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Old Posted Mar 12, 2011, 2:46 AM
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Closure of Blue Heron site opens up 5 blocks for redevelopment @W.Falls in O.C.


Developers circle Blue Heron site

Premium content from Portland Business Journal - by Wendy Culverwell
Date: Friday, March 11, 2011, 3:00am PST

The shutdown of Oregon City’s 103-year-old Blue Heron paper mill puts 60 acres of property on the Willamette River in contention for redevelopment.

The mill, which closed last month, occupies 24 acres adjacent Willamette River Falls at the edge of downtown Oregon City. Blue Heron also owns a 36-acre “lagoon” property two miles upriver and an office and parking lot complex.

It will be years before Blue Heron’s two properties, including the mill and the lagoon site, are cleaned up and ready for redevelopment. The mill is contaminated by lead and asbestos.

Real estate brokers are undaunted.

“It takes very little imagination to think that couldn’t be a killer site for something better,” said Paul Breuer, a broker specializing in industrial reuse in the Portland office of Colliers International, a commercial real estate firm.

Breuer is one of many watching the company’s bankruptcy unfold with an eye toward future redevelopment.

Breuer declined to reveal his ideas for the plant, saying he didn’t want to tip off competitors. He expects there will be plenty.

“I can’t imagine with an asset of that magnitude that every brokerage house in town isn’t looking at it,” he said.

At full production, the Oregon City mill complex, at 419 Main St., produced up to 210,000 tons of newsprint and other recycled paper per year. Its customers included large and small newspapers on the West Coast.

In Oregon City, businesses see an opportunity to reclaim Willamette Falls, said Lloyd Purdy, executive director of Non-Profit Main Street Oregon City, a downtown business association. The mill occupies five full city blocks between First and Fifth streets.

“Everyone is anxious to see that develop,” he said.

The Oregon City mill property is zoned for general industrial use but in theory could be rezoned. Whatever happens with the property, the city wants it reserved for public access to the falls and river.

Dan Drentlaw, Oregon City’s director of community development, said the city is awaiting the outcome of the bankruptcy process. At a minimum, he said the site needs an environmental assessment to determine what if anything can safely operate in the future.
bankruptcy filed in 2009

The employee-owned company filed for Chapter 11 bankruptcy in December 2009. The mill’s leading creditor, Wells Fargo Bank N.A., petitioned U.S. Bankruptcy Court last month to liquidate the firm. Blue Heron shut down a few days later. About 175 workers lost their jobs.

In court documents, Wells Fargo says Blue Heron lost an additional $5 million after filing for bankruptcy while racking up approximately $7.8 million in court costs. Blue Heron missed a Feb. 15, 2011 deadline to pay its $107,049.08 property tax bill.

Wells Fargo’s liquidation request is on hold pending a March 22 hearing in Portland.

In the interim, Judge Randall Dunn ordered Blue Heron and Wells Fargo to negotiate over disposition of the assets. Those talks are ongoing, said Robert Vanden Bos, special counsel to Blue Heron on the case.

Wells Fargo declined to specify if it expects to take possession of the real estate that secures much of its $14.6 million debt, or if it would see it sold through the bankruptcy process.

“It’s too early to tell how the courts will settle this case. But we expect and hope to recoup 100 percent of our loan prior to any liquidation of the real estate,” said bank spokesman Tom Unger.

If the case proceeds into liquidation, Blue Heron’s assets, including its real estate, will be turned over to a federal receiver and sold.

A liquidation analysis valued Blue Heron assets at $26.3 million, with about $7 million associated with its mill property, office, parking lot and the upriver lagoon site, where it treats wastewater.

The analysis identified $20.5 million in secured debt. It did not identify assets that could be used to satisfy the unsecured creditors. The plan anticipates that John Davidson, a corporate turnaround expert and managing partner of the Inverness Group LLC, would oversee the liquidation. He declined to comment Wednesday.

Mark Childs, an industrial broker with Capacity Commercial Group, said rising energy costs, the difficulty of accessing the site and the residential development on neighboring hillsides make it a tough sell to manufacturers or paper makers.

In one promising sign, Blue Heron successfully shut down and sold another mill at the dawn of the current economic malaise. It closed its newsprint mill in Pomona, Calif., in October 2006 after a price war ravaged its earnings.

It sold the property in November 2007 to a development firm for $18.95 million. Seventh Street Development LLC said it would construct a 408,000-square-foot industrial complex at the site. The deal closed after Blue Heron abated environmental issues.

Fast facts

Oregon City has almost 32,000 residents. It is about 14 miles southeast of downtown Portland.

wculverwell@bizjournals.com | 503-219-3415

http://www.bizjournals.com/portland/...readercomments
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