Seattle Art Museum’s WaMu Whammy, Continued: JPMorgan Chase Scotches Lease Deal UPDATED

Seattle Art Museum director Mimi Gates, speaking at 2007 press preview for SAM's expansion

When I read last night (here, here and here) that JPMorgan Chase, which has acquired Washington Mutual Bank, was not going to honor WaMu's lease of eight floors above the new Seattle Art Museum expansion, my first thought was that the museum might sue. It has been receiving some $5.8 million annually for 240,000 square feet of office space, which SAM had the future right to occupy when it was ready for its next expansion. Now, a day after a major employer in the region, Microsoft, announced that it would be cutting up to 5,000 jobs over the next 18 months, everyone's thinking contraction, not expansion.

In October, shortly after JPMorgan Chase had acquired the failed WaMu, I asked Nicole Griffin, SAM's associate manager of public relations, if getting JPMorgan Chase to assume WaMu's lease could pose a problem. She then informed me that there were "change-of-control provisions in the lease agreement" that could protect SAM's interests. She indicated that the museum hoped the new owner would honor WaMu's rental obligations.

Think again. For now, JPMorgan Chase is keeping ownership of the top four floors of SAM's 16-story, Brad Cloepfil-designed building, as well as the 42-story WaMu Center office building behind SAM, which was constructed on museum-owned land in conjunction with SAM's 2007 expansion. But this March, JPMorgan Chase intends to terminate the lease on the eight floors directly above the museum. SAM is left searching for a new tenant (or tenants) willing to accept the museum's right eventually to occupy that space.

As for why no legal action is contemplated, Griffin told me this:

The change-of-control provisions would have pertained to a merger or acquisition of the bank by another commercial entity and would have been enforceable in a normal commercial transaction. However, the WaMu situation was unique in that the bank was briefly seized by a federal agency, the FDIC, which has federal statutory authority to abrogate obligations of financial institutions it may take over. In selling WaMu to JPM, it provided JPM with a much wider range of options in regard to lease terminations than would otherwise have been the case.

JPMorgan Chase sweetened this sour deal (and perhaps headed off any thoughts of litigation) by coming across with a $10-million grant, to be paid over the next five years. This beneficence occasioned a manic joint SAM-JPMorgan Chase press release (not online at this writing), in which the museum's director, Mimi Gates (who last June announced her intention to retire, effective this June 30), extolled the bank's "commitment to the community" and its "collaboration and sincere generosity." Chase chimed in with self-congratulation for its "special relationship with SAM....We strive to be a good corporate citizen in all communities where we do business."

Still, $2 million a year leaves SAM short about $3.8 a year. The money was going towards the museum's $59-million debt from the expansion, and "related obligations" for the rental space, according to Griffin. The museum professes optimism about finding a new tenant for what Griffin called "Class A office space in a superb location and a very competitive price."

And let us not forget that classy movie theater, right across the street.

UPDATE: In today's Seattle Times, reporter Jim Brunner added his byline and financial acumen to yesterday's story (first link at the top) by Janet Tu. Here's some of the added information in today's report:

The move means some risk for Seattle taxpayers because the city guaranteed $65 million in bonds for SAM's expansion. If the museum were to default on the bonds, Seattle would be on the hook for about $4 million a year in bond payments.

Dwight Dively, the city's finance director, said he sees no imminent threat of that. "That is not to say it couldn't happen over a longer period of time" if SAM cannot find a tenant or its financial condition deteriorates, he said.

To help find a new tenant, SAM has turned to Matt Griffin, the Seattle developer who arranged SAM's complicated expansion deal with WaMu.

Is turning to the guy who got them into this mess a good plan?