City, Developers Take Big Step Toward 2M-SF Cascade Station

PORTLAND, OR-The Portland Development Commission this week took a significant step toward seeing $500 million worth of retail, office and hotel space built at Cascade Station, a 120-acre swath of land on the light rail line between Interstate 205 and the Portland International Airport that has been primed for development since early 2001. The city’s urban renewal agency on Wednesday authorized an amendment to the 1999 development agreement with Cascade Station development partners Bechtel Corp. and Trammell Crow Co. that doubles the size of the retail component and allows for larger retail anchors.Cascade Station is bounded by Northeast 82nd Avenue on the west; Northeast Airport Way on the North; I-205 on the east and the Columbia Slough on the south. Though hard to back up, it has been described as being the only development opportunity in the country offering direct access to two interstate highways, a light rail line and an international airport. The infrastructure for the development–everything from the utilities and roads to the trees and sidewalks–has been in place since early 2001.The PDC and the developers say the original plan–for 400,000 sf of retail and for retailers no larger than 60,000 sf–was not feasible because it was essentially a neighborhood shopping center without a neighborhood due to its proximity to the airport. The revised plan–which calls for 800,000 sf of retail including one retailer anchor with a 205,000-sf footprint, another with a 185,000-sf footprint and a third with a 90,000-sf footprint–allows for the kind of destination retailers that would draw enough customers to create a market for smaller retailers such as coffee shops bookstores and restaurants. It is expected that those smaller retailers, in turn, would give companies a reason to relocate their employees to the area, sparking prelease commitments that the developers could then use to obtain construction financing for the 1.15-million-sf office component. The office component was cut back from the original 1.32 million sf to allow for the expansion of the retail component. For the same reason, the number of hotel rooms in Cascade Station was cut back from 1,200 to 250 and plans for a 24-screen movie theater were scrapped altogether. A gas station fronting Airport Way remains part of the plan. The changes were approved by the Portland City Council in February but had not yet been reflected in the PDC’s development agreement with the Bechtel-TCC joint venture.The allowance for “one retailer with a 205,000-sf footprint” is believed to be in direct response to Sweden-based retailer Ikea’s interest in building one of its massive retail warehouses on the property. The retailer’s preferred store design has two levels of 205,000 sf each, and Cascade Station developers are said to be talking with the retailer. Ikea’s closest store is in Renton, WA, which is immediately south of Seattle. Another mega-box destination retailer not yet in Oregon or Washington is the publicly traded hunting and fishing outfitter Cabella’s, whose largest stores are 185,000 sf.Cascade Station was a key element of the plan when the City of Portland made the decision to invest in urban renewal funds into the extension of the Airport Max light rail line in 1999. As part of the negotiations, the Port granted PDC long-term development rights to the Cascade Station land in exchange for the PDC’s $51.2-million financial commitment to the construction of the light rail line to the airport. Believing that successful redevelopment of the property would depend on private sector financial participation; the PDC assigned the development rights to the Bechtel-TCC joint venture in exchange for a $28.38-million senior obligation bond and a $14-million junior obligation bond. The PDC then used the senior note to pay off the tax-exempt bonds issued to cover the PDC’s portion of the light rail line.In addition to the development agreement amendment, the PDC this week also directed staff to negotiate a restructure of its remaining financial interest in the development of Cascade Station, namely the $14-million junior obligation bond. Generally, payment on the junior note would come from gross revenues generated by the Cascade Station development. Instead of waiting for that, the proposed restructure calls for the PDC to assign its junior note back to the Bechtel-TCC JV in exchange for development rights to 36 acres of Cascade Station land planned for office development, which Trammell Crow would then acquire from the PDC for $14 million.Numerous conditions must be fulfilled before the proposed restructure would become effective. Among them is the requirement that the Bechtel-TCC will have consummated a sale and assignment of a ground lessee’s interest with a key retail anchor, most likely Ikea.Meanwhile, the tree-lined main street, the wide sidewalks, the grassy park blocks, the benches and water fountains–it’s all there, ready and waiting.