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May 3, 2018

Amazon pauses Block 18, may sub-lease Rainier Square pending ‘head tax' vote

Journal Staff Reporter

Rendering by Graphite Design Group [enlarge]
Wright Runstad says work will continue on Rainier Square. Amazon has leased all 722,000 square feet of office space.

Amazon said on Tuesday that it has “paused” one major office construction project and is reconsidering another. Pause has different meaning for projects at different stages of development.

Amazon issued no formal announcement or press release, but told an editorial writer at The Seattle Times about the decision on Tuesday, after informing the developers, contractors and architects who are affected.

The Times editorial board has opposed the proposed tax, which is meant to address the city's homelessness crisis.

The full statement from Amazon VP Drew Herdener, was first reported in the Times on Wednesday: “I can confirm that pending the outcome of the head-tax vote by City Council, Amazon has paused all construction planning on our Block 18 project in downtown Seattle and is evaluating options to sublease all space in our recently leased Rainier Square building.”

There has been no final vote on the so-called head tax, which was endorsed in March by a panel led by city councilmembers M. Lorena Gonzalez and Lisa Herbold. It could raise around $75 million a year. About 75 percent of that would be used to create 1,780 affordable housing units over five years; and 20 percent for associated shelters and services. It replaced a similar measure that would've raised less money; that bill was rejected last fall.

Councilmembers Teresa Mosqueda and Mike O'Brien also support the new measure.

It would levy 26 cents per employee, per hour during 2019-2020, and then be converted to a more common payroll tax in 2021. Only large for-profit companies, with over $20 million in annual gross tax receipts, would be taxed.

That includes Amazon, which might be on the hook for around $20 million — though the exact size of its workforce is almost never disclosed. In its recent first quarter report, Amazon said its North American revenue was $30.7 billion. A projected $20 million city assessment represents about 0.065 percent of that sum.

The city estimates that last year over 8,500 people experience homelessness in Seattle. That accounts for three-fourths of the homeless population in King County.

A final council vote was expected on May 14, for what it calls the “Progressive Tax on Business.” A finance committee meeting was held yesterday, and a finance committee was expected on May 9. In that regard, Amazon's statement is strategically timed.

The council has nine members. Six councilmembers would have to approve the measure, if Mayor Jenny Durkan vetoed it. She hasn't taken a position for or against. In an April letter, she wrote to the council, “We need solutions that improve lives but do not harm our economy.”

In a Wednesday statement, the mayor said, “I'm deeply concerned about the impact this decision will have on a large range of jobs — from our building trades, to restaurant workers, to nurses, manufacturing jobs and tech workers. At the same time, our city must urgently address our homelessness and affordability crisis and lift up those who have been left behind.”

She added that, “In the upcoming days, I will be bringing together councilmembers as well as business, labor and our community leaders to work together to see how we might forge common ground in dealing with our challenges while keeping jobs.”

Business groups including the Downtown Seattle Association, the Greater Seattle Business Association and Seattle Chamber of Commerce are opposed to the tax.

Projects at risk

• Block 18 is the 17-story tower at 2205 Seventh Avenue, which is being planned by The Seneca Group for Amazon, which owns the property. Graphite Design Group is the architect, and Sellen is the general contractor. The project hasn't yet broken ground. It was to have 388,000 square feet of offices and 8,800 square feet of retail.

• Wright Runstad's 58-story Rainier Square, expected to open in 2020, is fully underway, with Amazon having leased all the 722,000 square feet of offices. JLL brokered that lease. Who might represent Amazon for a sublease is unknown. It's also virtually impossible that a single tenant could take all that space.

The full-block Rainier Square project also has apartments, retail and a hotel. The property is leased from the University of Washington. NBBJ is the architect. Lease Crutcher Lewis is the general contractor. Wright Runstad's financial partner is an unnamed pension fund client of J.P. Morgan Asset Management.

The main tower will have 1.17 million square feet; and a smaller separate hotel tower is planned. Work hasn't stopped on the site, and Wright Runstad says it will continue.

Block 18 and Rainier Square could together accommodate about 7,000 Amazon workers.

Related projects

Other Amazon-related projects and leases could be affected, though the Amazon release didn't mention them.

• Block 21 in the Denny Triangle, at 2200 Seventh, has most if not all of its permits. Work hasn't yet begun on the two-tower project with almost 900,000 square feet. Graphite Design Group and GLY Construction are on that project.

• Unico Properties' Yale & Harrison addition is being planned on the former Pemco block. It's been widely reported that Amazon has leased the renovated former Pemco building, now called Yale & Thomas, and would lease the new building, too. Perkins + Will is designing the new tower.

• 300 Pine, the downtown Macy's Building, is now being renovated by Starwood Capital Group for Amazon. CallisonRTKL, Bayley and KPFF are on that project, which has around 470,000 square feet of offices on the top six floors.

• Puget Sound Business Journal reports that Martin Selig said Amazon is reconsidering possible leases at two of his buildings on Elliott Avenue West, and his unbuilt Firestone Building addition in South Lake Union.

What about HQ2?

Looming over all this is Amazon's expected selection of a site for its new headquarters, HQ2, sometime this year. Another city will benefit from gaining around 50,000 employees and eight million square feet of offices. The value of new jobs and construction could reach $5 billion. As has been widely reported, Amazon is expecting tax incentives, subsidies and other concessions from the top 20 cities being considered — playing them off against one another.

Separately, Amazon recently announced expansion projects in Boston and Vancouver, B.C.

At the opening of Amazon's Spheres in January, global head of real estate John Schoettler told the DJC that after Block 21 and Block 18, at least in the Denny Triangle, “I don't have anything left in my pipeline or on the horizon.” That was after the Rainier Square lease was announced last year.

Amazon now leases or owns about 13.6 million square feet in SLU and the Denny Triangle. It has around 45,000 city employees in about 40 buildings.


Brian Miller can be reached by email at brian.miller@djc.com or by phone at (206) 219-6517.

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