^I agree, these people are creeps. Anyway, here's the story
Allegro builders sue TriMet on $1 sale
Developers, agency clash over missed deadline, lost profits
By peter korn
The Portland Tribune, Apr 22, 2008
One month after TriMet filed a court complaint seeking to terminate its deal to sell a half-block of Southwest Portland property to a California developer for $1, the developer and its partners have fired back by filing a lawsuit and asking for $53.5 million in damages.
The developers of the proposed Allegro condominiums claim that by not being able to follow through with their plans for a 158-unit building on Southwest 18th Avenue near Lincoln High School, they will lose an estimated $50 million in profits.
The suit also asks for $3.5 million in expenses that developers say they have incurred so far on the controversial project.
The deal between TriMet and the group formed by the developers, called Butler Block LLC, had a closing date of Feb. 10. By then, the developers were supposed to show they had secured all necessary permits and financing to complete the project.
But the developers told TriMet that the depressed condo and financial markets were preventing them from completing the financing arrangements on time.
According to Michael Simon, one of the attorneys representing the developers, the lawsuit hinges on whether the developers were entitled to a series of deadline extensions based on a provision in the original agreement with TriMet.
“There is a provision in the contract that basically says as long as Butler Block was acting in good faith, the deadlines do not apply,” Simon said. “We are relying on those provisions to say the deadlines have not expired.”
Some doubt profit claims
The developers’ claim that they are being denied $50 million in future profits throws new light on the original $1 sale of the property.
At the time of the sale, TriMet justified the price based on difficulties at the site. Any developer of the site would be required to replace an underground sewer pipe — estimated at about $500,000 — and put in underground parking — at an estimated cost of $1.6 million — to replace surface parking that will be lost.
TriMet officials originally said they were in favor of the Allegro partly because it would have stood right next to a light-rail station, which would have encouraged more MAX ridership.
Developers and planners contacted by the Portland Tribune said they considered the $50 million profit projection greatly inflated.
Mark Edlen, who has developed many of Portland’s largest projects, said he has never made $50 million in profits off a single residential building. “Not even close,” Edlen said.
Peter Finley Fry, a planning consultant on many Portland development projects, said that a profit of $15 million to $18 million probably would represent a good return on a building the size of the proposed Allegro — until the recent housing downturn, when even that profit would be unlikely.
Finley, who called the $50 million profit figure “not credible,” said that even in a normal condo market developers rarely saw profits above 20 percent of their costs.
“Basically 18 percent is a really good return, and 12 percent is bankable,” Fry said.
Condominium towers the size of the Allegro generally cost between $60 million and $80 million to build, according to housing experts.
Even assuming a high-end 18 percent profit margin, if the Allegro cost $65 million to build it would yield a profit of about $12 million.
Neighbors opposed early plan
The developers’ lawsuit says that TriMet was pressured to not extend the development agreement deadline by the Goose Hollow Foothills League, the area’s neighborhood association, and owners of an adjoining property site.
The neighborhood association successfully appealed an early design proposed for the Allegro because it involved transfers of development rights from other properties that would have allowed the Allegro to grow beyond its zoned size.
Jerald Powell, chairman of the neighborhood association planning committee, called the suit against TriMet “very audacious.”
“Everybody in town knows about it,” Powell said. “I think it’s been perceived as suspicions confirmed. We’re not dealing with an enterprise that’s looking to do business in Portland. We’re looking at someone who is interested in bullying the people who are interested in doing business in Portland.”
In Powell’s estimation, the Allegro’s developers simply lost their building because the market turned sour on them. And that, Powell said, is the cost of doing business.
“The reason developers get big profits when they make a profit is because they often lose money or break even,” Powell said. “Developing big buildings is a risky business. You get paid for taking the risk, and sometimes you lose.”
Powell said that he thought the TriMet property was worth between $1 million and $3 million. TriMet officials said they already have been contacted by other developers interested in the property.
Fry said the Allegro’s contorted history, and the new lawsuit, were bad for the city.
“I think it’s sad that instead of us building a brand-new building next to a transit station, all the money is being spent on litigation,” Fry said.
http://www.portlandtribune.com/news/...80629465012700
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