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Sunday, August 9, 1998 - Page updated at 12:00 AM

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Convention Center About To Spread -- Public-Private Deal, Involving Hotel, Office Building, Museum Almost Done

Seattle Times Staff Reporters

There's scarcely a hint amid the bustle of construction, the throngs of shoppers and the rows of shiny new storefronts, but five years ago, downtown Seattle was a very different place.

One May day, Jim Ellis stood nearly alone on a Pine Street sidewalk staring at the shuttered doors of the Frederick & Nelson building and thought the city was dying. The chairman of the Washington State Convention & Trade Center, Ellis was a civic leader whose ideas and connections had helped shape Seattle. He decided the only way to rescue downtown was to make the convention center bigger.

His vision is about to become reality.

If a few final details fall into place as expected, including a key City Council vote scheduled for tomorrow, Seattle will join a national convention-center building frenzy, based on the notion that in the competitive market for free-spending convention delegates, bigger is always better.

The convention center, owned and operated by the state, is hoping to break ground soon on a $170 million expansion project that would create a complex as big as the Kingdome and engulf five city blocks in the heart of downtown.

It would spread across Pike Street, consuming two additional blocks between Seventh and Ninth avenues, rising 100 feet in the air and connecting to a new, privately owned 20-story hotel. Tractor-trailers would cross Pike on a truck ramp four stories above the street, and exhibit booths would line a second, 90-foot-wide sky bridge.

Backing the project are city and state officials and business leaders who believe the expansion promises an influx of out-of-town visitors and a boon to the local economy.

"We don't have a smokestack, we're not polluting the air and it's a real high-yield investment," says John Christison, general manager of the convention center.

But it's an investment that doesn't come cheap.

In addition to a $111.7 million contribution approved by the state, the city has agreed to favorable deals for the hotel developer, the developer of a connected office tower and for the convention center itself.

Among other things, the city is turning over all revenue from its Freeway Park Garage, giving away two alleys and setting aside a distaste for such pedestrian-unfriendly design touches such as sky bridges, windowless walls and buildings that are bigger than a city block.

There's also the matter of the property owners who would be displaced by the expansion. They're not all going quietly. Some are legally challenging the state's power to condemn their property or the amount of money being offered. The most pivotal case has made its way to the state Supreme Court and could be decided any day.

Neighbors aren't happy either; they continue protesting to the City Council.

Even so, before the first spade of dirt has been turned, there's evidence the project has had some if its desired effect.

Nordstrom is less than two weeks from opening its new flagship store in that old boarded-up Frederick & Nelson building that Ellis bemoaned that spring day five years ago - a project that itself has spurred development around Sixth and Pine and is credited as the catalyst for downtown's resurgence.

Nordstrom officials say they wouldn't be making the move if not for Ellis and a back-of-the-envelope plan hatched that day to double the convention center's size.

A catalyst, not a moneymaker

They may be good for business, but convention centers don't make money for the government agencies that own and run them.

In the case of the Washington State Convention & Trade Center, the facility has operated in the red and had to borrow money from the state to pay its bills every year but two since opening in 1988.

So far, state taxpayers have invested $168 million to build the existing center and then lent it $33 million to keep it running. That's before the expansion.

The facility has drawn 1.4 million out-of-state convention participants since it opened. In the past few years the number of visitors has grown slowly to nearly 200,000 a year, about as many as it can handle.

What the convention center has returned to the state and the city is not easily measured.

There is really no way to specifically identify a convention-goer, says Peter Antolin, a state analyst who tracks the convention-center budget. "A person staying at the Westin could be there because they're visiting relatives in the business trip. There's no way of tracking that."

Even the rosiest projections suggest government could make more money with simpler investments - like putting its money in the bank.

Consider: The city of Seattle has agreed to contribute $7.5 million in direct payments and about $9.8 million over the next 20 years in parking revenue to the expansion. For that, city officials expect a net return in tax revenue of just $10 million by 2020.

But the primary mission of convention centers isn't to make money for government. The real plum, say advocates, is the so-called "multiplier effect" in bringing well-heeled visitors to the city.

Surveys conducted by the hospitality industry show that the nation's average convention delegate can be expected to spend about $1,000 during a four-day event. In Seattle, that figure is said to be $1,200 because the Convention & Trade Center has a "high-end" niche market whose delegates tend to come with expenses paid and bigger credit-card limits.

"They don't put their kids in our schools and they don't populate the welfare rolls. They fly in," Ellis says of the convention center's customers. "They stay in our downtown hotels, they walk to and from their meetings and they go home."

The logic has wide appeal. There are more than 500 convention facilities nationwide, yet cities and states are building bigger and bigger exhibit halls, all convinced they'll generate more money for hotels and nearby businesses.

In Seattle, convention officials say doubling the space would draw 35 to 40 additional events and about $130 million in new spending each year.

Besides, center officials add, they must expand to keep up with the market. With its current 102,000 square feet of exhibit space, the Seattle facility is not viewed as a player in the big-meeting circuit.

Still, Rep. Mike Sherstad, R-Kenmore, thinks of the competition for new exhibit space as a Cold War-style civic arms race. "San Francisco builds a bigger convention center and stadium. So then we're losing business and we have to spend money now to attract those customers," he says.

"I'm not sure this is a race we want to be in."

Plan gels in meeting of key players

Disturbed by the vacant F&N Building that day five years ago, Ellis marched across the street into the Nordstrom store and right into the executives' suite. He told the receptionist he needed to talk to a Nordstrom, any Nordstrom.

The late James Nordstrom, then the company's co-chairman of the board, came out. When he heard Ellis' pitch he went back to fetch more executives. Ellis' pitch was seductively simple: If the city and state would agree to double the size of the convention center, would Nordstrom move into the vacant Frederick & Nelson building?

Ellis, 77, had built his career as a municipal bond attorney and partner at Preston, Gates & Ellis, and is viewed by business and government leaders as something of a city legend. He dreams big, and his plans have a habit of carrying the day.

Here was the man behind a six-story convention center over a freeway, several city parks and a bus tunnel under downtown Seattle. A man so closely identified with these projects that he sometimes slips and calls the convention center, the bus tunnel and even the city, his.

Even so, Ellis approached the Nordstroms with no real authority to cut a deal. Any expansion would need approval by the Legislature and the City Council. What Ellis could offer was a vision for a revitalized downtown and the ability to walk through nearly any door to power in the state and sell it.

The Nordstrom executives, who hadn't yet agreed to renovate the F&N building, liked what they heard.

"The convention center was, in my opinion, the No. 1 variable or extra thing that we needed," Bruce Nordstrom, a former co-chairman of the board of directors, said in a recent deposition. "This thing (moving to the F&N building) was going to cost us. . . . In order to make the same amount of profit that we make today in the existing store, we're going to have to do 50 percent more business."

At the same time, the Nordstroms didn't want to expand downtown only to draw customers away from Bellevue or its other area stores. A bigger convention center seemingly solved that problem; the bodies it would bring downtown wouldn't be there - or anywhere else around here - without it.

If the plan was to work, Ellis and the Nordstrom executives quickly concluded, they needed to get the mayor on board. Soon, then-Mayor Norm Rice, his deputy mayor, Bob Watt, developer Jeff Rhodes and architect Bill Bain joined Ellis and James F. Nordstrom at the Four Seasons Olympic Hotel for dinner.

Ellis says he talked around the issue, keeping the conversation varied and polite; Nordstrom was much more direct.

"Before the meeting was over Jim (Nordstrom) had said at least four times, `I want to know if the convention center is going to be expanded,' " Ellis recalls. " `If it isn't expanded, we're outta here.' "

At the time of the Olympic Hotel meeting, Nordstrom wasn't the only downtown business weighing future investments. Shortly afterward, I. Magnin would be boarded up, becoming an empty canvas for graffiti artists. And half-empty office buildings and vacant storefronts were making the once-vibrant area feel grimy and unsafe, keeping shoppers and investors away.

"We were staring at a downtown that was going in the wrong direction," Watt says now. "It's easy for people to forget how downtown was."

Expanding the convention center seemed a perfect solution. Who could disagree with a project that would help persuade Nordstrom to make a massive new investment, push other investors to gamble on downtown and bring new out-of-town dollars to the city and state? What was to lose?

Holding up the fourth floor

To double the square-footage of its exhibit space, the convention center only needs to expand its fourth floor. But you can't just hang a fourth floor in mid-air.

The solution: Extend the exhibit hall north, across and above Pike Street, and carve it into a hotel to be built at the same time. The overall project encompasses two public-private partnerships and incorporates the expanded exhibit hall, a hotel, a new home for the Museum of History and Industry, an office tower, parking and retail stores.

As part of one such partnership, a developer, The R.C. Hedreen Co., is paying $15 million in exchange for all the land underneath and around the exhibit-hall expansion.

The land, some of the most highly desired in downtown Seattle, comprises one city block that sits across the street from the convention center. Hedreen plans to build a four-star hotel that will house the new exhibit space, a 990-space garage and 45,000 square feet of retail.

In turn, the convention center will help Hedreen get the necessary city approval for its private development, as well as 75,997 square feet worth of development rights it can use elsewhere in the city.

The expansion also includes a partnership with Trammell Crow Co. For $3.5 million, the company is buying a vacant lot beside the convention center, on Seventh Avenue and Pike Street, for a high-rise office building and underground parking. The building will include a new entrance lobby for the convention center and other meeting and exhibit space.

In addition, both developers made deals to construct the space the convention center needs to run its operations - one floor in Hedreen's as-yet-unnamed hotel complex and the first six floors in the Trammell Crow office building. Though the convention center and the two developers are still wending their way through Seattle's building-permit process, the city has guaranteed that Hedreen won't have to pay for an alley that must be closed.

Had Hedreen proposed a similar project without the state convention center as a partner, it would have had to pay the city one-half the market value for the 180 foot long alley, an estimated $93,600.

What it will look like

The look of the expanded convention center will be as unique as its financing.

In the drawings, a wide, glass-covered sky bridge spans Pike Street, connecting two large exhibit rooms. At the other end of the existing building, an overpass carries trucks on their way to load and unload exhibits. The expansion almost completely covers one block of Eighth Avenue.

On paper, many elements of the expansion don't fit the city's idea of good urban design. City policies discourage sky bridges and big, blank walls and they frown on buildings that leapfrog over streets and take up more than one city block.

But the city allows public projects to depart from its rules if designers can show they've compensated for unfavorable elements. Convention-center designers believe they have. They call the covered sky bridge a "galleria" and envision it as a focal point like the Space Needle that will draw people from all over the city. For two years, center officials have been meeting with members of the Seattle Design Commission to fine-tune parts of their plan and improve the public areas.

Design Commission chairwoman Barbara Swift acknowledges an urban core isn't an ideal place for a convention center, but she believes the design has evolved into a national model. With art on blank walls, wider sidewalks and the dramatic archway added to the plan, the Design Commission recommended the city support the project.

"Our feeling at the end was that it was becoming pretty exciting," Swift says.

Design hurdles, legal hurdles

The goal of expansion was simple: double the amount of exhibit space to 207,000 square feet. The complication was getting there.

Unlike its counterparts in other cities, Seattle's convention center isn't stashed on the outskirts of town where there's room to stretch. The center was shoehorned into First Hill and across the I-5 freeway because business leaders pressed to have it within walking distance of hotels and retail stores.

So as big as it would be, the expansion isn't exactly what the convention center wanted.

The ideal design for exhibit space would be a box with high ceilings and no windows - similar to a Costco warehouse store. Exhibitors pay for the space to showcase products, sell ideas and make business connections.

"Would I have preferred one big contiguous room, no walls, no columns, no nothing? Sure," says Christison, the center's general manager. "But you are not going to get that in an urban environment."

The design isn't ideal for nearby residents or for property owners in the expansion's path, either. Six property owners are disputing the state's power to condemn their property for a venture they argue is predominantly private, and are awaiting a decision by the state Supreme Court.

The case involves the biggest portion of the project, on the city block north of Pike Street, between Seventh and Ninth avenues.

The state maintains the entire project constitutes a necessary "public" use, but the nearby land owners argue that the Hedreen Co. would be the main beneficiary because it will gain title to most of their land.

Ellis and convention-center supporters are confident they'll win the case but are eager to get a ruling. Without it, the project is on hold, and a single year of delay could add $6 million to the project cost, according to an affadavit filed in the Supreme Court case.

Another property owner, Convention Plaza LLC, is waiting for the state to move forward with condemnation. And Seattle photographer Wah Lui agreed to sell but didn't like the state's offer. He took his case to court last week.

Lui and his family had built a two-story, 5,000-square-foot penthouse atop the family's 1915 parking garage with views of downtown and high-rises surrounding them. He wanted $5.3 million for his land. Center officials offered $3.5 million. On Friday, a King County Superior Court jury ruled that the state should pay $4.2 million.

The Lui family are the only remaining people living in the path of the convention center. Residents of the old Waldorf Tower Apartments, many of them on subsidized rents, have been moved to two new buildings within walking distance of First Hill. The convention center kept its promise to spend $5.7 million to replace the low-income housing.

Skirting state spending limits

It didn't take long for Ellis to convince Rice and Watt and the convention-center board that expansion was a good idea. But the Legislature was an entirely different animal.

In the spring of 1995 a freshman class of anti-tax Republicans had taken control of the House of Representatives, and many knew little about the convention center or how it fit into the state budget. Nor were Ellis and Seattle's downtown business leaders the only ones looking for help with a big-ticket item.

The Mariners - led by Ellis' brother John Ellis, a minority owner of the team - were angling for a new ballpark, and King County officials were wringing their hands over broken roof tiles in a domed stadium nobody wanted to play in.

The convention center itself had a reputation as something of a white elephant. When it was first constructed the state had to bail it out from a business deal with a private developer who went bankrupt.

But Jim Ellis was confident he could get past the opposition so long as he had the help of Seattle city officials. Together with the Seattle Downtown Association, a group that represents Nordstrom, the Bon Marche and other businesses, supporters formed Citizens to Expand the Convention Center and turned to one of the most respected lobbyists in Olympia, Becky Bogard.

"There were a lot of new members (in the Legislature) so we met with all of them," Bogard said.

She encouraged business leaders and former governors Albert Rosellini, Dan Evans, John Spellman and Booth Gardner to write letters of support and hosted several dinners at her home near the Capitol so they could meet directly with legislative leaders.

One of the supporters' most persuasive tools was a 1994 task force report.

Seattle city officials had been instrumental in persuading the Legislature to spend a $1 million to determine whether expansion was needed. The task force, comprised of lawmakers, downtown business leaders, a convention-center board member and a labor leader who helps represent construction workers, gave a resounding yes.

Many lawmakers were impressed by the forecast projections about new tax revenues, and there weren't many questions about numbers.

"It was a win-win," says state Rep. Frank Chopp, D-Seattle. "It was going to add jobs we need in this city. A lot of these jobs are entry-level, and they're a vehicle for people getting up and out of poverty."

Sherstad, the Kenmore legislator, was aghast at how quickly lawmakers were willing to part with more than $100 million.

"We do have to be good stewards, and I will tell you that it's a lot easier to spend somebody else's money than it is your own," he says. "You would do a lot of checking before you spend $100 million expanding a convention center."

There was another major obstacle: The state couldn't afford $112 million in general obligation bonds without exceeding its debt limit.

Like many states, Washington is restricted in how much money it can borrow to build schools and prisons and universities. The idea is that legislators should pick and choose the most necessary projects before committing taxpayers to long-term debt.

Ellis, an experienced municipal bond attorney, and his financial advisers knew there was a way to get around the limit. The convention center board urged the Legislature to borrow money through certificates of participation rather than general-obligation bonds.

The arrangement isn't much different. The state sells certificates on the market to investors and then promises to repay the money as if it were a long-term loan. In this case, the loan will be repaid with a portion of King County's hotel-motel tax.

The proposal "seemed to break" resistance since legislators wouldn't have to choose among other projects or worry about the debt limit. The only caveat was that the convention center had to find an additional $15 million from other sources. Ultimately, that figure was exceeded, with the city's $7.5 million contribution, the $15 million from Hedreen and the $3.5 million from Trammell Crow.

Rep. Barry Sehlin, R-Oak Harbor, who is chairman of the House Capital Budget Committee, didn't like it. "We have a debt limit in this state for a reason and that is to prevent the Legislature from obligating us to an excessive level of debt," he says.

When the House voted to approve the money, Sherstad rapped the hospitality industry for pushing it through with such vigilance.

Minutes later, House Speaker Clyde Ballard called Sherstad to the podium and reminded the freshman Republican that hotel and restaurant owners tend to be allies come election time.

"He said, `Hey, these guys are your friends and you might think twice about what you're saying.' "

Sherstad says he walked away realizing he had just been reprimanded for ruffling the wrong feathers.

Expansion changes direction

Of all the obstacles he had to face, the one battle Ellis conceded was the direction of the expansion.

Going east toward Capitol Hill would mean the building would gobble up nearly 400 apartments, most of which were home to elderly and low-income residents. At first, Rice and most City Council members embraced the plan to avoid having sky bridges across Pike Street.

But when housing activists dug in, Ellis realized it was a political fight he couldn't win.

At the same time, the convention center board realized that moving east probably wouldn't work anyway. The geography wouldn't allow a public-private deal necessary for the financing, and the center would have to close during construction.

So Ellis approached the mayor at a social event one night and suggested going north, across Pike, might be better. Rice agreed.

In a sense, he had to. Rice and the council already had endorsed the project, two years earlier. The city already had begun working out a deal to lease the Freeway Park Garage to the convention center at $1 a year for 30 years, and approve city permits as quickly as possible.

New designs by the convention center architects, Loschky, Marquardt & Nesholm, helped council members overcome their distaste for sky bridges, which draw people away from sidewalks, and can block views and light. Several of them walked around the proposed expansion site, trying to picture it.

Ultimately, the direction of the expansion was secondary. Council members saw the project as part of their master plan to save downtown.

"I look downtown and there are lines to get into Niketown and lines to get into Planet Hollywood as a result of some of the decisions to reinvest in downtown," said Councilwoman Martha Choe in 1996 before voting on the plan. "We are seeing more than the amount we invested come back to us."

Then-Councilman Tom Weeks was the only member who was unconvinced. He thought the project was too big and the sky bridges would block downtown views.

But by the time the council voted, unanimously, Weeks had left office.

Sumo wrestler at a jewelry store

"This project is analogous to an 800-pound Sumo wrestler sitting down in the middle of a little, dainty jewelry store," architect Clint Pehrson complained to a Design Commission reviewing the expansion last year. "The shoppers keep circling around looking at the diamonds and the Rolex watches, but nobody talks about the Sumo wrestler sitting in the middle of the room."

With a City Council vote on the project scheduled tomorrow and another coming soon, there's still time to talk about the Sumo wrestler.

But reality is that most of the decisions already have been made. The project is just two council steps and a couple of court decisions away from final approval.

Tomorrow the City Council is expected to approve a conditional-use permit for public projects, allowing the convention center to skirt regular land-use rules provided developers agree to mask the size of the complex and soften its impact on the neighborhood.

For example, the city lets the center build more windowless walls than usual, but requires the designers to make them more interesting with lighting, landscaping or art work.

Council members say administrative law rules prevent them from talking about the project before they rule on it. But in committee meetings over the past few weeks, some council members, especially those who weren't in office when the project was approved two years ago, hinted at serious reservations.

As soon as the Supreme Court gives the go-ahead, the final and controversial council step will be to consider applications for aerial rights for the two sky bridges over Pike Street, for a cover over Eighth Avenue and for vacating two alleys that will be consumed by the project.

Nearby residents, who don't think any of the design details will compensate for the sheer enormity of the expansion, plan to fight. They worry about traffic congestion and parking shortages during construction and big events. They also fear the center will choke off their small neighborhood businesses from downtown.

Councilman Richard McIver has concerns about the sky bridges and the project in general, according to his aide Michael Brown. "I don't think people understand how enormous this is or how contentious it could be," Brown says. "We are still a long way from having any of this resolved."

Strictly speaking, it doesn't matter.

The convention center has already spent $28 million of its expansion money. The city has given away the garage. The developers are ready to begin work. You can practically see the convention delegates walking down the street toward the new Nordstrom store.

Ellis, the man behind the vision, says he wishes the project were moving ahead even faster. Construction was supposed to start in July, and the convention center board is anxiously awaiting the Supreme Court ruling it needs to condemn more property.

"This isn't the first project I sweated over," Ellis says. "I hope that this (Supreme Court decision) will come down as soon as possible and take this uncertainty off the table."

For Mayor Paul Schell, who followed Rice into office and embraced Ellis' idea for an expanded center, the uncertainty is off the table.

"A lot of people made private commitments based on a public decision," Schell says. "I'm certainly going to follow through. We are way past the point where it's appropriate to raise these questions."

Barbara A. Serrano's phone message number is 206-464-2927. Her e-mail address is: bserrano@seattletimes.com

Susan Byrnes' phone message number is 206-464-2189. Her e-mail address is: sbyrnes@seattletimes.com

----------- The players -----------

Jim Ellis, convention-center chairman, persuaded Nordstrom to move into the Frederick and Nelson building if the convention center were to expand, thus assuring Nordstrom new customers.

James Nordstrom, the late Nordstrom co-chairman and president, met with Ellis and made it clear the convention center needed to grow if Nordstrom were to invest in downtown Seattle.

Norm Rice, former Seattle mayor, embraced the convention-center project as a way to secure a new Nordstrom store and downtown revitalization.

State Rep. Mike Sherstad, R-Kenmore, opposed expansion and questioned whether government ought to subsidize convention centers.

Seattle Councilwoman Jan Drago served on a legislative task force that endorsed the expansion. She is chairwoman of the council's Business and Labor Committee, which has been reviewing the project.

Seattle Councilman Richard McIver is a newcomer who has concerns about the proposed sky bridges and the project in general.

State Rep. Barry Sehlin, R-Oak Harbor supported expansion but opposed the Legislature's decision to use certificates of participation to get around the state's debt limit in order to finance the project.

--------------------------- Convention Center timeline: ---------------------------

1982: Legislature establishes Washington State Convention and Trade Center to provide "civic and economic benefits for the people of the State of Washington." State bonds issued to finance a large portion of construction costs.

1983: Three sites proposed for $90 million convention center: Seattle Center, Kingdome and downtown, straddling Interstate 5. Convention center board selects site over I-5.

1988: Convention center opens with 102,000 square feet of exhibit space.

1993: Convention center board identifies need for more expansion space. Jim Ellis approaches Nordstrom about possible expansion.

1994: Legislature approves $1 million to study expansion. Seattle City Council unanimously passes resolution supporting expansion. Task force presents final report to Gov. Mike Lowry and the Legislature, recommending expansion by a vote of 8 to 1.

1995: Legislature appropriates $111.7 million for expansion. Housing activists oppose eastward expansion because plans call for demolition of 400 low-income and senior apartments.

1996: Seattle City Council votes unanimously to support convention center expansion either to the north or the east. Convention center board selects north expansion alternative; housing and financing concerns take eastward expansion off the table.

November 1997: Seattle Design Commission reviews convention center plans for northward expansion and recommends approval. Convention center board authorizes acquisition of land for expansion project by negotiation or condemnation if necessary.

Tomorrow: After extensive review in committee meetings, Seattle City Council is expected to vote on conditional-use permit for convention center expansion.

Copyright (c) 1998 Seattle Times Company, All Rights Reserved.

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