The Corner Apartment

When I was putting together my first newsletter on the close in neighborhoods and Central Eastside years ago and being more of an industrial sort of guy, I did not think I would ever have to put together regular “Updates” on the apartment market but given the avalanche of both under construction and planned units in the close in eastside, it is a new reality that many think is here to stay. So here we go…

Bollinger & Sons site on Grand to become Mixed Use Project

You may get your coffee or one of those tasty frozen treats at Dutch Brothers where they have a very visible location right at the Morrison Bridgehead site on SE Grand. This time next year that probably will not be possible as this half block property is angling to become a retail/office/apartment project. “This is really one of the best sites in the Central Eastside because of it being on the bridgehead and Grand Avenue” says Tim O’Brien of Urban Asset Advisors and formerly a big deal maker as an apartment broker at HFO. O’Brien has waded up to his shoulders in apartment development after saying goodbye to apartment brokerage and loves the Central Eastside. “I have had my offices here for over a decade and really watched this market change and transform to a vibrant area where mixed use development really could and has become a complement to the industrial and retail base” he says. Bollinger and Sons a long time Central Eastside insurance firm and owner of some great real estate was looking for ideas for redeveloping this key site and O’Brien with his local roots, creativity and more importantly his willingness to include the landowners as partners in his development snagged the deal. Design and costing is shifting into high gear and at this point it looks like there will be 26,000 sf of office, 75 apartments units and an undetermined amount of retail along busy SE Grand in a five story configuration. The good thing is that there looks to be a high degree of parking with at least 80 spaces which can be shared with office users and apartments as they have different time needs. Timing is still up in the air but the goal is to have construction going sometime next fall. O’Brien is putting the finishing touches on his other Central Eastside project, Lower Burnside lofts which is a 62 unit project at 10th and SE Ankeny that another Central Eastside firm, Bremik Construction is building. Overall O’Brien does not buy in to some of the growing “noise” about the market heading towards saturation. “We have such pent up demand from having not built any multi-family units for so long, great in migration that wants and needs to rent and some healthy job creation that in my opinion we have several years or more for this current cycle to run its course. Plus even with some healthy rent appreciation, Portland is still very affordable compared to many other west coast cities.” Says O’Brien. He does mention also that as more and more units hit the market it will put pressure to develop on well-located sites like the Bollinger property which will be more crucial to determining long term successful projects.

Fowler cashes in on and Sells Central Eastside Lofts at 6th and NE Couch.

He was a bit ahead of his time and somewhat prescient in getting one of the first large apartment projects up and leased in the Central Eastside and now he and his partners are taking advantage of a red hot market for apartment investments. Brad Fowler started eying the Central Eastside as a potential apartment market years ago and was very prescient in purchasing two key 20,000 sf sites at NE Couch/Davis and 6th avenue almost 10 years ago. “We saw the potential in the Central Eastside early and really thought over time this area was underdeveloped with tons of potential for the long term” says Fowler. He moved ahead with a 62 unit project called Central Eastside Lofts that came on line in 2012 and was ahead of the curve and leased up fairly quickly as he had the only game in town. “We really hit the market well as there were really no other apartment options nearby and there was already developing a some great amenities in the neighborhood especially along lower Burnside” He says. This smart move demonstrates Fowler’s forward thinking and pragmatic view of what has become a gusher of apartment development throughout Portland’s core areas where he could have moved forward on Phase II on another site adjacent but felt the market was already starting to get overheated and risk was entering the picture. He recently cashed out with a $19 million sale of his complex to a 1031 buyer out of California at a capitalization rate under 5%. “I am not a pessimist but just feel there may be just too much inventory in the pipeline that is all trying to serve a similar rental market which is basically the millennial clientele and I just do not think that market is very deep so the timing was right to take some chips off the table” he wisely opines. He kept his other development sites and is happy to sit back and watch the coming wave of new units hitting the market at the Bridgehead, Lloyd Center and Northwest Portland before figuring out what move or any may be in store for his sites which could be more apartment or even creative office which is seeing a burst of development too.

We (CEIC) just completed our apartment survey of the Central Eastside and there are tentatively 1,953 (heavy on studio and one bedroom) units either completed, under construction or proposed in the district with 940 off-street parking spaces. These projects with have also have approximately 158,000 sf of retail and 61,000 sf of offices in the developments. This basically doubles the apartment inventory in the district which is mostly made of smaller older units.

21 Story Apartment Tower Finally Underway at Bridgehead

Though it has received a fair amount of press, I don’t think people understand how this development will change the physical landscape of the Central Eastside but I think the size and design will wash over the surrounding area in a way that says the Central Eastside is no longer a gritty gentrifying industrial district with a slew of funky buildings and development. With its stunning design by rock star architect Jeff Kovel of Skylab, it will look like an artsy sentinel rising to 206’ that by sitting at one of the main entrances to the Central Eastside will give the area a certain a healthy dose of big city style and audaciousness. The Design Commission got all giddy over the design with comments like “It’s a fantastic project” and “All very thoughtful and creative” It is a very healthy bet by Jeff Pickhardt, a Bend based developer that cut his teeth with several inventive buildings including several along Hood River’s waterfront. With 284 apartment units and fortunately 203 underground parking spaces (also a whopping 426 bike parking spaces) along with 20,000 sf ground floor retail evening split on the lower level along SE 2nd and above on the intersection of Couch on to the Bridge, this is a game changer for the Central Eastside from a scope and design perspective. The design definitely pushes the envelope for the staid Central Eastside with a wavy steel and metal base that some have described as a “wedge”. It is basically a parallelogram that seems allergic to 90 degree angles and will have some colorful glass and metal panels that undoubtedly give off some interesting hues as the sun moves over the structure. The retail fronting on NE Couch as it curves on to the Bridge has its own striking appeal with an undulating metal roof, tons of glass and a green eco-roof. “We wanted to create something iconic and that will last and be memorable given its location on the bridgehead.” says Pickhardt. The $85 million project will take close to 18 months to complete. He first approached the PDC with his daring plans for a tall building on the site over three years ago. I asked Jeff if it was difficult to make both equity and financing partners understand the project, Portland’s culture and the unique milieu of the eastside. “A couple of years ago there was some gymnastics involved in making people understand the unique but energetic nature of the Central Eastside and its potential but as other projects at the Bridgehead, the Central Eastside and even the Lloyd Center have been moving forward, the sell became much easier and everyone we talked with really listened and understood the story and the potential of the site and the area. Plus Portland has received great press recently and is on many people’s radar screens for investment for all the reasons we know well” It was all systems go when they secured a $71 million construction loan last September from mortgage company HFF and previously brought in Andersen Construction as both a minor equity partner and quality builder. There will be 42% studios, 45% one bedroom and 13% two bedroom units. Jeff would not let on what rents might be but in talking around and given the scope and type of construction he may have to push up close to the $3.00 psf per month threshold but given the world class design construction and location it probably will find a deep pool of renters looking to be part of something special. They did make a deal with the Portland Housing Bureau to reserve 20% of the units for people making 80% of the median income in exchange for some property tax breaks. The crane has been in the air now since early in the year and you can see the structural steel is starting to rise from the ground floor on SE 2nd up past the height of the Burnside bridge. This will be a very cool development to watch!

St Francis Park Affordable Development gains funds and picks up speed.

Good or bad, most everyone in the Central Eastside knows the wooded and neglected green space at 12th and Stark. Started under idealistic and grassroots pretenses back in 1969 when the St Francis Parish donated the land for a park, the parish and other neighborhood activists brought together architects, artists, sculptors and hundreds of volunteers to create Portland’s version of Berkeley’s version of the “people’s park”. Combing fifty truckloads of dirt coming from the construction of the Wells Fargo tower downtown with the creativity of school kids and hundreds of volunteers, the dirt was contoured in imaginative ways as the foundation for the community space. Over the next couple of years, all sorts of plants and trees arrived, an artistic steel play structure took shape and then the biggest feature, was a cubist shaped fountain and concrete riverbed that circulated water from a windmill attached to a decommissioned navy battleship mast which remains on the site. All very funky and organic which was the goal. For the first 15 years, the park was a safe, mellow, neighborhood gathering spot. Things changed in the 80’s as the parish closed the school and the dining hall was expanded which was catering to a growing transient population. A good recent quote was “When the school closed and with the schoolchildren, went the parks’ energy” It was a slow decline as demographics of the neighborhood changed and the park slowly became populated with those “clients’ of the dining hall making it their living room and made the park less inviting and safe feeling. While many of dining hall recipients were harmless and just down on their luck, a criminal element from time to time could dominate and make use of the lush foliage for lots of unlawful activities to where many neighbors were afraid to venture close to the space after dark and the Portland police became frequent visitors and finally closed the park for much of 2003 because the place just got to be too unsafe. The park over the last decade, just limped along neglected with the surrounding neighbors, businesses and property owners tolerating the conglomeration of “residents” and occasional spikes in criminal activity but wondering if something better could be produced out of what has become some very valuable real estate. Many in the neighborhood were buoyed by Catholic Charities plans last year to buy the site to create a housing and retail complex on the site. Vaunted corporate developer Gerding Edlen was brought on board, concepts were floated and neighborhood outreach was started on a 144 unit apartment complex catering to a mix of income groups with 12,000 sf of complementary retail but it came with an extended timeframe for completion out three years.

The last year has brought changes to the make-up and timeframe of the project. “We reevaluated the scope and scale of the development to better meet the needs of what we wanted to accomplish in the community and how to make this project mesh better with our mission and programs” says Trell Anderson, the Director of Housing and Community Development at Catholic Charities. That means Gerding Edlen is out and Home Forward (used to be Housing Authority of Portland), the most experienced affordable non-profit local housing developer is in. The project has been scaled back with the retail being nixed and the unit count down to 102 units most of which will be single bedroom or studio units, with the bulk of the units reserved for households earning from 30-60% of median income but also 25% of the units reserved for women transitioning from homelessness and domestic abuse. The $20 million project is also on a faster track bolstered by a recent $6.5 Portland Housing Bureau grant and $1.1 million in equity from Home Forward. “We’re very pleased to be part of this collaboration. It will bring affordable housing to an area that is adjacent to workforce jobs in the central eastside area that has very limited housing opportunities for those workers” says Mike Andrews of Home Forward. Catholic Charities closed on the $2 million land sale last August with those proceeds slated to be used to fix and upgrade the adjoining parish’s dilapidated facilities. There will be 32 below ground parking spaces which should be just fine as affordable housing because of demographics, residents have a much lower car ownership make-up. At a recent CEIC land use meeting presentation there was continued concern on how this development will affect and deal with the persistent camping problem in the area that is mostly related to the dining hall at the parish. There was a good neighbor agreement signed years ago that of course which will not apply to the new development so obviously there will need to be some consensus effort to come up with a more comprehensive agreement probably with the parish, Catholic Charities, Portland Police and the neighborhood to try and deal with the camping issues which even with this new development will most likely continue to be an issue. Trell mentioned that they will work closely with the parish and dining hall operation to deal with security and the camping issue in a “responsible manner” Walsh Construction is the builder, MWA is the architect and Cascade Management will be the manager of the property. Design is moving forward with early renditions showing 3-4 story building fronting on Stark; 12th and 11th with interior courtyard and a large garden area towards the parish building. Ground breaking is slated for next June and completion projected for early 2017.

Bridge Housing Takes a Step Back on Central Eastside Project

Bridge Housing is one of the largest affordable housing developers and mangers on the West Coast. The 30 year old developer was birthed in San Francisco which was experiencing an affordable crisis back in the 60’s and 70’s. Bridge has been hugely active in filling the affordable housing void with both a combination of acquired and develop units that now totals over 20,000 units throughout California. Bridge is making a concerted effort to expand beyond its large California roots and started a Portland office a few years ago to correspond with their purchase of a site in Northwest Portland for a 142 unit affordable housing development which broke ground in November called the Abagail. “We saw opportunities in the Northwest and Portland specifically to bring our collaborative and successful housing model and we could see some of the same issues related to a lack of affordable housing that we have been addressing in California for the last 30 years” says Bridge’s Brad Wiblin. Bridge also bought a 111 unit existing project in Hillsboro and a huge 474 unit in North Seattle to further establish their base in the Northwest. Bridge because of its size, donors, and previous success taps a variety of financing sources including the standard grants and low financing offered by local, state and federal programs but also can work well with conventional banks who get tax credit benefits from placing money into affordable projects but also can bring substantial cash resources to get developments done. They acquired a 30,000 sf site in the Central Eastside in partnership with a local developer in early 2014. The property at SE MLK/Ash formerly owned by the Salvation Army sits along the trolley line and early designs pointed to a potential large project of up to 12 stories and over 300 units with some ground floor retail but now that may be scaled down to better reflect the neighborhood and the changing dynamics of the financing, grant and tax credit markets that really makes these projects go. Additionally their request for funding for the project through the Portland Housing Bureau did not make the cut last year which has prompted a reevaluation of the project “We love the site but we need to step back and think further about the best possible scope and mix of this project.” adds Wiblin. He would not commit on timing but thinks that summer approaches that there will be further clarification on the scope and timing on the project. One thing they are looking at is maybe going ahead with a demolition of the existing buildings which are empty and in poor condition and is consistently attracting graffiti and our seemingly growing group of urban “campers”.

Foursquare’s Linden Apartments are Full

Located at the key intersection of SE 12th, Sandy and Burnside, the Linden apartments hit the market at almost the perfect time. First envisioned several years ago as an active senior living project, the owners of the land and developers, the Foursquare Church Foundation had a church nearby for many years and owned the parking lot where the Linden was built. The Foundation is an interesting entity and is arm of the 90 year old Los Angles based evangelical Foursquare Church (look up their history on the web and their founder evangelist Aimme McPherson which is an amazing story and a bit weird too) that got its money from a $250 million sale of a church owned radio station a decade earlier and is using the dough for a wide variety investments, grants and in a couple of cases development of church owned property to align with the goals of the church. As design and financing moved forward, the church quickly saw the burgeoning demand for apartments and switched directions to go market rate and decided to open it up to all demographics and change their amenity package. Smart Move. The 132 unit project which was completed in 2013 as a huge rooftop terrace (11,000 sf), large community gathering room, upscale appliances, balconies, yoga classes/fitness room and has over 100 indoors spots for parking (which they charge extra ). A recent call a couple months ago to the management office revealed that only two units were available for rent and pricing was a healthy $2.20 psf for a two bedroom at $2.60 psf for a one bedroom. Though many think the exterior architecture is bland and bit “cheesy” there is no doubt the project by hitting the early wave of apartment development is a resounding success. One interesting tidbit. Though they have a good ratio of parking spaces for the project, the latest count was that less than 50 parking spaces had been leased for the asking price of $100 per space which has surprised the owners and management.

Trinsic on the Homestretch of their East Burnside Project.

Getting close to 18 months since they first agreed to purchase a 18,000 sf site on East Burnside which is site of a used car lot, Houston based Trinsic Development is ready to tie a bow around the deal and start construction here this summer. “This project has changed a couple of times and expanded and that along with getting through city processes has extended the timeframe on this deal” says Trinsic’s Jack Pauu. Originally Trinsic was planning a 100 unit plus project on the used car lot but went to Central City Concern/Chiers people who inhabit the rest of the block and made a deal to buy their 10,000 sf parking lot as long as they replaced the parking their 20 or so parking spaces in the new expanded project. Now up to 159 units in in the now very standard five over one configuration, the development now has 50 parking spots for their units which is a bit light for many in the Central Eastside who want to see a minimum of .5 parking space per unit. Located along some the best commercial corridors in the District of Burnside, MLK and Grand, up to 6000 sf of retail mostly along Burnside and some square footage along Grand is also in the mix. Additionally, PBOT has pushed Trinsic to make the entrance into the project front on NE Couch as they want to keep Grand a retail corridor which has added to additional design work but all the pieces seem to be in place now. Like many projects, the units will be heavily tilted towards studio and one bedrooms with 3 live work units included. Other little details from their Design Review approved in December 9th revealed a “bike lounge” and arcade (whatever that is) over the sidewalk on Burnside but generally the Design commission was laudatory of the final product that started out with a less than inspiring design over a year and half ago. Trinsic is setting a new record in the district with their $160 psf land purchase price which two years ago when this deal started looked a bit crazy but as rents go up and up and demand for a limited supply of EX zoned land in good locations is red hot, this does not look so nutty now and most likely we will see the $200 psf number get surpassed. With the all the new developments at the Bridgehead, this intersection will look quite different in a year or so and generally everything planned and under construction has a great mix of variety and design acumen which should age well and really provide some pizazz to what many consider the front door to the Central Eastside.

Project across from Central Bowl on Tap

John Plew of Concept Entertainment that owns the Central Bowl complex and multiple other restaurants and bars in Portland and beyond knows real estate, “The restaurant business is really real estate driven and that is what attracted us to Central Bowl originally was that it was just great real estate in a neighborhood that we could see had great potential and was changing for the better”. Plew observes. When they bought the old bowling alley property in 2005 and poured close to $ 7 million into its hip renovation they also got in the deal a 20,000 sf half block site across the street to the east. With parking in the basement and along the Westside, this vacant land was always envisioned as a potential development site and given the strong market in the area and the coming huge development at the Goat Blocks called LOCA by Killian and the completion and lease up of Washington High nearby, the market in the Belmont/Morrison corridors is really coming along. Plew under his development name Foresight Development first floated an apartment project a year ago and given almost 1200 units planned or under construction in the Central Eastside, a few observers (me included) thought some of the projects might fall by the wayside thinking there was too much apartment product in the pipeline but John’s plans and motivation to get a shovel in the ground has not waned. “We are going full speed ahead with Design review coming up, detailed building plans are being developed with the hope of breaking ground next summer”, he projects. Details at this point are a 105 unit project in the standard wood frame five stories over a concrete pedestal. Retail will be relatively minimal with only two 1800 sf spaces at the corner of Belmont and Morrison. There will also probably be work/live units fronting SE 9th. Ankrom Moisan who seems to have their hand in many of these core mixed use projects is the architect. Here is the stickler which may get many in the Central Eastside a bit sweaty, only 20 parking spaces are being considered right now which is a fairly low ratio but Plew thinks there will be many tenants that will not have cars and street parking after 5 PM in the area is plentiful. The design will try to reflect the industrial character if the neighborhood with lots of brick and “industrial touches” “We really want to try and create an older industrial loft spaces that are very open, simple and funky and also have a very competitive price point because we know we are catering to people that will be on a budget” Plew explains.

Mill Creek Ventures into the Central Eastside

“I think Portland has a long term bullish run ahead in the multifamily market, probably much longer than most people think” said Sam Rodriguez, local partner of national apartment developer Mill Creek Residential Trust at a recent developer breakfast for NAIOP. He added with some self-effacement “I have to be positive on the apartment market, that is what I do”. Though part of a national company and platform, Sam and his group could arguably be the most active and aggressive apartment builder in the Portland market who does not shy away from difficult or long term projects. They have multiple projects completed, under construction and in the pipeline. All of these have been on Portland’s Westside or the burbs until recently when they won the financial beauty contest for one of the best blocks in the close in eastside, the Oregon Ballet Theater site sandwiched along SE Morrison/Belmont/7th. OBT put out an offering to sell over a year and half ago on their home which used to be a bank branch in order to alleviate some crushing debt and find a more economical location. Mill Creek came out the winning bidder at a rumored $165 psf and has been doing a bit of work on the site but also waiting for OBT to find another location. That work is heading into the passing lane now with lots of design and site analysis to determine the best possible development for a site that has the much sought after EX zoning but better yet is one of the few blocks in the Central Eastside that has height limit of 250’ and ability to build over 300,000 sf of space. “We were struggling with two options, a more dense high rise project or something smaller like a standard six story development because we wanted to see if it made sense to take advantage of the FAR and heights on the site” Rodriguez notes. One interesting aspect going into the decision is that the site has a very high water table of around 17’ which makes digging underground for parking problematic. The site is plagued like the Goat Blocks with being in the path of long known underground stream several of which meander underground throughout the Central Eastside. With that reality the idea of having several stories of above ground parking with housing on top of that was a viable possibility. “We really want to provide a good parking ratio at or above .5 parking space per unit so above ground parking with a higher rise building is a definite possibility”. But with a higher building comes higher costs associated with the necessary steel and concrete construction rather than the less expensive wood frame building on a concrete pedestal. The higher version did not make the cut as their architects, SERA and Mill Creek related recently at a CEIC land use meeting that they will bring the scale down and to a small U shaped design that will contain 208 apartment units (with up to a dozen live work units) and 110 spaces of parking. Additionally Rodriguez wants to build in more retail spaces than he normally does in his projects to take advantage of the big exposure and car counts especially along Morrison. Best case is that construction will start next fall. Rents should fall into the $2.50 psf range.

Sackhoff continues his Apartment Rumble around the Close In Eastside

There is a great saying in real estate development, “You do not know who is swimming naked until the tide goes out” 2008-2009 brought an ebb tide that was the biggest in decades which exposed and took down a large percentage of leveraged developers and builders. The Gorilla in home building, Arbor Custom Homes was not quite swimming naked but were scantily clad but was one of the few large builders that survived and came out of the economic darkness but it brought changes and a much more cautious approach going forward. One of the founders, Dennis Sackhoff grabbed the wheel of his home building business and swerved quickly in the ensuing years into urban apartment in-fill development in a big way. Like always he was early into what he saw as a need for core area apartments so he quickly starting throwing offers around like candy and securing mixed use zone sites along major commercial corridors like Division, Belmont, Morrison, Fremont, Ankeny and more. He now has half a dozen completed or under construction projects throughout the close in eastside but is not slowing down. He has purchased the iconic Old Wives Tale restaurant site when long term owners retired at the nexus intersection of Sandy, Burnside and 12th for a 60 unit plus apartment development and now has under contract and starting to plan for a similar amount of units on the triangle property a couple blocks away at SE Sandy and Burnside (it is parking lot surrounding Michael’s Italian Beef and Sausage). Dennis has not been on providing too much parking much to the chagrin of his neighbors in his other developments he has done and probably will do the same here but given the huge amount of transit in the area might not be too much of a problem.