In the late 1990s, a three-block redevelopment in downtown Seattle that included construction of the Pacific Place shopping center helped revitalize retail in the city core. The project, carried out by a group of Seattle-based private developers, received critical support from the City of Seattle under Mayor Norm Rice, including reopening a block of Pine Street to automobile traffic and helping fund the development by purchasing the Pacific Place parking garage. This case study was written by Randall Bloomquist on behalf of the Pine Street Group L.L.C., and contributed to HistoryLink by the Seattle Metropolitan Chamber of Commerce.
Transformational Project
Seattle's downtown is a crown jewel of the Pacific Northwest. New commercial and residential buildings fill the iconic skyline, separated only by cranes heralding more to come.
The streets below are alive with employees, residents, and tourists -- a combined 250,000-plus people every weekday working, shopping, dining, vacationing, and otherwise living their lives at the center of the Emerald City. It's a scene that has other cities looking on in envy.
But downtown Seattle didn't always shine so bright.
Twenty-five years ago, Seattle's core was in decline. The suburbs were in ascendancy. City dwellers saw better options in the communities surrounding the city and voted with their feet. Businesses of all sizes followed or failed. By the mid 1990s, the downtown area was at a critical crossroads. It could easily have slid further into an abyss. But it didn't, thanks in large part to a bold three-block redevelopment initiative that encompassed property occupied by the old Nordstrom flagship store, the shuttered Frederick & Nelson (F&N) department store, and the Seaboard Building. The project included development of the Pacific Place shopping center and created a new epicenter for downtown retail. The ripple effects from the initiative were profound and have been felt across the city for years in the form of millions of dollars of new tax revenue and a change of perception about the city core's possibilities that lead in a direct line to the area's current status as a most desired live, work, shop, and play destination.
This transformational project was made possible by a potent combination of vision, civic pride, and political courage. The story of this how this project came to be offers timeless lessons for city residents, leaders, and business people.
Audacious Plan
That story begins with a group of developers' love of Seattle and their determination to help turn around the downtown crisis. In the early 1990s Jeff Rhodes retired to Seattle after a career developing shopping centers for Chicago's Urban Investment and Development Co. (UIDC). Rhodes watched with frustration as the city struggled with the seemingly intractable problems of downtown. In 1992, heritage department store Frederick & Nelson shuttered its downtown flagship, followed in 1994 by the closure of I. Magnin, which was located just across Sixth and Pine from F&N. Nearby buildings that once housed small businesses now stood vacant, covered in graffiti and sheltering a growing homeless population. Crime soared, city tax revenues slumped.
"Newcomers to Seattle wouldn't recognize the downtown from that time," says former Seattle City Council member Jan Drago. "By 1994 you could shoot a cannon at the intersection of Pine and Sixth and not hit anyone. Drugs and gangs had arrived, along with a lot of fear."
In 1993 Rhodes began talking to Seattle's business and government leaders about creating an upscale retail center on three downtown blocks that included the empty F&N. Encouraged by the prospects, Rhodes partnered in 1994 with local Seattle developer Matt Griffin to pursue the project as Pine Street Associates (PSA), later to become Pine Street Development (PSD). Rhodes also brought in two former UIDC colleagues, Tom Klutznick and Ken Himmel, to assist with the project.
The partners' plan was audacious. They proposed buying the old F&N building and swapping it to Nordstrom for Nordstrom's smaller department store on Fifth between Pine and Pike. PSA would also get the historic 10-story Seaboard Building, which Nordstrom used for office space. PSA would buy and clear one block to build a retail center. When Nordstrom relocated to the old F&N space, the developer would convert the former Nordstrom into a mixed-use retail and office building. The Seaboard Building would ultimately be renovated to provide 60,000 square feet of office space on the lower levels and 24 condominiums above.
Assist from the City
Central to the plan was the reopening of Pine Street between Fourth and Fifth avenues. That major thoroughfare had been closed to traffic in the late 1980s to connect Westlake Park with the plaza in front of Westlake Center, one of several efforts to make the downtown more appealing. But the closure made it difficult for residents of in-town neighborhoods to easily reach the city's core and fostered a perception that it was a hassle to shop downtown. Ultimately, the Pine Street question was submitted to a public referendum. PSA, working in conjunction the Downtown Seattle Association, mounted a campaign to educate city residents on the issue. In 1995, voters overwhelmingly approved reopening Pine Street.
But cars remained an issue. Several studies had shown that downtown's lack of safe short-term parking was a serious obstacle to attracting shoppers. PSA's proposal included a six-level, 1,200-space underground parking garage designed to provide safe, convenient parking at very affordable rates. PSA would build the garage and the City of Seattle would buy it from the developers as government's assistance to this transformative three-block project. Then-Mayor Norman Rice asked Dwight Dively, his finance director, to structure the transaction. Dively wanted to ensure the City would be guaranteed a revenue stream with the transaction, not just a number of parking stalls.
Accordingly, PSA agreed to build at least 300,000 square feet of retail space above the garage and insure the new Nordstrom was at least 200,000 square feet. The city was not obligated to take ownership of the parking facility until Pacific Place's movie theaters were operating, 150,000 square feet of retail space was open for business, and the garage had six months of operations under its belt to work out any kinks.
Despite those safeguards, the garage deal faced vocal opposition from some quarters. Fiscal conservatives, who generally opposed any government support for a commercial venture, were especially upset that the city would pay $73 million for the garage, a huge premium over the $50 million cost to build the facility, and at a higher cost-per-stall sale price than most parking facilities. Opponents launched a vigorous PR, lobbying, and legal campaign arguing that for policy and legal reasons, it was inappropriate for the City to participate in the project. In the end, Washington's attorney general signed off on the garage purchase. Anti-poverty activists, meanwhile, continued to argue vociferously that any money invested in downtown should be earmarked for facilities to help the poor.
But Mayor Rice enthusiastically championed the three-block project, including the garage deal, believing that a re-energized commercial downtown would benefit all members of the Seattle community, in part by boosting tax revenues. This retail initiative, he believed, could be the catalyst for that revitalization, and good parking was key to the retail core's viability.
"There were people who felt the money [spent on the garage] should have been used to build low-cost housing and fund other poverty programs," says Rice. "But rebuilding retail actually had a greater impact in the long run."
"[The proposal] was in keeping with the principles of my administration, which were economic opportunity; social equity, meaning our decisions should benefit the entire community; and environmental stewardship. Encouraging density through projects [like this] reduces sprawl."
Rice was joined in his support by a majority of the Seattle City Council, including Jan Drago, who headed the council involvement on this project, "I call that council the 'economic development council,'" says Drago. "They understood the importance of business to running a city."
Capital from Local Notables
PSA began to execute its plan in May 1996 with acquisition of the F&N building, which was immediately conveyed to Nordstrom for conversion into a 380,000-square-foot flagship store and 320,000-square-foot headquarters atop the store investing $100 million in the renovation. Perhaps fittingly, given its linchpin status, the garage was the first element of the project to open. Its May 1998 debut allowed for the six-month shakedown cruise required before the city took ownership. The new Nordstrom opened in August 1998, followed that October by the debut of the Pacific Place retail center.
Initial capital for the project was provided by PSA's founders and several well-known Seattle businesspeople, including Starbucks chairman Howard Schultz, the Space Needle family of Howard S. Wright, telecom executive John McCaw, smooth-jazz saxophonist Kenny G, and Costco founder Jeffrey Brotman, whose group invested $11 million in two rounds of funding.
The Multi-Employer Property Trust (MEPT) joined PSA in 1996, providing 80 percent of the equity. With MEPT's equity infusion and the acquisition of the original Nordstrom store, Pine Street Associates became Pine Street Development (PSD).
(Rhodes, Klutznick, and Himmel sold their interests in PSA to the other investors in October 1998 just before Pacific Place opened.)
PSD Principal and Managing Partner Matt Griffin points out that while the local notables did eventually make money on the Pacific Place deal, their willingness to invest in the mid-1990s was a huge act of faith and love for their city. Not only was downtown sliding into blight when those individuals joined; the developers had not yet completed a deal with Nordstrom or won approval to reopen Pine Street.
"They would not have taken this risk if Seattle wasn't their hometown," says Griffin.
Indeed, others remained skeptical. PSD's construction financing with Seafirst Bank fell through in 1996, because the developer couldn't deliver the lease commitments. Prospective investors and tenants, it seemed, remained leery of downtown. Fortunately, MEPT was able to provide a subordinate loan that allowed construction to begin. That breathing room proved vital.
A Commercial Success
By 1998, perceptions had begun to change, thanks to other positive downtown developments, including the debut of a new symphony hall, the announced expansion of the Washington State Convention and Trade Center, and the looming opening of Nordstrom's new store. Lease commitments at Pacific Place rose from 50 percent to 85 percent in the first half of 1998. Among the initial tenants were Pottery Barn, Tiffany & Co., Restoration Hardware, Barnes & Noble, and J. Crew. In addition there were five restaurants, and an 11-screen General Cinemas (now AMC) multiplex. Nordstrom, which is connected to Pacific Place by a sky bridge over Sixth Avenue, serves as the development's 380,000 square foot anchor store.
PSD worked closely with its architects to weave the five-story Pacific Place structure into the cityscape and give it character. The exterior is designed to evoke a block of smaller commercial buildings that grew up organically over time. Many retail tenants have their own branded street-level entrances, which creates a sense of entering a stand-alone shop. There are more than a dozen entrances to the shopping center from the surrounding streets. This generates additional traffic for tenants by encouraging pedestrians to use the center as a shortcut.
Pacific Place has been a commercial success from opening day. Occupancy averaged 95 percent for much of the development's 18-year history. An estimated six million local residents and tourists visit Pacific Place every year, making it one of Seattle's most popular retail and entertainment destinations. In July 2014, PSD sold Pacific Place for $271 million ($774 per square foot) to Washington, DC-based real estate firm Madison Marquette. In keeping with commitment to support Seattle, the original local investors in PSA donated $14 million of the sale proceeds to United Way of King County.
Pacific Place Garage
The Pacific Place garage was equally well designed -- and, for about a decade, equally successful. The structure's "double helix" system of ramps and entrance/exit locations speeds vehicles through the structure -- a must for the largest garage in downtown, and one that serves 11 movie theaters. PSD emphasized security and aesthetics, too.
"The garage very quickly got labeled 'the women's garage' because it was well lit and felt safe," says Jan Drago.
The garage's safety, convenience, and below-market rates made it popular with downtown visitors. The City of Seattle took ownership of the garage in November 1998 and for the next 10 years the facility operated on basically a break-even basis.
But the recession that began in 2008 dramatically reduced discretionary spending on shopping, dining, and entertainment. As fewer people came to downtown to engage in those activities, there was less demand for parking. The Pacific Place garage wasn't as quick as the private sector to reduce rates to meet demand and use of the garage fell nearly 18 percent from 2004 to 2009.
The garage's appeal was further dimmed by cost cutting that left the facility in disrepair. Visitors often faced long waits to exit, because the automated payment terminals had become outdated. The once spotless facility lost that reputation.
Later, as Seattle's economy turned around and real estate became a hot commodity on the global scene, the City decided to put the garage on the market. In June 2016, the City of Seattle announced the sale of the garage to MPH PP Garage LLC, an affiliate of the owner of the Pacific Place retail unit, Madison Marquette, at a sale price of $87 million. The City Council needs to approve the sale, which is expected to close this summer.
That sale price gives the city an estimated 7 percent to 13 percent return on its investment, after paying a parking tax instituted in 2007 that was never contemplated in the original transaction. Ultimately, the tax rose to 12.5 percent, which probably reduced the sales price $10 million to $15 million.
Back on the Map
Despite the post-recession challenges, there is widespread agreement that the city's involvement with the Pacific Place garage has been a huge net positive. Norm Rice and the City Council were proven correct in believing that revitalizing retail in Seattle's core would benefit the entire community.
Consider the tax benefits alone: the Pacific Place retail unit, made possible by the garage deal, has generated an estimated $170 million in sales and other tax revenue for the city and state over the past 18 years. Seattle's annual sales tax revenue grew 60 percent, from to $97 million to $155 million, between 1997 and 2007, thanks in large part to the downtown retail resurgence sparked by Pacific Place and the rest of the three-block project.
"I have never second-guessed that decision [to fund the purchase of the garage]," says Norm Rice. "It created something that has brought in revenue that allowed us to provide a lot of city services."
Of perhaps more import, the project's success did much to stop downtown's seemingly inexorable slide into decay by drawing people back to the city center and changing their perceptions about its possibilities. This helped set the stage for the area's rebirth. The Downtown Seattle Association measures the district's vitality on the key metrics of Live, Work, Shop, and Play. The three-block project put downtown back on the map for all four activities.
Vision and Courage
There are currently almost 30,000 households in downtown. Since 2010, 73 residential buildings have come online. Another 25 were in the works as of December 2015. An amazing 37 percent of employed downtown residents also work in the district -- one of the highest live-work percentages in the country.
Nearly 250,000 people work in downtown. That's 48 percent of Seattle's workforce. Almost 30 percent of those jobs are in the tech, professional, and healthcare fields. That's no surprise given that major employers such as Amazon, Seattle Children's Research Institute, Nordstrom, and Russell Investments have chosen to headquarter in downtown.
The addition of Amazon to downtown Seattle has had a major impact, creating jobs and vibrancy. When Microsoft located its campus in Redmond thirty-some years ago, the way to attract talent was to provide a college-campus-like setting. Today, the prized talent is looking for a vibrant, urban experience with access to restaurants, clubs, music venues, and other culture resources. Fortunately, downtown Seattle took steps over the past 20-plus years to create an exciting urban space, which gives Amazon and other companies a powerful tool to attract talent.
The downtown shopping and dining seeds planted at Pacific Place are in full bloom. There are 1,000 street-level retailers across the district, along with 1,145 restaurants, bars, and cafes.
Downtown's new Golden Age is the result of many factors. Seattle's lucrative tech boom. A national trend towards urban living. A recovering economy. Seattle's new visibility and hip vibe. But none this would have mattered without two things: vision and courage.
The Pine Street Associates partners were able to look at a battered, worn-out downtown and see something new and better. Mayor Norm Rice and his allies on the City Council bought into that vision and doggedly pursued it despite the political peril.
"Rarely is a civic project a win-win-win," says Rice. "You have to be willing to upset some people if you believe you have a vision for something that will raise all boats. If you're not willing to do that, you'll never build anything."
