Council vote set today on veto override in Hedreen deal
The most intense political drama playing out at Seattle City Hall right now is over a rather obscure deal that would change city rules to let developer Richard Hedreen cash in on so-called housing bonus credits worth up to $6 million.
The Hedreen legislation was approved by a divided City Council on June 24 and spurred the first veto by Mayor Greg Nickels three days later. The council will vote today on whether to override that veto.
City officials have been subjected to a lobbying campaign by Hedreen, who hired attorney Ryan Durkan and her brother, lobbyist Jamie Durkan, to plead his case.
Labor leaders have also flexed political muscle, opposing the legislation after Hedreen wouldn't cut a deal with them. They are allied with housing advocates who say the legislation amounts to a corporate giveaway.
The spin from both sides has been dizzying. Here are key questions:
Q: Who is Richard Hedreen, and what does he want?
A: Richard "Dick" Hedreen, owner of R.C. Hedreen Co., is a real-estate developer who wants city approval for a deal that would let him use a set of disputed housing bonus credits worth as much as $6 million.
Q: What are these bonus credits?
A: The city's housing bonus program allows developers to get credits from the city in exchange for bankrolling affordable housing. The credits allow developers to exceed regular limits on the height and bulk of buildings, thus increasing the profitability of their projects.
In exchange, the city gets subsidized housing that is supposed to mitigate the impacts of new downtown buildings that bring a demand for more employees, many of them low-wage service workers.
In this case, the credits were created when the Washington State Convention and Trade Center paid $2.7 million and donated the old Eagles lodge building at Seventh Avenue and Union Street to create the ACT Theatre plus 44 units of affordable housing upstairs.
Q: How did Hedreen get the credits?
A. In the 1990s, the city and state needed a private developer to help finance the expansion of the convention center. The project was seen as a key to revitalizing a slumping downtown. The convention center dangled the credits before Hedreen as an incentive for him to participate in the project after two other developers bailed out.
In exchange for a $15 million cash payment, Hedreen got the credits plus the right to develop the Elliott Hotel just north of the convention center. Planners had contemplated a 1,000-room hotel as part of the expansion, and Hedreen would have needed the credits to build a hotel that big. But those plans were scaled back because of size concerns and objections by other hotel owners, who feared a glut of new rooms.
As a result, Hedreen built the Elliott Hotel with only 450 rooms — meaning he did not need the bonus credits. Because the credits are tied to the convention-center site, Hedreen needs city approval to use them somewhere else. (He wants to use the credits on an office tower at Eighth Avenue and Olive Way or a possible development at the site of the downtown Greyhound bus terminal a block away.)
Q: Why does Hedreen think he should be able to use the credits elsewhere?
A: Hedreen appeals to the common-sense notion of a fair deal: The public got its benefit since the affordable housing was built, but he has never been able to use the bonus credits created by that housing. He says the administration of then-Mayor Norm Rice assured him the city would make the deal work out for him. (Rice did not respond to requests for interviews last week.)
Now, city officials say the time limit on the credits has lapsed so Hedreen will have to spend as much as $6 million to buy new credits (and build more affordable housing) if he wants to proceed with a major downtown building.
"They're reneging on a deal," said David Thyer, Hedreen's vice president for operations.
Q: Did Hedreen have a deal?
A: If he did, it wasn't written down. Hedreen admits he had no written commitment from the city that he would be able to use the bonus credits wherever he wanted.
For legal reasons, housing bonus credits are bound to a specific piece of property, and the city doesn't usually allow them to be shifted to another site. But Hedreen had reason to think the city and state would let him use the credits elsewhere.
Even the use of the credits at the Elliott Hotel site technically would have required moving the credits across the street from the convention center — a bending of the city rules. But a 1996 agreement between the city and the convention center said that would be "within the spirit and general purpose" of the city's plans for the area.
However, the agreement said nothing about moving the credits to a third site that had nothing to do with the convention-center expansion. And it didn't even promise to move the credits across the street, only saying the City Council would "consider" it if it were proposed.
Cynthia Parker, director of the city's Office of Housing, said Hedreen gambled when he signed his agreement with the convention center, and the public has no duty to bail him out. "He was aware of the risk involved," she said.
A majority of City Council members have supported Hedreen, however, arguing the city owes him. "It's very clear to me there was an agreement," City Councilwoman Jan Drago said.
John Christison, president of the convention center, said that while there was no guarantee, "a lot of us walked away with the impression the city was going to make this happen." He said he hoped Hedreen got what he was asking for.
Q: How did the unions get involved?
A: Hotel Employees and Restaurant Employees, Local 8, has been trying for years to get the city to link downtown hotel development to union organizing of hotel workers.
After the Hedreen legislation was introduced, the union tried to make a deal: It would support Hedreen if he agreed to bind the land where the credits were to be used to a "good-jobs" agreement that would make it easier for unions to organize workers at any new hotel or office building built there.
Rick Sawyer, secretary-treasurer of Local 8, said last week the union was "never close" to signing off on such a deal. He said he was always troubled by the content of the Hedreen legislation.
But documents seem to paint a different picture, showing union officials were ready to support the Hedreen legislation as late as June 10 if the developer cut a deal with them.
Three days later, after the deal fell apart, the union blew the whistle on the legislation, saying it was a corporate giveaway and suggesting ways to spin the story to the media. "Headline: City Council considers giving $6 million in affordable housing credits to a Seattle hotel developer who did nothing to earn them," wrote union researcher Dana Wise in a June 13 message to City Councilman Nick Licata's office.
Q: So this all would have gone away if the unions had gotten what they wanted?
A: That's not entirely clear. Parker, the housing-office director, says she has always opposed the legislation regardless of what the unions thought. Nevertheless, the legislation was moving along quietly until the union decided to kill it, and Hedreen is convinced that labor leaders, who played a pivotal role in getting Nickels elected, were behind the mayor's veto.
Q: But aren't the critics right? Isn't this a change in city laws for the benefit of a single person?
A: Hedreen lobbyist Jamie Durkan has tried to characterize the law as merely a "transition rule" that would apply to all developers who still have unused building credits from past projects. But that's misleading. The law was written for Hedreen's benefit, and Durkan admits he knows of no one else who would be able to take advantage of it.
Whether that makes it a giveaway or the city making good on its word is a matter of debate.
Q: Did Hedreen get anything out of the convention-center deal?
A: Yes. Hedreen got the right to develop the upscale Elliott Hotel as well as the retail and office spaces around it. He retains a half-ownership in the hotel, which is worth more than $100 million.
In fact, there is little evidence Hedreen ever intended to build a 1,000-room hotel at the convention center. His original proposal to the state, dated June 1996, called for a 400-room hotel, stating, "We do not believe a 1,000-room hotel is needed or desirable at this time."
Hedreen said the bonus credits were always intended to be used elsewhere but admitted the written record does not back up that claim. He says he was banking on a "handshake" and now wishes he had forced the Rice administration to guarantee he would get to use the bonus credits.
Q: Would granting Hedreen's wishes mean $6 million less for affordable housing?
A: Not necessarily. First, the $6 million figure is questionable. That's based on what Hedreen would have to pay now if he bought the same amount of housing bonus credits from the city. But Hedreen said that if he doesn't get the disputed credits, he would not run out and buy new ones. Instead, he would likely construct smaller buildings, and no new housing would be created.
Q: Will the City Council override Nickels' veto and approve the Hedreen deal?
A: Probably not. The council is set to vote today. It would take six votes on the nine-member council to override the mayor's veto. So far, only five members have lined up in support of Hedreen: Drago, Richard McIver, Heidi Wills, Judy Nicastro and Jim Compton. Opposed are Licata, Richard Conlin, Margaret Pageler and Peter Steinbrueck. If those votes remain constant, Hedreen will walk away empty-handed and angry.
Q: Will that be the end of it?
A: Maybe not. Hedreen has threatened to sue the city. His representatives have been negotiating with City Attorney Tom Carr about a possible compromise by which he could use some fraction of the building credits in exchange for not suing.
Carr confirmed he met with Hedreen at the request of some City Council members but said it was too early to say whether such a settlement could be reached.
Regardless, the ill will created by the controversy seems likely to linger. Some of Hedreen's allies claim the city's refusal to help him could make business owners less likely to enter into deals with the city.
"It sends a real poor signal to the business community," said William Justen, managing director of real estate for Samis Land Co.
Jim Brunner: 206-515-5628 or jbrunner@seattletimes.com