To the editor:
It seems apparent that four members of the Bainbridge Island City Council have not fully had the time to pour over the appraisal documents that supposedly support the purchase price of the Harrison clinic.
For anyone that does, they will be perplexed as to why the city continues to pursue acquisition of this building at a price which far exceeds its market value, as determined by its own experts. The various appraisals procured by the city, all of which are based on the presumption that the property will not be converted to a different use (at the instruction of the former manager Doug Schulz, who is no longer around to question as to the wisdom of this instruction), reveal a value range of $7,040,00 to $7,600,000, with the lower figure representing the most recent updated 2019 figure. Why then is the city paying close to $9 million this surely representing a gift of public funds to a private entity of nearly $2 million?
Perhaps the reason for the surcharge is the nearly year old appraisal prepared for the seller for “asset decision making purposes” at $9.7 million. If so, that is unfortunate, as the report does not stand up to full scrutiny as a reliable indication of market value of this property today.
The appraisal has two approaches to value. One, an income approach, rests on the assumption that the property could procure a premium rental value (from who?) at $40/square foot, while the general Kitsap market rent range shown is $20 to $26/sf. How is that done? Selection of a rental comparison from the I-5 corridor (Fife), and a supposedly confidential transaction in Poulsbo (kept secret for unknown reasons) at over $40/sf, this in a market where general medical space goes for around $20/sf or less.
So what about this mysterious 30,000- to 50,000-square-foot building in Poulsbo, that apparently garnered such a high rent? If accurately presented, it is likely there are many other considerations, like part ownership, and/or an expensive build-to-suit including a lot of specialized equipment and finishes.
If the city is going to base a $2 million surcharge on this report, Harrison should provide the information behind this rent comparable for further scrutiny. If this is a first generation, high improvement and part owner deal, it clearly does not apply to second generation space at a failed medical clinic location on Bainbridge. That assessment is supported by the city’s own appraisals, which confirm much lower rental forecasts are more likely.
The second approach to value used by the Harrison procured appraisal is a sales approach, concluding to $550/square foot. This is done with two Kitsap sales at $363-365/sf, and two I-5 corridor sales (one in Bellevue and one in Federal Way) at $490-$515.
Does the city really feel this analysis is justified, such that they are willing to pay more for this building than a clinic in Bellevue, and a Federal Way clinic that happens to be a stone’s throw away from St. Francis Hospital (not mentioned in the report)?
The city’s purchase price for this property is an embarrassment and is not justified. It will set a high water mark for medical office space in Kitsap County, this completely unjustified for a clinic that Harrison has found it unprofitable to continue to operate. The property will sell for more than successful clinics located near hospitals and in Bellevue.
Our council members have the responsibility and obligation to stop this project in its tracks before island’s taxpayers are committed to years of special tax assessment for a poor decision that is not supported by the facts.
This kind of decision should operate on the basis of “beyond a reasonable doubt,” with a full majority council endorsement as compared to the reluctance so evidence in a 4-3 decision.