Scott North, Herald Writer
EVERETT — In the high-stakes game of commercial real estate, it is often said location is everything.
For developer Craig Dieffenbach, it looks as if the city of Everett has become a less friendly place for him to do business.
For most of the past year, the 40-year-old Seattle man has been the picture of the benevolent entrepreneur, snapping up downtown buildings and properties, often at bargain prices, while talking up revitalization of the city’s down-at-the-heels Hewitt Avenue. He’s convinced many people that his track record on a similar revitalization project in Seattle’s Rainier Valley gave him the business skills and savvy to be successful here.
But Everett isn’t proving to be as easy for redevelopment as Dieffenbach’s earlier projects. Nine months after buying his first Everett building, Dieffenbach has had mixed success attracting new business, although he recently signed two new leases.
More serious, however, his relations with the city have become strained.
City officials said Dieffenbach broke his word to them, driving up by hundreds of thousands of dollars the cost of a piece of land deemed critical to the development of a proposed $50 million downtown special events center.
Everett Mayor Ed Hansen said Dieffenbach’s action was nearly a "deal breaker" for the center’s development downtown.
Meanwhile, The Herald has learned that Dieffenbach is a convicted felon who spent four years in a federal prison during the 1990s after being convicted of cocaine trafficking.
Records show he would have served longer if he hadn’t agreed to cooperate with federal agents and help put others behind bars. As it was, the government nearly backed out of the deal, saying Dieffenbach promised way more than he delivered.
Dieffenbach said his criminal record is "really nobody’s business" and that it is unfair for anyone to bring it up years later.
"I think it is sad, because I’m here trying to help out as much as I can," he said. "It makes me want to leave. At what point is it worth it?"
As for the friction that has developed with the city, Dieffenbach said that was the result of a simple misunderstanding over what properties he would be willing to sell and at what price.
"I bent over backward to accommodate those guys, to keep my word," he said.
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Dieffenbach’s business is refurbishing buildings. His life story is also about transformation.
He grew up in Southern California and Snohomish County, where he attended Stanwood High School.
Before becoming a developer in 1998, he sold advertising and was involved in marketing, first in telephone directories and then for an Internet-based company he founded and later sold. After dabbling with the dotcom business, he moved to commercial real estate. By all accounts, he had big success renovating buildings in Seattle’s Columbia City neighborhood. Those buildings are now occupied by an upscale restaurant, an art gallery and a music recording studio.
Before the success were years of trouble.
Court records show Dieffenbach ran afoul of the law in his late teens, when he pleaded guilty in Everett to misdemeanor charges for possessing cocaine and hallucinogenic mushrooms.
By the mid-1980s, he was operating art galleries, first in Bellevue and later in San Clemente, Calif., where he helped start a community art fair.
The business also put him in harm’s way. In 1986, Dieffenbach and an Everett man told Los Angeles police they were robbed of $32,000 after showing up in a limousine at a Hollywood nightspot to purchase Norman Rockwell prints. The story was reported in a San Diego newspaper.
Three years later, at age 28, he was arrested by the federal Drug Enforcement Administration in California on charges of selling more than a pound of cocaine in Seattle and conspiring to sell more, court records show.
Faced with a mandatory federal prison term of five to 15 years, Dieffenbach cut a deal. He pleaded guilty to selling cocaine and offered to work with agents in exchange for a reduced sentence. His case was moved from the U.S. District Court in San Diego to Seattle, where the file initially was sealed at his attorneys’ request.
Court papers show Dieffenbach assisted federal agents in a number of cases. He also engaged in behaviors such as refusing to assist in some investigations that caused federal prosecutors to question the deal.
They moved to have Dieffenbach’s bail revoked. He spent the next seven months awaiting sentencing in Snohomish County Jail, with a view of much of the land in downtown Everett that he now owns.
At Dieffenbach’s sentencing in November 1990, U.S. District Court Judge William Dwyer said he was "an intelligent person with a great deal of talent and ability to make his way in the world."
That, the judge said, made his crimes "all the more serious." Evidence was clear Dieffenbach had been "dealing in drugs through legitimate businesses as a front" and was high up in the distribution chain, the judge said.
Dwyer sentenced Dieffenbach to four years after assistant U.S. attorney William Redkey told the judge it was a "very, very close call" whether his reluctance to cooperate in some areas had breached the deal to assist drug investigators.
Dieffenbach’s attorney, James Kempton of Seattle, told the judge his client promised more than he could deliver.
"Mr. Dieffenbach has been endowed with a certain degree of braggadocio, which is as much his problem as anything," Kempton told the judge, according to court transcripts.
Dieffenbach served his time at the federal prison in Lompoc, Calif. He was on probation until 1997 and earned only glowing reports about his transition from prison to freedom.
In interviews with reporters, Dieffenbach said his criminal past is long behind him. In fact, he said he has put himself at risk by driving out the drug dealers who previously had operated from the Hewitt Avenue buildings he has purchased.
Dieffenbach gave the names of several Everett police officers who could vouch for his efforts. Everett police spokesman Boyd Bryant had no comment on Dieffenbach and said the department would not authorize any police officers to discuss him.
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Hansen said he first met Dieffenbach in late 2000 as the city was narrowing its search for places to build the events center. The meeting came after city property management officials discovered Dieffenbach was purchasing land in what ultimately emerged as the city’s preferred site.
Dieffenbach said his interest in the site was coincidence. Although the city wasn’t advertising its potential interest in the property, it hadn’t been a closely guarded secret. City officials had spoken privately with a number of people about the prospect as early as August 2000.
Hansen said he told Dieffenbach the city was evaluating a number of places. One of the favored sites was near the new Everett Station, a $44 million transportation center the city is building at the east end of Pacific Avenue. The city has large holdings in the area and has spent about $2.1 million buying more land there over the past year.
Another site, the southwest corner of the intersection of Hewitt Avenue and Broadway, also was on the city’s short list. That’s precisely the same area where Dieffenbach had deals in the works to purchase multiple properties, including the Cosmopolitan Theater, which became the focus of disagreement between the city and Dieffenbach.
Hansen said that Dieffenbach told him that if the city needed any of his properties for the events center, "he would flip those to us with a very small markup."
Hansen said that included the Cosmopolitan Theater. Dieffenbach said it did not.
Dieffenbach bought the theater property in January for $460,000. The price had climbed to $975,000 — a $515,000 markup — by the time the city sought to purchase the property in August.
When I heard that was the proposed deal with Craig, I said, ‘Timeout,’ " Hansen said.
The city normally purchases property by having staff approach the owner and negotiate a deal after having the property appraised. Although the city council ultimately decides whether land will be purchased, the mayor normally is not directly involved in negotiating the deal.
Hansen, an attorney who has developed real estate himself, said he made an exception in this case because he thought Dieffenbach was trying to back out on a promise, and that "just wasn’t right," especially with public money involved.
There was more at stake than just how much the city would pay for the land, Hansen said.
"As far as I was concerned, it could have been a deal breaker" for developing the events center at the downtown site, he said.
Neither Hansen, nor any other city official, said Dieffenbach did anything illegal.
Dieffenbach said he told the mayor he had no choice but to raise the price. Not long after he bought the property in January, he took on a partner, another Seattle developer, who bought a half-interest in the theater and other buildings. Dieffenbach said he used the money to make down payments on other Everett land and to pay operating expenses for his Hewitt Avenue development plans.
Dieffenbach obtained an appraisal that set the value of the theater property at $1 million. The city’s appraisal was $975,000. County assessors pegged the property’s taxable value at nearly $720,000.
Dieffenbach said he talked to Hansen early on about selling the city property below market value, but insisted the theater parcel was never on the table.
"I think it is more of a misunderstanding over what buildings would be flipped and what wouldn’t," he said.
In January, Dieffenbach told reporters that he and the city were specifically discussing a potential deal on the theater property, and that he would donate a portion of the proceeds back to the city as a "goodwill gesture."
Hansen and Dieffenbach negotiated for a week before a deal was struck on the theater property.
The city agreed to pay $825,000, an amount that Dieffenbach said covered the money he owed the banks.
Meanwhile, Dieffenbach also agreed to give the city the first option to buy a building he owns across the street from the events center site. The deal also puts in writing his promise to sell the city a building and land in the 2800 block of Colby Avenue adjacent to the city-owned parking garage, a site the city has eyed before for potential development. The sale price on that property is locked in at $445,000. Dieffenbach said that is about $20,000 less than he paid for it. He and city officials agree the property’s actual value is likely several hundred thousand dollars more.
Dieffenbach said the city also required him to agree to spend about $90,000 on box seats at the proposed events center and hockey arena. He also offered to spend $55,000 on a fountain and life-size statue of Henry Hewitt, one of Everett’s founders.
The agreement says Dieffenbach’s name would appear on a plaque with the statue or fountain. But Hansen said that is far from a sure thing.
"We don’t even know there is going to be a statue," the mayor said. "How many statues are there in downtown Everett?"
The answer is none. Historians say that is a testament to the antipathy early residents felt toward the timber barons and speculators who founded Everett.
You can call Herald Writer Scott North at 425-339-3431or send e-mail to firstname.lastname@example.org.
Everett Land Co.
Dieffenbach has also owned a dotcom company and worked in advertising sales. He’s an owner of a recording studio in Columbia City and operates a theater that he leases for private parties.
Now he has formed the Everett Land Co., a throwback to the days of the city’s founding fathers, who ran an operation with the same name. The former Stanwood High School student returned to Everett more than a year ago and bought a handful of downtown properties with the idea of turning Hewitt Avenue into a pedestrian-friendly neighborhood of shops and restaurants.
The properties include:
• The building at 2011 Hewitt Ave. that is home to Alligator Soul restaurant and former home to Turner’s.
• The Cosmopolitan Theater and its 15 apartments at 1908 Hewitt Ave. He recently sold the property, located on the site of the city’s planned events center, to Everett.
• Jack’s Men’s Shop, 1820 Hewitt Ave., two adjacent storefronts and 13 apartments above them.
• The Horseshoe Saloon, formerly the Firehouse Cafe, at 1805 Hewitt Ave.
• The Hodges Building, home to an attorney’s office and 38 apartments.
• A former teen dance club at 1711 Hewitt Ave.
• The former Jay Jacobs building, also known as the Stiger property, at 2814 Colby.Ave.
• The Que Point building, home to Burnett Jewelers, at the corner of Hewitt and Wetmore avenues.
• A small, vacant building at the corner of Hewitt and W. Marine View Drive.
• He’s also negotiating for several other properties, including some that could close "any day," leasing representative Marcus Smith of Keller-Williams Realty said Thursday.
The Everett Public Facility District plans a $40 million to $50 million special events center for ice hockey and entertainment attractions for a site west of Broadway and south of Hewitt Avenue.
The district plans to pay for the center through a sales tax rebate from the state, naming rights, rentals, user fees, advertising and the anchor tenant’s lease. Plans include 8,000 seats for hockey and 10,000 seats for concerts.