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May 29, 2015

How Tacoma hatched a plan to buy Old City Hall

The News Tibune

Kathleen Cooper

After years of trying to hold together Old City Hall with the duct tape of code enforcement, Tacoma city officials decided several months ago it was time for something that might really stick.

Discussions shifted from how to motivate the current owner to how to buy the building. In January, the city got the building appraised and started negotiating.

Those negotiations culminated this week in the city's announcement that it has struck a deal to buy the historic structure for $4 million. The City Council is scheduled to vote Tuesday on whether to approve the purchase.

The sale price is far above the $1.6 million appraisal from January. But $4 million is the same offer made by another private buyer less than a year ago - a deal owner George Webb didn't accept.

Webb, of Seattle's The Stratford Co., did not make himself available for an interview Friday. Interviews with city staff, elected officials and commercial brokers Friday provided glimpses into how the deal to buy the 122-year-old building came together, and raise questions about whether the price is right.

First, some recent history. In 2013, Webb and the city agreed to a deal that required Stratford to fix issues with the building at 625 Commerce St. If Stratford didn't do the repairs, the city would.

They agreed to an enforcement order after a winter freeze caused a pipe to burst inside the empty building, and the resulting flood cost about $1 million to clean up.

A city inspector found the roof also had failed. The bathrooms didn't work. The staircase leaned, power and water lines were disconnected, and masonry pieces were falling onto the sidewalk. The city designated it a "dangerous building."

By the time the pipe burst, Webb had owned the building for eight years without realizing his goal, hatched just before the real estate market collapsed, of turning the former office building into luxury condos.

Webb agreed to fix the roof, but the city had to repair some other items and then place a lien on the building to recoup its costs if and when the building ever sold. Webb currently owes the city about $41,000 for its work.

Then, last fall, city officials discovered evidence of another major water leak.

Historic preservation officer Reuben McKnight was in the building in October to take a look at some pieces of the copper roof that had been indelicately removed.

The pieces were stored in the basement, "in one of the jail cells and locked up," he said. In the building's early years, it housed the police station.

To assess the copper pieces, McKnight and his colleagues had to bring them into natural light. They chose the top floor.

"That's when we discovered a leak in the northwest corner of the roof," he said. "Not on the (clock) tower but on the flat area behind the parapets. We don't know how fast it was going. There was a five-gallon bucket that was full and water all over the place.

"It had been leaking for awhile," McKnight said.

The city notified Webb, but nothing happened, McKnight said. And the enforcement order from 2013 that allowed the city to fix things itself didn't cover the roof. City staff started work on modifying the order.

Around this same time last fall, developer Grace Pleasants said she made Webb an offer: $4 million. He had paid $3.8 million in 2005.

"He came back at $4.8 million," said Pleasants, who renovated the historic Albers Mill on the Foss Waterway and helped broker the deal that made Portland-based McMenamins the owner of Tacoma's historic Elks Temple.

After accounting for the cost of finishing the renovations, buying at $4 million "was going to barely work," she said. It was a "no-go at the higher number."

In January, the city had the building appraised. The regional real estate brokerage firm Kidder Mathews compared Old City Hall with other buildings in Tacoma built around the same time, including the Elks Temple, the historic post office building and the Columbia Bank building.

The appraisal concluded that a reasonable price for Old City Hall was somewhere in between those sales - about $30 a square foot. At 52,129 square feet, that's about $1.6 million.

"I shared that with Webb," said Ricardo Noguera, the city's economic development director. "He said, 'I have an appraisal at $3.8 million, and I have other costs I've put in.'

"He claimed to have invested over $5 million," Noguera said. "The city has also referred investors to him in the past, and he's (told them) $5 million."

So, Noguera said, Webb countered the $1.6 million with $4.6 million.

"I said, 'let's split it.' He said, 'you must be crazy,'" Noguera said. "I went back to (the city manager). ... I got authority to go to $4 million."

Why would Webb sell to the city when he wouldn't sell to Pleasants? It's an open question. McKnight and Noguera said the city's enforcement powers weren't a factor.

"I didn't have a stick," Noguera said. "I didn't provide any incentives. ... The incentive is, we'll close in 20 days, (and) we're paying cash."

The money to buy Old City Hall would come from a designated fund for economic and urban development - the same fund the city used to loan Prium Cos. $2.5 million to buy the Winthrop years ago. That building recently changed hands, and that loan was paid back. Noguera said those funds could go toward Old City Hall.

Commercial real estate brokers in Tacoma told The News Tribune that paying $4 million for a building that had been appraised for $1.6 million wouldn't happen in the private sector.

Derrick Urquhart, a broker with Kidder Mathews who wasn't involved in the appraisal, talked to a few of his colleagues Friday after news of the potential sale became public. Based on the information they had, he said, "none of us can believe that someone would pay that much for that building in that condition."

Washington state's constitution prohibits making a gift of public funds, which can be an issue when a public agency buys private property for more than fair market value.

Noguera said city legal staff vetted the deal. The sale provides a clear benefit to the community, which is the standard it would have to meet, he said.

Some commercial brokers said non-economic reasons - like historic preservation - can drive purchases. The fact that another private bidder was willing to pay $4 million also could indicate the price isn't unreasonable, they said.

Mayor Marilyn Strickland said the purchase is essential to ensure the building doesn't end up as another case in which the owner of a historic building allows it to deteriorate to the point where the only thing to do is tear it down.

"We knew we had (an owner) who had received multiple offers and who wasn't willing to move" on them, she said Thursday. "We had to ensure it didn't end up 'demolition by neglect.' "

What's the city's plan after buying it? Noguera said that's an open question as well. The point of buying it is to preserve it. The city will spend about $200,000 immediately on life-safety issues, he said.

A fence currently blocks the sidewalk to make sure no one is hit on the head by a falling brick.

The city will consider a number of options, including putting the building back on the market in an unfinished state. There is no money for the extensive repairs required to put it back into active use, Noguera acknowledged.

A refurbished Old City Hall "will anchor north downtown like the UWT anchors south downtown," he said. "I would not pursue any other property that way. This is an opportunity to take a community asset and preserve it.

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