Samis' sweetheart

Ex-IRS official says Samis' William Justen may be violating federal rules governing foundations.

IT WAS A TIME of reckoning at Pioneer Square's Shoe building last week as the remaining few of 80 or so former resident artists were locked out of the soon-to-be- renovated building. Among the things they left behind was a nearly empty sixth and top floor, shut behind a door spray-painted with an anarchist's "A."

But that space won't be empty for long. According to plans submitted by the building's developer, the Samis Foundation, to the city's Pioneer Square Preservation Board, the approximately 12,000-square-foot space will soon be transformed into a six-bedroom penthouse, complete with library, study, and interior courtyard. From now on, the occupant of this luxurious unit will be the building's sole resident; the rest of the floors will be occupied by offices. Just who that lucky resident will be has been the subject of rampant speculation.

Some artists, activists, and others believe that the penthouse is being reserved for none other than William Justen, managing director of the real estate business owned by Samis. "It is Justen's plan to construct his own personal penthouse on the sixth floor of the building that has upset most of the tenants who are being evicted," reads a press release issued the day of the lockout by a Capitol Hill activist named Mark Taylor-Canfield. Justen refuses to confirm or deny the rumor, but Samis board members suggest that it is at least a possibility. If so, it could create serious legal as well as ethical problems for Samis: The foundation receives a tax exemption based on the fact that it uses its assets for charitable causes, not personal enrichment.

Even more troubling, however, is Samis' use of Justen's own personal development company—the Justen Company—to manage Samis' redevelopment projects.

Samis is the legacy of Sam Israel, the reclusive slumlord who operated his vast real estate holdings according to the principle of benign neglect. At his death six years ago, Israel instructed that a foundation be created that would use his properties to generate income for charitable causes, mostly Jewish schools in Washington state and in Israel. According to records, Samis gave away $3.4 million in the 1998 fiscal year.

To renovate the dilapidated inventory at its disposal, Samis turned to Justen, a prominent figure in the real estate community. In addition to founding his own development company, the 55-year-old once headed the city's Department of Construction and Land Use and helped develop the ZymoGenetics bio-tech lab and the Fred Hutchinson Cancer Research Center while serving as an executive in another real estate group.

In his current job, Justen has launched eight redevelopment projects of Samis buildings in Pioneer Square, including the nationally noticed redo of the historic Smith Tower, designed to appeal to high-tech businesses. Justen says he believes Pioneer Square has benefited. "What's good for Pioneer Square is good for Samis, because we've got so many properties here. We're doing a kind of neighborhood development."

The Samis board seems pleased with his performance. "William Justen has done a fantastic job to help Samis maximize income on properties that were mostly vacant and falling apart," says board member Lucy Pruzan, who adds that Samis has been unfairly criticized for gentrification. "Sam Israel was damned when he wasn't improving the properties. Now that we are, we're being criticized for that." She also stresses that Samis' business dealings serve a purpose. "The foundation is doing some great work. In order to do good work, you need good revenue." To maximize this charitable income, however, you also need leadership that is not using the foundation for personal gain. Is Justen?

There is no doubt that Justen is using his own company for Samis work. Justen founded and is one of five partners of the Justen Company, according to Marty Goodman, another partner. Asked about the Justen Company's relationship with Samis, Goodman says, "We've been managing their development projects." Elaborating, he explains that the Justen Company renovates the buildings, while Samis oversees all ongoing property management. Goodman says he is the "project manager" of the Shoe building's renovation. Samis reported expenditures of $117,000 to the Justen Company on its '98 fiscal year federal tax forms.

WHAT'S MORE OF a mystery is whether Justen has designs on the Shoe building's penthouse. "I don't know how firm a plan that is," says board member Pruzan when asked about the rumor, giving it some credence. Another board member, David Friedenberg, doesn't dismiss the notion either. "He's a citizen. We'll rent (the penthouse) to anybody who can pay the price." He stresses, "There's no sweetheart deal." Justen's estranged wife Sue, who is in the process of divorcing him, also seems not the least surprised when asked if she's heard anything about Justen moving into the penthouse. "Of course," she says. "But I can't tell you that, he's got to."

Justen declines to do so. "I am growing the assets of the foundation pretty significantly," he says. "How I am compensated is not any of your business." It's interesting, though, that he uses the word "compensated," while board member Friedenberg insists that Justen would pay the same rent as any other "citizen."

As a matter of fact, present and former government officials say that the public does have an interest in how Justen is compensated. State laws governing charitable trusts stipulate that foundations such as Samis have "fiduciary duties" to their beneficiaries, according to state Assistant Attorney General Jeff Evan. That means in part that foundation officers are supposed to get "reasonable compensation." So, if Justen did get a sweetheart deal on the penthouse, that could be considered excessive compensation. And if Samis could get better deals by using development companies other than Justen's, the state or the foundation's beneficiaries could take legal action. *

Federal law is even stricter. The Internal Revenue Service specifically prohibits a private foundation from leasing or selling property to its trustees or managers. According to Marc Owens, who left the IRS in February after 25 years there, the last 10 of which he spent heading the division in charge of tax- exempt organizations, such an exchange would be classified as "self-dealing." It doesn't matter whether the foundation makes its property available at market rate, cut rate, or absolutely gratis. "You' re not supposed to do it, period," says Owens, now a private attorney in Washington, DC. He says the only exception is if an employee's work requires the employee to live on the property, for example if the employee was a night security officer. Justen's job would not qualify, Owens says. The same regulations on self-dealing prohibit a foundation from hiring a company run by a trustee or manager—no matter how good or bad a deal the foundation gets. "That would be a suspect transaction that the IRS would look at extraordinarily closely," Owens says. Again, there is a narrow exception, intended to allow banks holding foundation money to perform investment services. Owens does not think it would apply to the Justen Company.

Samis may think differently. In a faxed response to follow-up questions from the Weekly, Justen writes, "The business practices between the foundation, myself, and the Justen Company that is providing consulting services, have been carefully reviewed legal counsel. Counsel has advised the foundation that none of these business practices are in violation of IRS rules."

In his initial interview with the Weekly, however, Justen displayed a curious overall attitude about his foundation job. "We're a private company," he says. "We don't disclose all of our business practices." Officers of other foundations seem much more conscious of their obligation to the public. As Patsy Collins, chair of the Bullitt Foundation's board, puts it: "Foundations are serving the public because they have a tax exemption. For that reason, they have to be extra careful."

Samis may be doing a lot of good charitable work. Its real estate operation may have changed dramatically from the time they were run by an eccentric slumlord. But foundation leaders may not have fully grasped the surprising transformation required by Sam Israel's dying wish.

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