Goodmans Seek More Income from Downtown Holdings

PORTLAND-Looking to generate more revenue from its expansive real estate holdings here, the Goodman family is stepping up efforts to market its 26-property Downtown parking lot portfolio for higher and better uses. The family is looking to generate income from long-term ground leases or some other arrangement whereby it maintains ownership in the properties. The portfolio, which include mostly half- and quarter-block parcels bordering the north end of the Downtown core, represent all of its Downtown parking lots but only about half of its downtown portfolio.As for why the family is letting go of its under-the-radar past, local sources tell GlobeSt.com it is either trying to replace revenue that disappeared with some significant third-party parking management contracts over the last two years or are more generally looking to generate higher returns than is currently achievable from operating the properties as parking lots. Greg Goodman, president of Downtown Development Group tells GlobeSt.com it is the latter not the former.”Twenty years ago you used to be able to buy a piece of property and have the parking income make sense,” he says. “Now parking revenue will give you only a 3% return.”Since most if not all local brokers have always considered the Goodmans’ lots potential redevelopment opportunities–just not necessarily the best or easiest–local brokers say the marketing push must be aimed at getting the word out up and down the West Coast, not necessarily in Portland. Indeed, Goodman says some 80 to 100 packets were sent out to brokers and others up and down the West Coast. “It’s a hot market right now,” he says. “There’s a lot of people looking for stuff.”Of the 26 parking lots the Goodmans are marketing, only four are full-block properties, which are considered the easiest to build on. Those full-block properties include a 38,000-sf lot at the west end of the Morrison Bridge that it owns in partnership with the Schnitzer Northwest and has been slated for an office building; a 40,000-sf lot bounded by 9th and 10th avenues and Alder and Washington streets also owned in partnership with the Schnitzer family and likely a residential-over-retail site; and two 45,000-sf lots on Southwest Fourth Avenue south of Market Street that are ready-made for mid-rise residential towers. Of the smaller parcels about 10 of the lots are within a few blocks of Skidmore Fountain, an area the city is intent on seeing redeveloped with residential-over-retail developments. While many of the properties are attractive and have great potential, local sources say their smaller size and the Goodmans reluctance to sell makes the properties less attractive, so it isn’t expected to lead to a land rush any time soon. Smaller parcels generally equate to higher construction costs and having to lease the dirt puts the properties at a disadvantage to other parcels that could be acquired fee simple. The ground lease requirement also takes off the table the hottest development play in the city at this time, condominiums.Apartments are more of a possibility, since Goodman tells GlobeSt.com that he would be willing to sell the property to a joint venture that included Downtown Development Group. Of course, the JV partner would have to understand that a condo conversion would not be an acceptable exit strategy for liquidating its investment. Potentially compounding the complexities, some brokers tell GlobeSt.com the Goodman family has a reputation locally of being difficult to work with, though they offered up no specific examples. Goodman says that stems from the family’s long-time resistance to sell anything it buys.Under the ground lease scenario, local brokers say the most likely development deal would be an office building, an possibly a hotel. Indeed, the largest local example of a ground lease development is ODS Tower, a 24-story Downtown office building owned by Wright Runstad and ODS Cos. that sits on a 90-year lease from the Goodmans and is about to come to market.Moreover, some local brokers believe the need for a new Downtown office building is closer than most think. Despite their being some 2 million sf of vacant space, most of it is in chunks of less than 10,000 sf and, of the 10 largest blocks of office pace available, only three or four are in class A buildings. “The Downtown marketplace has been slowly transitioning from a tenant market to a landlord market,” Tom Usher, a senior office investment broker with Cushman & Wakefield tells GlobeSt.com. “I am a firm believer that we are fast approaching equilibrium and that somebody will break ground by the end of the year.”Interest by office developers also is expected to be few and far between, at least for the next five years, even for the Morrison bridgehead parcel, according to local brokers. The interest would be low not because there is too much vacant office space in Downtown, but because there are four other full-block properties that are further along in the approval process and could be out of the ground more quickly. As a result, those other properties are more likely to land the pre-lease commitments necessary to obtain construction financing, according to local brokers.Goodman acknowledges that if someone needed office space right away, there are other planned office projects that have the advantage. However, he’s confident the Morrison bridgehead property is the best location for an office building. “We’re no means the only game in town,” says Goodman. “But the reality is if someone wants your site, you can fast track development; I don’t think we’re behind the eight ball.”