Innovation, optimism, hope and persistence. These were the four qualities cited by the participants in the Midtown Center real estate deal that made headlines earlier this summer for its unique vision of preserving neighborhood culture through new development.
At the July 13 Yesler Community Collaborative quarterly meeting, Midtown Center partners, K. Wyking Garrett (Africatown Community Land Trust), Chris Persons (Capitol Hill Housing), Joe Ferguson (Lake Union Partners) and Michelle Connor (Forterra), discussed how the deal came together and the behind-the-scenes steps it took to make this innovative partnership and exciting new development work. Doris Koo, lead consultant for Yesler Community Collaborative, moderated the panel.
Garrett represented Africatown and the interests of the neighborhood during negotiations. Persons represented Capitol Hill Housing, a working partner providing capital and management expertise. Ferguson, of Lake Union Partners, brought most of the capital and the interests of this real estate developer to the table. Connor negotiated on behalf of Forterra, contributing capital to help make the community’s participation possible. Koo served as an intermediary and advisor throughout the negotiations.
Connor outlined Forterra’s reasons for putting its real estate and financing expertise toward Midtown Center. “As a region, we will undermine our long-term sustainability if we keep turning agricultural and resource lands over to development. Preserving these lands is key to our survival. This leads to a role is supporting vital urban communities and social infrastructure as well.” She pointed out that the Midtown Center block is a keystone property in the Central Area. “Investing in this block represents an investment in keeping this important community—including its economy and culture—healthy and sustainable.”
Ferguson described Lake Union Partners, formed in 2009, as a real estate development company willing to take an unconventional approach to the marketplace. The company chooses to work in core neighborhoods such as the Central Area, and is committed to bringing projects that contribute to community needs and aspirations. This includes attention to the ground floor retail to bring in appropriate neighborhood services. He stressed that Midtown Center will provide opportunities for African-American owned businesses.
Panelists described the twists and turns of the history of the property: when the Bangasser family that owned property announced its intention to sell, this generated intense interest in the community and catalyzed the formation of the Africatown Community Land Trust. Before the current sale, two prior buyers executed purchase and sale agreements with the family.
Ferguson noted that, in real estate transactions, the third buyer often gets the deal: the first buyer educates the seller, then the second buyer negotiates the terms. In this case Lake Union Partners was that fortunate the third buyer.
When the prior buyers were unable to meet the Bangasser’s dates for closing (after a year of due diligence) their deal fell apart, and Forterra and Africatown submitted an offer. When they learned the property was again under contract, they proposed a similar deal to the new buyers, Lake Union Partners, who, after consideration, bought into the concept and agreed to enter into partnership with them.
When Lake Union Partners entered the picture, the sellers were anxious to sell quickly, so Ferguson offered a 60-day due diligence period with closing seven days later. This was the riskiest part of the purchase for them. Could they get all the necessary work done in time? “It took real determination to hammer through those 60 days,” he said, “Thanks to everyone’s dedication, we managed to get it done.”
He also revealed that midway through this process, he learned that the City’s Mandatory Housing Affordability percentage of units set aside for low-income residents was ten percent, not the six percent he had been assuming in the pro forma. The calculations had to be redone to see if the deal would still pencil at the higher rate. There were two factors that made it work, he said: “the dimensions of the site enabled efficient site design that minimized parking costs; and we were willing to take a slightly lower-than-industry-standard return on our investment in order to bring in and support the community ownership component.”
Ferguson also noted that HAL Real Estate Investors, the company backing Lake Union Partners in the deal, is a local real estate investor with a long-standing presence in the community. “Their president actually lives in the neighborhood,” he said. “They are not a Wall Street firm just trying to check a box and do business in Seattle.” He also noted that the impending re-zone of the property was key to making the deal pencil.
Koo asked Chris Person about how Capitol Hill Housing is helping Africatown, an entirely volunteer organization with no balance sheet and no ownership experience, to leap this gap to become a community anchor. Persons described their involvement with Africatown at the nearby Liberty Bank Building.
He also noted that, “The deal itself is complicated and challenging. There are lots of cooks in the kitchen. Africatown may not have a balance sheet, but the organization has lots of capacity in the vision and energy of its board and volunteers. CHH is intent on helping Africatown build the financial capacity over time to be long-term stewards of these properties.”
Koo observed in closing that the Midtown Center partnership is disrupting the regular development process in a very positive way. Patient capital on the part of investors such as Forterra and Lake Union Partners, along with the experience of an established community development agencies such as Capitol Hill Housing, is crucial. Willingness to deliberately partner with community-based organizations and build local capacity for long-term ownership and stewardship makes deals like this possible. Koo noted, “It is a model that can, indeed, be applied in other neighborhoods.”