Brewery Blocks sell at premium
Downtown - Three blocks go for $291.6 million, an affirmation of Portland's urban redevelopment vision
Tuesday, July 24, 2007
DYLAN RIVERA
The Oregonian
JPMorgan Chase & Co. paid $291.6 million Friday for three blocks of downtown real estate, a record-setting price that many see as a vote of confidence in the kind of urban redevelopment that Portland has become known for.
The three blocks are in the Pearl District's Brewery Blocks development, a project that transformed the former Blitz-Weinhard brewery starting in 1999. That exceeded the $286 million that JPMorgan and another company paid last year for the U.S. Bancorp Tower, a much larger complex with premium views. Unlike U.S. Bancorp, the Brewery Blocks offers a rare combination of investment in apartments, offices and prime retail in a pioneering energy efficient design.
That price topped the already high expectations of Portland real estate experts, who said it reflected in part a move by global real estate investors into mid-sized U.S. cities. The sale, by Gerding Edlen Development Co., attracted about 15 bidders.
"The trickle down to Portland is becoming an open faucet," said David Hill, a broker with the Grubb & Ellis firm, which was not involved in the transaction. "The fact that this trades at a high price with a lot of strong interest shows that a lot of people outside our market see it as a growth opportunity,"
Beyond landing a premium price for some of the toniest commercial real estate in the region, experts said the sale indicates a strong vote of confidence in the Portland-area's prospects for job growth and rising rental rates for office space and apartments, especially downtown.
The sale includes The Louisa Apartments, regarded as the downtown area's plushest apartment tower, M Financial Plaza, an office building with P.F. Chang's restaurant in the first floor, and a Whole Foods Market. The condos and office building on the other two blocks have already been sold to office and condo owners.
The public may see little or no impact from the sale, at least in the short term. Nearly all of the tenants are in long-term leases of about 10 years or so.
Seven years after the brewery purchase, the blocks are nearly 100 percent occupied, and many of the eight local investors that originally invested in the development are ready to move on.
The sale is a great affirmation for Gerding Edlen, said John Kohnstamm, a commercial real estate broker who was not part of the transaction.
"They took a big risk going into it, and they're getting a nice reward for it," said Kohnstamm, with Capacity Commercial Group. "To their credit, they created something of great value there. . . . There's a lot of energy that they've created."
Top bidder
JPMorgan Asset Management, based in New York, beat out about 15 bidders, pared down from more than 80 that signed confidentiality agreements to consider bidding on the three blocks, said Chris Johnson, a broker with NAI Norris Beggs & Simpson who marketed the property.
JPMorgan bought the three blocks on behalf of institutional investors -- a pension fund, endowment or other such large fund -- that the company would not disclose. Chris Graham, vice president of acquisitions for JPMorgan, said in a statement the Brewery Blocks was attractive because of its mix of uses, low vacancy rates, and overall strong local economy. "The environmental sustainability of the project is certainly an added value."
The blocks pioneered the energy efficiency and other construction techniques outlined in the Leadership in Energy and Environmental Design, or LEED.
The Brewery Blocks' success has already transformed Gerding Edlen into the state's largest developer, with projects reaching Seattle and Los Angeles.
"Really, I think the sale is a validation of Portland, Portland's planning, the strength of our neighborhoods, and the strength of what our long-term planning processes have created here, which is truly special," said Mark Edlen, managing principal of Gerding Edlen.
The value in the mixed-use project did not come without some public assistance. The Portland Development Commission loaned $6 million to make parking spaces open to the public and priced at city-owned garage rates for 10 years. That loan was paid off early. The agency also granted $2 million to pay for ornamental streetlights and sidewalk extensions to enhance the blocks.
And The Louisa (named for Henry Weinhard's wife) was among the last apartment buildings to qualify for a 10-year local property tax abatement, in exchange for developing in a mixed-use format and capping rent on some of the units at below market rates.
Development challenges
It was far from certain that the Brewery Blocks would be such a coveted investment back in 1999. That's when the Stroh Brewing Co. decided to close the Blitz-Weinhard brewery and sell off its out-of-date hodgepodge to Gerding Edlen for $19.5 million.
Peter Stott, a former timber company chief executive, upped his investment to $13 million of the original purchase price, after another investor dropped out at the last minute.
Some large institutional lenders told Gerding Edlen to forget preserving the property's historic brew house. Mow it down and build above grade parking, one suggested.
These days, Wall Street is asking Gerding Edlen, rather than trying to dictate: How much?
While JPMorgan would not elaborate on how much it valued the apartments and office space and other elements of the property, experts said months ago that a $250 million sale would have implied a record per-foot price for the office space and per unit price for the apartments.
Bidders for the project included Shorenstein Properties, family-run San Francisco real estate giant that in March invested $1.13 billion to become the Portland area's largest office landlord.
In the end, it was outbid, but not by much, said Charles Malet, executive vice president of Shorenstein.
"We were hoping there was not so much interest, but we're seeing what's going on around the country," Malet said. "We also think it reflects well on our other business decision, to invest heavily in Portland."
Chris Johnson and Mary Kay West, both of NAI Norris, Beggs & Simpson, represented Gerding Edlen on the sale.
Dylan Rivera: 503-221-8532,
dylanrivera@news.oregonian.com
http://www.oregonlive.com/news/orego...970.xml&coll=7
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