City, TCC To Test New Market for High-Rise Rental Housing

PORTLAND, OR-The Portland Development Commission housing director Andy Wilch tells GlobeSt.com he is a few months away from a tentative disposition and development agreement with Trammell Crow Residential for a 26-story Downtown apartment tower on one-quarter of a block at the northeast corner of SW 3rd Avenue and Oak Street. The agreement for the $43-million, 200-unit project would then have to go in front of the PDC board for final approval.The project is an attempt by the PDC and TCR to make a new market for high-rise apartments. There have been a couple of high-rise apartment buildings built in the city recently–one is taking early commitments and the other is in lease-up–but they have both been in the Pearl District, where demand already exists. “Third and Oak is not the Pearl District,” TCR senior managing director Robert Hinnen tells GlobeSt.com. “We are market making as opposed to delivering to a well-established market.”Wilch agrees, which is why he is proposing a $7.5-million package of incentives for the project. Despite the city’s goal of increasing the number and density of Downtown apartment developments, “rents are not [high enough] to support the construction cost for a quality class A building of 26 stories,” says Wilch. The biggest chunk of the package is a 10-year property tax abatement valued at $4.2 million, though the two Pearl District projects also received property tax abatements. The other pieces of the package are the $1.3-million value of the land, which the PDC is donating to TCR; the $500,000 the city will spend to raze the old police building and clean the dirt, and; a $1.5-million interest loan. In addition to trying to be a market maker, Hinnen says the project is also risky for a number of other reasons. First, it will be built on one-quarter of a block as opposed to a full block, “which is extremely inefficient from a construction standpoint,” says Hinnen. In addition, the rest of the block is covered by historic buildings, “which will require extensive protection during construction,” and the block is encumbered by an obligation to reconstruct 33 underground parking spaces for an adjoining property owner, “which only adds to the cost of the project.”"It’s a challenging site, but a great opportunity,” he adds. “It will replace a building that has sat with plywood on its windows for more than a decade; it’s about the worst looking building in Downtown Portland.”TCR’s proposal was submitted in response to a 2003 request for proposals by the agency. Originally, the proposal included a certain number of units for people making 30% of the median family income. As it now stands, 170 units would be priced at between 80% and 146% of the median family income and the rest would be restricted to renters making 80% of the median family income. The change was made so that the project would pencil out with less public subsidy.TCR is developing the building with equity provided by its stable of insurance companies and pension fund advisors. If it turns out that people do not want to pay the same rents as the Pearl District to be at SW 3rd and Oak Street, the building could easily be converted to condominiums. If it is converted to condominiums, Wilch says the developer would be required to pay back any tax savings it accrued due to the abatement in addition to the low-interest loan.