A decade in, Portland's One Waterfront Place high-end office tower remains grounded
By Brad Schmidt, The Oregonian Friday, January 14, 2011
Portland's next high-end office tower will be a Pearl District landmark, an iconic, curved-glass beauty ahead of its time for green innovation.
That's the pitch developers Jim Winkler and Bob Naito have been making for more than 10 years. But now the most accurate assessment is this: The future of One Waterfront Place, poised to be the Pearl's largest office building, is more uncertain than ever.
The perpetually stalled $100 million project met its latest and perhaps most significant setback Friday as the developers' longstanding agreement with the Portland Development Commission, the city's urban renewal agency, expired.
That doesn't necessarily kill the deal. But at a minimum, it complicates commitments for a parking garage and a taxpayer-funded pedestrian bridge that have been considered integral pieces of the project. And it opens the door for the PDC, which has run up about $1.2 million in expenses on the project, to take control of the land.
The saga underscores the difficulty of building office space in Portland after the dot-com bust and a historic recession. Still, they also missed the hottest real estate market in generations.
If anything, the failure to move One Waterfront Place forward is more indicative of challenges at a site too far from the action downtown or the central Pearl -- and of the developers' inability to land a major tenant. It also marks the most high-profile project involving the PDC that, despite an $8.5 million taxpayer pledge, hasn't gotten off the ground.
"Eleven years is a long development window," PDC Commissioner Charles Wilhoite said Friday. "We have to sit back and make decisions about reasonableness and viable opportunities. And when you start to get into double-digit years before we see a groundbreaking, you have to ask yourself whether it's going to happen and whether we should remain financially committed to this project."
Winkler and Naito still say they plan to keep looking for anchor tenants, which are crucial to persuade would-be lenders to finance the building. If they land some, PDC officials say they'd be interested in working something out.
"I don't view this as a vote of no confidence," Winkler said.
"A legacy project"
When the PDC began recruiting developers to the Pearl in the late 1990s to remake the Burnside Brewery Blocks and rail yards near Union Station, Winkler and Naito couldn't resist.
It was 1999, and PDC officials wanted visionaries to build a soaring hub with 1,000 jobs to anchor the north side of the newest urban renewal district.
The 3.2-acre site had its share of complications. Aside from the distance to other offices, all traditionally south of Burnside Street, the location was an island of sorts. To the east, busy Naito Parkway. To the west, a no man's land of railroad tracks. And to the south, bisecting a quarter of the property, the Broadway Bridge.
But isolation offered something else: prominence.
"Here you have a tremendous amount of air, light and visibility," said Winkler, who developed Adidas' North American headquarters in North Portland. "We designed something that we thought was a legacy project for us."
PDC officials in 2000 selected Winkler and Naito, who promised to build a glimmering 12-story tower with 250,000 square feet of office space ripe for a corporate headquarters.
The developers bought 1.3 acres from PDC for almost $1.55 million, and the agency agreed to spend $23 million to build and own a 700-stall parking garage on the rest of the site.
Design plans impressed: With Boora Architects collaborating, the building would have an eco-roof, stormwater collection, an outdoor sculpture garden and LEED Platinum pre-certification. Construction was set to begin by December 2002.
But leasing commitments never materialized. By January 2008, the PDC board of commissioners had authorized seven amendments pushing back the schedule. This time, officials renegotiated key details, requiring the developers -- not taxpayers -- to build and own a 500-stall parking garage below the Broadway Bridge.
PDC did plan to chip in $4.5 million toward a pedestrian bridge over the railroad tracks, plus $4 million to help finance the developers' purchase of the garage land.
No one knew a historic recession was just around the corner, with real estate the biggest victim. The new January 2010 deadline came and went. Given the financial circumstances, officials decided, Winkler and Naito deserved more time and extended the agreement to Jan. 14, 2011.
"A very narrow niche"
As One Waterfront Place stalled, other big buildings sprouted.
In 1999, the 23-story ODS Tower opened on Southwest Morrison near Pioneer Place. A year later, Tom Moyer's 27-story Fox Tower debuted on Southwest Broadway. Last year, San Francisco-based Shorenstein Properties opened First & Main and secured leases from several government agencies. In all, that's about 1.2 million square feet of new downtown Class A office space.
And in the Pearl, the Machine Works building and The Lovejoy added almost an additional 100,000 square feet of high-end space in recent years.
"I'm surprised it didn't get off the ground when things were getting off the ground," Patricia Gardner, who co-chairs a Pearl District committee that advises PDC, said of One Waterfront Place.
Mike Holzgang, senior vice president at the Colliers International brokerage, said he expects enough demand for the next office tower to be in the 250,000-square-foot range proposed for One Waterfront Place.
But Holzgang said the project, like other stalled PDC efforts including the Burnside Bridgehead and Centennial Mills, were conceived in markets of yesteryear.
"Although it fills a certain niche for a corporate type of user, it's a very narrow niche," Holzgang said.
Under the latest agreement, Winkler and Naito were supposed to buy the land for the garage from PDC by Friday. Office tower construction was to begin Monday. With neither happening, three of five PDC board members could decide to buy back the office-tower property (two have conflicts and can't vote).
But a PDC buyback would require not only land costs but also reimbursement to Winkler and Naito for several million dollars of predevelopment expenses. And the deal's expiration gives agency officials more flexibility to market the 1.9 acres it still owns for something other than a parking garage.
For now, a PDC takeover seems unlikely.
"It's disappointing," Portland Mayor Sam Adams said. "I think the developers have a great vision and a good piece of land. They just haven't been able to execute on their vision."
In recent months, Winkler and Naito have been at City Hall, asking about officials' long-term plans for the Bureau of Environmental Services. The bureau may be in the market for 75,000 square feet -- a sizable amount but not enough to launch One Waterfront Place.
Undeterred, the developers talk up their project.
"We can deliver more rapidly than anyone else. We don't have to go design it and get it approved; it is approved and designed," Winkler said. "All we've got to do is get it leased, a loan and start building."