Creative Finance

How the Seattle Art Museum partnered with a bank to finance its new building and bring three new towers to the Emerald City's skyline.
August 11, 2010

The just-opened $86 million Seattle Art Museum has doubled the size of its old digs to almost 300,000 sf, in an ideal location just a block south of Pike Place Market. How does a nonprofit museum finance construction of that magnitude in pricey downtown Seattle? By finding a deep-pockets partner—Washington Mutual Bank—with an aching need for downtown office space. The story of their unusual real estate venture provides a lesson in how a nonprofit cultural facility and a very much for-profit business can not only co-exist, but flourish.

The original 150,000-sf museum, designed by Venturi Scott Brown & Associates and built, controlled much of the square block bounded by First and Second Avenues on the west and east, Union to the north, and University to the south. For much of the next decade, SAM (the museum's affectionate local name) leased portions of its property, but in the early 2000s, it started losing key retail tenants (notably Nordstrom and the Seattle Coffee Company), turning the property from a cash cow to a dollar drain. The SAM board had approved a 20-year development plan, but lacked the money to execute it.

At about the same time, Washington Mutual found itself searching desperately for 1.3 million sf of downtown space for the bulk of its 5,000 area employees, who were scattered over 13 buildings around its headquarters city.

The bank was able to piece together 800,000 sf in the existing WaMu Tower (located across Second Avenue from the museum) and two neighboring buildings, but that still left them a half million sf short. That's when the museum came into play.

To encourage arts and nonprofit organizations to stay downtown, the city had passed an ordinance to permit increased floor/area ratio for the expansion of museums and other such entities.

Enter Matt Griffin, of local developer Pine Street Group, who proposed a clever solution: Washington Mutual would finance the addition to the museum, in return for the museum obtaining an FAR variance from the city and selling a portion of the museum block to WaMu for a new headquarters building.

WaMu and Pine Street Group would build the expansion. The museum would determine how much space it could afford, and the bank would lease the rest of the space for up to 25 years at a rate that would provide the museum enough income to pay the debt service. As the museum's needs grew, it could take back space from the bank. “We convinced the museum board that they could get the result of their 20-year plan without taking the risk that so many organizations take when they build a new facility,” said Griffin.

In 2002, the museum and WaMu boards signed off on the project, along with the Museum Development Authority, a public entity that held the museum land in trust. WaMu paid $18 million for the property and rights to develop its office tower on a portion of the museum's block. The bank agreed to manage the development, become a paying tenant in part of the SAM addition, and provide construction loans for the $375 million combined project.

The museum's new 16-story, 450,000-sf tower, designed by Allied Works of Portland, Ore., is connected via a pedestrian walkway to its old building. Currently, the museum occupies the first four floors. WaMu owns the top four floors and is leasing another eight from the museum as part of the financing deal. By moving into its own new 42-story, NBBJ-designed Washington Mutual Center in 2006, WaMu estimates it is saving $15 million a year in rent.

The third piece of the puzzle

But the story doesn't end there. In 2002, as part of the deal to purchase the land for WaMu Center, Griffin convinced the museum to sell a neighboring parcel to the bank for $9.7 million. Two years later, WaMu sold the property to a group of investors led by former Seattle mayor Paul Schell and gave the museum $500,000 for agreeing to waive its remaining rights to the property. That led to the construction of the third new tower, a Four Seasons hotel and condominium.

“There was a point in the project, early in design, where I thought there were just too many moving parts and we wouldn't be able to make them all fit,” said Griffin. “To their credit the executives at the bank said, 'It's a good idea, stick with it.' In this case the bank had great credit and the ability to get cash. The museum had the ability to qualify for an exemption and a great site. Rates for occupant space weren't high and construction costs hadn't taken off yet, so we were able to put all these needs and assets together.”

Through the money it saved by selling both parcels of land, by raising $180 million for works in the new museum, and through gifts and acquisitions, the Seattle Art Museum is showing $1 billion of new art to the citizens of the Emerald City.

 
Designing the 'vertical museum'
In designing the 16-story addition to the Seattle Arts Museum, “there was a desire to break down the stigma of the art museum as a cloistered and protected place and have it seen and experienced by all of the public as a place to gather and engage in art,” according to John Weil, a designer with architect Allied Works, Portland, Ore.

That principle manifested itself in the ground-level design of the addition. The older building was opened up with large galleries and public space. Passersby can enter through the older museum, walk across the main gallery of the new addition, and come out on the other side of the block; the museum's first two floors are free to the public.

With the WaMu Center facing the addition to the east, the architects preserved city views of the north, south, and west sides of Seattle, reaching beyond the skyline to the Olympic Mountains.

“From an orientation standpoint we wanted to use those views, even out to the bay,” Weil said, referring to Elliott Bay. “It's a combination of wanting natural light in the galleries and then using place to control different views of how you see the city and the landscape from inside the museum.”






         
 

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