PORTLAND DEVELOPMENT COMMISSION

Portland, Oregon

BACKGROUND

Hoyt Street Properties, LLC (HSP) has applied for a property tax abatement for a new rental housing project known as Block 13 Apartments (Project) at NW Ninth Avenue and NW Marshall Street in the Pearl District. According to Chapter 3.104 of the City Code, the Portland Development Commission shall review the application and make a recommendation on the request to the Planning Commission and City Council.

The property tax abatement, if approved by the City, exempts the value of the project’s residential improvements from taxation for a period of ten years. During this period, the property owner continues to be liable for property taxes on the value of the land.

PROJECT DESCRIPTION

Scheduled for construction in late 2002, the redevelopment of this full block includes 139 market rate rental apartments on five floors, 8,978 square feet of ground floor commercial space, and 143 parking spaces, primarily below grade. The base of the building will have a light masonry brick color with aluminum storefront window systems. The body of the building will have varying projecting and recessed bays made of metal panel, varying in color from light gray to light green, and varying in texture from smooth to box-ribbed corrugated (building plans are attached).

PUBLIC BENEFITS

The Project meets many of the City’s housing goals as specified in the Comprehensive Plan:

▪  The Project will redevelop a vacant full block parcel in the Pearl District, which is called for in Section 4.1 (E): “Encourage the efficient use of infrastructure by focusing well-designed new and redeveloped housing on vacant, infill, or under-developed land;”

▪  The Project will front on the Central City Streetcar, which is called for in Section 4.3 (A): “Place new residential developments at locations that increase potential ridership on the regional transit system and support the Central City as the region’s employment and cultural center;” and

▪  The Project will provide rental opportunities in the Pearl District, which has been developed primarily as condominiums, which is called for in Section 4.10 (E): “Support opportunities for renter households by providing a range of housing types, sizes, and rent levels throughout the city.”

The Project satisfies one of the housing objectives called for in the Pearl District Development Plan:

▪  The Project will provide rental opportunities in the Pearl District, which has been developed primarily as condominiums, which is called for in Housing Objective 1: “Support and promote the development of a wide range of housing types for all income levels as outlined in the adopted River District Housing Implementation Strategy of 1999.”

Several of the terms of the Amended And Restated Agreement for Development between the City of Portland and Hoyt Street Properties LLC are relevant to this Project:

▪  Smaller Units. The Project compares favorably with HSP’s goal to build smaller units, set in Section V(G). Hoyt Street’s goal for rental housing is that 15% of the units built will be no larger than 700 square feet, while the Project has 22% under 700 square feet.

▪  Density. As of the commencement of construction for Jamison Square, Hoyt Street’s density obligations north of Lovejoy Street increased to 131 units per acre. This Project has 139 units on a 200 x 200 parcel, or 151 units per acre, in excess of the requirement.

Finally, the Project will provide the following additional public benefits, as required by the City Code (Chapter 3.104.040):

▪  Housing which is affordable at a variety of income levels, reflecting the income diversity of the City as a whole.

▪  The building includes 8,978 square feet of street level retail, as encouraged in the River District Plan. The retail component fronts NW 10th Avenue across from a future public park block and a public boardwalk intended to eventually run the length of the west side of 10th Avenue to the waterfront. Because of the boardwalk, 10th Avenue will become a primary retail corridor through the neighborhood.

▪  The Project is not receiving tax credits, tax exempt bonds, or loans from any governmental agency, including PDC.

▪  The Project is transit supportive, located adjacent to the Portland Streetcar line.

▪  The Project meets or exceeds all the goals and objectives of the River District Plan and Central City Plan, especially the goal of high density housing in Portland’s urban core.

▪  The Developer has agreed to contribute $50,000 to the Pearl Arts Foundation for each developed block. The Pearl Arts Foundation intends to create an open-air museum in the Pearl District of Portland. In addition, Hoyt Street Properties intends to encourage the use of private and public open spaces for art exhibits, musical events and other street and neighborhood events.

FINANCIAL EVALUATION

The total development budget for the Project is $23.2 million. Project financing will be provided by a private loan and developer equity. HSP has submitted three detailed proformas, showing (1) the financial performance of the Project with the tax abatement, (2) the financial performance of the Project without the tax abatement, and (3) the financial performance of the Project with the rents necessary to achieve feasibility without the tax abatement. All three scenarios are attached.

As shown in scenario 1, the Project’s cash on cash return is 10.37% during the 10 year period of the abatement. This is within the 10% threshold typically applied with the program.

As shown in scenario 2, the Project’s cash on cash return is –2.28% during the 10 year period without the tax abatement. In this scenario, the Project would not likely be eligible for financing without a much greater developer equity contribution because of its inability to cover debt service. The financial performance of the Project in this scenario certainly does not achieve a market return; therefore, the Project is not financially feasible without the abatement.

As shown in scenario 3, in order to achieve the 10.37% cash on cash return associated with the abatement, rents would need to average an additional $286 per month, or 21% higher. These rent increases are not possible at the present time; therefore the Project is not financially feasible without the abatement.

Based on this analysis, the property tax abatement is required to achieve economic feasibility for the Project, as described in Section 3.104.010(D) of the City Code.

RECOMMENDATION

Approve the Resolution recommending the approval of a property tax abatement for the Block 13 project to the Planning Commission and City Council.

ACTION