A Billion-Dollar Financier

By By Michael Hood March 29, 2010


John Finke
John Finke, director at the
National Development Council, has been a behind-the-scenes presence in many
public development projects.

In terms of city skylines, ribbon cuttings and large public
works in Washington, John Finke (rhymes with pinkie) may be the most influential
man youve never heard of.

He and the National Development Council, the nonprofit hes
worked for since 1983, have been at the forefront of local community
development for decades and wildly successful in structuring public-private
partnerships to finance big-ticket public projects.

Wildly may not be the word to describe anything about the
soft-spoken, wonkish eastern Washington native, but his steadfast approach to
securing tax-exempt bonds is a local bright spot in an economy where
traditional financing is costly and tough to get.

In 15 years, NDC and the creative skills of Finkes team
have financed and built more than 20 projects with more than $1.8 billion in
direct development costs for their client governments, both inside and outside
Washington state.

Greg Johnson, president of real estate development company
Wright Runstad, has partnered with Finke many times. Public-private
partnerships help now even more than in robust economies by bringing private
processes and private perspective to enhance public projects, says Johnson.

Finke has made
the IRS Rule 63-20 an instrument of choice for issuing tax-exempt bonds for
nonprofits, though hes also a virtuoso of conventional financial devices such
as Section 108 and Community Development Float lending; SBA guarantees; New
Markets and Historic Tax Credits; HOME funding and regular bank financing.

originally in 1963 for projects like public hospitals, 63-20 was the original
process that enabled not-for-profits to gain access to tax-exempt bonds. But,
Finke says, One of the awkward elements of that ruling is that when debt was
paid off, the ownership of the facility must revert unencumbered to a public

When alternative means (conduit financing) came along, most
developers migrated away from 63-20s. But, Finke says, About 15 years ago, we,
and others, realized theyve [63-20s] got great potential for building public

The 63-20s are tax exempt and essentially have the same rate
as bonds issued by governmental agencies. It is lower-cost debt, yet that debt
is running to a private not-for-profit, says Finke, and the building is owned
for the private not-for-profit as long as the debts on it. And because its
private debt and because its private ownership, its a private debt, its a
private project.

Thats good because, he says, the private and public sectors
approach development very differently. Government development has no reward for
efficiency, since there often is a political element as well. Too often,
without the efficiency reward, they [government entities] dont have any reward
and a high punishment. They try to avoid controversy at the expense of
efficiency, Finke says.

Private developers, he adds, have greater and more efficient
coordination between architects and contractors, and more current knowledge of
development needs and trends. Were able to bring that private approach to
public building.

The NDC, or the nonprofit it sets up for a particular
project, ensures the private developer completes the project on time and on
budget. We want, says Finke, the savings achieved in construction to all or
dominantly accrue through the nonprofit back to the government entity.

In the end, the nonprofit it sets up actually owns the
building, and NDCs becomes an ownership and oversight job. NDC charges a fee
for overseeing construction and the facility. Our requirement is to keep the
building in like-new condition, so when it reverts to the local government,
its like new. We have to oversee both the property management and the bond
compliance piece.

Projects have been wide ranging: parking garages, student
housing, research facilities, municipal office buildings, a city hall and
medical office buildings. Were a not-for-profit. Our mission is to help
government, help stabilize local tax bases and lessen governments burdens.

Although hes
kept his head low over the years, as NDCs western director, Finke and his team
have played major roles creating private-public partnerships or otherwise
finding loans for projects for such iconic Seattle institutions as Pike Place
Market, the King Street Center and the Wing Luke Asian Museum renovation. They
were key players in the restorations of the historic Cadillac Hotel, the
Butnick Building and the Lutheran Compass Center after the 1999 Nisqually quake
inflicted significant damage in Seattles Pioneer Square. There were two tools
used, says Finke. We used them together: the Section 108 loans and Historic
Tax Credits.

More recent developments include Edmonds Community Colleges
first-ever student dorm, which opened last fall with 100 percent occupancy, and
Harborview Medical Centers Ninth & Jefferson expansion into which the
public hospital and the University of Washington moved in April, and Redmond
City Hall.

NDC chart
Click on image for larger view.

Just because the economys pulled back, doesnt mean
[government] doesnt still need a medical building, a city hall or a jail,
says Johnson. In a down economy, the kind of partnerships that NDC does are
even more important from a jobs perspective. They can keep going and still
produce the facilities and the jobs during downtimes.

Ground has been broken for the $255 million state Data
Center in Olympia. Johnson says the 63-20 bonds were sold for it a few months
ago: Even in a tough financial environment, where its very difficult to get
financing for any kind of project, the bond market looks favorably on these
types of partnership projects.

The Harborview project shows what Finke and the NDC are
capable of. Traditionally financed with voter-approved bonds in 2000, the
Harborview project ran into trouble in 2005 when, with a huge hole already dug,
bids came in showing a cost overrun of $30 million. The budget gap could have
killed the project; King County knew it couldnt go back to the voters. The
project regrouped, and with Finke, approached it as a 63-20. The project, with
the same principals (Wright Runstad, architects NBBJ and Turner Construction)
using 63-20 contracting, was finished on time and $30 million under

Johnson says the public partnership brought in private
sector expertise in a tough cost environment and shed some risks to the private
sector. A redesign of the facility combined with the partnership aspect was
enough to generate capital to complete not only the original project, but to
expand it.

The last time NDC and Finke got in the news was in the mid-1990s
for the public-private partnership they set up with the city and developers to
finance a three-block redevelopment, moving Nordstrom into the old Frederick
& Nelson space and building the Pacific Place parking structure. Downtown
was on a downward spiral. Wed have virtually no retail today without that
project, Finke says.

Nonetheless, Finke, NDC and then-mayor Norm Rice got nailed
in the press for a variety of alleged public/private abuses. With considerably
less media attention, however, the process was eventually exonerated by the
state and federal governments. Now, its generally agreed those efforts saved
Seattles near-moribund retail core.

Today, NDC and Finke avoid even favorable
media attention. Were not someone who looks to be in the press. We work for
governments and dont ever work for the private sector. We arent about to seek
[public] credit for what we do.

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