Developers vying to build Capitol Hill Station housing+retail say properties are overvalued

Screen-Shot-2014-04-16-at-9.31.23-PMSiteMapv4-W-Map-1024x807-600x472-1Shortlisted firms vying to buy and develop four parcels of land above the future Capitol Hill light rail station are raising concerns that Sound Transit’s asking price for the properties is far too high, possibly even double what it’s worth. Sound Transit officials say it’s fair market value for some of the most prized property in the city.

The parcel most in question is the Broadway-facing Site A, where a large portion of the site must be reserved for a semi-public plaza to accommodate events like the Broadway Farmers Market, as stipulated in the project’s community forged Development Agreement.

At a Monday meeting with Sound Transit officials inside King Street Station, several developers said a potential $18.7 million price tag for Site A should be cut in half since only half of the parcel can be developed for residential and retail uses.

“There will be a real challenge to get the numbers to pencil out,” said David Dologite, director of real estate at Capitol Hill Housing. CHH is partnering with Jonathan Rose Co. as one of five bid teams seeking to develop Site A — a site that would include at least 132 units and some ground floor retail.Screen-Shot-2014-05-30-at-10.58.03-AM-600x2691

Sound Transit’s Request for Proposals appraises Site A at $403 per square foot, comparable to other properties sold in the area, including the Broadway Post Office. Back of the envelope-style — which we doubt is how this will play out, exactly — CHS puts the base value of all the sites around $34 million.

Sound Transit’s Sarah Lovell said updated property appraisals would be released in the coming weeks, but she said the price for Site A would likely stay the same. “We are pushing (the developers) … but it’s fair market value,” she said.

While Site A’s price per apartment unit may be higher than others in the area, Lovell said the plaza and transit centered site make the property a unique buy.

Property appraisals are frequently contested by buyers, especially in developments as large as the Capitol Hill TOD site. Several developers said they would wait until the new appraisals were released to decide their next course of action. All proposals must be submitted by October 13th. Sound Transit expects to announce the bid winners in November.

Some community members have raised concerns about the plaza becoming just a large expanse of concrete for homeless campers if developers have to cutback on design to pay for the parcel. Lovell said the developer scoring mechanism gives heavy weight to a strong plaza proposal, including how a future developer would accommodate the Broadway Farmers Market.

During the Monday meeting, developers raised other concerns about the bidding process. Most firms are seeking to develop all four properties as a master developer, but it’s possible that Sound Transit could select individual firms for each site. Some developers said they were concerned that if they would have to scale back their plan if they were selected for one site when they were bidding for all four. Lovell said Sound Transit expects that to happen, but only to a limited degree.

The $1.8 billion light rail extension connecting downtown to the University of Washington under Capitol Hill is expected to open for service in early 2016. Sound Transit forecasts that by 2030, there will be 14,000 boardings a day at Capitol Hill Station. The transit oriented development around the station on Broadway could add as many as 400 apartments to the site. More than a third will be built as affordable housing. Thousands of square feet of retail and the semi-public plaza are also part of the plans.

In the meantime, heavy construction on the Capitol Hill Station is winding down towards an early 2016 opening of the light rail line.

18 thoughts on “Developers vying to build Capitol Hill Station housing+retail say properties are overvalued

  1. Correction: The proposals are due October 13, not September 13, and Sarah Lovell from Sound Transit said they were hoping to have a decision by the end of the year, but they were not going to rush it since the RFP was released later than anticipated.

  2. If Sound Transit says the price is $403 per square foot but restricts half the site from fully income-producing commercial and residential uses, then the real land cost is more like $800 per square foot.

    So, when the project is completed and people start complaining about the rents, please remember that it was Sound Transit which demanded inflated land prices, not “greedy developers.”

    • Not necessarily. Isn’t it just as likely the square footage cost-estimate takes the smaller scope into account? Plus, there has to be some trade-offs given the site is right on top of a mass transit hub in the center of a growing retail corridor – so residents aren’t going to be as much in need of cars & therefore the developer won’t have to create as much parking infrastructure, which inflates costs.

    • Apartment owners will charge what the market will bear, no matter what the land price was. Pricing the land correctly puts more money in the public pocket, not the developers’.

      If the prices are too high, the developers should run the numbers and not bid, and Sound Transit can drop the price and try again.

  3. As one who just purchased a condo on first hill (it was bloody), everything is “overpriced” which means … the market can bear it. So pay up, developers!

  4. Just like the rest of the economy.
    People owning the “product” maximizing price and leaving the future plundered.

    Well, as long as only a few can make “instant” money, that’s what we were taught, wasn’t it?!

  5. Isn’t this just a case of supply and demand? If companies are fighting over the land then it should go tot he highest bidder. It doesn’t sound like there is a shortage of companies wanting the land so they should make money out of it to reinvest in improving the rest of the transit in the area

  6. My instinct is to think ‘greedy developers’ but Capitol Hill Housing seems to be in agreement. I greatly respect CHH and I feel our city is greater because of their work, so I’ll give them the benefit of the doubt here. The whole process of outlining our desires for this property always seemed idealistic to me. We wanted a lot of freebies to be paid for with someone else’s wallet, and this is the first time we’re being told it isn’t reasonable.

    We may end up with a couple of outcomes, some more likely than the others.

    1. No developer solidifies their proposals and they let the dates come and go without an offer (unlikely, as this would almost require all of the developers to act in lockstep).

    2. All the proposals come in below what ST expects, but what the market will bear with all the extra goodies the community wants. (middling possibility)

    3. Some developers come back with pure market based proposals providing ST the full market value of the land, but none of amenities the community wants or expects.

    I’m sure there are other possibilities out there, but this is what’s on the top of my head right now.

    • Or even, no developer makes as much money as they’d like but it’s still a profitable and really visible opportunity and the bids come in and the buildings go up. It’s what bidding systems are like.

    • I agree that CHH is to be trusted and we should listen to what they have to say on this issue. But I don’t think the land price should be lowered. The developer who ends up getting the rights to that parcel will benefit financially from the presence of a plaza (IF it is done well and excludes homeless campers), and of course because of the easy access to the light rail station, so it’s not unreasonable that they pay the full market price.

      When a developer puts up a building, usually, not all the square footage of the parcel is used for residential/commercial purposes….some of it is open space, landscaping, etc….so a developer always pays for more than just the “rentable” part. It should be no different with this light rail development.

  7. One solution: raise the zoning height for those parcels to allow more square footage to be built on the footprint of each parcel. That way the developers will be able to build more apartments and thus have the income streams to justify paying higher land prices to Sound Transit. Also that aligns with our regional goals of preserving our wilderness by reducing sprawl. Where better to put high density housing than right on top of a light rail station. I just hate to see us repeat the mistakes of the past (e.g. zoning 65 or 85′ height near a subway station that cost us several hundred million dollars.). I know taller buildings may not always be popular with neighbors, but better to build more apartments close in to Seattle to take pressure off already high housing prices, or at least keep a lid on the rental rates.

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  12. Pingback: Capitol Hill Station retail and housing: $25M price tag, one developer drops out, plans due in December | CHS Capitol Hill Seattle

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