Owner of the historic Alki Homestead restaurant has put together the construction company, the architectural plans and has gone through several rounds of the landmark building restoration process. Now he's hoping the public will help him finance part of bringing the building back.
Public buy in may help rebuild the Alki Homestead; Restoration will cost 2.6 million
The final piece of the puzzle for the long dormant Alki Homestead may be up to the public. If you've got at least $10,000 and want to be a part owner (not to mention get an 8% return) you might be part of it.
Owner Tom Lin has gone through a lengthy process to evaluate, offer designs, and plans, and has been through the gauntlet of seeking city approval set forth by the building's status as a landmark. The building has sat closed and deteriorating since a fire swept through it in January of 2009.
Recently though the potential for reconstruction/restoration of the building has taken a far more positive turn. It has been reviewed by the Washington State Department of Archaeology (WSDA) and The RAFN Company, well known for its restoration work has done its inspections, been in touch with log building experts and worked up an estimate.
"The building would take $2.6 million to restore," said Lin, "as determined by RAFN. Out of that total, $1.6 million is solely for the restoration. $1 million is to build the building behind it for the kitchen." This is also a three story building that would house ADA bathrooms, a staircase and elevator for 2nd floor access as was designed by Lin's architects previously. "I'm entitled to a 20% tax credit on that $1.6 million," Lin explained. That is made possible through being certified by the WSDA the federal Dept. of the Interior and being made part of the National Historic Register. That means Lin would save approximately $320,000 to $350,000 in taxes.
Additionally Lin would finally get a $400,000 insurance settlement (predicated on the building's restoration) from Lloyds of London. "Let's round the number up to $750,000 total," said Lin, "That means we're short $1.85 million," out of the 2.6 million total. "If you look at the cap rate for market rental for that building (in restored condition) it's probably $22 a square foot. The reason I say that is, using comparable rates, the old Pegaus Pizza location (now completely new) has been up for rent at $28 a square foot for three years and it has not been rented. $22 times 7500 square feet means the annual income is $165,000. The cap rate is about 7.5%" The cap rate is the rate of return based on income. "Divide that by .07 (which is 7%) and the building is worth $2.375 million."
"If the cap rate was 7.5% then the building is worth $2.2 million."
"If you look at Alki in general I think commercial property is probably worth b $350 per foot, so 7500 square feet times $350 is $2.6 million." That's Lin's estimate of the
building's worth. "And it takes $1.85 million to restore it. Which means I would get $750,000 equity out of it. The tax assessment is $1.4 million. But this doesn't include the goodwill of reopening the Homestead. That's worth a lot."
The restaurant as it originally existed, at around 5000 square feet could not generate enough revenue to support the cost of restoration. 2000 square feet on the 2nd floor is not usable. That's key to understanding why the expanded plan is necessary since it makes possible access to the second floor as a banquet/meeting space, adds the required bathrooms and commercial kitchen space.
Lin, whose background includes time as an investment banker and CFO for large brokerage houses is seriously considering selling notes to the public to finance the entire $2.6 million. After discussing getting a loan from banks he found they simply will not lend the money. "I met with several banks and one bank wanted to see all the books so I offered to show them the cash flow. They said, "We need a history so we can justify lending to you."
But without being open for four years and with a totally new approach the history of the former restaurant has no relevance. The banks turned him down.
Lin explained the details of how a public sale of notes might work. "It would be run through a Certified Public Accountant and an escrow account to take in the funds and disperse them. The notes would be a $10,000 minimum buy in (maximum $100,000) and pay 8% interest on a 5 year term. Just like a municipal bond you might buy, and they would be secured by the real estate itself. There's enough equity to guarantee everyone's investment. As the Homestead makes money we would pay back principal and interest according to the terms of the note. I think that's the best way to do it. The terms would be interest only and a balloon payment at the end of the term, or negotiate it after that time. If we don't do this, there's no way we can bring the Homestead back."
Lin said he would sweeten the deal for investors by giving those who buy in VIP treatment for life with a 10% discount, their name on a plaque as being part of the historical restoration effort and other elements yet to be added to a package. "I want them to feel that they are part of something special because they are."
So far this is just a plan under consideration with no firm date for the offer yet established. But Lin indicated he'd like to get some feedback on the idea.
A Facebook page has been set up for the restaurant/building to get that feedback. It's also there to share photos, history, information, for the public to stay in touch, and post their memories of the Homestead.
Lin has said previously that he would be open to the City of Seattle guaranteeing the loan or but for now, the potential to involve members of the community in the restoration financing is his preferred path. Once financing is secured Lin wants to "move fast," he said. The project still must go through the approval process of the Landmark Preservation Board and get the appropriate permits from the Department but Lin expects that process to be streamlined and said that preservation officer, Karen Gordon, has been extremely helpful in that regard.