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PORTLAND, OR-Sweden-based home-furnishings retailer Ikea will anchor Cascade Station, a 120-acre swath of development-ready Port-owned land along the light rail line to Portland International Airport that has been primed for development since early 2001. The commitment comes after a year of negotiation and is expected to kick start two million sf of mixed-use development. Clearly the development's time has come. The necessary infrastructure--from utilities, tree-lined streets and light-rail stops to sidewalks, grassy knolls and benches--has been in place since the light rail line was completed more than four years ago.
In February, after the city and developers found out about Ikea's interest in opening a 280,000-sf store in Portland, the development plan for the area was quickly revised to correct a miscalculation regarding the retail component of the master-plan. The original plan--for 400,000 sf of retail in buildings no larger than 60,000 sf--was not successful, in part because it was essentially a neighborhood shopping center concept without a neighborhood due to its proximity to the airport, according to local industry sources.
The revised plan calls for 800,000 sf of retail including bookend retail anchors--one with a 205,000-sf footprint (Ikea's preferred size) and another with a 185,000-sf footprint--backing up to Airport Way. That configuration should draw enough regional customers to create a market for smaller retailers such as coffee shops bookstores and restaurants that will be housed in in-line space in between the two anchors. That, in turn, should 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 project's 1.11-million-sf office component.
That office component was cut back from the original 1.32 million sf to allow for the expansion of the retail configuration. 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 weren't reflected in the Portland Development Commission's six-year-old development agreement with Cascade Station Development--a joint venture of Bechtel Corp. and Trammell Crow Co.-- until June.
Cascade Station was a key element of the plan when the City of Portland made the decision to invest urban renewal funds into the extension of the Airport Max light-rail line in 1999. As part of the negotiations, the Port granted the city's urban renewal agency, the Portland Development Commission, the 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 amending the 1999 development agreement, the PDC in June directed staff to negotiate a restructure of its remaining financial interest in the development of Cascade Station, 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 JV consummate a sale and assignment of a ground lessee's interest with Ikea. With Ikea's announcement today, that appears to be close at hand.
Ikea's closest store is in Renton, WA, immediately south of Seattle. Other mega-box destination retailers not yet in Oregon or Washington include Cabella's and Bass Pro Shops, the dueling hunting-and-fishing gear retailers.
As now planned, TCC will develop the office hotel and retail anchor sites and CenterCal Properties LLC will develop the in-line retail space. TCC's Jim Parsons will head up retail leasing and TCC's Mark McFarland will head up office leasing.
Earlier this year, the Portland area moved up five spots to 25th in the National Retail Index, an annual report by Marcus & Millichap Real Estate Investment Brokerage Co. The report ranks 41 retail markets based on a series of 12-month forward-looking supply-and-demand indicators. San Diego topped the 2005 index, rising two places to overcome last year's top dog, Orange County, CA, which came in at No. 2. Seattle came in at No. 15.
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