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Originally published November 9, 2013 at 8:07 PM | Page modified November 11, 2013 at 12:03 PM

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Corrected version

Alley divides the city and downtown hotel developer

Developer R.C. Hedreen says its massive downtown Seattle hotel project is endangered by city pressure over its affordable housing proposal.


/ Seattle Times business reporter

Project’s plan

Complex would feature:

• A 41-story hotel; a nine-story apartment tower

• 150,000 square feet of meeting space

• 2 ballrooms, each about 35,000 square feet

• 45,000 square feet of retail and lounges

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Same thing the UFCW is trying in West Seattle with the Whole Foods development. Holding... MORE
to give up an alley he said the public has a right to expect the developer to do much... MORE
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A Seattle developer’s plan to build a 2.1 million square-foot complex, including the largest convention hotel north of San Francisco, hinges on the city granting it a drab 6,023-square-foot public alley.

Until recently, executives at R.C. Hedreen Co. were confident they had the city’s support for a unique proposition: In exchange for the city abandoning its rights to the alley, the company would, among other things, build 152 affordable housing units on the hotel site at Ninth Avenue and Stewart Street.

That would make the developer of the $500 million project one of very few who’ve actually included affordable housing in a commercial project under a city incentive zoning program.

But city planning officials now say Hedreen will have to do far more to justify the city giving up public space. And the frustrated developer says it could scrap the rare affordable housing or cancel the project altogether.

“I think there’s a very real danger we might downsize the project as a result of the hurdles we’re facing,” said David Thyer, Hedreen’s president.

The company’s consultants estimate that constructing the affordable housing on site would cost more than twice the other way Hedreen could get the bonus zoning it needs — writing the city a check for $12.4 million to put into its affordable-housing fund.

“There’s a reason why no other developers have chosen to perform on site,” Thyer said. “It costs twice as much. We feel we should get some credit for making that decision.”

Rick Hooper, director of the city’s Office of Housing, says he’s thrilled Hedreen wants to build affordable housing into the project, but says what it proposed likely won’t be affordable to the future hotel’s workers — and it’s just isn’t enough to trade away the public right of way.

“They need to do something above and beyond what is being provided under the zoning code,” Hooper said. “They need to go back and propose more housing or deeper affordability.”

The city’s incentive zoning program, last revised in 2001, was designed to help increase the supply of housing for the upper end of low-wage earners — those making up to 80 percent of area median income, or $48,560 for a single person, housing officials say.

Developers of high-rises could build higher or wider than the zoning limit in exchange for providing affordable housing or paying the city a fee.

In practice, nearly all developers have chosen to pay the fee. Since 2001, the city has collected about $30 million in fees and, through September, had awarded about $19.8 million to affordable-housing developers.

Those incentive zoning fees, combined with other financing, have produced 1,243 affordable apartments — or an average of about 100 a year — and nearly all of those units target people on the lowest rung of the income ladder, city officials say.

“Incentive zoning was really intended to serve the needs of people who can’t be served by other programs,” said Sarah Lewontin, executive director of Seattle-based Bellwether Housing, a nonprofit affordable-housing developer. “So far it hasn’t been demonstrated that it really does that.”

Hedreen’s apartments are an exception, targeting moderate-income renters who have been overlooked by a government housing policy focused on serving the very poor.

A massive new hotel

The massive Hedreen complex would span the full block between Stewart and Howell streets and Eighth and Ninth avenues.

A wide path would cut through from Eighth to Ninth, serving hotel traffic and enabling pedestrians to walk through, according to Hedreen.

The developer proposes to build a 41-story hotel with 1,680 rooms on the side facing Howell and a nine-story apartment tower on the side facing Stewart.

The hotel would feature about 150,000 square feet of conference and meeting space. That includes two giant ballrooms, each about 35,000 square feet, or twice the size of those in downtown’s largest hotels.

If the city doesn’t grant Hedreen the public alley, the largest ballroom the developer could build would be about 20,000 square feet , said Shauna Decker, Hedreen’s design director.

“That would inhibit us from going after the large group business that is not accommodated in Seattle today due to the lack of suitable space,” she said. “The end result would be less of a driver for new economic activity in Seattle.”

According to Berk, a local consulting firm hired by Hedreen, the project would support 1,800 direct jobs during construction. Once built, the hotel will employ about 1,000 people and generate $15 million annually in hotel tax revenues to support the Washington State Convention Center.

With a much bigger hotel, Seattle also could pursue convention business it now misses out on, drawing 300,000 out-of-town visits annually and generating about $280 million annually in spending locally, according to Berk’s projections.

“We’ve got a great 1,200-room Sheraton, but we desperately need the extra space,” said CEO Tom Norwalk, CEO of Visit Seattle, the area convention and visitor’s bureau.

Unfortunately for Hedreen, economic activity isn’t among the public benefits for which the city can abandon a right of way like the alley. Thyer, Hedreen’s president, says that city policy “seems odd and strange.”

Affordability debated

Hedreen’s project has drawn vocal criticism from Unite Here Local 8, which represents hotel workers in the region and, in theory, supports affordable housing on the site.

“The issue is the developer is trying to double dip and get more from the city for doing what is required under the city code,” said community organizer Jasmine Marwaha.

Hedreen is using the affordable housing to get bonus height under the zoning code, she said, but at the same time wants the housing counted as a public benefit in its pursuit of the public alley.

“We’d love to see the affordability of the housing to be matched with what an average hotel worker makes, and that way the hotel workers could live there,” Marwaha said.

That opinion is echoed by Harry Hoffman, former executive director of the Housing Development Consortium, an association of local affordable-housing developers.

“There’s this huge disconnect,” Hoffman says. “They’re adding 800 [hotel] jobs that are low wage and housing zero of those people, so they’re adding to the city’s burden of housing people.”

Hotel desk clerks, maids and housekeepers in the Seattle-Bellevue-Everett area earned an average of about $25,000 last year, according to the state Department of Employment Security.

Hedreen officials disagree, saying housekeepers at their nonunion hotels make $32,700 a year.

Moreover, Hedreen’s Decker says, the city code allows apartments built under incentive zoning to serve households making up to 80 percent of median income precisely “because there are no other programs that focus on that segment of the housing need.”

By the city Office of Housing’s own count, in the downtown urban center, there are only 178 affordable-housing units — 1 percent of the apartment market — for this group.

By contrast, apartments for extremely low-income renters make up 12 percent of the market; those for low-income renters, 8 percent of the market.

If Hedreen chooses to write the city a check as other developers have done, that money will likely not be used to increase the supply of affordable apartments for those on higher, but modest incomes.

“And when is that money actually going to be turned into housing?” Decker asks.

City to hold hearing

Hedreen Co. is expected to present its public-benefit package a second time Jan. 9 to the Seattle Design Commission, which reviews all petitions for privatizing rights of way before they eventually go before the City Council for a decision.

At the project’s first public hearing before the commission in mid-October, Hedreen offered to construct 118 studios, 14 one-bedroom units and 20 two-bedroom units. Hedreen would maintain them for 50 years.

Commission members were delighted, but not satisfied.

“The code actually encourages people to write a check, not to build affordable housing,” said Michael Jenkins, the commission’s director. The commission “is trying to find a way to acknowledge they’re doing the harder of the two.”

But to give up an alley that will make possible the largest convention hotel in the Pacific Northwest, he said the public has a right to expect the developer to do much more than what the zoning code already requires.

“The scale of the public benefit package needs to be commensurate with the scale of what they’re achieving with the vacation of the alley,” Jenkins said.

For megaprojects that span the entire block, meeting that requirement may be possible only off-site: To obtain three city alleys for its 3.3 million square-foot office development in Denny Triangle, Amazon.com contributed toward a cycle track along Seventh Avenue, a streetcar and the creation of a park at Westlake and Lenora, among other things.

In addition to affordable housing, Hedreen likely will have to consider similar off-site enhancements to open space and public transportation, Jenkins said.

Hedreen officials say that may not be realistic.

“There is a finite amount of money,” Decker said.

Sanjay Bhatt: 206-464-3103 or sbhatt@seattletimes.com On Twitter @sbhatt

Information in this article, originally published Nov. 9, 2013, was corrected Nov. 11. A previous version spelled the consulting firm Berk incorrectly.



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