Project seen as catalyst for downtown has issues. What’s next for Tacoma Town Center?

A project that would bring more than 600 apartment units, retail space and offices to downtown Tacoma has stalled.

The 6.4-acre Tacoma Town Center project is struggling to cross the finish line. Court records show its developer owes the project’s architect more than $500,000 and faces possible foreclosure.

The $303 million Opportunity Zone project is bordered by South 21st to South 23rd streets from Jefferson to Tacoma avenues, just south of the University of Washington Tacoma.

Opportunity Zone projects offer tax advantages where investors can defer and potentially lower their capital-gains taxes in exchange for investment.

The project calls for six buildings with 537 market-rate and 98 rent-restricted apartments, according to an amended agreement with the city.

The buildings would include 36,200 gross square feet of retail space and 200,000 gross square feet of Class-A office space on the corner of 21st Street and Jefferson Avenue. Plans also call for 1,000 parking stalls and a public plaza.

Jefferson Yards, 409 S. 23rd St., is the only building completed so far, finished in March 2021 by the original developer, who still owns it. That property offers 144 market-rate apartments and 6,000 square feet of retail space.

Boise, Idaho-based Galena Equity Partners took on the project in 2021 after the original developer’s funding plans stalled. North America Asset Management was unable to generate sufficient financing, including EB-5 investment, according to information presented during the amended development agreement proceedings. The EB-5 Program offers visas in exchange for investments creating job growth at approved sites.

An amended agreement bringing in Galena was approved at the June 8, 2021 City Council session. It conveyed remaining undeveloped property to NAAM subsidiary Tacoma Town Center Parcels LLC, who would assign its interest to one or more LLCs formed and controlled by Galena Equity Partners.

Jennifer Hines, assistant division manager with the city’s Real Property Services, emphasized how important the project was at that council meeting, both for the new units to come and as a valuable Opportunity Zone project.

“It is a significant project for the City of Tacoma,” she said. “We are looking forward to having this completed, it will catalyze additional development ...”

She added, “We’re improving Tacoma’s investment climate ... people across the nation that are interested in becoming investors will see that it is accomplished in Tacoma, and it’ll bring them in and that is something we’re definitely looking forward to.”

Steve Victor, part of the city’s legal team, told council members at their May 25, 2021, study session that the city’s authority in oversight in this project, “is to review it to be sure that the proposed new investor and partner is capable of performing the work.”

He continued, “And we have done that and they are capable.”

But Galena has run into issues of its own. The company did not respond to questions from The News Tribune, but a March filing in Pierce County Superior Court and city permit records show challenges facing the developer.

Settlement and continuing legal action

Nonpayment of a 2022 settlement to the project’s architect led this month to a request for a lien judgment against Tacoma Town Center Parcels LLC.

Seattle-based Caron Architecture sought payment through the court in an initial breach of contract complaint and foreclosure of lien filed June 2022.

“On or about July 28, 2021 and August 3, 2021, Defendant Tacoma Town Center Parcels LLC entered into contracts with Caron to provide architectural services in connection with the Subject Property. .... Caron performed the work, as contracted, and invoiced for that work, but was never paid,” Caron’s attorney wrote.

“Despite numerous requests for payment by Caron — and multiple promises by Galena parties that payment would be forthcoming— Galena parties failed to make the $539,923.93 payment required under the Settlement Agreement,” the firm’s attorney wrote.

Superior Court Judge Thomas Quinlan issued an order in September to enforce the settlement agreement between the firm and Tacoma Town Center Parcels LLC, Galena Equity Partners LLC, GIC Tacoma LLC, Galena JV Manager LLC and Inflection Development LLC.

In November, the architecture firm won an amended settlement judgment including an annual interest rate on the amount due.

In a March 7 motion filed “for entry of order establishing priority of lien and decree of foreclosure,” attorneys for the architecture firm wrote, “Defendants have failed to file an answer or other responsive pleading ...”

In a March filing, Caron attorneys wrote that “the court previously awarded Caron judgment in the principal amount of $539,923.93, plus prejudgment interest of $20,058.54, plus attorneys’ fees and costs in the amount of $31,740.98, together with post-judgment interest at the rate of 12% (per year) from November 10, 2022.”

The firm has the potential to gain a portion of the property, Parcels C and D (Buildings 3 and 4), under terms of a proposed foreclosure included in the filing.

“Caron shall be permitted to become a bidder and purchaser at the Sheriff’s sale, and may credit bid up to the amounts due under this judgment, and any subsequently awarded supplemental judgment, and the purchaser at such sale shall be entitled to immediate possession of the Subject Property to the full extent permitted by law,” the attorneys wrote.

No legal responses from the developer’s side to address Caron’s claims had been recorded as of March 13.

An attorney for Caron did not respond to a request for comment on whether foreclosure is imminent.

Construction permit expires

At the end of January, a proposed construction permit for the site’s “Building 3” was voided by the city after expiring when no work had been done.

Megan Snow, media representative with the City of Tacoma, answered questions from The News Tribune in early February about the permitting status. According to Snow, the permit was still in a review stage and had not been issued.

“It has been through three review cycles and we have been waiting for revisions to be submitted since August of 2022,” she wrote via email. “When a permit is inactive, in either a review or construction stage, for six months, it will automatically be closed. Once that occurs, the applicant can submit a request to have the record reopened/extended.”

She added, “There are permits for the Building 4 site that had been issued previously, and have been extended, but no inspections have occurred recently.”

On March 13, Snow told The News Tribune via email that no extensions have been filed for the Building 3 permit and no inspections had occurred for Building 4.

When asked if the delays had anything to do with the settlement dispute, Snow wrote, “We cannot speculate regarding the reasons for the delay in activity on Buildings 3 and 4. This question should be posed to the property owners.”

Dan Fullmer, chief investment and development officer with Galena Equity, on Monday did not respond to questions from The News Tribune about the project or court case.

Fullmer told the Puget Sound Business Journal in a recent email that the project is on “short-term hold” while the company works through financing options.

In response to questions from the City Council at its May 25, 2021 study session about the amended development agreement, Fullmer noted then that Opportunity Zone investment monies for the project were due within 31 months.

He added, “If people had additional pieces of information they wanted from us to prove who we were, we could provide that. ... And yes, the dirt’s worth more today than it was in 2015, as is a lot of dirt in different places. But just me giving you that statement doesn’t mean I can build something on it.”

Last year, buildings 3, 4, 5 and 6 received 12-year multifamily property tax exemptions during two separate council sessions, with a portion of the rents restricted at 80 percent AMI. According to the MFTE agreements, Buildings 3 and 4 were estimated to be completed in September of this year, with 5 and 6 starting in March and completed in March 2025.

Buildings 3 and 4 would offer a combined 239 units, with 5-6 offering more than 250.

It is unclear for now how the ongoing litigation will ultimately be resolved, but any new site owner will have to work toward finishing the project.

While the city doesn’t own the site, “The property is subject to a binding development agreement which runs with the land, and in the event of a change in ownership, would be binding on any future owners until all its terms are fulfilled,” Snow told The News Tribune via email earlier this year.

In January, Caron’s case against the developers was reassigned to Pierce County Superior Court Judge Bryan Chushcoff.

The case’s next court date is tentatively scheduled for Friday (March 17).