The city could postpone its proposed sale of the money-losing Pacific Place garage until 2018 and ask the buyer, Pine Street Properties' Matt Griffin, to take over garage operations in the interim, council member Tim Burgess said today.
As we've reported, the city has proposed selling the garage, which it bought in 1997 for $73 million, or $23 million more than it cost to build, for $55 million. The garage has lost money year after year, requiring multi-million-dollar loans from the city; last year, after experimenting with lower rates, the city raised rates, but still lost money as garage use declined.
In a meeting of the council's finance committee this morning, staffers for both the city's Department of Finance and Administrative Services (which reports to Mayor Mike McGinn) and the council's own central staff explained that the city stood to lose around $21 million in 2013 dollars if it decided to sell the garage now.
In comparison, under almost every scenario the city considered (higher prices, identical prices, more people parking, fewer people parking, higher operating expenses, stagnant operating expenses, etc.), selling in 2018 looks like a better deal.
Overall, staffers estimated, the city stands to lose between about $1 million and $12.5 million less, in 2013 dollars, by selling in 2018 in every situation staffers considered but one—a very pessimistic scenario in which the cost to operate the garage doubles between now and 2018, the number of people using the garage goes down by five percent, and prices drop two percent.
In that case, which staffers acknowledged was highly unlikely based on the performance of the garage in the past, the city stands to lose an extra $3.7 million.
The reason is a technical term called "defeasance," which is basically the cost of unloading the bonds early; think of it like paying off a 30-year mortgage, which includes a penalty for paying early, after 20 years. That problem goes away in 2018.
Burgess suggested at this morning's meeting that Griffin could either pay more for the garage now (unlikely, as he later acknowledged to me) or take over its operations, given that, as a commercial developer, he knows a lot more than the city about how to make a parking garage pencil out.
"We're trying to unwind a public-private partnership," Burgess said. "Rather than just close the door on this, I wonder if we could creatively reengineer the parties and figure out if there's a way for the city to avoid these costs of defeasement, but also move us out of the business of running a parking garage ... so that maybe [Griffin] will assume responsibility for the losses and maintenance and operations in the interim."
Griffin tells PubliCola he's "open to" the idea of taking over garage operations for five years before buying it outright, but that his sticking point is "who has the right to set pricing. One of our fundamental differences with the city is that we believe that if you want to make a garage successful, you lower prices and sell the empty stalls. And they've raised prices in the last year. So that's going to be the issue."
"The most important thing is that the garage isn't being used as the asset it should be, to stimulate the retail core and retail shopping" in downtown Seattle, Griffin says.
Burgess tells PubliCola he's more than willing to consider giving Griffin's company authority over rates if it gets the city out of the parking garage business. "I know that one of his motivations from the beginning has been to be able to have much more flexibility on rates," Burgess says. "So, for example, if merchants in Pacific Place wanted to validate parking, which would essentially make it free, then I think they want to experiment with that.
"As long as the city is made whole, and we can have a win-win situation both for the city and for Pacific Place we’re willing to consider all options," Burgess says.