300,000, upon removal of the feasibility contingency.

"Greg [Perry, Park's broker with John L. Scott] told me once, 'Put $8 million,' then later on he said we could negotiate down to $7 million but I didn't even have that chance," Zhang said.

Perry clarified that upon completion of the feasibility study, there might have bene an opportunity to negotiate the price, as "everything is negotiable" in real estate. A commercial real estate feasibility study is like a house inspection but more complex and, if things don't check out, the buyer often has more room in the price arrangement.

By Sept. 19, the city paid Power Property Consultants $300,000 to put down as earnest funds as well. Ferrell said they "may or may not have" had an executive session on Sept. 16 with City Council to discuss that, however, public officials cannot disclose details surrounding executive sessions per state law.

However, Ferrell did confirm the city held at least two executive sessions to discuss property acquisition prior to the purchase.

Before the city could close the deal, they needed a rescission agreement and Council approval of the funds. Zhang, the initial buyer, signed the agreement Nov. 2, according to sale documents.

Ferrell said the city was not a part of the rescission agreement - it was between Park, his broker and Zhang.

Zhang said Perry came back to him two months after the $8 million offer, stating Power Property Consultants had offered a "strong offer" of $8.2 million and that the company was local and had a large footprint in Federal Way.

Zhang said Perry told him because he was a foreign investor and not from here, that he should rescind. He discovered it was the city a week later.

"I feel, you can imagine what I feel," Zhang said. "I understand, I'm an investor from ... I'm not local. It takes some time for people to understand ..."

When asked if he thought Perry knew it was the city making the offer all along, he said he's asking the same question but "there's no fact or evidence that I can say anything."

Perry asserts he didn't know it was the city making the other offer until "just prior" to the deal's closure on Nov. 19.

But Zhang wasn't forced to rescind the offer and still had his own reasons for doing so.

"All I can say right now is we're trying to develop two sites," Zhang said when asked why he left the deal, also noting he wasn't paid any money to rescind his offer. "And, at this time, we don't find ourselves having sufficient funds and time to do the investment."

Now knowing the city of Federal Way was the other party interested in the property, Zhang said he's still interested in the property's outcome.

"We're trying to see ways we can continue our opportunity to work with the city," Zhang said, suggesting a potential public-private venture. "I'm actually trying to set up a meeting with the city to see if we can work together."

Zhang said he would consider submitting a bid for the city's request for proposal or request for quotation, stating he thinks he and the city are "on the same page."

Zhang hopes to develop SeaTac Plaza into a residential, commercial and mixed-use space with walkability and recognizes its value because of its proximity to the Transit Center.

Ferrell said the city is looking into demolishing the former Target building now and will seek to activate the property as soon as possible.

There are no official plans for the property yet, although the mayor has expressed wanting a mixed-use, green open space area with some residential and commercial buildings.

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