Big land deal, big questions

When the government sells public land, the law usually requires competitive bids so taxpayers get the best deal.

But King County is bypassing that rule for one of its largest land sales in recent years — a no-bid deal that would give a Kirkland developer the exclusive right to buy and develop 156 acres of county land in the middle of fast-growing Maple Valley.

Known as the "Donut Hole," the property, now serving as a regional road-maintenance shop and gravel pit, could be replaced by thousands of new houses and condos.

While other developers have inquired about the land, valued at $40 million to $70 million, King County Executive Ron Sims for two years has insisted on negotiating only with YarrowBay Group of Kirkland.

Those talks have continued over the strong objections of Maple Valley residents, who worry that the growth will clog their roads and schools.

The talks continued even after the county roads director accused YarrowBay of bargaining in bad faith and recommended killing the deal. And they continued even as some county managers argued that the developer didn't merit special treatment.

So why is the deal still alive?

The answer lies in a land swap arranged by a prominent lobbyist who holds an unusual personal stake in the deal.

Martin Durkan Jr. hooked Sims' aides with a clever proposition: In exchange for selling the Donut Hole, King County would get to buy and preserve 276 acres of forest along the Green River. The so-called Icy Creek forest has been coveted by environmentalists and the county has previously tried to buy it.

The deal would benefit two of Durkan's business partners. He represents YarrowBay, which would get the Donut Hole without competition. Another longtime client, Palmer Coking Coal, owns the Icy Creek forest land the county would buy.

Until recently, Durkan owned a piece of the forest himself. He bought 40 acres from Palmer Coking for $1 million in 2003, property records show, and filed permits to develop houses on five-acre estates.

But that turned out to be merely a paper transaction. Durkan never built anything on the land, and in August, he gave it back to Palmer Coking for free to clear the way for the deal with King County.

He's gambling that years of future work on YarrowBay's big Donut Hole development will prove more profitable than the lost opportunity to develop the forest land. "It's all about trading up," Durkan said.

The deal is still being negotiated and would require final approval by the Metropolitan King County Council.

"Unique circumstances"?

By law, King County is required to sell land only after it is declared "surplus" — meaning it is no longer needed for essential public services.

If the property is suitable for affordable housing, the county must field proposals from housing developers, including nonprofits. The county also is supposed to consider whether nearby cities would be interested. If the county wants to sell to private developers, it generally must hold an auction or solicit sealed bids.

Sims skipped those steps. Instead, he is relying on an exemption in the law that allows a "negotiated direct sale" if "unique circumstances" make that arrangement in the public interest.

In July, at Sims' request, the King County Council approved an ordinance saying the Donut Hole sale qualifies as unique because it would preserve the Icy Creek forest while creating affordable housing in Maple Valley.

"Our goal was never to make a no-bid deal. Our goal was to make the deal that made sense for the county and the developer," said Kurt Triplett, Sims' chief of staff.

The deal, he said, helps further the county's goals of preserving environmentally precious land and creating affordable housing in South King County.

But Maple Valley City Manager Anthony Hemstad accuses Sims' office of working to create the circumstances to justify the deal.

"It's a manufactured crisis," Hemstad said.

Some county managers have questioned whether YarrowBay deserves the no-bid deal, according to thousands of pages of county documents released to The Seattle Times under a public-disclosure request.

A supervisor in the county's Real Estate Services division criticized the deal in a March 12, 2007, e-mail to colleagues.

"In my mind, everything they [YarrowBay] are proposing could be offered by other developers, but without the public bid process we won't be able to find out," wrote Bob Thompson.

Thompson said YarrowBay's proposal was not "an offer of exceptional value to the public" — the county's test for no-bid deals.

That objection may have come too late.

By the time Thompson wrote the e-mail, Sims' office had been pushing a deal with YarrowBay for more than a year.

The developer

YarrowBay, founded in 2001 with the backing of the Dutch company VolkerWessels, has grown into one of South King County's biggest residential developers.

The firm's political profile has grown along with its real-estate portfolio.

In March 2006, with its eye on the Donut Hole, YarrowBay hired Durkan, one of the county's most influential lobbyists and the son of the late Martin Durkan Sr., a longtime Democratic state lawmaker and lobbyist. YarrowBay has paid Durkan Jr. more than $130,000 in lobbying fees.

Durkan, who lives in Maple Valley, is a political rainmaker who invests in politicians on both sides of the aisle.

He boasts of raising $100,000 in 10 hours for Democrat Gary Locke's successful 1996 gubernatorial campaign. In 2004, he gave $50,000 to the state Republican Party in support of his friend Dino Rossi's campaign.

YarrowBay and its executives and contractors, including Durkan, have given more than $40,000 to the campaigns of Sims and King County Council members since 2002, according to the state Public Disclosure Commission.

The largest share — $11,000 — has gone to Sims. YarrowBay also hosted a fundraiser at its Kirkland offices for Sims in late 2005, just a few months before launching the Donut Hole deal.

Brian Ross, YarrowBay's managing partner, said "we don't really expect anything" for those political contributions, which are similar to those of other developers. Ross said his company's Donut Hole development would be a boon to Maple Valley, bringing housing along with playfields and cafes in a "walkable" community.

"We're really trying to make this a special place," he said.

A "hole" in Maple Valley

The Donut Hole got its nickname because it creates a "hole" in Maple Valley — an island of unincorporated land in the middle of town.

Given the housing subdivisions that have sprouted all around the property, developer interest was inevitable.

In November 2005, Linda Dougherty, the county's Road Services Division director, wrote in an e-mail that "two or more parties" had approached the county about buying the Donut Hole for residential development. In addition, Maple Valley developer J.R. Hayes & Sons asked about the land every few months, according to county documents. The owner of Elk Run golf course that leases part of the property asked about buying its piece.

County roads officials initially opposed any sale as "highly inadvisable," according to internal county reports. The county still needed the property, they argued, warning that a replacement might be impossible to find. The county bought the land in 1953, and some activities there, such as gravel mining, are harder to get permits for under current environmental rules.

For decades, the county would not sell the property or even allow it to be annexed into Maple Valley.

Sweetening the deal

But in February 2006, Durkan and YarrowBay enticed Sims' office by linking the Donut Hole to the Icy Creek forest land. That put an environmental twist on what would otherwise would be a standard land deal.

There was also an implied threat: If the county wouldn't sell the Donut Hole to Durkan's client YarrowBay, he and Palmer Coking might develop the Icy Creek forest.

"They had something we wanted," said Rod Brandon, the county's director of environmental sustainability, who has shepherded the deal for Sims.

Sims told county staff he wanted the deal to move forward.

"Never say never" Sims wrote in an April 2006 e-mail to top aides, urging them to "act responsibly" but to use "imagination and creativity" to close the deal. Later, he e-mailed the county's facilities-management director to tell her the deal was in the public interest and that it was "unquestionably legal" to proceed without bids.

County officials have worked diligently with YarrowBay to carry out Sims' instructions.

In July 2006, the county signed a letter of intent with YarrowBay, promising "good faith" negotiations. Company executives helped draft the arguments Sims' aides used to justify the no-bid deal to the County Council. YarrowBay has paid the county more than $270,000 for staff time spent on the project.

The talks with YarrowBay kept going even after one of the original justifications for a no-bid deal collapsed.

County law says competitive bids are not required when the county trades for land "of similar value."

YarrowBay originally proposed that sort of equal swap.

If the county sold the Donut Hole, YarrowBay would supply replacement land and build a new roads-maintenance headquarters to keep the county "economically whole," according to the written proposal.

But the sites offered by the developer turned out to be too small, polluted or otherwise unsuitable.

In a November 2006 e-mail, Dougherty, the roads director, blasted the company for "bad faith bargaining" and "faux proposals" that had wasted the county's time. She urged top Sims' aides to end negotiations.

That advice wasn't followed.

Instead, county officials proposed moving the Donut Hole operation to a county-owned shooting range near Ravensdale.

That meant the deal would no longer be a swap of equally valuable land. In the current proposal, YarrowBay would simply pay cash for the Donut Hole property, like any other buyer could.

That leaves the county's acquisition of the Icy Creek forest land as the primary rationale for the no-bid deal.

But that land is relatively cheap.

County officials have estimated the Icy Creek property is worth $6 million to $8 million, compared with $40 million to $70 million for the Donut Hole.

The final prices will be determined by appraisals, which county officials say are not finished.

Desirable forest site

In arranging the Donut Hole deal, Durkan and YarrowBay capitalized on the county's long-standing desire to acquire the Icy Creek forest land.

The property, on the south bank of the Green River, is covered with tall stands of second-growth Douglas fir, cottonwood, maple and alder. Runoff from the forest feeds Icy Creek, which runs into the Green River, delivering clean, cool water for spawning salmon. The land is adjacent to two state parks and could serve as a link in a trail system.

In 2004, King County offered $1.5 million for 153 acres of the land — about $10,000 an acre.

That's what a county-hired appraiser estimated the Icy Creek land was worth on the open market. By law, the county cannot pay much more than the appraised value.

Palmer Coking owner Bill Kombol, who has worked with Durkan on many land deals, rebuffed the county offer. After all, he'd given a hint at the price he desired when he sold a chunk of the forest land to Durkan the year before.

Durkan and his wife, Jennifer, bought 40 acres for $1 million — $25,000 an acre, according to property records. But, if Kombol hoped the county would pay that much, he was mistaken.

Murray Brackett, an appraiser hired by the county, viewed the Durkan transaction skeptically, noting in a report that the lobbyist had paid more than twice the going market rate for similar property.

Durkan said he didn't buy the forest land to inflate the value of Palmer Coking's nearby parcels. Rather, he was thinking about building houses.

He filed for preliminary permits to subdivide the land into five-acre lots. County officials have cited those permits as proof the Icy Creek land is threatened by development.

But Durkan never built anything. He kept the property in a forest-protection program that exempts it from virtually all property taxes.

Meanwhile, he went to work for YarrowBay to pry the Donut Hole from the county.

In that deal, YarrowBay would serve as the middleman — buying the Icy Creek land from Palmer Coking and delivering it to the county if the Donut Hole deal goes through.

The arrangement will pay off for Palmer Coking, because YarrowBay may pay more for the Icy Creek land than the county could.

YarrowBay would not disclose what it agreed to pay, but county staffers in e-mails put the price at $9 million.

If the Donut Hole deal goes through, YarrowBay will resell the Icy Creek land to King County for a price determined by an appraisal — which county officials estimate could be between $6 million and $8 million.

That means YarrowBay would take a loss on the Icy Creek land in the hopes of making it up on the lucrative Donut Hole development.

In August, to clear the way for the deal, Durkan gave his $1 million slice of the forest land back to Palmer Coking for free.

That may have been less painful than it seems at first glance.

Durkan never had to take out a mortgage or pay cash for the land. Instead, he signed a real-estate contract with Palmer Coking and put down a small deposit. He never had to make payments, other than the fees to King County for development permits.

Despite the opposition from his neighbors in Maple Valley, Durkan said the Donut Hole development will benefit the town in the long run because it can leverage the growth to argue for better roads and bus service.

"I think it's an awesome deal," he said.

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

Lauren Vane: 253-234-8604 or lvane@seattletimes.com