1920s Tacoma tower with bank vault to be renovated for housing

A controversial federal tax break is fueling the transformation of a historic downtown Tacoma office into apartments where residents will be able to enjoy a unique amenity: A basement bank vault, preserved from the days when the 18-story building was home to the Scandinavian American Bank.

When it was built in 1925, the twin-towered Washington Building was the second-tallest in the Pacific Northwest, after the 42-story Smith Tower. But by the time Seattle-based Unico Properties purchased the building in 2017, it was sparsely occupied and behind on needed repairs.

The company immediately announced plans to convert the building, four blocks north of the Museum of Glass, into 150 residential units.

Over the past two years, though, ballooning construction costs put a crimp in Unico’s plans for the adaptive-reuse project. Seattle-area construction expenses rose by nearly 14% in that period, according to the Mortenson Construction Cost Index.

Enter opportunity zone (OZ) financing.

Much of Tacoma has been declared eligible for opportunity zone tax breaks, a federal program signed into law at the end of 2017 allowing investors to shelter capital gains for up to 10 years by investing in projects in some low-income census tracts.

The program has come under fire nationally for benefiting wealthy investors while not aiding the poor communities it was meant to help, though local opportunity zone investors say they work hard to ensure their projects serve the state’s working class. Seattle’s first opportunity zone project, Pioneer Square’s Canton Lofts apartments, was supported by local officials including former City Councilmember Sally Bagshaw.

And proponents say opportunity funds attract a more diverse set of investors than traditional real-estate financing. Mom-and-pop investors suddenly flush after a home sale, stock cashout or inheritance, hoping to lower their capital gains tax bill, can stash that cash in an opportunity fund, where investment minimums can be less than $100,000.

Up to $26.5 million for the Washington Building renovation, expected to start later this year, will come from opportunity zone investors.

The project would have gone forward even without the opportunity zone program, but “the OZ was an added benefit that added value to the asset, allowing Unico to rehabilitate a historic landmark and deliver a quality product to the market,” said Unico Senior Vice President Lori Hill in a statement. “After 18 months of entitlements, we explored — thoughtfully and deliberately — how the OZ designation can be used to benefit the rehabilitation of the building. I’m happy to share that many of those details are nearing completion.”

The company has not yet determined how much the units could rent for.

One thing that’s known: A spokesperson said the bank vault will be kept open to tenants, potentially as a lounge.