On the right track

Othello Partners' ground breaking for the Station at Othello Park coincided with the July opening of a section of the 15.5 mile Sound-Transit Link light-rail line that will connect downtown Seattle and the Seattle-Tacoma Airport when the last leg is completed in December.


But the much-anticipated light-rail inauguration didn’t happen soon enough to save a number of TODs planned by companies like Opus Northwest, Unico Properties and Eagle Rock Ventures from being abandoned or postponed until the economy recovers.

The $70 million The Station at Othello Park moved forward, however, thanks to debt financing and equity from deep-pockets partner USAA Real Estate Co. Broker Rick Osterhaus, of GVA Kidder Mathews, brought the Texas-based insurance company into the deal.

Initial work on the project got underway in 2007, about the time Othello Partners President/CEO Steve Rauf began scaling back the townhouse development company he formed in 2002, after nearly two years with Opus Northwest. “I had decided to start my own business and the first name we did business under was Real Estate Investment Partners LLC. I acted as a general contractor and developer and we built 25 for-sale townhouses a year here in southeast Seattle, a lot of them within walking distance of Othello Park,” said Rauf.

Switching tracks
When the financial bubble burst and the condo market collapsed, Rauf realized it was time to move his for-sale business to the back burner and focus on apartments. “It was real obvious. At the time, we were actively selling some homes that we ended up holding and are currently renting as apartments,” he said.

But it’s not easy to flip a flagging condo deal to an income asset and cover the property’s debt service. Rauf prevailed because he had avoided buying land in the more established, higher priced markets, choosing instead to target townhouse lots priced at $50,000 or less for three-bedroom town homes with garages. He also eschewed many of the luxury finishes most condo builders favored.

“I was afraid that, in the event the market did collapse, we wouldn’t be able to support those improvements with income. So, by keeping our total cost relatively low, when the market did fall apart, we were only trying to cover total project costs in the low $200,000s and were able to bring in renters to cover the permanent loans on those properties. There was such a crazy run up on for-sale product that other developers were paying $125,000 or $150,000 for townhouse lots closer to the city and trying to get $500,000 for a townhouse. When the bubble burst, those same houses were worth easily $100,000 less, pushing the developers into the red on their properties and bankrupting a lot of them,” he said.

The coming of the light-rail set the stage for a renaissance of development along the new route through Seattle’s Rainier Valley neighborhood, which hadn’t seen much development in decades. To capitalize on that opportunity, Rauf went under contract to purchase a parcel at the northern corner of the Othello light-rail station for a 370-unit mixed-use project.

“As I was getting ready to close, I recognized that this other better site on the South side was coming available. I made an initial deposit on it in March 2007 and continued to provide earnest money, working through the master-use process and signed a purchase and sale agreement in January 2008 for two acres at the southern corner for The Station at Othello Park,” he said.

TOD derails
In October 2008, when he finally shut down his townhouse business, Rauf had assembled transit-oriented land on both sides of Othello Street and was well into the development process for more than 750 units of residential and 50,000 sq. ft. of retail space. Other builders and developers had plans for another 1,000 condos and market-rate apartments within a 10-minute walk of rail stations in the Rainier Valley, but by mid-2009, economic troubles had derailed most of those deals.

Rauf was able to close on the northern site, but shelved that project and drove forward The Station at Othello Park, bringing USAA aboard in 2008. The insurance company also had an option on the northern site, but let it expire. Othello Station North received a Master Use Permit in September from the Seattle Department of Planning and Development for a six-story building containing 17,700 sq. ft. of retail at ground level and 370 residential units above, with parking for 372 vehicles. Rauf is seeking capital partners for the first phase of development, which will include a 100-unit apartment building with approximately 80 parking spaces.

“We’re also actively looking for a retail tenant for an existing 20,000 sq. ft. former bowling alley on the northern site that needs a little love. We will do what we need to do to stabilize the property, find a partner and get another big project moving. I’m just not sure that will happen until the economy begins to recover,” he said.

He is betting, however, that when the Station at Othello Park opens in the summer of 2011, the project’s relationship to the light-rail line and its location within an internationally diverse neighborhood will resonate with all demographics, especially young professionals, people who work downtown work and those who want easy access to the airport, employment and a bevy of amenities in an exciting 24/7 walk-able community.

He believes The Station at Othello Park’s environmentally focused amenities and finishes, like low-VOC carpeting and paint, energy efficient appliances, the use of recycled materials and a ride-share program will add to its appeal.

“Downtown Seattle has some of the highest parking prices in the nation. Our tenants will be able to leave their cars at home and walk or ride to just about anywhere they want to go. And the availability of zip cars, ride sharing programs and the numerous bike routes around The Station at Othello Park will help people reduce their carbon footprint on the world,” Rauf said.

“On top of that, the ability to live in a LEED Silver building creates a whole other layer of demand, particularly with the younger generation that is a little more sensitive to environmental issues than previous groups. They want to make an impact on an individual level and I think our building will be one very important way for them to do that,” he said. Taking the lead on the project’s LEED aspects is locally based Rushing, an engineering firm that provides sustainability consulting, technical systems expertise, LEED facilitation, strategy development and alternative funding services.

The land around Othello Park is zoned for neighborhood commercial, part of a pedestrian and transit overlay with a 65-foot height limit and a ground-floor retail requirement. “So we have one level of below-grade parking and retail at grade with two levels of parking behind it, creating the concrete podium on which five stories of stick-built apartment construction sits,” said Rauf.

The building is set back from the existing property line to create a wide, generous sidewalk that wraps it, fronting the retail and allowing space for European-style cafe seating around the perimeter. On the corner closest to the train station is a large public plaza where a steel public art sculpture, called the Dancing Ladies, was installed as part of the light-rail development. The statue and a water feature furnished by Othello Partners enhance the beauty of the apartment community.

The Station at Othello Park boasts a two-story main lobby and common room, with flat-screen TVs and a two-sided gas fireplace, that opens onto a 120 by 80 foot courtyard and patio covered with a glass awning. Across the courtyard, a fitness room is located at the base of a grand staircase that leads to a 7.5-acre public park.

Above the staircase is a series of sky bridges connecting two separate sections of buildings, accessible by a glass elevator that offers views of the park, Mt. Washington, the Cascade Mountain Range and Mt. Rainier. Riding the elevator to the top and crossing the sky bridge brings residents to the community’s most elaborate amenity — a 7,500 sq. ft. rooftop deck with a hot tub, wet bar, gas grills and gas heaters that offers residents open areas to mingle and smaller, private spaces to sit, relax or read a book.

Making it work
A couple of years ago, the city of Seattle implemented a landscape requirement, called the Green Factor, intended to increase the quantity and quality of planted areas in the city, while allowing flexibility for developers and designers to meet development standards. Developers must demonstrate that their projects meet the Green Factor by using a scoring system designed to encourage larger plants, permeable paving, green roofs, vegetated walls, preservation of existing trees, and layering of vegetation along streets and other areas visible to the public.

Bonuses are provided for food cultivation, native and drought-tolerant plants, and rainwater harvesting. As designers add landscape features, the score sheet automatically calculates a project’s Green Factor score, allowing the applicant to experiment with different combinations. “So we have a significant amount of green on our rooftop deck and around our building,” said Rauf.

The community’s mix of 10 percent two-bedrooms, 45 percent ones and 45 percent studios includes a 20 percent affordable component that enabled Rauf to apply for tax abatement through Seattle’s Homes within Reach program that allows a developer to abrogate property taxes associated with a project’s residential and parking garage improvements.

“We can’t abate the taxes associated with land value or retail, but the 12-year tax abatement on the parking garage and residential improvements is fairly significant. To get that, we have to give 20 percent of equal units in our mix to individuals earning at or below 80 percent of the area median income. Then we are able to spend 30 percent of that income to pay for utilities and rent, so, to some degree, we end up subsidizing the market rental rate for the one-bedroom affordable units,” said Rauf, a firm believer in the Seattle market, despite the economic downturn.

With 1.7 million more residents expected to move to the Seattle area by 2040, he thinks there will be strong demand for housing near transit well into the future. “TOD has been proven to be successful all over the world and we intend to fill that demand,” said Rauf, who owns another 2.5-acre site, currently zoned single-family, about three-quarters of a mile south of Othello Park at the Rainier Beach light-rail station, and is working through a rezoning to allow development of a 67-unit townhouse project there. “We thought that if the market recovered we might break ground this spring, but we are going to wait another year. I definitely have my eye on other transit-oriented sites that I think will be the next wave, but we need more developer incentives. Rather than raising taxes on developers’ interest, reducing taxes would be the most straightforward way to incentivize development of TOD,” he said.