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Monday, August 15, 2005 - Page updated at 08:20 AM

Condo conversion will be lucrative, but not for district

Seattle Times staff reporter

Twenty-four years after the final bell rang at Queen Anne High School, Seattle Public Schools is helping wrap up a deal to sell off the iconic school building as condominiums.

The 139 condos — some with expansive city views — are expected to fetch upward of $40 million in today's red-hot real-estate market.

The district's cut?

Just 12 percent, about $4.8 million. That's less than the value of the land, which the King County Assessor's Office estimates is worth $7.5 million.

Many question the deal, but it may represent an improvement for the district on its current rental arrangement. After Seattle developer Bruce Lorig led a widely lauded effort to convert the old school into apartments nearly 20 years ago, rents have risen to between $880 and $2,200 each month.

The district's cut?

About $52 per unit per month.

Both deals can be traced back to a 50-year lease the district signed with Lorig in 1986, with options for an additional 40 years. The idea was that Lorig would take the financial risk of renovating the five-story school building in return for the lion's share of the rental money. But there was another provision:

"Lessee shall have the right at any time to convert the premises and all the improvements therein to a condominium," then sell the units and give the district 12 percent of the total sales price.

Though the district plans to use the money to pay off loans and finance construction, many now rue that lease clause and the impending sale.

"We can't stop it, we can't prevent it, we don't have any other course of action," said School Board member Dick Lilly, whose district includes Queen Anne. "It's easy to criticize in hindsight. But you have to say someone made a really bad deal 20 or 25 years ago."

How the sale works

In 1986, Seattle Public Schools signed a 50-year lease with developer Bruce Lorig for Queen Anne High School. The school district retained ownership of the land and building. For the period of the lease, Lorig got the title to the building and management rights. The district got a cut of the rent.

An unusual clause in the lease allowed Lorig to convert the building to condominiums at any time, in exchange for giving the district 12 percent of the proceeds from the sale of the condos. The agreement stipulates that in the event of a condo conversion, the district will relinquish its ownership forever and sign over individual deeds to the new condo owners.

Lorig recently informed the district he intends to launch the condo conversion. For tax reasons, Lorig's company will not complete the condo conversion. He's selling the lease to Legacy Partners Residential.

The school district is figuring out a system for expediting title transfers when individual condo owners begin buying the property. The 139 condos are expected to go on the market next year and sell for a total of at least $40 million. The district's 12 percent take would be about $4.8 million.

The condo sales are expected to begin next year. Lorig said that, for tax reasons, he is selling his interest to Legacy Partners Residential, which will remodel the units and complete the sale. John Hatton, a Legacy vice president, declined comment ahead of closing the deal with Lorig.

Residents haven't been told about the impending sale, said Brandy Harmia, a Seattle attorney who rents an apartment on the fifth floor.

"Some people have been there a really long time. That's crazy. That stinks," she said.

Historic building reborn

The deal comes at a time when Lilly and other residents want a new high school to serve the Queen Anne and Magnolia neighborhoods.

"That's where we have kids who are not being served, period," Lilly said. "We don't have enough seats in the middle of the city."

That's not something district officials foresaw in 1981, when Queen Anne High was one of 25 schools closed due to precipitously falling enrollments.

The school opened in 1909. In the district's 1909-10 annual report, Superintendent Frank Cooper said the building, a costly $253,000, "marked the summit of achievement thus far in Seattle school architecture" and "rivals the best high-school buildings anywhere."

After it was shut, the building languished and became a target for vandalism. Then the school district sought bids for an apartment conversion and signed the deal with Lorig. The building was also placed on the National Register of Historic Places.

Lorig spent $9.2 million and 14 months on the renovation. By tearing down a gymnasium and auditorium, he was able to restore an original entrance. Laboratories and classrooms became apartments with 14-foot ceilings and huge windows, some even boasting original blackboards.

Because of the building's historic designation and the district's interest, Lorig was able to get tax advantages, including $1.6 million in tax credits and exemptions from certain property taxes.

The district tried to encourage Lorig's makeover by keeping its rental share minimal. But the district apparently didn't realize just how minimal until about five years ago. That's when an omission in the original lease document was discovered. Rents were intended to increase incrementally each year. But the way the document was written, the district's share of the rents reverted to the $52 per-unit flat rate for the 10 years that began in 1997.

"We think that's on the low side of what it ought to be," Lorig said. "We have attempted over time to increase that amount, but it's more complicated than that ... I think this was not a high priority for them to get resolved."

Ron English, a school-district attorney, said there was a difference of opinion over future payments.

"He wanted to pay more rent now but less rent later, to flatten out the payment stream," English said. "We never concluded those discussions."

Those talks are now moot. With the condo market so hot, Lorig said he decided it was time to sell. He said the original agreement that split the sales price was unusual.

"I don't think there is anything typical about this at all. We just made it up," Lorig said. "We picked 12 percent as what we thought was a reasonable number.

"I really don't think it was that far off," he added. "It's sort of a screwy thing, because the condo market is so inflated today."

In fact, the deal could have been worse for the district: Documents show that Lorig first suggested the district get a flat rate of $15,000 for each condo sold, for a total of $2.1 million.

Former Seattle mayor and property developer Paul Schell said it's easy to look back now and conclude that it was a bad deal for the district. But at the time the deal was signed, few developers would have been willing to take on the risky project.

"If it was a good deal [for the district] 20 years ago, then the fact that it turns out that it's a good deal for Lorig now is kind of irrelevant," Schell said, adding that he considers Lorig an honorable man.

"Throwing away" assets

But Chris Jackins, a community activist with the group Seattle Committee to Save Schools, said the deal is typical of the district's shoddy property management. He said the district should more carefully investigate ways to halt the sale.

"Those sites were bought for the long-term use of education," Jackins said. "They are throwing away the seed corn of the district."

Board member Irene Stewart said she has yet to see details of the sale but would not agree to "give anything away."

"I know that in many of our leases, we let buildings and let property at what turned out to be far below market value," she said. "I do know that we need to be made whole."

But English said that while the board will be consulted over developments in the sale, he's not sure that members will get to vote on it.

"We are not going to change the fundamental terms of a lease that was put in place 20 years ago," English said. "We don't have a lot of flexibility."

Lilly says Lorig got a good deal:

"He knew what he was doing, and we didn't."

Nick Perry: 206-515-5639 or

Copyright © 2005 The Seattle Times Company




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