In the Bag

by Doug Collins

The Free Press

Five years later Murray says, "The situation has changed dramatically." The quintessentially Seattle retail giant Nordstrom looms large in this transformation.

Nordstrom is number one in Consumer Reports customer satisfaction ratings, is listed on the honor roll in the Sierra Club's Shopping for a Better World guidebook, and is one of the big business success stories of the past decade, with total sales of nearly $3.9 billion in 1994, up more than 8 percent from 1993.

Many argue that Nordstrom is Seattle's savior as well. The story goes like this: Declining retail activity in Seattle's core threatened the entire economic vitality of downtown. In stepped Nordstrom with a proposal to move its new flagship store into the recently closed Frederick and Nelson (F&N) building, along with its corporate headquarters. The result would be a new retail magnet, and the filling of the old Nordstrom building with new stores bringing in throngs of shoppers. The deal was to be eased with loans from the federal Housing and Urban Development administration (HUD). A new vibrant downtown would result, with the only cost being the resulting loss of a small pedestrian mall.

Despite its squeaky-clean-and-green aura, critics question what they believe is an unfair influence of Nordstrom on Seattle. Former city council candidate Jordan Brower, a member of the civic watchdog group Committee to Save Our Neighborhoods, charges that the redevelopment deal keyed on Nordstrom's move to the F&N building is less an altruistic gesture, and more a calculated business maneuver intended to control upscale retailing in downtown Seattle.

Evidence also shows that inaccurate statistics on crime in the retail core were compiled by Seattle police and reported by a local daily newspaper. These statistics, wrongly showing a dramatic increase in crime around the F&N building, were used by the city council to declare the area as "spot blight." This designation was crucial to bring in HUD loans (normally reserved for low-income housing and jobs programs) which cut millions off renovation costs, at a time when basic services for lower-income Americans are being axed. This loan, if it fails, in turn may jeopardize the city's HUD monies used for more traditional purposes.

The Nordstrom influence extends to campaign politics as well. At the behest of the company, Seattle voters favored opening the pedestrian block of Pine Street to car traffic in a March referendum. The pro-Nordstrom referendum campaign, not your typical liberal cause, had more than enough money to hire a number of normally liberal or Democratic campaign workers for the off-season election. The combination of seeming universal endorsement by establishment liberals, coupled with the Nordstrom company's explicit threat to pull out of the deal if the street was not opened, helped seal the fate of the little pedestrian mall.

Many also question the need for the city to cut this kind of deal. There is evidence that Nordstrom was not the only suitor for the F&N building. And the loss of pedestrian access, the use of low-income money to the advantage of multi-millionaires, and the building of a skybridge which may pull people off the street rather than keep them on it may not be a good precedent.

There is also a fear that Nordstrom and development interests are seeking to tie the deal to an expansion of the Washington State Convention and Trade Center, which would bring more tourists through Nordstrom's doors, at the price of demolishing many lower-income apartments downtown.

The Phantom Crime Wave
The first murky episode in the Nordstrom redevelopment was the city council's use of faulty Seattle Police Department (SPD) statistics to justify declaring the vacant F&N building as "spot blight" in April 1994. Without this designation the HUD assistance would evaporate into thin air. The initially reported statistics claim a doubling of crime in the area around the F&N building during the first two calendar years of the building's vacancy (see graph).

Members of Friends of Westlake Park, a group opposing the opening of Pine street, were skeptical of the figures and sought their disclosure. When the city refused, the groups' attorney, Rick Aramburu, threatened a lawsuit. This forced the release of a police memorandum, which revealed that shoplifting incidents were included in the 1993 stats, but left out of earlier figures. The 997 shoplifting incidents included in the 1993 numbers were nearly half the crimes reported for the area for that year.

Similar discrepancies are present in the statistics for other crimes, which SPD has more recently adjusted downward. In the original stats, nuisance incidents, which may include complaints about the downtown homeless, were reported to have increased from zero to 112 incidents from 1991 to 1993, despite a significant overall decrease in property crime violations. An examination of the corrected numbers shows that the frightening crime wave turned out to be no wave at all.

These large discrepancies make it difficult to believe that these statistics were presented to the city council and to the Seattle Post-Intelligencer with a straight face. While no one has publicly stated exactly what went on in the Police Department, parties involved in the redevelopment project would have a motive to pad crime statistics, both to qualify for HUD assistance and to sway voters on the Pine Street issue. Intentionally padded or not, these faulty stats were cited and re-cited in the Seattle P-I in 1994, most notably in articles by reporter Rebecca Boren. When asked in May of this year whether she intended to print a retraction, Boren stated, "It's so far after the fact; it would be a little late." Boren also recalls discussing the accuracy of the statistics with police, including Captain Kimerer of the Downtown Precinct: "I went over and over this with the police, making sure that they were insisting to me that they were doing apples-to-apples comparisons [between the years of the statistics]. . . because it was so dramatic."

The lack of media skepticism in Seattle regarding this and other matters may have many causes. But the frequent Nordstrom purchase of large ads in the the local dailies, worth in the ballpark of $7,000 a pop, might help take away incentive for editors and reporters to dig deeper into such issues.

Narrow Self-Interest?
Fiscal watchdog Jordan Brower charges that the city helped create a false public impression that the collaboration between the Rhodes Group and Nordstrom was the only viable hope to revive the F&N building. The Rhodes Group, headed by Chicagoan Jeffrey Rhodes, is the development organization behind the deal.

Chuck Depew, community development specialist in Seattle's Office of Economic Development, asserts that the Rhodes Group "were the only ones willing to go far enough to sign legal documents" on a sale of the building. And in March of this year, just before the Pine Street referendum, redeveloper Rhodes was quoted in the Puget Sound Business Journal as saying Nordstrom was the only option for his F&N renewal plans: "There is no Plan B, there is no backup."

Perhaps Rhodes has no alternative to his collaboration with Nordstrom, but a real-estate advisor to the owner of the F&N building, stated in a letter dated March of last year that there were two other prospective buyers vying for the F&N property, both with "requisite qualifications and financial footing to complete a transaction." One of the would-be buyers may even have offered a higher buying price, according to the letter, but Rhodes was favored for intangibles such as "strength of the development concept." This implies that the sellers, contrary to the city's assertions, had a choice between willing and qualified buyers.

Why would Nordstrom be shy about admitting competition for the F&N building? Brower argues that the company may wish to be seen as the sole savior of an abandoned downtown, rather than as a company intent on maximizing retail markets. By taking over the F&N building, Nordstrom prevents potential large upscale competitors, say Saks 5th Avenue, from moving into the premium F&N site - which contains approximately 20 percent more retail space than Nordstrom's current building, plus room for offices as well.

No one ever accused Nordstrom of having a bad feel for business. However, if the above hypothetical business motive became a public perception, many might question whether federal HUD assistance, normally used to benefit lower-income Americans, should be used to aid purposes so corporate.

Out On a Loan
In a city memorandum dated March 7, 1994, Venerria Knox of Seattle's Department of Housing and Human Services expressed concern over the risks of accepting a Section 108 HUD loan guarantee for the Nordstrom redevelopment. Possible risks include default of the developer, any instability in the Nordstrom company's financial future, and a HUD requirement that at least 70 percent of HUD aid to a city must be used for the benefit of low- and moderate-income residents. Since the $24 million in HUD guarantees to the Nordstrom redevelopment do not qualify as a social program, the city will likely be forced to take millions in additional "float loans" for use in as yet undetermined low/moderate-income projects.

As Knox writes in her memo, "Float loans present the most risk, as their amounts are large.... In addition, we do not usually have a track record with our float loan recipients." Loans must be repaid, and if either the Nordstrom players or other local float loan recipients default or do not live up to HUD requirements, then the region's credit rating might fall. Seattleites have historical basis to worry: A federal audit of HUD loans in Seattle from 1986 to 1990 revealed that a quarter of the loans were delinquent, and that for 38 of 39 loans, the city government could show no evidence of job creation, a requirement of HUD.

Despite past difficulties and Knox's internal discussion of the risks, the city's executive branch continued its chase of HUD megabucks. Three weeks after Knox's memo, Chuck Depew, in the city's Office of Economic Development, wrote a letter marked "confidential" to city councilwoman Martha Choe. The letter, obtained through a Freedom of Information Act request, coaches Choe and other councilmembers to put on their best faces during a public hearing at which HUD observers would be present. Depew gave councilmembers the following stage advice:

• "Avoid any mention of Nordstrom being a tenant in the [F&N] building. They have asked not to be mentioned publicly by the city.
  
• "The local HUD office currently has a narrow mindset for blight. Comments from councilmembers regarding the decay of the [F&N] building will help us later with HUD.
  
• In the audience will be observers for Nordstrom, the Padelford Family, and HUD. They will be trying to gauge the city's real support for the deal....We need to show as much unanimity as possible."

Nordstrom spokesperson Paula Stanley explains her company's shyness of being identified at the city council hearings: "We were still trying to determine whether it was an investment we wanted to make."

In any case, HUD approved the loan guarantee in August 1994, for $24.2 million. The loan is a borrower's godsend. According to a repayment schedule in the city's aid application to HUD, only the interest on the loan would be paid for the first 15 years of the 20-year loan, with the principal paid only in the last 5 years. Although the exact terms of the loan may still not be decided, another document obtained from the city states that this deferred principal effectively reduces interest on the loan from 9 percent to 6 percent. According to the document, "this provides an estimated savings to Rhodes of $5,630,000 over the 20-year period." Pine Street Associates executive Matt Griffin admits, "There's no doubt that it saves us interest....I hope our investors make a reasonable return, but I wouldn't take all the risks if [Seattle] weren't my hometown."

The Rhodes Group and its investment organization, Pine Street Associates, are no strangers to sound business practices. They watch their millions at least as well as most of us watch our thousands. Many in the group can also understand a comparatively small but wise investment in the local political process. At least three members of Pine Street Associates, John McCaw of the McCaw Cellular Communication family, Jeffrey Brotman of Costco, and downtown developer Herman Sarkowsky were major contributors to the last city council and mayoral elections in 1993. This may help to ensure that their calls to city hall are answered.

These Shoes Aren't Made For Walking
Having secured the HUD loan guarantee, the next step for the retail redevelopment was to convince the city government and, with more difficulty, the voters to open Pine Street to cars. Ironically, Nordstrom, which started out as a shoe store, has become a major force in converting a pedestrian block from rubber soles to rubber tires.

Although Nordstrom adamantly asserts that motorizing Pine will improve access to retail, two traffic studies from the Seattle Engineering Department released last November both found that opening Pine would not improve traffic flow downtown. Furthermore, some think that another large retailer in the vicinity, The Bon Marche, seems to be performing quite well with the street closed. "The store seems vibrant now," says City Councilman Tom Weeks, a frequent Bon shopper, "where before it hadn't been."

The skybridge walkway, to be built linking a city-financed parking garage and the upper floors of the future Nordstrom site, may also encourage some customers to treat the retailer as a self-contained shopping capsule, rather than to venture out onto the sidewalks for comparative shopping. Some city planners confirm the notion that such skybridges reduce sidewalk use. An upscale customer might arrive by BMW, park in the garage, traverse the skybridge, get excellent customer service at Nordstrom, and not even set foot outside, or look a homeless person in the eye.

Nordstrom says that the skybridge is essential to drawing customers to the upper floors of the F&N building. In any case, the cost for the parking garage, an estimated $60 million, will be reimbursed to the city by the parking fees the garage raises. This potentially gives the city a motive to encourage car traffic downtown, rather than public transport or foot traffic. When asked whether this would compromise efforts to reduce car use, the mayor's spokesperson, Mark Murray countered, "We don't view it that way. We think the level of automobile traffic will be sufficient to repay the city's investment even though we will be very aggressive in trying to reduce single-passenger automobile trips downtown."

Rent-a-Liberal
Although a number of the investors in the Nordstrom redevelopment are large campaign contributors to city politicians, politicians aren't the only beneficiaries of well-heeled redevelopers. After the public referendum on opening Pine Street was scheduled, help-wanted signs went up for area campaign workers. According to public disclosure records, the campaign committee in favor of opening Pine, the Citizens to Restore Our Retail Core (CRORC), raised approximately $350,000 for its war chest, more than half coming from three entities: the Pine Street Associates (the investors behind the Rhodes Group), the Downtown Seattle Association (of which Nordstrom is a member), and the Padelford family's DE Corporation, owner of the F&N building. The opposition group, pro-pedestrian Friends of Westlake Park raised a scant few thousand dollars.

As usual, money can hire campaign workers, media relations experts, pollsters, and PR consultants. CRORC hired heavyweight consultants Gogerty and Stark for their campaign, but also brought in some usually liberal campaign workers and consultants. These included Cathy Allen. A direct mail firm with which Allen is associated, Winning Directions, was paid at least $23,000 by CRORC for its services, according to public disclosure records. Allen's stated goal in getting into the campaign business was to help progressive women and minorities into office, and she had previously worked for campaigns such as the growth management initiative 547, a favorite of environmentalists that failed in a statewide vote a few years ago.

Asked about her views of the future of pedestrianism downtown, Allen stated, "I'm much more interested in FAO Schwartz, a new Nordstrom, Planet Hollywood, and other kind of excitement that the whole package offers....I think that there's a whole lot that's going on downtown that is commerce-driven, and I'd much rather have all of those stores that I can't afford, than be worried about a pedestrian mall." Allen added, "At the risk of confounding my own liberal image, I walked into this knowing that [the CRORC campaign] was perhaps a step away from what I've traditionally done, but confounding my liberal image was a small price to pay for what I really believed was no veiled threat."

Also on CRORC staff were Jeffrey Coopersmith and Traci Storm, Democratic Party executive board members in Seattle's 36th District. Not the sort of people who would typically rub political shoulders with James Nordstrom, who recently became a director at the Washington Institute for Policy Studies, a right-wing think tank headed by similarly winged columnist and ubiquitous media pundit John Carlson.

In addition to the paid liberal campaign workers, some co-chairs of CRORC's campaign may have dampened potential opposition through force of irony alone. Besides mayor Norm Rice, one co-chair of the campaign was Kay Bullitt. Bullitt is a long time liberal activist and benefactor, and is part of the family whose Bullitt Foundation helps bankroll local environmental causes.

Another co-chair was Ron Judd of the King County Labor Council. Although it may be hard for environmentalists to bite the Bullitt who favored cars over feet, the labor endorsement is especially ironic. In 1991, Nordstrom busted its retail and office employees' union, United Food and Commercial Workers local 1001, after what a union spokesperson described as no-holds-barred anti-union tactics by the company. The National Labor Relations Board issued a complaint against Nordstrom for numerous unfair practices. A few years later, by promising to use union labor in redevelopment construction, the Nordstrom development camp eased the pain of past losses by labor.

Jon Gould of the Tenants Union questions the long-term wisdom of labor in advocating downtown development deals: "They are creating short-term good-paying union construction jobs, but the long-term jobs will mostly be comparatively low-paying retail and hotel service jobs." And, although top Nordstrom salespeople can make a fair bundle, any new permanent jobs there will most likely be non-union.

Not A Done Deal
As a tenant advocate, Gould has other reasons to fear Nordstrom's advances. Some rumblings indicate that the retailer's move to the F&N building is related to an expansion of the Washington State Convention and Trade Center located a few blocks east of downtown's retail core. In a study produced for the Convention Center in December 1994, the expansion was called a "key component and requirement" for the F&N deal to proceed. Nordstrom denied any such link, but has gone on record in The Seattle Times as saying that the redevelopment investment would not be viable unless more tourists were drawn downtown. An expanded Convention Center would probably do this.

Nordstrom has denied that the Convention Center is part of the deal, but confirms that the move to F&N is not yet written in stone. Jane Lewis, spokesperson for Pine Street Associates, states that there are "business points of the transaction that are being worked out. It's nothing major. We believe it will come together in short order." Lewis would not elaborate on the nature of the obstacles.

The proposed expansion of the Convention Center threatens as many as 400 low-income apartments in the vicinity, many of them recently remodeled. One supporter of the expansion is Rick Bender of the Washington State Labor Council. In response to the labor endorsement, a group of tenants in the threatened apartment buildings drafted a letter to Bender and other area labor leaders. These tenants, most of whom have labor union affiliations, wrote, "We ask that you please reconsider organized labor's role in a debate that pits workers' homes against their jobs. We wonder how deeply you have weighed the decision to take part in such a fundamental division of working people against one another."

Bender counters that construction of replacement housing to accomodate all dislocated tenants is in the deal: "We've got a commitment not only from the Convention Center but also from the city of Seattle that there will not be one stone turned in the expansion of the Convention Center until we get that housing replacement done." The new housing may in time materialize, but for now the threat of displacement looms large.

Legal Questions
In addition to the hesitancy of Nordstrom to commit to the redevelopment deal-even after the Pine Street referendum and the announced arrival of many other retailers on the downtown scene-there are legal questions which could potentially scuttle the deal.

First, in a March letter to the national HUD director overseeing block grant assistance, activist Jordan Brower called for an investigation of the deal, charging that "The city has engaged in a campaign of deception to acquire HUD financing for the personal private gain of the Rhodes Group and questionable competitive advantages for Nordstrom." Unduly enriching for-profit enterprises is against HUD guidelines. Brower has not yet received a reply from HUD.

Another legal question is constitutional. The Washington state constitution, in Article XIII Section 7, prohibits cities from giving their credit for the benefit of private business. Realizing the danger this posed to a HUD loan being granted by the city for the Nordstrom redevelopment, the city of Seattle introduced a bill in the state legislature to make an exception for Section 108 HUD loans. The bill recently became law. Jordan Brower calls it "an attempt to circumvent the constitution." A court challenge to the constitutionality of the law is possible.

A final legal question is raised about the Pine Street part of the deal by attorney Rick Aramburu of Friends of Westlake Park. According to the text of the Pine Street referendum which passed in March of this year, Nordstrom is to sign a contract with the mayor regarding the future of Pine Street. Aramburu feels that in the contract "There may be a serious issue of propriety if the city agrees never to close Pine Street again as long as there's a retailer in the F&N building. In effect, the city is making deals with private companies to sell the police power over the streets. I think there's something really wrong with this. Our political system is based on the idea that you don't get to make permanent changes." He adds, "I want the right five years from now to say, 'Look, opening Pine was a crappy idea. Let's close the street again.'"

The writer gratefully acknowledges research assistance by Mark Worth and Andrea Helm.

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Contents on this page were published in the June/July, 1995 edition of the Washington Free Press.
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