Leonard criticizes PDC over RiverEast’s negative appraisal
Daily Journal of Commerce
by Kennedy Smith
A former Southeast Portland warehouse near the Hawthorne Bridge that will open as an office building today could signify a turning point for the Central Eastside urban renewal area. But, Commissioner Randy Leonard says, if you follow the money, the deal that led to the renovated space treads familiar – and shady – grounds.
The Portland Development Commission bought the former Holman Transfer Building – built in 1951 as a stopping point to transfer food products to and from the Portland area – in 2002 for $2.45 million.
That money paid for the Holman building and a combination of easements and lease rights over seven acres of adjacent land; the PDC estimates $1.3 million paid for the Holman property itself and a land easement beneath the site.
In February 2004, the PDC had the site appraised at a negative value of $2.76 million, meaning that the projected cost to convert the building to office space would have cost almost $3 million more than what the property was worth, according to Kia Selley, a project manager at PDC.
The PDC could have sold the building for $1.86 million to a buyer willing to keep it as industrial space, but the agency decided to sell to office converters instead – for a price of only $200,000 in May 2006.
Industrial wasn’t the preferred use because it “could diminish public benefits such as (the proposed) Crescent Park or the Portland Boathouse,” Selley said.
Another 3rd and Oak?
Commissioner Randy Leonard said the deal sounds reminiscent of the funding structure employed on a potential condominium project at Southwest Third Avenue and Oak Street. The PDC in 2005 gave a parcel there to Trammell Crow Residential at no cost after buying the land in 2002 for $1.2 million. The Portland office of PGP Valuation gave the land a negative appraisal of $1.9 million.
“The PDC was in communication with Trammell Crow (Residential), and we got information that indicates Trammell Crow tells them how to write a negative value on a property,” Leonard said. “It’s troublesome.”
But, said John Jackley, a PDC spokesman, the appraisal processes for the Holman building and for Third and Oak were “absolutely not” the same.
The Third and Oak project only considered the highest and best uses for the property, a common practice in valuations, he said.
For the Holman building, he said, the PDC sought two different appraisals: one for selling it as-is and another for how much the PDC could sell it for office use.
“All the appraisal activity was in public in the February 2005 board report,” he said. “It laid out what the different appraisals were, it laid out why, it laid out the methodology, and the board made a policy call.”
Said Selley: “What Third and Oak taught us is that looking at a range of potential uses provides you with more information for decision-making.”
Leonard, however, said he wants PDC “to explain the benefits of a deal like this. Why this makes sense.”
‘Business as usual’
“If it’s a business that would otherwise not come to Portland, you can justify that kind of subsidy,” Leonard said. “I’d be hard pressed to be persuaded that, if they bought the property in 2002 for $2.45 million, that it wouldn’t be worth more than $3 million. If we’re giving property to those companies, the PDC owes the public an explanation.”
Whether PDC’s negative valuations of Third and Oak and the Holman building were flukes or business as usual is anyone’s guess, Ethan Seltzer, head of the Nohad A. Toulan School of Urban Studies and Planning at Portland State University, said.
“The idea that the public would buy down the cost of the project is business as usual,” he said. “That’s what urban renewal is – getting development that the public is seeking but the market won’t produce for a variety of factors. But is the strategy yielding the results that we want? Is the public yielding the benefits?”
Tim Holmes, president of the Central Eastside Urban Renewal Area Advisory Committee, says yes.
PDC ‘deserves credit’
“I would give PDC a lot of credit for some hard work for putting that deal together,” he said. “They have been unfairly projected in the eyes of the public lately, but PDC is trying to make business development happen in the Central Eastside.”
Even Leonard contends that, if the office building ends up spurring more development in the Central Eastside, the deal was fair.
“If they’re using it for commercial purposes that they have determined will kick-start the area and ... complementary businesses ... pop up, I could get to a place where it would make sense to me,” Leonard said.
Jeff Reaves, president of Group Mackenzie, and Jay Haladay, CEO of Coaxis, a Portland software development company, formed RiverEast LLC and bought the warehouse. Both men are moving their companies to the new space.
Reaves said RiverEast pumped $15 million into the new space and spent about a year renovating it.
RiverEast Center will be the new headquarters for Group Mackenzie, an architecture and interior design firm, along with Coaxis, Insight Distribution Software and Viewpoint Construction Software. The space is expected to hold 220 living-wage jobs, according to the PDC.
The 83,000-square-foot RiverEast Center will offer public access to the Vera Katz Eastbank Esplanade along the east site of the Willamette River and will be home to the nonprofit Portland Boathouse, a boat storage and training facility for paddlers and rowers; and Alder Creek Kayak and Canoe, a retail and rental outlet.
So far, developer Brad Malsin’s Eastbank Commerce Center has been the poster project for Central Eastside transformation, but Holmes says the new neighbors, under a new group of developers, are welcome.
“These are exactly the kinds of companies that we want to attract to that area,” Holmes said. “They’re high-paying jobs that bring money out of the region into Portland, and it’s a clean industry, a knowledge industry.”