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Saturday, March 25, 2006 - Page updated at 12:00 AM

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Safeco to sell tower in U District, cancel plans for new one

Seattle Times staff reporters

Safeco surprised Seattle on Friday by announcing it will sell its headquarters, a University District icon since 1973, and abandon plans to build another office tower across the street to consolidate all its operations in the city.

Under its new plan, Safeco would keep 700 employees in leased space in the U District. It would stick with plans, unveiled last year, to sell its Redmond campus. But instead of bringing those 1,350 employees to the U District, Safeco would relocate them to another, undetermined Eastside site by 2008.

The dramatic reversal comes just three months after Paula Rosput Reynolds came from Atlanta to take over as president and CEO. Safeco officials called the shift a "revised real-estate strategy" to lower the company's costs and help it compete in the insurance industry.

They also said Safeco would maintain a long-term commitment to Seattle, even though the company, a fixture in the U District since 1936, would no longer own property in the city.

"We explored many alternatives and feel this course affirms our commitment to Seattle and the Puget Sound region and positions Safeco to be a successful, low-cost provider in a competitive insurance market," Reynolds said in a prepared statement.

The company sells insurance to drivers, homeowners and businesses. It has 1,600 employees in the U District. A company official told City Council staff members that about 500 of those employees likely would move into leased space downtown, a council staff member said, although it is not known where. Safeco hopes others might become telecommuters.

But Safeco spokesman Paul Hollie said "it's too early to tell" if 500 workers will move downtown.

City, neighborhood and University of Washington leaders were surprised by the news. Reynolds called Mayor Greg Nickels on Friday morning to tell him of the new plans.

Nickels was "very disappointed," said his spokeswoman, Marianne Bichsel. The mayor vowed to help revitalize the U District without Safeco's expansion, Bichsel said.

She also said there was nothing more city officials could have done to stop Safeco's decision.

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With much fanfare, the company announced last year it would build a 125-foot-tall office tower across the street from its existing 22-story tower.

The expansion plan required rezoning and other land-use exemptions, which Nickels and the City Council supported.

"This has nothing to do with City Hall at all. We've had a wonderful open relationship with City Hall," said Safeco's Hollie.

"It's all about us revising our real-estate strategy. We want to lease rather than build and own office buildings."

The new plans contradict the vision of Mike McGavick, Safeco's former CEO, who stepped down at the end of 2005 to run for the U.S. Senate as a Republican.

"I'm bummed," McGavick said of the news.

He said that when he ran the company the decision was made to expand in Seattle because it would be cost-effective, consolidate all employees in one place, and "do the greatest good" by helping the U District.

"I can't second-guess somebody else's decisions," said McGavick, who was raised in Seattle.

Asked whether the matter has political implications for his Senate run, McGavick said: "I can only be judged for the things I did and I decided. This is subsequent to that."

Safeco says the new strategy saves money and actually strengthens its commitment to Seattle.

Leasing space, in general, is less expensive than owning and maintaining it, Hollie said. It also gives Safeco the flexibility to reduce its office-space needs.

Hollie would not rule out the possibility of layoffs.

"With new leadership comes a new look at many, in fact I'd dare say all, of our key positions at Safeco," he said.

The insurer hasn't undergone extensive layoffs since McGavick embarked on a major turnaround five years ago.

Since then, profits have grown steadily, putting the company in such good standing that some wondered how Reynolds would make her mark.

Hollie dismissed the notion that Safeco might be shifting its real-estate strategy in hopes of selling the company.

Reynolds alluded to the idea of selling the company at a meeting earlier this week with Paul Latta, director of research at industry analyst McAdams Wright Ragen.

Latta said Reynolds told him, "The company is for sale every day" and added that the board would seriously consider any offer.

Hollie explained that Reynolds meant that "every board understands it is their obligation to look at any serious offer."

Safeco plans to stay in the Seattle area, he added: "Our history and our future is in Seattle and the Puget Sound region."

U District community leaders said it was too early to predict the neighborhood impact of Safeco's decision.

"I'm still reeling," said Teresa Lord Hugel, executive director of the Greater University Chamber of Commerce. "My hope is that another community-spirited organization will move" into Safeco's headquarters tower.

UW could be seen as a potential buyer. "This is coming out of the blue for everybody. A question like that would need a lot of thought, and we haven't really had any time to do that," said UW spokesman Norm Arkans.

Safeco has no offers yet, Hollie said. The company will begin to look at downtown leasing possibilities but has no particular site in mind, he said.

When Safeco moves staff members downtown, it will in a sense be returning home. The company's first offices were at Fourth Avenue and University Street.

Safeco was begun in 1923 as the General Insurance Co. of America.

After spending its first 13 years in offices downtown, the growing insurer bought an eight-story structure called the Brooklyn Building at 45th Street and Brooklyn Avenue.

That building was perhaps best-known for a giant reader board General installed in 1964. It displayed a mix of marketing slogans, weather reports and odd sayings, author and photographer Paul Dorpat recalled.

"What was magnificent about it was its size and its inanity," he said. "You could read the thing from miles away. There were people who objected to it because they considered it a hazard to drivers on I-5."

The sign came down, along with the old building, when Safeco (it adopted the name in 1968) built its current tower, which was completed in 1973.

As the U District's largest private employer, Safeco has been actively involved in the neighborhood's affairs for decades.

Staff reporters Drew DeSilver, Jim Brunner, Mike Lindblom and Nick Perry contributed to this report. Bob Young: 206-464-2174 or byoung@seattletimes.com

Copyright © 2006 The Seattle Times Company

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