August 8, 2019

City, Alexandria ink $143M deal for 3-acre Mercer Mega Block

Image by JLL [enlarge]

Alexandria could develop around 1 million square feet on the east side of Dexter and a possible 365 units on the west side.

The city-owned Mercer Mega Block in South Lake Union went on the market two years ago, with JLL as the city's broker. The nearly 2.9-acre property lies east and west of Dexter Avenue North, at 614 Aurora Ave. N. and 800 Mercer St.

On Wednesday, Mayor Jenny Durkan announced a $143.5 million development agreement with the large Pasadena, California-based REIT Alexandria Real Estate Equities, which already has a large presence in SLU. (See related story about Alexandria's new biotech lease at 1165 Eastlake Ave. E.)

The city values the entire package of public benefits at $300 million.

Mayor Durkan said in a statement, “This is a generational opportunity for Seattle. Cities our size rarely get the chance to take an underused property we own and make bold investments to create jobs, create more affordable and mixed-income housing throughout the city, and build more safe transportation connections.”

Alexandria's John Cox said, “Our goal is to create a new model of urban development that supports our mission to advance human health while also addressing some of our community's most pressing challenges. The Mercer Mega Block provides a tremendous opportunity to build a fully integrated, mixed-use life science campus.”

Seattle City Council would still need to approve the deal, possibly next month. Besides the $143.5 million payable at closing, it looks like this:

• $5 million of that sum goes towards addressing homelessness

• 175 affordable units will be created on-site for households earning up to 60% of area median income; that provision, without public subsidy, will sunset after 50 years

• A 30,000-square-foot community center will be created on site, to be operated by Seattle Parks and Recreation; no rent will be paid for up to 40 years

• Eighth Avenue will be extended through the block as a pedestrian connector; other permanent transportation improvements, including bike lanes, will be included.

Alexandria hasn't announced an architect or any plans for the Mercer Mega Block. As a publicly traded entity, such a large material investment will eventually require SEC filings and press releases. Significantly, it already owns two corner properties bordering the site: 601 and 701 Dexter Ave. N.

Those add another 1.16 acres to the Mercer Mega Block. No plans have been announced for 601 Dexter; a new 11-story office tower is planned to replace the old building at 701 Dexter. The recent $28.5 million purchase of 601 Dexter gives Alexandria a full block also bounded by Mercer Street, Aurora Avenue North and Roy Street.

At Wednesday's announcement, The Seattle Times and Puget Sound Business Journal reported that Alexandria showed a possible apartment design for 615 Dexter, which could include 175 affordable and perhaps 190 market-rate units. (Alexandria is not known as a housing developer, and could partner in that effort — as it's doing with TMG Partners on a comparable mixed-use project in San Francisco called 88 Bluxome Street.) Thus the housing would be on the west side of Dexter, and around 1 million square feet of office/biotech space would go on the east side of Dexter, on the larger portion of the Mercer Mega Block.

The city says that Alexandria will meet or exceed LEED gold standards for whatever it builds; will foot the entire bill for any environmental remediation (estimated at $10 million to $15 million); will make an unspecified future Mandatory Housing Affordability payment based on the size of the project; and will agree to various labor and wage provisions during construction.

Mayor Durkan also said, “I believe that years from now, people will look back at this chance and say we seized an incredible opportunity to make our city better by reinvesting the proceeds directly in housing across Seattle. I look forward to working with the City Council in the coming weeks to deliver these investments in housing, jobs, great public spaces, and transportation projects across Seattle.”

Of the $143 million Alexandria would pay, possibly this year, the city says that $78 million of that sum will be allocated for housing as follows:

• $57.2 million to address displacement and help create affordable transit-oriented development

• $15 million to assist permanently affordable homeownership

• $6 million to help create more affordable accessory dwelling units (aka ADUs and DADUs)

Separately, $16.7 million would be applied to various city transportation and related safety projects. The math also includes $29 million in prior city loan commitments for transportation and homeless services.

The city began considering disposition of the Mercer Mega Block back in 2014. The site was essentially created when Mercer became a two-way street and Broad Street was vacated. It's been used for construction staging since then. The city has issued several RFPs over the past few years for prospective buyers.