Russell Investments

This September, we passed the ten-year anniversary of the 2008 Washington Mutual collapse, a landmark occasion in Seattle’s history. This anniversary marks an interesting story in our own history, as well: how Kinzer Partners helped Russell Investments find a new headquarters after leaving their longtime home of Tacoma.

In 2004, Scott Redman of Sellen Construction approached us with an intriguing assignment to source a 1-2 million square foot space for a mystery client, whose identity we would not know for more than a year. The highly confidential nature of this project sparked some in-house speculation; were we working for a local tech giant? An incoming industry powerhouse trying to set down roots in the Pacific Northwest? Foreign royalty? (Hey, sometimes you never know.)

With no time to waste on the identity of our mystery client, we turned to planning. We began by researching and creating over 35 possible HQ campus sites between Tacoma and North Seattle.

The work done over the next few years would be part of a memorable, significant milestone for Seattle, and a multi-layered success story for Kinzer Partners.

Meeting Our Mystery Client

In 2006, the veil came off: our mystery client was Russell Investments, which we would keep confidential for another 18 months. A long-time presence in Tacoma, where the firm was founded in 1936, Russell’s HQ was facing an expiring lease and growing pains. Knowing our client’s identity helped focus our strategy, but at that early stage, we couldn’t have predicted exactly how complex and noteworthy this project would become.

Our first point of contact was Craig Ueland, Russell’s CEO since 2004. Craig envisioned an expansive campus for Russell’s next headquarters, of at least 1 million and expansion to 2 million square feet. From our initial search and development of 35 sites, we had identified an appealing location in the Renton/Tukwila area known as Longacres. Design and negotiations for the new campus were underway when we learned–fortunately not by experience–that the storm-damaged Howard Hanson dam could fail and flood the campus. It was not an auspicious start or promising future for this location, but we didn’t have the luxury of waiting. By the time plans to repair the dam were underway, even more shifts had occurred: our contact at Russell Investments was now John Schlifske, the new interim CEO from Russell’s parent company, Northwestern Mutual Life.

Imagining a Momentous Move

John Schlifske was prepared to move Russell’s headquarters even further from home, up to Seattle. Knowing this could be a controversial decision, we needed to handle it strategically given Russell’s legacy in Tacoma.

There are so many elements involved in helping a client identify and prioritize criteria for a new location; not only must you consider their immediate needs, their future plans, and their business relationships, you’ve got to factor in timing–what sites or buildings will be available, when, and why. When we started to do the deep work around what Russell Investments would need in their new home, under their new CEO, it was between 2007-2008. Their original vision for a large, low-rise campus was no longer the priority it once was, as they’d begun to consider an urban, all-encompassing HQ location.

Fortunately, Kinzer Partners had a wealth of experience in urban HQs for large entities like Starbucks, the City of Seattle, Seattle Children’s Research Institute and the Gates Foundation. We began an exhaustive, qualitative comparison between Tacoma and Seattle. When we evaluated factors that would help Russell continue to thrive, one specific metric really resonated: the number of people with advanced college degrees in the workforce. Seattle far outpaced Tacoma in this respect as number two in the nation per capita. While hometown Tacoma was still on the table, we were beginning to see Seattle’s energy and HQ opportunities making it a very competitive city on Russell’s roster of options. Accordingly, with CEO Schlifske, the Quest Stadiums north lot in Pioneer Square became the leading site for the development of a new HQ building.

Russell Investments – Momentous Move

An Unexpected Upside in the Midst of the Financial Crisis

In a twist that was complicated for everyone, but unexpectedly fortuitous for us, the recession hit right in the middle of our Russell HQ assignment. As we saw banks and financial firms struggle, then fail, Shelley Gill at Kinzer Partners wondered if Washington Mutual would be the next to go. If that happened, we thought, a new building could become an enticing possibility for Russell’s next HQ: the 42-story WaMu Tower in downtown Seattle.

The outcome of this is no secret. By September 2008, of course, WaMu had been declared “bankrupt” and the FDIC swooped in and sold it to JP Morgan Chase. This put us in a unique position to negotiate on Russell’s behalf, but it was evolving into a delicate situation. As we began to seriously evaluate the WaMu Tower, we had to contend with a few new developments.

Many Players, Many Priorities

First, Russell Investments had yet another CEO on board. When Andrew Doman was named CEO in 2009, he was raring for change. While his push for an energetic new city might have had him thinking New York or San Francisco, we agreed to keep Russell close to home in the Pacific Northwest. 

Of course, there was a fine line of tension between cities around the potential relocation. Russell Investments had been a bastion of Tacoma industry since the 1930s, and while Renton and Tukwila had fallen out of the running, Tacoma couldn’t quite believe that Russell might move. On the other hand, WaMu’s collapse was a huge loss for Seattle, which could provide the necessary incentive for some bold decisions by the city.

Russell Investments - DSA Russell Investments - Tacoma

 

Finally, there was the matter of the Seattle Art Museum (“SAM”). For years, they’d had a quarter-million square foot expansion space as part of the WaMu Tower development. The lease was backed by city bonds but paid for by WaMu until the collapse. We knew that the building’s next buyer, via the FDIC, would be able to reject the lease obligation, leaving both the museum and the city anxious to pass the buck for this tricky asset.

Rather fortunately for our purposes, the recession meant that no one was buying buildings. With credit markets frozen, we knew there would be few, if any, potential buyers interested in the WaMu Tower. This ended up being a tremendously creative opportunity for us, for Russell Investments, and for their parent company, Northwestern Mutual. We were primed to make a number of historic deals, if we handled everything deftly.

Negotiations Begin

With JP Morgan Chase in possession of the former WaMu Tower, we knew we’d be talking to their CEO Jamie Dimon. Chase was buying WaMu branches with no particular investment in the headquarters building, and they’d put the tower at zero basis on their balance sheet because it had come in through the FDIC. (It was critical that we understood the FDIC process, which treats assets as if there is a bankruptcy.) This meant they could accept a lowball price and still profit. Chase also had to navigate rejecting the new lease for SAM’s expansion space, while needing to create goodwill as they entered the Seattle market.

A solution to SAM’s lease obligation was another incentive for the city’s cooperation. With the WaMu lease wiped out for their expansion space, SAM and the city were looking expectantly at one another to see who would step up to pay the rent. Of course, since the space was backed by city bonds Seattle would have been responsible, but they weren’t eager to do so without knowing how long the building might be vacant. Once more, Russell and Chase worked to add another piece to the puzzle. Jamie Dimon gave SAM a $10 million gift to offset the loss of WaMu’s lease, which allowed them to bridge to a new tenant with Russell moving in.

We again approached Seattle’s mayor, Greg Nickels, and met with Jamie Dimon. We didn’t exactly gather under cover of night, but at this time, our conversations were still quite confidential. Because we already had a location in mind, we could be fairly persuasive to the city. We did have to reach an arrangement that would make this move extremely competitive to Russell despite their Tacoma roots, so we asked Mayor Nickels to approve $50 million in B&O tax abatement for Russell Investments, something that had never been done before in Seattle. Leaving nothing to chance, we also had the mayor convince Jamie Dimon to grant us an exclusive to purchase the WaMu Tower (soon to be renamed “Russell Investment Center”).

The final piece of this transaction was to transfer the right of purchase to Russell’s parent company, Northwestern Mutual Life. When we did so, the purchase went through at thirty cents on the dollar for $115 million—a staggeringly good deal. When they sold it for $480 million only 30 months later, this became the most profitable commercial transaction on the West Coast.

Russell InvestmentsRussell Investments Moves to Seattle

 

Winners and Outcomes

Russell and Northwestern Mutual closed on the WaMu Tower in 2009, 5 years after we were approached about a new home for an anonymous client. It was an intriguing challenge from the very beginning. Let’s recap some of the figures we dealt with in this time:

  • 3 different CEOs
  • 3 competitive cities, with 1 particularly long-term relationship at stake
  • 1 location at high flood risk
  • A dramatic nationwide recession, with a major bank casualty based in the heart of Seattle
  • A cultural institution with a dangling lease
  • One beautiful urban tower, up for grabs

This multi-year, multi-faceted project concluded with a multi-party win. Russell Investments was thrilled with their new home. What would have been a momentous move under any circumstances proved to be a very positive decision, as we saw when they analyzed metrics months after their move. With their move out of Tacoma, Russell did lose about 30% of their employees who couldn’t stomach the commute or saw a natural opportunity to move on. Those that stayed for the move, though, saw a 30% surge in productivity, measured by their server activity, and a huge increase in workplace satisfaction. The fresh, open design in the tower office went a long way toward encouraging employee happiness, as did the vibrant energy of downtown Seattle.

Thirty months later, Northwestern Mutual, Russell’s parent company, was ecstatic with the most profitable transaction (measured by IRR) in its history with the sale of Russell Investment Center.

Seattle, too, was pleased with this outcome. Bringing a major company into the city after losing WaMu provided a huge infusion of confidence and stability. While the $50 million tax abatement wasn’t publicized at the time, it was an unusual, significant concession that reflected Mayor Nickels’s investment in the city’s ability to bounce back.

Even the SAM was happy. Their $10 million gift from Jamie Dimon provided an essential cushion during a time of transition. With Russell as their neighbors, the museum still maintains the expansion space, even after the tower sold again in 2012.

An Example of What Sets Us Apart

Our industry requires a great deal of prescience, finesse, and negotiation savvy. The first priorities in any Kinzer project are learning a client’s mission and brand inside and out and investing in relationships; this is what gives us the edge to pursue successful, creative solutions. The Russell Investments years certainly threw some curveballs, but the experience honed our knack for seeing unexpected opportunities, gauging the needs of every party involved, and considering long-term outcomes. A decade later, we’re honored to take the same approach with every client.