King Street Station, pilot for affordable commercial

Transforming King Street Station into a thriving market hall for local small businesses

Seattle Office of Economic Development leads the Mayor’s Commercial Affordability initiative to create new opportunity for local small business in city-owned property.

Supporting affordability with city-owned assets
In 2016, the Seattle’s Office of Economic Development paved the way for the adaptive reuse of historic King Street Station into a market hall for local small businesses as part of the Mayor’s Commercial Affordability initiative.  The initiative was created to produce policy and innovation that would stimulate and bolster small businesses that have been suffering under the pressures of Seattle’s booming real estate market.  While the growth has provided opportunity for many it has also increased the challenge of starting and operating small businesses which represent nearly 94% of all  Seattle’s businesses (50 or fewer employees).  Seattle 2016 retail rents are up 28% since 2012 with retail vacancy rate less than 2%, forcing many out of long-time locations.  And with redevelopment replacing existing building stock, displacement is a growing challenge particularly as few new buildings offer spaces small enough for small businesses.  Less than 20% are providing spaces 1,000 square feet or smaller.

“Small businesses are essential to the economy of our city.  Many of Seattle’s greatest companies got their start in small, affordable storefronts, garages, food trucks or simple coffee shops.”  — Mayor Ed Murray, April 2016

A leading strategy of the Commercial Affordability initiative is to transition existing City owned real estate assets into viable commercial spaces for local small businesses.  King Street Station was historically renovated in 2010 but has largely sat incomplete and vacant other than its lower level which is an active regional rail stop.  The building sits at the intersection of the Stadium District, Pioneer Square, the International District, an ideal retail location in many ways for the bustling office market and event goers.  But the building is not an easy fit for a market hall given its configuration, historic classification, and associated technical challenges.

FIX’s Role
The city hired FIX to lead the feasibility study of the King Street Station market hall, including initial design, development pro forma, and operating business model.  SKL Architects and Rushing Mechanical provided design and engineering services.  The Office of Economic Development is planning to issue a RFP for a third-party operator the the spring of 2018.

Solving the backyard cottage opportunity

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The Trailhouse, a new third place on the Burke Gilman

The trailhouse — a bike-friendly eatery along the Burke Gilman

Ron Sher opens a new third-place with two new restaurants from the Huxley Wallace Collective, giving reason to pause and connect at a busy intersection near Children’s Hospital.

Two-wheeled placemaking
Bicycling has exploded in the United States and the Pacific Northwest is leading the trend.  Bicycling in Washington alone contributes more than $3B in spending statewide.  Our biennial trail budget is up 50% at more than $15M.  This growth and enthusiasm is opening a new opportunity for developers who care about creating inclusive, successful retail environments.  The bicycle, ranging from a toddler’s tricycle to fancy road bikes, is both a business opportunity and symbol of friendly community.  In a 2013 study from New York City, protected bike lanes drove increases in retail sales of local-businesses more than 16% faster than areas without those improvements.

Bicycling is wonderful placemaking tool.  It is great for retailers, great for families, and a symbol of a welcoming community.

Few owners are as devoted to fostering community through a warm retail environment as Ron Sher of Sher Partners.  And as an avid cyclist, he also understands how to create great places around the bicycle.  Anchoring the busy 45th Street bend in the Burke Gilman Trail near Children’s Hospital, Sher Partners is creating a collection of bike-friendly retail spaces and offices to stitch together the neighborhoods and hospital community.   The first phase is a 6,000 square foot commercial redevelopment known as the Trailhouse, which connects directly to the Trail by extending a large on-grade deck, creating a unique experience and challenging permitting process.  The project design (Michael Whalen Architects) creates distinct identities for the two new restaurants by the Huxley Wallace Collective and allows them to share a single kitchen split across the two level building.

FIX’s Role
FIX was the Project Manager for the owner, Sher Partners.  Michael Whalen was the architect.  Metis Construction was the general contractor.  The project opened in March of 2016.

Seattle's initiative for Commercial Affordability

Seattle launches Commercial Affordability program to stimulate local small businesses.

FIX facilitates the Mayor’s Advisory Committee for the OED.

The case for commercial affordability
90% of all businesses in the US have 20 or fewer employees and that proportion is growing according to payroll giant ADP.  Small businesses pay nearly half of all US payrolls.  In Seattle, nearly 95% of all businesses have 50 or fewer employees.  Small businesses drive innovation and small businesses are and have been how many immigrants find economic security, contributing back to our booming economy.  Ironically, as our economy grows, it is becoming more and more difficult to start and run a small business in Seattle as the cost and challenges of operating increases.  Commercial rents are at an all time high while vacancy is at record lows, particularly retail.  Long-time businesses are being displaced with new developments which often replace small-scale leaseable spaces with ever larger spaces on average.  It is difficult to start and operate a small business in Seattle.

Small businesses pay half of US payroll yet our economic growth makes it more difficult to access capital, find affordable leases, and avoid displacement.  Unless we address this disproportionate pressure, we may stymie innovation and a key means of upward mobility. 

In early 2016, Seattle launched the Commercial Affordability initiative to develop new policies and practices that would foster a more supportive climate for local small businesses.  The policies were put forward by the Commercial Affordability Advisory Committee (CAAC), a group of 16 economists, small business owners, developers, PDAs, and associations.  Supported by the OED and city agencies, the CAAC developed a series of recommendations for new entities, policies, and programs that would have a positive impact in the following ways:

  • strengthen existing small businesses and reduce displacement
  • activate ground level public realm of pedestrian oriented neighborhoods
  • enable space for small business incubation including light manufacturing
  • increase the overall economic and cultural vitality of our neighborhoods
  • stimulate growth of emerging businesses, artists and organizations

FIX’s Role
FIX was hired by the city to facilitate this initiative.  We designed a four-month engagement that aligned the CAAC on the core problem definition, created critical paths for small business success, and honed technically feasible solutions to recommend to the Mayor in collaboration with the OED, the planning departments (SDCI and OPCD) and other stakeholders.

William Grose Center for African American innovation

William Grose center for African American innovation

Building capacity within the black small business community to provide equitable access to opportunity and long-term wealth creation.

Boosting African American capacity with entrepreneurship
There are 28 million small businesses in the US, generating nearly two-thirds (64%) of all new private sector jobs and paying nearly half of all payroll.  And small business is responsible for the lion’s share of our country’s innovation, creating 16 times more patents per employee, which increases with the number of employees.  These statistics are not consistent across all demographics, however.  African Americans own just 7% of small businesses (approx half of their overall representation in total population) with gross receipts representing less than 5% of all small business revenue.  And while personal savings is by far the largest means by which small businesses start and expand, African Americans are 22% more likely to use personal credit cards and 40% less likely to use home equity to finance their business needs.  That shouldn’t be surprising given African Americans have twelve times less median family wealth than whites and are 50% less likely to own their home.  So while small businesses are the engine of our economy and the strongest opportunity for employment and wealth creation, it takes access to capital, talent, and technical skills which is not proportionally distributed across all demographics.

One opportunity for leveling this playing field is the category of accelerators, incubators and coworking spaces which together are one of the fastest growing office markets, increasing 25% in number each year 2014-2016, and doubling in member base for that same period.   And there’s growing interest in coworking membership by large companies, signaling not only sustained growth for the sector but also increasing opportunity for the small businesses that are working in these spaces to increase their opportunity for growth.  This may explain why a company like WeWork could be valued at $5B in 2014.   In short the value of coworking spaces is the opportunity they provide to learn and accelerate ideas and gain access to networks and capital.  Plus there’s ample research to support that coworking enables workers to feel a greater sense of control, agency and happiness in pursuing their professional lives which is as good a company perk as any.

Coworking focused on the African American community may help level the playing field and provide access to capital, talent and technical skills required to successfully launch and grow a small business.

It is for all of these reasons that a collection of Central Area organizations are creating the William Grose Center (WGC), a non-profit entrepreneurial training center and coworking space focused on building small business capacity and innovation within the African American community.  The organization will provide technical assistance and an accelerator environment, funded in part by member fees and service contracts, assisting public-sector agencies with community development and capacity building priorities.  WGC is the creation of partner organizations Black Dot, Africatown, and Black Community Impact Alliance who are working with the Office of Economic Development to develop the business model and identify a location, potentially utilizing the Equitable Development Initiative/Fund.  The OED has provided funding to help the organization refine their business plan and perform an initial feasibility study for renovating retired Fire Station 6 at 23rd & Yesler.  Within two years, WGC aims to be building capacity for over 300 members annually and running more than five training events each week from inside the 7,500 square foot historic building.

FIX’s role
In 2016, the OED hired FIX to develop the William Grose Center business plan and project manage the Fire Station 6 feasibility study.  Over a six month period, FIX worked with the WGC team and third-party consultants to define the market opportunity and value proposition, identify revenue sources, create a staffing plan and design an operations strategy.  Concurrently, we managed the technical and design feasibility study for Fire Station 6.  See our post on that work here.

ClientSeattle Office of Economic Development
Size7,500 square feet
Location23rd & Yesler, Seattle
ProgramCoworking innovation center & event space
RoleStrategic planning
Project management
Business modeling
ImpactEnable new mission-oriented African American-owned organization.
A business focused on providing equitable access to skills training.

Fire Station 6 -- affordable housing & black innovation

Seattle Fire Station 6 — affordable housing and capacity with Africatown

Office of Economic Development hired FIX to help Africatown and BCIA realize their vision within the retired city property.

Leveraging a retired city asset for equitable community development
The city of Seattle owns over 200 surplus, underutilized properties many of which could become viable community-owned assets or affordable housing opportunities.  Seattle Office of Policy and Community Development drafted the Equitable Development Initiative as part of the 2035 Plan, addressing growing development inequity.  With funding from the Mayor’s office, this initiative in part enables the divestment of underutilized properties to qualifying community organizations to create more equitable ownership, offset displacement and establish more diverse socio-economic growth patterns.

Seattle’s Equitable Development Initiative is a long term commitment to invest in communities of different races, ethnic backgrounds, and incomes. Equitable development is a way to create vibrant, healthy communities through public and private investments in neighborhoods that the private market has not sustained.  — Seattle’s RSJI Department

Fire Station 6 is a 1931 landmark structure requiring significant seismic and system upgrades.  It is in the heart of the Central Area and is the site for a proposal by Black Community Impact Alliance (BCIA) and Africatown to convert it 31 units of affordable housing over a 7,500 SF innovation center for the African American community.  The proposal is named after William Grose, one of the earliest black settlers of Seattle whose farm helped spur an enclave of African American middle class.  The BCIA and Africatown proposal aims to increase long-term stability for African American youth through housing and small business capacity building.   With the approval from the Mayor, the Office of Economic Development provided the funds for a feasibility study for the proposal in 2016.

FIX’s Role
The OED hired FIX to project manage the feasibility study and co-develop a business plan for redevelopment with BCIA and Africatown.  The project included technical analysis of the building as well as program development, pro forma and operating business model for the innovation center and affordable housing.  See our post on our work on the William Grose business here.

ClientSeattle Office of Economic Development
Size41,000 SF
Location23rd & Yesler, Seattle
ProgramOffice & 31 units of affordable housing
RoleProject Management
Development strategy & pro forma
Operating business modeling
Community engagement & facilitation
ImpactHousing: 30 units of affordable housing at 60% AMI.
Opportunity: creation of a skills training center for people of color.

Building Chophouse, the complexity of adaptive reuse

The complexities of true adaptive reuse — building Chophouse Row

Dunn & Hobbes’ urban infill development added six stories and 30,000 square feet of office, retail and residential to a Character Structure building, creating a true mix of use…and one heck of a complex construction project.

True mixed and adaptive reuse
Seattle introduced the Character Structure ordinance in 2012 within the Pike-Pine neighborhood, encouraging developers to create adaptive reuse projects by offering bonus floor area and height in exchange for keeping buildings 75 years old or older.  The initial code was loosely worded and awarded the bonus to developers who simply maintained the existing facade of old buildings, erecting new structures just behind them, creating fashionable designs that came to be known as the “facadectomy.”  While the city eventually closed those loop-holes, developer Dunn & Hobbes was committed to the intent of the ordinance and created the award winning project, Chophouse Row at 11th & Pike.

Reusing existing structures speaks to the soul of the neighborhood.  Tenants like those buildings better and will pay more to be in them.  — Liz Dunn

Chophouse is an example of a fully integrated adaptive reuse, re-purposing an existing heavy timber and concrete building common in this neighborhood in the 1900’s.  The redevelopment gutted the existing structure, surgically adding a new foundation system with 64 helical pin-piles encased and doweled to a new three-foot adjacent mat foundation.   Throughout, a new heavy steal moment frame structure threads through the existing building and laces to the 40,000 square feet of new program to form a single integrated system — 50,000 square feet in total within six stories.   Where heavy timbers were no longer needed, they were reused in the new structure or as stairs and rainscreen.  Among the more impressive design elements is the restraint to leave building remnants untouched, including fragile old clay tile infill and casement window frames with leaded glass panes.  Walking the building, one is constantly straddling old and new.  This is hte strategy that integrates Chophouse into its context and makes the complexities of adaptive reuse worthwhile.  One cannot over-state the skills of the architects, consultants and contractors involved in making a project like this happen, not to mention the vision and fortitude of the developer, Dunn & Hobbes.

FIX’s Role
FIX provided full project management to the Dunn & Hobbes team beginning with initial project visioning and pro forma modeling all the way through construction management and tenanting.  In 2016 Chophouse Row, designed by SKL Architects and Graham Baba, was named one of the top 25 projects in the world by ULI, provided honorable mention at the AIA Honor Awards, and named the NAOIP 2015 Mixed-Use Development of the Year.  See our project page here for more information and images.

Backyard Cottages - the case for killing the Owner-Occupancy policy

The case for killing the Owner-Occupancy policy on backyard cottages.

The single greatest limiting factor in building more of the inherently affordable backyard cottages is not zoning restrictions, it’s not your neighbor’s NIMBY attitude, it’s the bank’s inability to appraise its value.  Kill the Owner-Occupancy policy and you solve that problem.

The Catch-22 of the appraisal
Today, we can create tens of thousands of inherently affordable housing units, simply by enabling homeowners to build ADUs.  Of the 124,000 eligible single-family lots in Seattle, less than 800 have a permitted ADU.  This is in part because of the cost: the average ADU costs roughly $185,000 — enough to require most to take out a loan.  But ADUs do not appraise; there are too few in the market so banks risk not recouping the value of their loan. It’s a Catch-22: to get a loan for an ADU, you must first have the equity you need to construct one or already have built one to appraise.

The single largest category of homeowners who could manage this Catch-22 are the investor home-owners who use their house(s) as a leveraged asset.  There are approximately 25,000 single-family homes in Seattle that are non-owner occupied.  An ADU on each of those lots would equate to 25% more than Seattle’s entire HALA goal for the next 10 years.  Yet our policy precludes construction and/or renting of an ADU on a property that is not occupied by its owner.

The fastest way to build more ADUs is to eliminate the one policy that is precluding the group most capable of side-stepping the cold lending market.  By doing so, we will have a magnifying effect by creating viable comps to appraise, thawing the loans giving average homeowners access to the capital to build more of them.

ADUs are a massive opportunity for increasing density without the use of public funding. ADUs would add inventory to the housing market in the least densely developed areas, which comprise nearly two-thirds of our land area.  ADUs are inherently affordable simply given their small scale and they are low-impact, nestling into the character of our esteemed single-family neighborhoods.

Except a few neighborhoods within Vancouver and elsewhere in BC, few Cascadia cities have taken advantage of this opportunity.  Planners and policymakers here in Seattle and Portland recognize the opportunity and believe ADUs are a logical component of any housing solution.  Defining the opportunity itself is not the limiting factor.

Non-owner occupants are one of the single largest demographic of homeowners representing more than one-fifth of all single-family homeowners.  According to the US Census, 20% of detached single-family houses in Seattle alone are non-owner occupied.  That equates to roughly 25,000 houses or 125% of the HALA affordable housing goals.  According to First American Title, the number of non-owner-occupied units is even larger with 27,047 homes in Seattle (J Tamparo, Senior Commercial Sales, First American Title Insurance Company, December 2015).  If we remove the owner occupancy laws, we will remove a barrier that is limiting one of the largest proportions of likely ADU hosts who most likely have the financial means and skills to construct ADUs immediately.

The Magnifying Effect
Stimulating a small critical mass of ADUs will enable banks to assess their value in appraisals, unlocking loans to tens of thousands of homeowners who could not otherwise borrow the money necessary to build an ADU.  The minimum average cost to construct a backyard cottage in the Seattle market right now is about $185,000.  Few have that sort of liquidity and would look to borrow by leveraging the equity in their home with the exit strategy of refinancing their mortgage once construction was complete.  However, if the bank doesn’t believe that an ADU increase the value of their home, the refinancing exit doesn’t work and homeowners are left saddled with an increased mortgage payment.

This is the number one reason we are not seeing more ADUs currently.  It’s not land-use policy but financing.  We need a sufficient quantity of ADUs in the market for appraisers to draw comparable analyses when appraising other homes with ADUs.

The Second Opportunity
The average cost of a one-bedroom cottage is $185,000.  This is an enormous barrier in itself.  If one were to borrow 80% of that over a seven-year term at 4.5%, that’s a monthly payment of about $2,050.  There are few neighborhoods in Seattle where one guaranteed to clear that cost in rent for a one-bedroom (DADU or AADU), especially after deducting for vacancy, insurance, maintenance expenses, and taxes.  But construction costs are consistent across neighborhoods despite the fact that rents may vary as much as 75% within a mile.  Rainier Beach, for example, has an average rent of low $2.00PSF whereas parts of Capitol Hill is pushing $4.00PSF.

Why would we tax Seattle homeowners to fund construction of affordable housing when those same homeowners could make money by renting their own inherently affordable backyard cottages?

Ironically, the homeowners who most stand to benefit from having an ADU and the associated supplemental income do not live in the neighborhoods that can command this rent.  So even if we solve the appraisal problem and thaw the lending market, the underlying costs limit access, which suggests that after solving the appraisal issue, the next most valuable policy would reduce the total cost of construction and ownership of an ADU.

We have policies that do this already for large institutional multi-family projects: the MFTE and low-interest loan programs for affordable housing.  And what’s most exciting about these when applied to the ADU market is that they provide a triple benefit.  (1) They encourage construction of affordable housing in the form of ADUs; (2) they provide relief and supplemental income to lower-income homeowners, preserving homeownership and wealth accumulation for the lower half; and (3) they do all of this in the private sector rather than burdening OH and SHA to produce the lion’s share of affordable housing for our city.

The savings from a tax exemption program like MFTE and a low-interest loan are significant.  Considering that example of the 80% loan on the $185,000 cottage, if the rate were 2.0% and term 10-years, the monthly mortgage would be $1,360 or a nearly a $700/month savings.  Now a one-bedroom cottage in Rainier Beach starts to make a profit.  Then if we eliminate property taxes for the portion of the property devoted to the affordable ADU, given rough average property taxes and average size lots, that could easily equate to another $300 per month in savings.

If we want to stimulate the proliferation of ADUs, we need to make it more affordable for those who are thirstiest for them and who are most motivated to build them.  To do this, we first need to enable the market to build more cottages quickly to enable the appraisal.  In parallel, we need to offer qualifying homeowners the existing tools we’ve created for institutional scale housing development.  The existing volume of lots available to host inherently affordable cottages is enough to meet this decade’s goal of housing.  It seems foolish not to capitalize on this and, instead, tax homeowners to fund public housing programs when those same homeowners could be earning money for providing housing themselves.

The future of office -- places that drive innovation

The future of office — how architecture controls how innovative we are

FIX leads a two-year research project, studying the most creative and innovative organizations in US from Burning Man to Google.

A new architecture for a new economy
Every great technological invention has produced a corresponding architectural response, shaping how and where we work.  The steam engine created the power house.  Assembly line manufacturing created the long-span warehouse.  But as the knowledge and internet economies have grown, innovation has become the goal of architecture as much as it’s been influenced by it.  Companies are designing spaces to stimulate creativity and productivity as a competitive advantage with the understanding that the pressure to invent is critical to longevity and sustainability.  Between 1960 and 2014, the average company lifespan dropped from 56 years to 15 largely because of the pace of competitive disruptive innovation.  By 2024, nearly half of Fortune 500 companies will likely no longer exist.  So the company that can create an environment which consistently increase their organization’s creative quotient wins.

We are in a new economy that demands a new architecture.

In 2009, Forest City Realty Trust contracted FIX to design and lead a two-year research project to understand how the office market is changing in this new context with the goal of having a competitive advantage of its own when developing commercial real estate.  The research focused on identifying the physical designs that lead to more creative output and innovation within companies.  We interviewed, shadowed, and observed people and spaces within over 75 companies throughout Silicon Valley and every major west coast city from start-up to blue-chip, tech to service, garage to billion dollar corporate campus.  Organizations included Pixar, Google, Microsoft, New York Times, UC Berkeley, The HUB, TechShop, Burning Man, and Cisco as well as leading authors, psychologists and behavioral economists studying innovation.  The results of the work have been used as the underlying strategy for acres of office redevelopment for Forest City, including the 5M Project and Pier 70, each billion dollar projects.  Download our brief primer on the findings.

FIX’s Role
FIX designed and led this research study for Forest City.  FIX has worked with Forest City Realty Trust throughout the west coast.  See our other project posts, including the 5M Project, Pier 70, and Seattle workforce housing research.

ClientForest City
LocationMulti-city west coast market research
ProgramLarge scale urban office development
RoleMarket research
User-based ethnography
Visioning and facilitation
Project management
ImpactCapacity: Researching the conditions that stimulate consistent innovation for businesses of all scales.

Redevelopment for the Rainier Oven community

Expanding Rainier Oven’s community of affordable creative studios

An acre of Central Area redevelopment focused on artists, makers and entrepreneurs.

Long term affordability to support creativity
The Rainier Oven is a thriving community of artists, makers and entrepreneurs at the intersection of major arterials, Rainier Avenue and Jackson Street.  The owner, an artist herself, cultivated the community organically over the last dozen years to provide flexible and affordable work spaces for diverse creatives, including jewelry makers, sculptors, non-profits, and architects. Tenants work across an acre of property within a small collection of buildings centered around a century-old brick warehouse.  The property has one of the busiest frontages in all of Seattle and are surrounded by transit and several rapidly evolving, multicultural neighborhoods, including Little Saigon, Central Area, and Yesler Terrace.

The owner is committed to a rare collection of positive impacts, including new construction of affordable office space with zero-displacement of an existing community of artists and entrepreneurs.

The property is largely underutilized with three of the five lots open and more than 200,000 SF of available FAR, so as Seattle real estate values increase, the opportunity and pressure to grow the community is also increasing.  But the owner is committed to several seemingly challenging goals, requiring creative strategies for redevelopment.  Redevelopment goals include:

  • maintain the existing unreinforced masonry structure
  • increase amount of affordable commercial space
  • zero displacement of existing tenants
  • sponsor forward-thinking architectural design
  • improve surrounding pedestrian experience

FIX’s Role
FIX, in collaboration with Best Practice Architecture, guided the owner through visioning and feasibility analysis. A phased redevelopment strategy is slated to begin construction in 2019.