Spearheaded by Capitol Hill Housing, 12th Avenue Arts is a mixed-use development that combines affordable housing with space for restaurants, offices, and performing arts. The building includes 88 residential units, two black-box theaters, 5,457 square feet of restaurant space, and 17,027 square feet of office space on 0.67 acre of land formerly used as a police vehicle parking lot.

The surrounding Capitol Hill neighborhood is known for its high density as well as its artistic, bohemian character, which 12th Avenue Arts supports by catering to small businesses and local performing arts organizations. The land was acquired at no cost from the Seattle Police Department, with a stipulation that the new development provide an underground parking garage for police vehicles. The decades-long development process involved extensive negotiations and community input, but it worked to Capitol Hill Housing’s benefit by creating a ready pool of tenants eager to put the new space to use.

 

[ Introduction | The Site | Development Team | The Idea | Planning and Design | Development Finance | Approvals | Marketing, Leasing, and Management | Observations and Lessons Learned | Project Information ]

Introduction

For 20 years, a seemingly prime lot—lying just 60 feet from one of the busiest intersections in Seattle’s densest and liveliest neighborhoods—sat behind a barbed-wire fence, filled with nondescript police vehicles. Some neighborhood residents, and a particularly tenacious community development corporation, saw a brighter future for this parking lot. Many years of negotiations over the site and over the development program have resulted in 12th Avenue Arts, a building whose eclectic mix of uses reflects the numerous goals of its community. The 0.67-acre site now houses 88 apartments affordable to low-income households, two theaters, spacious new offices for local nonprofit organizations, three local eateries, replacement police parking, and five different roof gardens for building occupants.

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The Site

A mile east of downtown Seattle, 12th Avenue Arts sits at the southern edge of Capitol Hill—the densest residential neighborhood in the Pacific Northwest, and an area long known for its eclectic, bohemian character. The site’s neighbors to the north and east are small apartment buildings and detached houses, and to its south and west are single-story commercial buildings and larger apartment buildings.

Capitol Hill is Seattle’s first official Arts & Cultural District; over 40 arts groups are based in the area, and within a block of 12th Avenue Arts are the permanent homes for the Northwest Film Forum and the Velocity Dance Center. Many of these groups are located just south of the site, in the Pike/Pine Corridor—an area that began as the city’s original “Auto Row” and whose blocks were long filled with low-slung warehouses and car showrooms with wide windows.

Since the 1980s, the 0.67-acre site had been a satellite parking lot and fueling station for about 70 vehicles, ringed by a barbed-wire fence, for the Seattle Police Department’s East Precinct station that stands half a block away. The site is flat by Seattle’s hilly standards, but the site’s northeast corner has a sharp slope up of about ten feet.

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Development Team

The Capitol Hill Housing Improvement Program (CHH) is a public corporation that was organized by the city of Seattle in 1976, originally to facilitate housing rehabilitation in an area facing urban blight. Today, CHH owns and maintains 48 buildings with more than 2,000 apartments, two-thirds of which are in greater Capitol Hill. Its residents’ average income is around $23,000; 93 percent of its residents have incomes below 60 percent of the area median income.

Although CHH had previously built a few buildings with ground-floor retail space, 12th Avenue Arts’ substantial commercial uses were a large step up in complexity. Capitol Hill Housing interviewed dozens of neighborhood stakeholders to build community support and determine the ultimate program before pulling together its proposal, and pulled together an arts advisory group specifically for the 12th Avenue Arts project.

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The Idea

Area residents had long eyed the city-owned police parking lot, one of the largest unbuilt sites in Capitol Hill, as an opportunity for something better. It seemed like an obvious solution: public land should serve the public good, perhaps through an affordable housing development. After all, the neighborhood had an experienced developer of affordable housing in CHH.

In recent years, a booming local economy and major transit improvements like a streetcar line and a light-rail subway have made Capitol Hill a desirable destination for market-rate development, with thousands of new market-rate housing units and substantial new commercial development. Some of the new construction in the Pike/Pine area has displaced ad hoc offices and performance spaces that had been carved out of the area’s inexpensive industrial buildings.

 

In 2007, dozens of local arts organizations were displaced by the closing of the Capitol Hill Arts Center (across the street from 12th Avenue Arts) and the sale of a nearby assembly hall originally built for the Odd Fellows fraternal organization. The crisis focused artists’ attention on the need for a permanent home for Capitol Hill’s small, innovative performing arts groups and for its community service providers—even Capitol Hill Housing would soon lose the lease on its headquarters. Michael Seiwerath, director of the Capitol Hill Housing Foundation, recalls the conversations at that time: “After Odd Fellows sold, there were a lot of meetings about ‘How do we stop this from happening again? How do we keep the funky fabric of Capitol Hill? How do we retain our soul?’ ”

At that point, the project’s mix of uses began to evolve to incorporate community-owned spaces for the arts, since local residents viewed the arts as integral to the community’s identity. CHH convened a working group of local arts leaders that recommended flexibly designed, small and medium-sized performance spaces and offices as the highest priorities. Due to the urgent need, Capitol Hill Housing moved forward to develop the spaces itself, knowing that it could later identify organizations to fill them.

The ultimate program for the building includes 88 apartments; 72 have one bedroom, eight are studio units and eight are two-bedroom units. The city and state funding used for the property requires that residents have incomes between 30 and 60 percent of area median income. The commercial component includes 17,027 square feet of offices, 5,457 square feet of restaurants, 4,275 square feet in two theaters, and 3,585 square feet of theater support space, including dressing rooms, a green room, control rooms, and storage. The building also comprises 115 parking spaces for the police department.

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Planning and Design

The 12th Avenue Arts project combines a below-grade, two-level secure parking garage for the Seattle Police Department; a two-story, concrete-framed podium dedicated to arts and commerce; and a four-story, 88-unit apartment building.

The ground-floor facade is rarely parallel to the sidewalk; the facade zigzags at six different angles to define entries for different uses. The service entrances are at the north end of the front facade, away from the livelier south end of the building. The police garage’s entry at the north edge is recessed from the street to reduce its prominence and to keep vehicles from blocking the sidewalk. A service entrance for the rest of the building, including a loading area for trash removal, is next door. The residential lobby entrance also is toward the north end of the facade, leading down a hallway to a mail room, an elevator, a staircase, and a bike room.

Three local eateries, with doors spanning the full width of their storefronts, face 12th Avenue. Two smaller spaces are north of the lobby, and one larger space lies south of it; two of the restaurants have entrances directly into the lobby for the convenience of theatergoers. The retail spaces are intentionally shallow, wide, and on the small side to cater to small and local businesses.

 

The sidewalk widens and the facade folds inward to direct patrons toward the building’s 30-foot-tall Grand Lobby, which serves as the hub of the building’s ground floor with entrances to both theaters, the offices, and two retailers. The T-shaped lobby reaches behind the retail spaces, leading to a 63-by-42-foot, 125-seat Mainstage theater behind the retail to the north, and a 48-by-32-foot, 67-seat Studio theater tucked into the southeast corner of the building behind the restaurant. The two stages share dressing rooms, patron restrooms, and other back-of-house space between them. Both stages are configured as “black box” spaces, with 18-foot-clear heights, a grid of light-emitting diode (LED) lights, and riggings.

A narrow side yard south of the building provides fire access to the Studio theater and an adjacent building, as well as a recess providing sheltered bike racks for employees and visitors.

The three offices on the second floor sit above the 14-foot-tall ground floor, divided by the double-height volumes of the theaters and Grand Lobby. A catwalk wraps around the lobby to access all the different offices. Another bonus of sharing the lobby is that theatergoers can dash upstairs to use the office restrooms at peak moments like intermissions. Cutaways at the back of the building permit 1,152 square feet of usable roof decks atop the ground floor, in addition to planting areas.

The ribbon of office windows overlooking the street provided an opportunity for an eye-catching orange marquee sign right above the theaters’ entrance. The brightly lit word ARTS sits in the window of a shared conference room perched above the main entrance.

Four floors of wood-framed apartments sit above the podium. The apartment block is rotated slightly on the podium, putting it flush with the sidewalk at the building’s southwest corner and setting it back from the street on the north side, where the building abuts two-story detached residences. This setback emphasizes the two-story podium and its public uses while mitigating the bulk above. The angled placement also permits two triangular roof gardens above the podium, one facing east toward the block interior and the other facing west, overlooking the active sidewalk. A niche on the top floor permits another small roof deck with views over the downtown skyline.

 

Seattle’s building code at the time already permitted two-story concrete podiums below wood construction, a form of construction that is now more broadly permitted under the 2015 International Building Code. This form of construction makes it less costly to erect buildings that stack more than two uses, compared with the one-story concrete podiums that previously were permitted. Since CHH was already going to build a two-story-tall ground-floor podium for the theaters, having a two-story podium meant that it could build more rentable office square footage within the same building envelope.

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Development Finance

The 12th Avenue Arts project blended capital from public, private, and charitable sources and from sources related to each of its four primary uses. CHH’s expertise in community development leveraged public subsidies, and its deep roots within the Capitol Hill community helped it with local fundraising as well. “The financing for 12th Avenue Arts was extremely complex and creative, and it took a great deal of collaboration,” says Kevin Nowak, national equity investment manager for Key Community Development Corporation. “In the end, the teamwork and patience paid off.”

The land, appraised at $7.5 million, was transferred from the city at a nominal cash cost; in order to use new markets tax credits, CHH had to have title to the land. However, the city leased back a condominium interest in the parking garage, and retained an option to buy back the garage after a holding period. Building the obligatory parking garage ultimately cost CHH $11 million.

The residential building was financed with $5.6 million in equity from 4 percent low-income housing tax credits, syndicated by Key Bank. The bank also extended a $6.45 million mortgage for the residential building. The Seattle Office of Housing awarded a $7.66 million soft loan of funds from its 2009 Housing Levy, a voter-approved supplemental property tax. The state of Washington awarded a $2 million grant from its housing trust fund, which is directly funded through capital appropriations.

 

By comparison, the commercial podium, including retail, office, theaters, and parking, could not turn to as many established sources of capital. It did benefit from $5.2 million in equity investment resulting from new markets tax credits, syndicated by Key Bank and with the National Development Council acting as the designated community development entity. Key Bank also lent $3.86 million toward the commercial space, since the retail and office tenants pay market-rate rents. The residential building cross-subsidized the commercial podium by purchasing the air rights (as a condominium) for $6.5 million. Seattle’s Office of Economic Development made a $1 million Section 108 loan, which draws upon federal community development block grant funds, based on the project’s potential to create 117 permanent jobs.

For gap financing on the commercial space, CHH launched a fundraising campaign—typical for arts facilities, but unusual for the housing development sphere—to raise $4.5 million in grants. CHH launched a separate foundation in 2008 to raise funds, and hired Seiwerath (who previously ran the Northwest Film Forum, whose offices are a block away) to direct the capital campaign for 12th Avenue Arts. The state of Washington’s Building for the Arts program provided the largest single award, of $565,000. Major gifts from foundations, including the Paul G. Allen Family Foundation, Joshua Green Foundation, the Wyncote Foundation, the Children Count Foundation, and 4Culture, provided about half the funds. Fundraising continued throughout construction, with Key Bank providing a bridge loan in the interim.

The campaign also made the rounds of the area’s thriving local business community to raise funds. Numerous businesses contributed in small ways, raising both funds and local visibility: coffee shops and event venues hosted project-update receptions, a restaurant urged customers to round up their checks, a barbershop sold themed trucker hats, and an amateur boxing club staged a “Fight Night.”

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Approvals

Even though a local community news blog praised it as “the most well-loved mixed-use development in Capitol Hill history” during design review, 12th Avenue Arts developers still spend almost two decades navigating the public process.

CHH began planning for the site during the 1990s. Seattle adopted new neighborhood plans for both Capitol Hill and Pike/Pine in 1998, both of which identified the site as a prime opportunity to add affordable housing. Following a feasibility study led by the city’s facilities department, Capitol Hill Housing began negotiating with the police department about developing the site.

Getting to an agreement with the police took many years. The police had been parking 70 cars on the 12th Avenue lot and another 30 cars in a second rented lot that was nine blocks away. For years, the police department insisted that any new parking lot would have to accommodate 150 cars, to accommodate potential future fleet growth. That many cars would have required three levels of underground parking on the site; and given the tremendous cost of excavation, this requirement effectively made the “free” land on 12th Avenue too expensive to build upon.

A breakthrough finally occurred in 2010, when a visit by Mayor Michael McGinn prompted a new set of meetings with the police department. On June 1, 2011, the mayor returned to announce that the project would finally proceed: the police department relented on its parking requirement, the capital campaign was launched with its first major gift, the city would contribute housing funds, and construction costs had dropped due to the recession.

Seattle’s thorough approvals process includes mandatory design review as part of the permitting process. The site was zoned NC3P-65, permitting a broad range of commercial uses, a 65-foot-tall building, and a floor-to-area ratio of 4.25. Since the site is part of the Pike/Pine Urban Center Village, no minimum accessory parking is required.

The design review process took over a year to conclude, but ultimately awarded the project approval of several zoning exceptions, such as permission to encroach into the rear-yard setback to accommodate the rotated residential building and the high-ceilinged theaters, and providing the police with larger-than-usual parking spaces. During construction, police vehicles were moved to other locations or parked on nearby streets, in temporarily reserved spaces.

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Marketing, Leasing, and Management

The entire project was leased up within two months of receiving its certificate of occupancy, with the office space entirely preleased.

Capitol Hill Housing released a request for proposals (RFP) for a single operator to manage the theater space under a master-lease arrangement. Small theaters, like the two black boxes at 12th Avenue Arts, are usually rented out for productions by small companies that often run on a shoestring, rather than resident troupes. In this case, three local companies—Strawberry Theater Workshop, Washington Ensemble Theater, and New Century Theater Company—created a consortium, named Black Box Operations, to manage the two theaters.

The three resident companies fill about two-thirds of the theaters’ schedule, and the spaces are rented out by the week to other companies for the remainder. The theaters are also available for public meetings, and the police have free use of the space for their regular precinct meetings.

The leasing plan originally specified only one restaurant, in the south retail bay now occupied by Rachel’s Ginger Beer, a craft soda and cocktail bar that began as a stand at the nearby Capitol Hill farmers market. However, the strong synergies between theater and dining ultimately filled the north retail spaces with two other locally based casual-dining restaurants: Pel’Meni Dumpling Tzar, a Russian restaurant, and U:Don, a Japanese noodle shop. Soft-goods retailers still prefer sites at the heart of Pike/Pine, where daytime foot traffic is stronger.

The office spaces were leased to neighborhood-based organizations through another RFP process. Capitol Hill Housing’s headquarters fill most of the office space. Smaller offices were leased to the Capitol Hill Chamber of Commerce; Three Dollar Bill Cinema, which produces LGBT film festivals; and the Seattle Academy of Arts and Sciences, a private school whose main campus lies three blocks away.

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Observations and Lessons Learned

Community facilities can generate community support for a development. Including theaters at 12th Avenue Arts added considerable complexity to what was already a difficult vertical mixed-use development. However, it also opened up new avenues of support for both the development and CHH. On the financial side, the theaters enabled the $4.5 million capital campaign and greatly improved the marketability of the project’s retail and office space. Stakeholders also lined up to embrace the project during the approvals process.

Development requires tenacity. Not only did the project take decades to get going, but costs escalated throughout the construction process. The final contingency budget accounted for a mere 1.5 percent of the project budget, and protecting the arts space from budget cuts required “unwavering commitment from staff and a willingness to prioritize this aspect of the project,” says Joshua Okrent, CHH’s manager of fund development.

Project feasibility studies are an art, not a science. The project’s commercial program resulted entirely from CHH’s extensive stakeholder outreach; at first, there was no anchor tenant in mind for the offices, the theaters, or the retail space. Indeed, an anchor tenant had to be created for the theaters, by having existing groups grow into a new role as a consortium that manages the theaters. Having their diverse perspectives on the theaters’ design helped make sure that the spaces would work for a wide variety of productions, one factor that has helped keep the space nearly constantly booked.

 

Commercial spaces should be designed for maximal flexibility. All of the site’s retail spaces leased to restaurants, which required more expensive buildouts than retailers but resulted in higher sales and rents. An initial idea to install fixed seats in the larger theater was also changed during buildout, at the suggestion of the tenant, and now both theaters are black boxes with complete flexibility.

The high cost of structured parking can make or break a development deal—even when no on-site parking requirement exists. The decades-long delay for launching 12th Avenue Arts stemmed from an inability to come to an agreement over just 30-odd parking spaces. It was not until the police department relented on those last few spaces that the construction costs could finally pencil out, permitting the project to proceed.

“Public land for public good” might seem like an obvious policy for governments to pursue, but public land isn’t exactly free. Governments incur multiple costs for the land that they own: the original cost for buying, clearing, and building upon that land; the opportunity cost of not selling the land for private activity; and the use value of the land. In the case of 12th Avenue Arts, the estimated $11 million cost to build the police parking garage exceeded the $7.5 million appraised value of the land.

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Project Information

Development timeline
Initial feasibility studies conducted	1998
Discussions with city restarted	January 2011
Letter of intent signed for purchase	May 2011
Land transfer agreement announced, capital campaign launched	June 2011
City Housing Levy funding awarded	November 2011
Transfer ordinance sent to city council	August 2012
Theater lease signed	April 2012
Design review approval	November 2012
Site acquired	December 2012
Groundbreaking	February 2013
Construction complete	September 2014
Building opened	October 2014

Land use plan	Square feet
Buildings	24,935
Open space (at grade)	4,123
Total	29,058
Open space (above grade)	10,828
Parking spaces (below grade)	115

Retail information	Tenant type	GLA (sq ft)
Rachel's Ginger Beer	Soda and cocktails	1,996
Pel'Meni Dumpling Tzar	Russian restaurant	952
U:Don Noodle House	Japanese restaurant	2,344
Subtotal for retail		5457
Mainstage	125-seat theater	2,646
Studio	67-seat theater	1,536
Theater support spaces		3,585
Subtotal for theaters		7,860
Total		13,317

Office information	Tenant type	GLA (sq ft)
Capitol Hill Housing	Affordable housing developer	7,500
Capitol Hill Chamber of Commerce	Local business group	680
Three Dollar Bill Cinema	Film festival	1,197
Seattle Academy of Arts and Sciences	Private school	2,902
Shared circulation, support space		4,079
Total		17,027

Residential information	Number of units	Average unit size	Percentage leased
Studio unit	8	440	100
One-bedroom unit	72	540	100
Two-bedroom unit	8	887	100
Total	88		100

Financial information: Sources
Senior debt
Key Bank commercial loan	$3,860,000
Key Bank residential loan	$6,450,000
Soft debt
HUD Section 108 loan	$1,000,000
City OH award	$7,660,000
State HTF award	$2,000,000
Equity
LIHTC equity	$5,600,000
NMTC equity	$5,200,000
Contributed amounts	$1,970,000
Deferred fees	$2,380,000
Land sale proceeds	$6,500,000
Grants
Capital campaign	$4,500,000
Total	$47,120,000

Financial information: Uses
Acquisition	$7,500,000
Direct construction costs	$27,800,000
Indirect construction costs	$2,800,000
Contingency/reserves	$725,000
Carrying costs and financing	$1,470,000
Syndication costs	$5,125,000
NMTC costs	$1,700,000
Total	$47,120,000

Project address
1620 12th Avenue
Seattle, Washington 98122

Website
http://www.12avearts.org
Construction blog: http://openhouse.capitolhillhousing.org/OpenHouse/?cat=6
Theaters: http://www.blackboxoperations.org
Video: https://www.youtube.com/watch?v=OtQDhC7NVcU

Developer and owner
Capitol Hill Housing
1620 12th Avenue, Suite 205
Seattle, Washington 98122

Architect
SMR Architects
911 Western Avenue, Suite 200
Seattle, Washington 98104

General contractor
Walsh Construction
Seattle, Washington

Landscape architect
Place + Land
Seattle, Washington

Special thanks
Joshua Okrent, senior manager of fund development, Capitol Hill Housing
Ashwin Warrior, communications manager, Capitol Hill Housing

ULI Staff

Patrick L. Phillips
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Kathleen Carey
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Dean Schwanke
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Payton Chung
Director
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James A. Mulligan
Senior Editor

David James Rose
Copy Editor/Manuscript Editor

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Note: This Case Study Brief draws extensively on information and text from a submission to the 2015 ULI Global Awards for Excellence program.