Portland Project Illustrates Benefits, Challenges of Mixed-Use Development
By Caitlin Jones & A. J. Johnson
8 min read
A new residential/commercial project in Portland, OR, a pioneer in several respects, illustrates the opportunities and challenges of doing mixed-use development.
The new construction project was built to green/sustainability standards, featured a public-private partnership, and introduced new development and lifestyle concepts to the Portland market.
Located downtown, the modern development consists of three components. One is a high-rise building containing 261 mixed-income condominium/loft units. A second is 34,000 square feet of ground floor retail space located beneath the condominiums, occupied by a mix of tenants. These two components together are known as The Civic. The third component is a six-story, second building, called The Morrison, which contains affordable apartments (studios and one- and two-bedrooms), all assisted by the federal low-income housing tax credit.
The two buildings have a common pedestrian plaza between them and an underground parking garage.
The Civic opened in 2006; The Morrison in 2007.
Colin Rowan, senior vice president of Portland-based United Fund Advisors (UFA), described the project in a presentation at the recent 2008 Fall Forum conference of the National Housing & Rehabilitation Association, and in an interview with the Tax Credit Advisor. UFA structured The Civic transaction and set up the new markets tax credit investment fund for the retail component of it. The project was also described in an interview by Steven Rudman, executive director of the Housing Authority of Portland.
Redevelopment Venture
The Civic and The Morrison are the product of a public-private partnership between the Housing Authority of Portland (HAP) and private developer Gerdling Edlen Development, and the result of a redevelopment effort spearheaded by HAP. The authority has been an active user of housing credits over the years and now has 18 tax credit projects.
The site of the new development had been occupied by a rundown 1940s, 138-unit apartment project – The Civic Apartments – that HAP acquired in 1997. In 2003, HAP solicited proposals from developers to redevelop the site, and ultimately selected Gerding Edlen, a Portland-based developer experienced in mixed-use and sustainable development projects.
“We thought that this would be a great place to really try to meet our mission, which is serving very low-income people,” Rudman said. “But also to do it in a way that really integrates a new development into the rest of the neighborhood.”
Rowan and Rudman said the new development is in a prime location. Located steps from West Burnside Street, a major thoroughfare, the site is adjacent to PGE Park, the minor league baseball/soccer stadium. It also is close to the central business district and three other popular neighborhoods, with convenient access to shopping, transit, and jobs. Rowan said the site is “highly transit-oriented,” proximate to bus lines and the MAX light rail service. This played into the project’s design. “Parking is minimized because of the access to transit,” said Rowan, noting the development promotes “car free living.”
Pioneer Aspects
Rowan noted the development was a pioneer in the Portland market in several respects. First, he explained, was the introduction of “reduced footprint” living in Portland’s condominium market; Rowan noted the condo units are generally less than 1,000 square feet. Second, Rowan said the concept of mixed-income, mixed-use development – embodied in the project – was a new model for Portland. “We’ve got a lot of great affordable housing [in Portland] that’s well integrated within the market-rate housing throughout the community,” he stated. “But we hadn’t seen a major development where the two were combined on the same site, with shared amenities, particularly with some substantially deep targeting on the affordable housing side for lower-income folks. It was somewhat experimental in our community.”
Rudman said the development has been able to “push the boundaries” regarding public-private partnerships, and mixed-income/mixed-use/mixed-finance development. He noted the development was designed and built with a sensitivity to the different needs of different types of users, and to residents – owners and renters alike – of different income levels. Rudman said the development is also a good example of how to successfully serve chronically homeless households, by providing them housing and then services, and by doing so in within an economically integrated environment. “Households and property will do better, in the long-term,” he noted, “if you figure out integration strategies with the larger community. As opposed to isolating people in poverty.”
Rudman described The Civic and The Morrison as a “fascinating microcosm of what cities are. You have people who are owners, people who rent, people who have needs. [It’s] a very urban place right next to jobs, providing opportunities for people to live and work downtown, in a way that has amenities.”
Both The Civic’s condo owners and The Morrison’s residents are of mixed income. One fourth of the condos, or “workforce” units, were targeted for sale to first-time homebuyers between 80% and 120% of the area median income, at prices of $350,000 or less – “fairly affordable” for Portland, said Rowan. The remainder was sold at market prices, including a single high-end penthouse.
Of The Morrison’s 140 apartments, 45 studios are permanent supportive housing units reserved for former chronically homeless individuals – seniors and persons with disabilities. While the income limit for these residents is 30% of the area median income (AMI), many residents make far less, or no income at all. Rudman said two nonprofits provide on-site support services for these residents.
The remaining, 95 apartments in The Morrison are “workforce” units, restricted to households earning no more than 60% of AMI. For the Portland metro area, 60% and 30% of AMI equate to an annual income limit of $28,500 and $14,250, respectively, for a one-person household; $32,580 and $16,300, respectively, for one person.
Monthly rents range up to $742 for the one-bedroom apartments and up to $916 for the two-bedroom units.
New Markets Tax Credit
Rowan said 80% of the condo units were pre-sold.
He also noted there was no pre-leasing of the retail space – unusual for a typical commercial or mixed-use project. Rowan explained this was possible due to the use of the federal new markets tax credit (NMTC), which helped finance the development costs for the retail component of The Civic.
Rowan said two community development entities (CDEs) provided a portion of their NMTC allocations for the project: the Historic Rehabilitation Fund, and a CDE of the National Development Council.
UFA set up the investment fund for the NMTC investor in the deal, US Bancorp Community Development Corporation.
Some of the current retail tenants include a dance studio, pizzeria, and sports bar.
The residential condominium and the retail components of the project were structured as two separate condominiums.
Funding Sources
The overall development – the condos, retail, and apartments – had a total development cost of roughly $98.9 million. Costs were about $75.8 million for The Civic and $23.1 million for The Morrison.
Funding sources for The Civic included a $52 million senior loan, $11.1 million from taxable bond proceeds, owner equity of $9.3 million, $3 million generated by the NMTC, and $330,658 from other sources.
Funding sources for The Morrison included roughly $8.8 million in equity generated by the low-income housing tax credit, $7.8 million in tax-exempt financing, $3.5 million from the city of Portland and the Portland Development Commission, and $2.9 million from HAP (developer fee reinvested, deferred developer fee, and cash). The housing credits were syndicated by Apollo Housing Capital, according to HAP.
Gerdling Edlen developed and owns The Civic, and was master developer for The Morrison. The housing authority is the general partner of the tax credit partnership that owns The Morrison.
The development features a number of environmental-friendly and sustainable features. All three components of the project have received LEED Gold certification from the U.S. Green Building Council, according to Rowan. LEED stands for Leadership in Energy and Environmental Design.
Sustainability features included an “eco-roof,” green carpets, rainwater harvesting, dual-flush toilets, high performance window glazing, ENERGY Star appliances, use of low/no VOC paints, adhesives, and solvents, and other features.
Rowan said the developer estimated the extra hard and soft costs to build the development to LEED standards at $512,145, or less than 1% of the total project cost. More-over, Rowan said the development received certain incentives totaling $604,474 by being built to LEED standards. These included Oregon business energy tax credits and incentives from the Energy Trust of Oregon and the Green Investment Fund.
Takeaways
Rowan said several key lessons from the development were:
- Experience is critical in the development team.
- A track record in developing sustainable projects helps in attracting financing.
- Knowing the role of LEED in the local market is critical. “You’ve got to be able to sell it to the underwriters,” he said.
- Keep the cost premium from building to LEED low, by focusing on the “low cost” features such as insulation, the building envelope, use of low-VOC paint, etc.
- Select financial partners that understand sustainable design. Rowan said whether this is tax credit advisors, lenders, or equity sources, “matching up with people who prioritize sustainable design and who have experience in it” can help the developer.
