Wheeling and dealing at the Convention Center
The Portland Development Commission board is set to approve the terms of a contract this morning under which that agency will "sell" some vacant land across the street from the Oregon Convention Center (to its north) to two local developer families, Rembold and Schlesinger. Part of the land will be the site of a new office tower (pictured), with construction to start in 2010. The rest (next door, to the left of the tower in this photo) is supposed to be developed into... well, they're not really sure yet, but they have high hopes that something groovy will be built there starting in 2014. Something touristy, and no doubt green and sustainable. Oh, and don't forget the condos.
The official PDC report is here. The next-to-last page of the pdf file reprints an article in the O about the deal from a while back.
The developers already own a large parcel of land in the vicinity, and their existing tenants include a meeting center, a professional building, and a Starbucks. The PDC property straddles the developers' parcel to the east and west:
PDC's Block 49 (long vacant) is the first phase. The developers' property, and the PDC's Block 47 (currently an empty grass lot) is where the second phase is supposed to go. Note that the developers won't be touching the property they currently own for another six years, but they'll be good to start digging on the PDC's current property in less than two years.
Here's the site of the first phase, "a 350,000 gross square foot office tower with 450 parking stalls and limited ground floor retail." You're at the northwest corner, looking southeast. I-5 is roaring by just above and behind you:
Here's a Google street maps shot from the center of the parcel where the second phase is supposed to go. Wheel around and you'll get the picture:
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The PDC report is an interesting read. The prices for the two taxpayer-owned lots that are going to be conveyed are their appraised values of $1,475,000 and $3,200,000, but they're going to be "financed" by the PDC with "loans" to the developers that are decidedly not a market deal. If I am reading this correctly, the "loans," in the total amount of $5,075,000 (not clear what the extra $400,000 is for, but there's mention of a need for the PDC to spend $300,000 to move power lines), will be interest-free and payment-free throughout construction.
What's more, they will be fully or partially forgiven based on what happens on the two parcels -- particularly the second phase. Under the terms of today's contract, there is a smorgasbord of different features that the new complex could have that would get all or part of the $5,075,000 "loans" forgiven. A hotel with a big restaurant would knock up to $2,200,000 off the "debt"; affordable housing, up to $3,000,000; bike parking, $100,000; public art, $150,000; tenants who "represent target industry clusters," $3,000,000, etc. There are more than $14 million worth of outs on the schedule -- the developers need only to reach $5,075,000 to have the land be free.
The second phase of the project -- the part that doesn't get going until 2014 -- is still a bit of a mystery. So far, here's what the PDC's offering by way of describing it:
The conceptual program includes 200-400 residential units, 100,000-300,000 square feet (sf) of retail with a portion focused on entertainment venues and a structured parking garage. Project complexity and market forces continue to influence the programming for the site, but the Disposition and Development Agreement (DDA) will stipulate a refined and updated Scope of Development and financial feasibility to be demonstrated prior to closing on Block 47.Whatever goes in there, with so many ways for the developers to get out of the "loans," it will be surprising if any of the "borrowed" amount ever gets repaid. To call this is a "sale" of the land is a bit of a stretch. It may well be a giveaway, depending on what happens. Not that that's necessarily a bad thing -- the PDC says that the developers are going to throw $500,000,000 into these sites. We'll see.
Beyond the sweetness of the deal, there are some other yellow lights flashing over this transaction. The PDC board is deviating from its standard practice in a couple of respects. From the official report:
Usually, PDC requires that all building permits be issued prior to property closing. However, because the Developer wishes to move as quickly as possible from design to construction he has asked that one of PDC’s condition to close be changed to such time as permits for excavation and foundation have been issued and construction drawings are at least 50%, or greater if required by the construction lender. PDC is comfortable with this request because it is unlikely that the Developer will cease construction once foundations have been poured and because the construction lender will require that construction drawings be significantly completed before closing its loan....Both of those moves sound a little scary, don't they? For example, if the director decides to let them pass this contract on to heaven-knows-whom, will the public get any notice or say-so at all?
PDC’s DDAs usually restrict or greatly limit the terms of assignment of interest in the DDA from the Developer to another party, usually requiring the Developer to retain a controlling interest (from a financial and management standpoint) in the development project or the Board must amend the DDA if there is a change in such interest. However, this project’s size and complexity will require outside development and/or financial partners for completion and the Developer wants as much flexibility as possible to attract these partners and would like to get approval from PDC as soon as possible. Moreover, these partners may wish to obtain a larger ownership or controlling interest in Phase II than the Developer. Therefore, the Developer has requested that, under certain circumstances, it be able to assign the DDA interest to another party with the written consent of the Executive Director rather than return to the Board. This proposed language can be found in Section 5.1 and 5.2. PDC believes that the participation of a third party in the development of Phases I or II may be helpful in seeing that the project is completed within the DDA schedule and is therefore comfortable with this proposal.
There's also some talk in the report of building a new street on part of the site:
The Developer is interested in the City agreeing to use its power of eminent domain to bring one of its existing lessees to the table to negotiate a buy-out in order to construct a local street. PDC wishes to leave these discussions between the Developer and the Office of Transportation.It's not clear where the new street would go -- maybe where the professional building or meeting center is now, or maybe on the site of the Starbucks. In any event, that part of the deal is a long way off. In the meantime, our much coveted free access to the turkey burgers at the nearby Burgerville (whose property is not part of the deal) remains secure.