Industrial District is Primed for Extension of Slabtown

PORTLAND, OR—The Northwest district is primed for responsible development and growth with the recent sale of a 22-acre ESCO property to a group of prominent Portland real estate investors, the new 60,000-square-foot Redfox Commons creative office development and the city pursuing the streetcar expansion to the Northwest.

The 22-acre property is adjacent to another site that was recently acquired. In a joint venture partnership acquisition, Unico Properties LLC, a subsidiary of Unico Investment Group LLC, and Partners Group, a private markets investment manager, have purchased Montgomery Park, an 18-acre 745,000-square-foot property in downtown Portland’s Northwest/Slabtown district. Partners Group made the investment on behalf of its clients.

The Montgomery Park site consists of a nine-story office building, which was originally constructed in 1921 as a Montgomery Ward department store. The site also contains a 335,000-square-foot historic warehouse and a 3-acre development site capable of accommodating more than 800,000 square feet of new development.

Unico and Partners Group plan to make significant capital investments to reposition, redevelop and develop the site into an urban campus.

“Purchasing one of Portland’s landmark office properties in the Northwest district presents a unique opportunity to build and shape a premier neighborhood,” said Brian Pearce, Unico Properties executive vice president of real estate services. “With Montgomery Park’s size and scale, its abundance of development options and our vision to deliver unrivaled amenities, our goal is to help evolve this industrial district into a vibrant extension of Slabtown and ultimately, a live-work-play neighborhood.”

The office building is currently 94% leased to tenants including Adidas, Daimler Trucks North America, WebMD, OnPoint Community Credit Union, Wells Fargo and Kaiser Permanente. The property features a full height nine-story glass atrium at the center of an 84,000-square-foot U-shaped floorplate.

“Montgomery Park has the opportunity to be a part of a larger conversation in the Northwest, with the ESCO site and Redfox Commons,” Pearce tells GlobeSt.com. “It is a long-term project to be a part of the larger neighborhood discussion. We are still investigating exactly what we can build. We will likely convert American Can into creative office, reposition Montgomery Park, and potentially build multifamily on the West Lot and bring more 24-hour life to the area. The 3-acre site is the ‘West Lot’.”

In December 2018, Unico and Partners Group also purchased the Galleria, a five-story 195,000-square-foot downtown office building over street-level retail. Both properties were acquired from the Bill Naito Company.

“With abundant redevelopment potential, the planned streetcar expansion and the right development partners, the property has tremendous potential to bring great vibrancy to the area,” said Diane McMahon, CEO of the Bill Naito Company. “Portland has always attracted bold thinkers and its success has been defined by them.”

The Galleria office building was built in 1910 and was originally known as the Olds, Wortman & King department store. Spanning a full city block directly on the MAX transit line at SW 9th and Morrison, the Galleria is located in the West End, an emerging downtown neighborhood.

The Galleria is currently 46% leased to an 89,000-square-foot City Target store, with 106,000 square feet of available office space on the upper floors. Unico and Partners Group plan to make significant capital investments to transform the existing office space with a new lobby and new common area amenities.

“Both Montgomery Park and the Galleria are longer-term redevelopment candidates,” Pearce tells GlobeSt.com. “The Galleria is a Main and Main location in the West End that will only get better, and there are few fully seismic 40,000-square-foot floorplate opportunities in the market.”

The brokers who represented the seller in both acquisitions are Graham Taylor and Charles Safley of CBRE. Acquisition financing was arranged by Nick Santangelo, also from CBRE.

“These recent Portland acquisitions reflect our investment strategy of acquiring real estate assets with significant value-add potential and optionality,” says Fabian Neuenschwander, co-head of private real estate Americas with Partners Group. “Both of these assets offer an attractive combination of income and growth from further lease up and potential development, and the ability to create value through proactive asset management.”

2018 was a banner year for development in the Portland office market, with 2.05 million square feet delivered, which is more than any other year in the last decade, according to a report by Kidder Mathews. This high amount of development grew office inventory by 2.17% in just one year. Despite so much space coming on the market, direct vacancy only rose by 50 basis points year-over-year. Furthermore, despite the slight increase in vacancy, rental rates grew 4.23% year-over-year and are now higher than at any other time in the last 15 years, according to the report.