Almost three years after purchasing the former Target property, the city of Federal Way has to refinance the bonds used to buy the land.
The city purchased the 7.48 acre property, 2141 S. 314th St., for $8.2 million in November 2014 with the intention to sell it for redevelopment. In July, the city sold a 1.53-acre portion of the property to Ottone-Salinas, Inc., for $2.18 million to build a mid-to-upper-scale or higher-tier hotel.
Now that the three-year life of the bond is nearing its end, the city plans to refinance the remaining $6.4 million. The City Council is expected to vote on the ordinance at its Nov. 7 meeting.
“The purpose is to extend the time to give us more time to be able to find a permanent solution,” Federal Way Finance Director Adé Ariwoola said during Tuesday night’s council meeting.
The new term for the bond is five years.
The city still hopes to sell the remaining property.
“The idea and the direction I have given staff is that it will definitely be marketed and sold to facilitate growth in the downtown, which is consistent with the vision in our comprehensive plan,” Mayor Jim Ferrell told the council.
With the Performing Arts and Event Center and Town Square Park complete, the focus can turn to the next step in the Town Center project: creating a mixed-use development on the Target property, which could include market-rate apartments, retail shops and restaurants and an educational facility or governmental components, Ferrell said. Earlier this year, city, school district, Highline College and University of Washington-Tacoma officials signed a memorandum of understanding to work collaboratively toward bringing higher education classes to Federal Way.
“The purchase of (the Target) property was the lynch pin of being able to move forward with our downtown,” Ferrell said.
Cadius Partners Limited, who is working with Ottone-Salinas to develop the hotel, had first expressed interest in developing the entire Target property.
“We were trying to get them to buy the whole thing,” Ferrell said. “At some point, they said we are just going to buy the hotel pad.”
During the past three years, the city has only paid interest of $123,970 per year on the bonds for the Target property, aside from the revenue brought in from the sale of hotel site.
“Paying interest only for property that we plan to sell is the best way to preserve city’s fund and still keep ownership of the land since the city can easily pay off the principal with the proceeds of the sale when the land is finally sold without stressing the city’s cash by taking money from the operation to pay the principal,” Ariwoola said in an email Wednesday.
Under the refinance, the city has the option to continue to pay interest only for the next two years with the option of paying on the principal, Ariwoola said. The interest will be $136,000 a year at the 2.17 percent interest rate, which will be paid using the city’s real estate excise tax or general fund revenue, Ariwoola said.
Councilman Bob Celski said at Tuesday’s meeting, it makes sense for the city to continue to pay only interest.
“Personally, let’s just make it interest-only and use the principal that we would have used to this to pay for something else,” he said. “That buys us time, that buys us two years to find a purchaser of the property, and eventually we are going to get that principal back anyway.”
The question of who will demolish the shell of the former Target store is still undecided.
“Certainly, that building is going to go away at some point,” Ferrell said. “The question is on whose dime will it be removed.”
Ottone-Salinas and Cadius have talked to city officials about paying for the demolition and using some of the property for parking, but Ferrell said it would be better to have the purchaser absorb the cost.
The city could pay to remove the structure, which would cost several hundred thousand dollars, Ferrell said.
“The preference would be, and I think the preference of our taxpayers would be to have someone else pay for the demolition of that property,” he said.