City pays 35 percent over appraisal for land it used to own

After years of failed attempts to build housing where a former downtown fire station stood, Ron Wells and other real estate investors sold the land back to the city of Spokane this week for significantly more than an appraiser said it was worth.

The Spokane City Council on Monday agreed to pay a group including Wells $868,000 for about 1/3 acre of vacant land at 10 S. Adams St., even though the appraiser the city hired valued it at $560,000.

Wells’ company paid the city $500,000 for the land in 2004 with the intention of building a commercial and condominium project on the site. But those plans didn’t come to fruition, and in 2012 Wells’ company wrote a detailed letter to the city acknowledging the land was worth less than the developer had paid for it.

City officials want the land to build a 1.9-million-gallon underground stormwater sewage tank. They say the high price paid to the Wells group was necessary because the property wasn’t for sale, and allows the city to avoid a costly condemnation process. They also say there aren’t many vacant lots available in the area where the tank is needed.

“When we look at an acquisition like this, it’s driven by location,” said Dave Steele, the city’s real estate manager.

Officials also note that Wells paid to demolish the fire station on the property.

Bob Dunn, the attorney who represented Wells in the deal, said Wells hired an appraiser who determined the land was worth $62 a square foot. Under the final deal, the city paid $56 a square foot.

The city sold the land in 2004 in a deal to build a new Fire Station 4 and used the money to partly pay for the new station a few blocks to the west. When the city sold the property, it specified that the buyer should use it to build a commercial building with residential condos on the upper floors. Wells announced a plan to build a seven-story condo tower on the site.

Those plans soon were modified, and Wells pursued many ideas for the land in the years since. In the 2012 letter, Wells and Company asked the city to lower requirements for development of the site, which were specified in the sale agreement.

“In addition to all of the foregoing concepts, we have offered the property as-is to numerous potential buyers, if they would but assume the existing mortgage, and we would walk away from all of our equity, efforts, time and energies,” said a letter to city attorneys from Spencer A. W. Stromberg, of Wells and Company. “Regrettably, all potential buyers have refused, citing the lack of a viable market, as well as citing that we paid the city of Spokane too much for the property in the first place, and that it was and is worth less than we paid.”

Dunn said the economy has improved since the letter was written and that Wells still planned to build on the land.

“It’s gotten better and a lot of these projects have taken off,” Dunn said. “There has been a climate change.”

The tank the city plans to build at the site is part of the city’s ambitious project to stop dumping untreated sewage into the Spokane River. Currently, storm sewers in many parts of the city are connected to sanitary sewers. When it rains or snow melts, the system often is overwhelmed and untreated wastewater flows into the river.

The new tanks capture the flow so it can continue to the treatment plant once capacity in the sewers allow.

For the stormwater coming from downtown and much of the South Hill, the city had planned to build a 4-million-gallon tank in Peaceful Valley. But engineers backed away from that concept because of increasing cost estimates. The new plan is to build a 2.1-million-gallon tank just west of City Hall on a bluff overlooking Huntington Park and the 1.9 million-gallon tank at First Avenue and Adams Street.

Marcia Davis, principal engineer for the city, said the tank at First and Adams will need to be 30 to 36 feet deep and may extend into Adams Street to handle much of the stormwater flowing from 43rd Avenue north. Davis said if Adams has to be torn up, it likely would be rebuilt over the tank. Existing adjacent buildings will be able to remain. The tank is estimated to cost between $15 million and $20 million, Davis said.

Steele said once the city builds the tank, it hopes to sell the development rights to the property to recoup some of the cost. A five-story building with ground-level parking could be built over the tank, he said.

Construction of the $25 million tank next to City Hall is expected to start late next year, Davis said. Work could begin on the First and Adams tank in 2017.

The City Council voted 6-0 for the purchase. Councilman Jon Snyder was absent.

Council President Ben Stuckart said he supported the deal because officials have worked hard to place most tanks on city property, only buying private property when engineering limitations have made it cheaper to buy private land.