Burlington Northern Santa Fe Corp. has begun offering to sell land it owns next to its busy rail line that runs through downtown Spokane, drawing a mix of cheers and jeers from owners of businesses that lease the land.
Some expect the anticipated real estate transactions to be a boon to redevelopment activity along the railroad right of way, because they will allow businesses to gain a measure of certainty about their long-term futures on sites their buildings occupy.
Others contend that the prices the railroad has been asking for the land thus far are prohibitive, upwards of $15 a square foot in some cases for land the owners or their agents consider to be worth less than $10 a square foot, and they question whether many business owners will be willing to pay them.
They suggest that the railroads recent willingness to sell the land, which it has leased out for decades, stems at least partly from rising indignation among lessees over skyrocketing lease rates in recent years.
Burlington Northern declines to comment on the matter directly or even to confirm its offering lessees the opportunity to buy land in the downtown area here. It says only that it has an active property-sales programamounting to several hundred transactions a yearthrough which it liquidates surplus property here and elsewhere across its system.
Representatives of several downtown businesses located along the rail line confirmed, though, that they are negotiating with the railroad to buy parcels they currently lease. Other business owners say they expect to receive such offers, perhaps when their current year-to-year leases expire.
I think its good news for the city as a whole, says Greg Weed, manager of Summit Property Development, which is negotiating to buy from the railroad several pieces of land now used for parking on both sides of the railroad tracks south of the Metropolitan Financial Center, at 601 W. First. Summit manages the commercial real estate portfolio of Spokane-based Metropolitan Mortgage & Securities Co.
The leases include a clause saying the railroad can cancel them with 30 days notice, whichalthough lightly regarded because of the long-standing nature of many of the leaseshas tended to discourage downtown lessees from making improvements to their properties, Weed and others say.
Others known to be negotiating to buy land from the railroad include Kent and Omega Chandler, who own Litho Art Printers, at 118 S. Lincoln, and the 21,000-square-foot, three-story building that the printing business occupies; and Dan Overhauser, who owns the old, 140,000-square-foot Crescent Service Center building at 152 S. Lincoln, which he uses as a warehouse. Both buildings sit entirely on land owned by the railroad.
Additionally, Avista Corp., of Spokane, is said to be negotiating to buy land that it leases from the railroad near the Davenport Hotel, but it declines to confirm that report.
Former city Plan Commission leader and downtown building co-owner Jim Kolva says he hasnt received an offer from the railroad yet, but he hopes to. He and his wife, Pat Sullivan, bought the old Lambert Candy Co. building, at 115 S. Adams, two years ago and now are converting it into apartments and office space. The structure, which was built in 1926 and sits on railroad-owned land, originally housed Wells Chevrolet Co.
From our perspective, I think its very important to own the property and be out of the grasp of the railroad, Kolva says. To me, thats been an impediment to development of land along the railroad. I think its important for the citys revitalization.
Dale Dupree, owner of Pella Windows Inc., at 152 S. Jefferson, also hasnt been approached by the railroad yet about buying the land his company occupies, but says, Im very interested in it.
About two years ago, Pella spent $650,000 upgrading its retail, assembly, and warehouse facility, located at the west end of downtown. Dupree says he recently bought a fourth building in that area, a 17,000-square-foot structure that an auto-supply business formerly had occupied, just west of Pellas main building.
I dont think there is a business owner here who doesnt want to own the land their building sits on, particularly given the sharp rental-rate hikes imposed repeatedly by the railroad over the last four or five years, he says.
That has been the risk and, in my opinion, has slowed down development along this corridor, Dupree says. This is going to give a green light to a lot of building owners that its safe to spend money on improvements.
Peter Gilmartin, vice president of Commercial Creamery Co., at 159 S. Cedar, which has had preliminary contact with the railroad about buying the land the business sits on, says, Were eager to see it. For 91 years weve paid lease on it. Weve paid for it 20 times.
The inability of businesses along the rail line to buy their land has caused the downtown corridor to deteriorate into a slum-like condition, he contends. If you can own the land, then youre motivated to fix it up, he says. Right now the only good use for (a lot of) it is as parking lots. Certainly it will improve.
Spokane developer Rob Brewster, who leases seven pieces of railroad-owned land downtown, including five with buildings on them and two undeveloped lots, hasnt heard from the railroad yet, but says that he would consider buying the land only at a fair market price. He says his lease rate on the land has gone up 20 times from what it was originally.
Omega Chandler says shes eager to complete the purchase of the land that the Litho Art Printers building occupies, after seeing her lease rate climb nearly 300 percent over about a six-year period. She declines to divulge the price she and her husband expect to pay for the land, but says the railroad is requiring them to pay all costs associated with the sale and to assume all potential environmental-related liabilities.
She says the purchase would end years of frustration that culminated in July 1998 when she refused to pay the most recent lease rate hike imposed by the railroads property manager, Seattle-based Catellus Management Corp. She says she contacted Fred Wagner, area property manager for Catellus, to argue that the increase was unreasonable, but he was very condescending and just took kind of a take-it-or-leave-it attitude. Wagner couldnt be reached for comment for this article.
Chandler then worked with Spokane real estate appraiser T.J. Tom Meenach to hire an attorney and contact property owners along the rail line between Division and Cedar streets to discuss a possible class-action lawsuit against Burlington Northern.
There were 30 of them, and they all showed an interest in it, Meenach says, but when it came time to put up some dollars and attend meetings, there was little or no interest. We finally just abandoned the idea this past summer.
Nevertheless, he says he believes the antagonism shown toward Burlington Northern by the business owners contributed to the railroads decision to begin offering to sell the downtown land here.
We didnt think this was a possibility because we thought it was land-grant property and that it would take an act of Congress (for Burlington Northern to be able) to sell the property, but apparently it didnt, Meenach says. In August, they wrote to various property owners that the railroad would be willing to sell. Several of them are in the negotiation stage right now to try and buy at a fair price, and theres where it is, he says.
In Chandlers case, she says she bypassed Catellus and contacted Burlington Northern executives in Dallas directly to seek lease rate relief, after which they ordered two appraisals on the Litho Art Printers property, then offered to sell the land to her and her husband at the lowest appraised price.
Im happy at this point that I can buy the property at the appraisal price theyve given me, she says. Still, she admits she has hard feelings about the financial ordeal she feels like shes been put through.
As much as they (economic-development organizations) want to improve downtown, this situation with the railroad bordered on driving out a lot of us small businesses, she says, and it still probably does.
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