As Bothell’s Downtown Revitalization Plan marches on, all hasn’t gone according to plan. Since 2010, the city has counted on the venerable Anderson Schoolhouse being transformed into one of downtown’s crown jewels. Bothell struck a deal with Portland-based developer McMenamins to design and construct a hotel, restaurants, small bars, on-site brewery, movie theater and other gleaming amenities, all to enrich life for Northshore residents.
Originally, McMenamins hoped to complete the project by 2013. Then it was revised to October 2014. A few weeks ago, workers erected a new McMenamins sign outside the schoolhouse that conveyed a vague timeline with the words “In Development.” And suddenly, videos popped up on the internet — posted by McMenamins — seeking outside financing and/or equity for the project.
This marked the first time that McMenamins, which operates 52 properties throughout the Pacific Northwest, has sought outside investors. The company is seeking $8 million via a crowdfunding campaign for the $26 million project.
“Initially when we entered into the purchase of sale and development agreement with McMenamins the topic of seeking equity or pursuing crowdfunding certainly wasn’t discussed,” Bothell City Planner Bob Stowe said. “So from that point of view, we weren’t aware of McMenamins’ interest to seek equity in order to finance their project. Having said that, we’re fully supportive of their approach, and look forward to them raising the necessary equity to make the project move forward and open in Bothell.”
Although Bothell supports McMenamins seeking outside investors, Stowe said he harbors concerns about how quickly they can start construction on the project and open it.
“Certainly, a $26 million project, which was forecasted several years ago, is a significant undertaking, and we realize that a large portion of that funding, like most projects, will be bank financed,” Stowe said. “The equity portion of that financing at that time, McMenamins had not revealed that it wasn’t going to be fully coming from them, that they were going to be seeking outside financing. So it’s all dependent on them obtaining the financing package, that being the equity package.”
Larry Dortmund, CFO of McMenamins, explained that McMenamins couldn’t avoid delays in the project.
“From the get go, we were looking to bring in outside investors to help get the various phases of the project done all at the same time,” Dortmund said.
In 2010, when Bothell and McMenamins began negotiations, McMenamins didn’t want to purchase the property until they were comfortable with the environmental concerns of leakage from the gas station next door. From McMenamins’ point of view, the Department of Ecology dragged their feet until the City of Bothell and McMenamins joined forces to pressure the department to get the area cleaned up.
On July 20, 2012, McMenamins (DBA Anderson School Properties, LLC) and the City of Bothell entered into a development agreement. The agreement states that McMenamins must obtain financing and/or equity for the entire project.
From 2010-2013, it was difficult finding investors while waiting for the government to issue permits, according to Dortmund. He also said it was tough to locate investors who shared the McMenamins mindset.
“In searching for equity for the project since 2010, we just ran into a lot of road blocks and hurdles in trying to communicate the community aspect of this project and the historical nature of it,” Dortmund said. “We were working with a firm that could help us raise the money, or we were trying to contact private equity funds or groups, but they were really focused on what’s the return [on investment] and not so much on the good of what will come out of this. And that’s what our focus is — which is to create this great community hub and community center.”
But in September 2013, things changed. That’s when the SEC changed a regulation that suddenly allowed companies like McMenamins to advertise for investors for private offerings. This enabled McMenamins to engage in equity crowdfunding, and advertise via a website, social media and media relations as it wished.
Unlike donors on platforms like Kickstarter, where contributions are usually charitable in nature, investors in the Anderson School project will obtain an ownership stake and share in the financial risks and rewards. The minimum investment is $250,000, and is open only to individuals with a net worth of at least $1 million or who make more than $200,000 a year.
Dortmund has told potential investors that he expects they will see overall returns of between 9.9 percent and 10.6 percent after eight years of operation. Investors would also receive special pricing on hotel rooms and events at the Anderson School.
As of April 2014, Dortmund said McMenamins will receive permits soon and that he’s optimistic about securing the needed financing or equity very soon. McMenamins hopes to finally break ground at the Anderson School this summer, with constriction slated to take 14 months. This would put the grand opening on course to occur in mid-to-late 2015 — if all goes according to current plan.
“This approach we’ve embarked on is perfect,” Dortmund said. “We’re able to tell our story, get it out directly to individuals through the Internet, and through folks in the media, it’s been very helpful. We’ve had a lot of interest in it so far and I feel really good about it.”
As for now, the venerable Anderson Schoolhouse stands idle and quiet, surrounded by an unsightly chain link security fence. Built in 1930, the old edifice has lived through World War II, the Kennedy assassination, September 11th, and countless other historic moments.
Don Bagnall, who served as vice principal there in the 1960s, retains strong emotional ties to the building.
“I’m pleased that the building will have a new life,” he said. “And it should be a good life.”