A bank and art museum's marriage of convenience

The hoopla surrounding the opening of Seattle Art Museum's downtown expansion this week will understandably focus on the grand galleries housing $1 billion worth of new art.

But the project did not spring from any visionary blueprint for the museum's future. It was driven by a bank's hunger for a new downtown headquarters.

Washington Mutual sealed the complex development pact five years ago after months of negotiations between SAM trustees and the bank's hired developer, Matt Griffin.

This was a business deal, not an act of charity.

WaMu got to build its 42-floor office tower on a prime parcel of downtown land without competing against other buyers. The bank estimates it will save $15 million a year in rent by consolidating most of its 5,000 Seattle employees in the WaMu Center.

There were other advantages, too. By pairing with the museum, WaMu received special city zoning changes to boost the size of its office tower. The bank will rent an additional eight floors of space from SAM for up to 25 years with no annual rent increases.

Griffin also persuaded SAM to sell the bank a run-down parking garage across the street from the museum. WaMu later resold the property to a development group managed by the husband of a bank executive. The parcel, with a prime waterfront view, is now being developed into a luxury Four Seasons hotel and condos.

SAM's trustees say they're thrilled with the deal, which allowed the museum to expand much sooner than they'd ever thought possible. The museum will open its initial four-floor expansion Saturday. Eventually SAM will be able to expand into the eight floors now rented by WaMu. Meanwhile, the rent payments from the bank will cover the museum's mortgage on those floors.

For Seattle, the project provided a new museum at no cost to taxpayers. The city did guarantee $60 million in bonds for the museum, saving SAM money in interest payments.

Keeping WaMu in city

The deal also ensured that WaMu, one of the city's largest private employers, would stay in town.

There were times during the talks that Griffin raised the specter of the bank leaving Seattle.

"Matt would say, 'If you can't do this, we're going to go to Bellevue,' " said Costco Chairman Jeff Brotman, one of the SAM trustees who negotiated the deal.

"I said, 'Go ahead.' "

Brotman regarded the Bellevue threat as chest pounding. He knew WaMu Chairman and CEO Kerry Killinger wanted to stay in Seattle.

Brotman said SAM was negotiating from a position of strength.

At the time, the museum was focused on another big, expensive venture — its $85 million Olympic Sculpture Park, which opened earlier this year on Elliott Bay north of downtown. Museum trustees were in no hurry to launch a complicated downtown museum expansion at the same time. They were content to hold on to the land.

"We had so many requirements for us to be able to do this that I was somewhat cynical that we could get it done," Brotman said.

However, there also were pressures on the museum. Major tenants had moved out of the Arcade Plaza office building on the expansion site, leaving SAM with less rent income.

Griffin, a veteran of other complicated developments including downtown's Pacific Place mall, eventually tempted SAM with a once-in-a-lifetime deal:

If SAM would sell a big chunk of its downtown block to WaMu, the bank would manage the development, become a paying tenant in part of the added space SAM would get, and provide construction loans for the $375 million project.

Griffin says he first sketched his plan to a longtime friend, SAM trustee Charlie Wright, when the two were driving home from a board meeting of their alma mater, Seattle's prestigious Lakeside School, in the spring of 2001.

Wright was immediately interested. Soon, details were being ironed out in negotiations that included Brotman and SAM board Chairman Jon Shirley. At around the same time, Linda Killinger, Kerry Killinger's wife, was added to the museum board.

In September 2002, the museum and WaMu boards signed off on the project. The Museum Development Authority (MDA), a public entity that held the museum land in trust, also approved the deal.

Gerry Johnson, the attorney for the MDA, said the deal helps the museum because it can expand incrementally as it has the money.

"The museum will have received its [future expansion] space for free and will have no debt," Johnson said.

WaMu paid $18 million for the property and rights to develop its office tower. That was substantially less than the $26 million SAM's property could have fetched on the open market, according to an appraisal. But the appraisal said WaMu deserved a discount because it was using only part of the overall site and its agreement with SAM restricted how the land could be developed.

The appraisal assumed WaMu would be able to build a 750,000-square-foot office building. In fact, the bank was able to squeeze 900,000 square feet of space into its tower.

SAM's trustees "weren't trying to get the super home-run deal economically," said Wright.

"From our standpoint, as long as the deal seemed commercially reasonable, we were much more concerned about issues of identity and control. That's where most of the struggling occurred."

For example, SAM insisted on hiring its own architect, Portland's Allied Works, even though WaMu had wanted its architect, NBBJ, to handle the entire project.

Good deal, trustees say

Brotman and Wright said they were more than satisfied with the economics of the deal. "We got such a great deal on this thing. There weren't two nickels left on the table," Brotman said.

In exchange for its quick expansion, SAM gave up any dream of developing and controlling the entire block, possibly with a new building designed by a big-name architect, like Seattle's downtown public library.

"I think there was a tradeoff," Wright acknowledged. But he said SAM trustees were not looking to make an architectural splash like the Frank Gehry-designed Guggenheim Museum Bilbao in Spain.

"That was the mindset from the get-go," said Wright. "Let's not try to be the Bilbao ... . Most museums around the country go for the big, iconic, very expensive signature statement. We are not going to do that. We are instead going to focus all of our energies and our message on the inside. I think the outside is fine, it's dignified, but the inside works beautifully."

The project couldn't have happened without special treatment from the city when it came to zoning regulations. WaMu needed city permission to maximize the size of its office tower on the east side of the block; the city code, as written, did not allow it.

Seattle City Councilmember Jan Drago said the council and mayor were happy to help the museum and ensure that WaMu stayed in downtown Seattle.

While there was not much public talk of WaMu leaving the city, Drago said she'd heard rumblings and didn't want to take any chances.

"We wanted to keep a major corporate headquarters in Seattle," she said.

The makeup of the SAM board, packed with dozens of the region's cultural and business leaders, ensured the museum's needs were taken seriously.

The board remembers its friends, too.

Although nonprofits are barred from political activity, minutes of an August 2005 meeting say the board, in the midst of talks about the SAM expansion, had a "discussion regarding support for Jan Drago's re-election campaign — all are encouraged to support her." Drago went on to easily defeat a well-funded challenger, former Seattle Times columnist and mayoral aide Casey Corr.

Four Seasons finds site

The final piece of the SAM-WaMu deal was the sale of the museum's parking garage across the street. Although the garage itself was dilapidated, it sat in a prime location overlooking Elliott Bay. WaMu purchased the garage site for $9.7 million. Griffin said the bank planned to spruce up the building and possibly build more office space there.

That plan changed after a group of investors, including former Seattle Mayor Paul Schell and venture capitalist Tom Alberg, came looking to purchase the site for a Four Seasons luxury hotel. In 2004, WaMu agreed to resell the property at essentially the same price it had paid, according to documents filed with King County. SAM received a $500,000 cut for agreeing to waive its remaining rights on the land.

"It was a prime piece of property that deserves to be used. WaMu was very fair to us," said SAM director Mimi Gates.

The Four Seasons project, now under construction, is being managed by John Oppenheimer, husband of Deanna Oppenheimer, former president of WaMu's retail-banking operations. In filings with the Securities and Exchange Commission, WaMu said Deanna Oppenheimer was not involved in the Four Seasons transaction. She left the bank in 2005.

For his part in pulling off one of Seattle's most complex development projects, developer Griffin was named one of the nation's top-25 newsmakers last year by the trade publication Engineering News-Record, which hailed his unusual marriage of "suits and smocks." Griffin's Pine Street Group and development partner Seneca Real Estate were paid more than $7 million for their work, plus $4 million in expenses.

Some other local Seattle developers and real-estate brokers said they'd never known the SAM land was for sale and praised Griffin for pulling off a shrewd deal.

"It was a brilliant project," said developer Martin Selig.

"Look at what Seattle has got now, a headquarters for WaMu, a great new museum, and across the street a Four Seasons. What more can you ask for?"

Jim Brunner: 206-515-5628 or jbrunner@seattletimes.com