PacMed Center lease bites dust
With Wright Runstad out of the picture, landmark’s owner will market office space itself
Seattle Times business reporter
The owner of the Beacon Hill landmark popularly known as the PacMed Center is terminating Seattle developer Wright Runstad’s 99-year lease on the mostly empty tower — 85 years early.
The quasi-public Pacific Hospital Preservation & Development Authority (PDA) will begin seeking a new tenant next week, Executive Director Rosemary Aragon said Friday.
Wright Runstad, unable to sublease the space after Amazon.com moved out last year, missed a $380,000 quarterly lease payment in June.
Thursday was the deadline to pay the back rent, but no check arrived.
The termination is effective Sunday, Aragon said.
“This is a positive outcome for all parties,” Wright Runstad spokesman Roger Nyhus said in a prepared statement, “as it provides a clear path forward for the Pacific Hospital PDA and its mission.”
The authority uses lease revenues from the building — now being marketed as the 1200 12th Tower — to provide access to health care for the uninsured and underinsured.
Any new deal could be another master lease, like Wright Runstad’s, or a more conventional lease directly to a user, said Kevin Fox, who chairs the PDA’s board.
“We need to find out who’s interested,” he said. “We’ve been unable to speak to anyone about leasing. We’ve been encumbered by our contract with Wright Runstad.”
The PDA may have more luck filling the building than Wright Runstad did, he said, because it doesn’t need as much money.
The termination ends a contract that was heralded as a win for all involved when it was negotiated 14 years ago.
The PDA leased 13 of the tower’s 16 floors to Wright Runstad in 1998, producing new revenue for health services. (Pacific Medical Centers, a primary and specialty-care physician network, has a clinic on the campus, but is a completely separate entity and has no financial relationship.)
The developer, in turn, converted the former hospital into offices — borrowing $23 million to help pay for the renovation — and subleased the space to Amazon.
But the online retailer, which has expanded and relocated to South Lake Union and the Denny Triangle, moved out of the PacMed Center after its lease expired in May 2011.
That left Wright Runstad with no income from the building to pay either the PDA or its lenders, a combined liability of more than $3.7 million a year.
The company’s efforts to find a new tenant for the 205,000 square feet weren’t successful. A proposal to relocate King County’s juvenile court and jail there fell through last year.
City University of Seattle considered moving into the building, but relocated to Belltown instead.
Wright Runstad defaulted on its loan, which had a balance of $20 million, a year ago. Amos Financial of Highland Park, Ill., acquired the note from the original lenders at a steep discount this summer.
While Wright Runstad’s window for paying the back rent to the PDA closed Aug. 27, Amos still had another 30 days to make the quarterly payment.
It didn’t. Aragon said Wright Runstad settled with Amos recently, acquiring the note itself. Wright Runstad confirmed it reached a resolution with Amos, but didn’t provide details.
An Amos principal did not return a call.
Fox said that when Wright Runstad was seeking a user for the building, it had to ask for rents high enough to cover not only its lease payments to the PDA but also its debt service — $181,000 a month.
The PDA’s situation is different, he added: “We have no debt.”
So it could conceivably accept lower rents from a user than Wright Runstad, Fox said, while at the same time collecting more revenue than it was getting from the developer.
Wright Runstad had been paying the PDA $8 per square foot per year. The authority now will seek $12.50, plus taxes, insurance and maintenance, said its broker, Steven Wood of Century Pacific.
That’s probably about half what Wright Runstad needed to break even, he said.
About $40 million has been invested in the 80-year-old tower over the past 12 years, Wood said, including extensive energy-conservation measures.
“The building is immaculate,” he said. “It’s a beautiful campus.”
Large unfilled office spaces are rare right now in Seattle, Wood said. The tower could appeal to a technology company, government agency or educational institution that wants to be near downtown but not necessarily in it, the broker added.
The PacMed Center’s location, on the north end of Beacon Hill above Interstates 5 and 90, is both an advantage and a challenge, said Matt Christian, a senior director at brokerage Cushman & Wakefield/Commerce.
The tower is highly visible, he said, and offers opportunities for branding: “It’s certainly known as an iconic building.”
But there’s no other office development around it, Christian said, and few amenities.
Eric Pryne: email@example.com or 206-464-2231