GlobeSt.com UPDATE: Development Commission Moves to Old Town

PORTLAND-The Portland Development Commission closed an unsuccessful chapter in its history over the weekend by moving much of its 170-person offices to an historic seven-story building in Old Town. Previously located near Portland State University, the PDC is moving in order to save on rent, consolidate operations and cut its losses with regard to the 57,000-sf Mason-Ehrman Building, which it master leased in 2001 in hopes of attracting more creative services firms to the CBD.In cooperation with the PDC, the building’s locally based owner, Kalberer Co., spent more than $1 million to have another local firm, Venerable Properties, turn the raw warehouse at 222 NW Fifth Ave. into a wired office building. In return, the PDC inked a 10-year, top-of-the-market master lease for the building’s 57,000 rentable sf. The negotiated full-service lease rate was about $20 per sf per year, or just over $96,000 per month, not including annual increases.At that time, the city thought it would be able to achieve sublease rents in the high $20′s per sf per year, full service. The PDC basically gave the third floor to the not-for-profit Oregon Creative Services Alliance, renting them 675 sf at a cost of $1 per year and letting them keep all the rental income from leasing the rest of the 8,500-sf floor. The hope was that the presence of the alliance would draw in other tenants.Then the economy tanked, dot-com tenants were nowhere to be found and market rates for renovated older buildings tumbled down into the mid teens. As of December, the city had received very little rental income after having paid well more than $2.5 million in rent to Kalberer and another $250,000 in tenant improvements (estimated based on 12,500 sf finished at $20 per sf).In February, after the Creative Services Alliance had moved out, the Regional Arts and Culture Council signed a five-year, 5,052-sf lease for space in the building, albeit for a lower per-sf rate than the city is paying to master lease the building. Shortly thereafter, the PDC changed its mind. It cancelled its lease with the RACC and asked the few tenants already in the building to be out by April 15 so that it could reclaim the space for its own use.The city is relocating from SW 4th Ave., a city-owned building in Downtown that may be sold to Portland State University. The PDC says it is paying about $750,000 per year, or about $24.19 per sf, to lease 31,000 sf in the building. The PDC also leases another 29,000 sf elsewhere in town for which lease rates were not available. The PDC originally thought it could save between $8 million and $10 million over the next seven years by making the move; it now says the savings will be closer to $6 million.