Will Pacific Place Parking Garage Saga End in a Sale?

At a briefing of the City Council’s government performance and finance committee, Fred Podesta, director of the city’s financial and administrative services department, laid out a rationale for the city’s sale of the Pacific Place parking garage.

Though the garage was recently appraised at $51 million, the Pacific Place’s developer, the Pine Street Group, has offered the city $55 million. That would mean the city would still owe $4 million in bond debt, and about $5 million to itself in loans already made to the garage’s fund.

Under the sale agreement, PSG would price the garage rates at 80 percent of the downtown market rate for the succeeding five years, helping to fulfill the garage’s role as a downtown draw for retail shoppers.

In the late 1990s, the city was worried about its retail core hollowing out — a winnowing of major department store chains had left the Frederick & Nelson building empty.

In partnership with Nordstrom and Matt Griffin’s Pine Street Group, the city organized the redevelopment of three blocks near Sixth Avenue and Pine Street: Nordstrom would take over the old Frederick & Nelson building, the former Nordstrom site would be redeveloped (it’s now mixed-use, ground floor retail and office space), and the Pine Street Group would open a new mall called Pacific Place.

The City of Seattle, controversially, would own and run the 1,200-space parking garage beneath Pacific Place. The garage would assist the redevelopment by providing primarily short-term retail parking (only some 130 spaces were permitted for monthly parking passes). The cost to the city? $73 million total for the whole project — a number that exceeded the garage’s $47-million construction cost by $26 million.

Considered in terms of the whole redevelopment (estimated at $400 million), the city was in for 18 percent. At the time, new City Councilmember Nick Licata didn’t particularly care for the deal. PubliCola quotes him saying: “But when we, as a public body, give out our money it should be to the neediest, not the wealthiest. Otherwise, we should expect a return that is commensurate with the risk being taken.”

In response to that kind of criticism, Podesta added up the project’s direct benefit to the city over the life of the project so far: $34 million in tax revenue (the B&O tax revenue is an estimate, modeled on square footage). Even counting the $9 million in repayment after the potential $55-million sale, the city looks to come out some $27 million to the good.

Despite what you read in the Seattle Times about money-losing garages, until the recession hit, the garage operated in the black (not every year, but on average). From 1998 to 2007, it either produced a surplus or came close to breaking even on operating expenses versus revenue.

Since 2008, though, its losses have widened. A $1.6-million shortfall in 2012 has been followed by $2.9-million deficit projected for 2013. The city has had to make one loan from its general fund to the garage fund, and will have to make another (even if the sale goes through, since the sale likely wouldn’t complete before payment needed to be made). In a worst-case scenario, the city would end up paying $42 million for a $51-million garage — still a good deal unless you were hoping (as the city did) not to pay anything out of pocket at all.

“Losses” is a loaded term, of course. Those dramatic, plunging red bars include debt service, so that’s only a loss in the way a homeowner’s mortgage payment is a loss. That is, it’s not. The city is building equity in an income-generating property most recently assessed at $51 million. Podesta and his team somehow failed to make that distinction in their graphic, and were asked by Burgess, Licata, and Clark to do so.

Though Podesta could state that the garage’s utilization was down 25 percent since 2004, he did not have numbers on hand comparing the Pacific Place garage’s performance with other lots around downtown. (Licata suggested a parking tax revenue comparison as an easy way to do that.) Absent that data, Podesta’s pet theory that thanks to increasing density, downtown retail “is serving more and more customers that don’t need to drive to get to the downtown core” remains speculation.

What is known is that an initial attempt to make up for the recession-era shortfall by raising parking prices failed thanks to falling sales volume. The decision to put off maintenance and upgrades also likely drove down patronage. The city relented and lowered prices again in the summer of 2011 — as proposed by this op-ed — but once people have stopped parking at a garage, it’s difficult to lure them back with lowered prices they don’t know about.

Currently, the garage brings in about $6 million in gross revenue, which handily covers its $2.2 million in operating expenses and miscellaneous costs. But that falls short of the $5 million needed for debt service — and the way the debt was structured, that amount increases by three percent each year. Still, excluding the debt service, the garage is providing the city with almost $4 million per year in revenue, which is not “money-losing” in most business textbooks.

That debt is due to be retired in two segments in 2025 and 2028. At that point, if the city retained possession and downtown parking is still valuable, it would own a significant revenue stream and the garage itself, so the decision to sell now (in a no-bid process), just as the economy is recovering, is not necessarily an open-and-shut case.

UPDATE: The FAS department supplied me with the data on expenses to make this chart. As you can see, while operating expenses are variable year to year, and show little impact from the recession, it’s still easily outpaced by increases in the back-loaded debt service.

Between 1999 and 2009, parking revenue increased to just over $8 million from $4.2 million. In 2010, parking revenue was $7.7 million, in 2011 $7 million, and in 2012 $7.7 million again. If you exclude the 2008 outlier, for the past six years parking revenue hasn’t budged much from a mid-$7-million plateau. That can’t continue, with debt service now north of $5 million per year and increasing by 3 percent annually, if the garage is to pay for itself. That plateau in parking revenue happens to track well with the overall recession, so absent proof, it’s hard to see mismanagement. And certainly terms like “money-losing” (implying the garage isn’t covering operating costs) are inaccurate.