The City of Seattle has found a buyer for the Mercer Mega Block properties in South Lake Union, the sale to Alexandria Real Estate Equities expected to provide more than $78 million in funds to support affordable housing development and nearly $17 million for transportation projects, plus an SLU community center within one of the three new developments in the pipeline.

A portion of the three parcels — comprising 2.86 acres of land — are leftover from the reconfiguration of Mercer Street that started nearly a decade ago. Collectively known as the Mercer Mega Block, the city has been discussing disposal of the properties since 2014, and released a request for proposals in July 2018.

Steven Shain, a project manager with the City Budget Office, told reporters at an Aug. 2 news conference that there had been seven responses to the RFP in October, with six considered viable enough to request a best-and-final offer. Three prospective buyers came back with modified bids, including Alexandria Real Estate Equities, which had the best proposal, Shain said, but not the best initial price. Alexandria came back with a best-and-final offer that was 40 percent more than its initial proposal, Shain said, and exclusive negotiations began in February.

Details of the sale, expected to close in 2020, were provided during an Aug. 2 news conference under embargo until 11:15 a.m. Wednesday, Aug. 7, which marked a public celebration of the sale organized by the city.

Mercer East and Mercer West parcels, which provide a combined 2.31 acres of land at 800 Mercer St., are proposed to be developed with twin commercial towers under Alexandria’s operation as a life science campus. The group entered the Seattle market through a partnership with the Fred Hutchinson Cancer Research Center in 1996.

Alexandria proposes creating a $3 million, 30,000-square-foot community center in the west tower, which would be operated by Seattle Parks and Recreation at zero rent for 40 years. Shain said lease negotiations with SPR need to be finalized before closing on the Mercer Mega Block sale. City Budget Office director Ben Noble said making a separate entrance at Eighth Avenue North for the public amenity in the private development is still being discussed.

The 23,760-square-foot 615 Dexter Ave. N. property is proposed to be developed as a residential tower that includes 175 affordable housing units and potentially another 190 market-rate units, of which about 38 could be affordable through the city’s Multi-Family Tax Exemption program, Shain said. He estimated a Mandatory Housing Affordability payment by Alexandria could be around $3.5-$4 million. He valued Alexandria’s project cost at around $1 billion.
The City of Seattle reports it will have $143.5 million in cash on hand at closing, with $5 million coming from an additional one-time contribution to addressing affordable housing.

Mayor Jenny Durkan called the Mercer Mega Block one of the most consequential property deals the city has ever made.

“Alexandria is honored to offer the City of Seattle a compelling vision to transform the Mercer Mega Block into a thriving life science campus in the heart of South Lake Union,” according to a statement by Alexandria. “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 dedicated to enabling the discovery and development of innovations that will improve the quality of people’s lives and equally committed to tackling affordability and enhancing livability through the inclusion of hundreds of affordable and workforce housing units, a new public recreation center and a gathering space in the urban core. Alexandria also pledges to contribute $5 million to help address Seattle’s homelessness crisis.”

A portion of the cash sale will go toward repaying prior commitments, such as a $12.2 million Mercer West Interfund Loan used by SDOT to acquire a portion of the property; $3.6 million for a South Lake Union Streetcar capital loan; $9 million to repay a loan for the Center City Connector Streetcar that SDOT is requesting in order to restart the project; and $4.3 million for a homeless services loan repayment. Interrupting her budget wonks, Durkan said what that means in “human language,” is the city is paying off $29 million in loans.

Noble said the sale will also provide $16.7 million in transportation investments in the form of currently undetermined multimodal projects, with a focus on Vision Zero, a transportation safety initiative some local organizations say the city has fallen behind on. SDOT reports there were 14 traffic-collision fatalities in 2018, and on Aug. 6 a pedestrian was killed in Columbia City when a vehicle rolled over on top of her.

Another $9.2 million in proceeds from the Mercer Mega Block sale will be used to offset a shortfall in commercial parking tax revenues. The 12.5-percent tax is collected by businesses when people park in their paid lots. Noble said revenue to the city had been growing by around 4 percent annually, but there was almost no growth in 2018. The outlook for 2019 is about a 3 percent increase, he said.

The largest chunk of the Mercer Mega Block proceeds — $78.2 million — is being directed toward affordable housing development. Of that, $57.2 million will be earmarked in Durkan’s budget for addressing displacement and creating equitable transit-oriented development opportunities.

Leslie Brinson, Durkan’s senior policy advisor, said land values increase when light rail comes into an area, and funds can be used for community partnerships that create “mixed-use, mixed-income development.”

“Of course, all projects will not be all things to all people,” Brinson said.

The third phase of Sound Transit light rail development will expand service to include South Lake Union, Interbay and West Seattle. The Northgate Link Extension, which is slated to open in 2021, will have an elevated station in Northgate and underground stations in Ravenna and the University District.

From the $57.2 million, $42.2 million will be used for strategic property acquisitions in high-displacement areas of the city, and $15 million will be put into a revolving loan fund for the Equitable Development Initiative, assisting nonprofits with acquiring sites for affordable housing projects.

Another $15 million in Mercer proceeds will be used for increasing investments in permanently affordable homeownership. Brinson said 37 percent of households of color own a home, compared to 52 percent of white families.

One component identified by the city will require working with Sound Transit to “explore creation of homeownership opportunities on multiple small publicly owned properties in the Rainier Valley,” according to a presentation by the mayor’s office. Light rail opened there a decade ago.

The other component identified by the mayor’s office would somehow explore partnerships with employers “to allow middle-income workers to purchase a permanently affordable home in Seattle.” This would be for homebuyers below 80 percent of area median income.

Six million dollars will be directed into a new financing tool the mayor put into accessory dwelling unit legislation through an executive order. It will subsidize qualifying ADU construction projects for low- and middle-income homeowners, provided those new units are rented at below-market value for a decade. The pilot program is projected to fund up to 75 loans over three years, with new loans being made using repayments from previous recipients.

Most of the finer details of plans for the Mercer Mega Block revenue are expected to be fleshed out in Durkan’s budget, which should be sent to the Seattle City Council sometime in September.

The affordable housing component of the Alexandria redevelopment will be streamlined through the Seattle Department of Construction and Inspections, but Shain said there are no conditions on permitting or financing attached to the sale agreement. As Durkan put it, once the deal closes, “we’ll have all the cash.”
Alexandria will also be footing the bill to remediate the Mercer Mega Block site, where a gas station, dry cleaner and other businesses once operated.

Affordable housing activists had pushed for the city to use the Mercer sites to create public housing, but Durkan said there was no funding for it. There are also public amenities attached to the deal, as well as the job creation that will come through Alexandria’s developments.
“We’ve leveraged this in a way that is better for the people of Seattle,” Durkan said.

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