PORTLAND DEVELOPMENT COMMISSION

Portland, Oregon

BACKGROUND

Lloyd 2002 LLC, an affiliate of affiliate of Trammell Crow Residential, has applied for property tax abatement for a new residential rental development known as Multnomah Street Apartments in the Oregon Convention Center Urban Renewal Area. 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 owners will continue to be liable for property taxes on the value of the land.

PROJECT DESCRIPTION

Scheduled for occupancy in January 2004, the redevelopment of this full block includes 184 market rate rental apartments on six floors, 14,330 square feet of ground floor commercial space, and 150 parking spaces below grade and 66 parking spaces on ground floor level for a total of 216 parking spaces. The base of the building to the top of the retail/parking level will be Type I-FR (fire resistive) construction. The structural system will be cast-in-place concrete. The residential portion will have Type V 1-hour construction. The exterior of the building will be a combination of pre-cast concrete, brick, lapped siding and prefabricate (A site map and building plans are attached).

PUBLIC BENEFITS

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

•  Multnomah Street Apartments meets several of the City’s goals for housing development and it addresses numerous neighborhood, City and regional housing goals and supports policy objectives articulated in the Oregon Convention Center (OCC) Urban Renewal Plan, the TIF Allocation Report, Region 2040 Framework Plan, and, more recently, the PDC Five Year Plan outreach efforts.

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 Lloyd 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;”

▪  If developed as proposed, the Project will be within two blocks of MAX light rail, 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 Lloyd District, 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 will provide rental opportunities in the Lloyd District, which is called for in the 2002 Housing Strategy Recommendations: “Support high density, mixed-use, residential development in this transit-oriented district".

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

▪  Rental Rates. The project will provide dwelling units at rental rates accessible to a broad income range. Rental housing is generally affordable compared to for-sale housing.

▪  Recreation facilities or space. The project will include an on-site fitness and exercise room for use by the project’s residents. In addition, the project will include a sundeck, a rooftop recreation area including a community gathering room, restrooms, a spa, indoor and outdoor fireplaces, and landscaping. The recreation area is oriented toward the City and will have unimpeded views of downtown and Convention Center towers.

▪  Open spaces. The project contains a landscaped courtyard area accessible to the residents on the second story. This space will provide a quiet area for residents to sit and relax, eat lunch, or meet with people. There is also a small public courtyard located below the second story courtyard. Public Meeting Rooms. The project will contain a business center with computers, fax machines and Internet access and a conference room. The business center and conference room are primarily for use by the project’s residents but the conference room will be available for small neighborhood and community meetings. On-site management staff will schedule availability.

▪  Facilities supportive of the arts. There is no neighborhood arts foundation but the project developer will work with the PDC and Ashforth Pacific, a major landowner in the District to push for arts in the Lloyd District. In the meantime, the developer will coordinate with the Metropolitan Arts foundation to commission artwork for the project and help initiate a strong arts context for the Lloyd District.

▪  Facilities for the handicapped. The entire project will be designed to be accessible for the handicapped. All areas are elevator served.

▪  Commercial use. An aging stand-alone restaurant and surface parking currently occupy the property. The project will include large retail spaces facing the active streets with preliminary plans calling for two large restaurants and a coffee shop. Independent redevelopment of commercial uses on the site is not allowed by zoning so development of the project is necessary to provide active commercial uses on the site.

▪  Sustainability. The project is being designed and will be constructed with sustainability in mind. The developer is a large wood user and seeks to help create the market for sustainably harvested lumber.

▪  Density near light rail. The project capitalizes on the City’s investment in the MAX light rail by maximizing the density achievable for stick-frame apartments. High quality exterior materials and architecture will offset the density impact.

▪  Alternative transportation. The project will actively promote the use of public transportation and alternate means of transportation. Project managers will actively promote the MAX light rail and the project’s location within the fareless square. The project manager manages projects on the light rail line and has worked with TriMet to promote public transportation. TriMet schedules and materials will be located in the building lobby. Project managers will also promote a car sharing service such as the Flexcar program. The developer has worked with Flexcar and similar programs at other community locations and actively supports such programs.

FINANCIAL EVALUATION

The total development budget for the Project is $28.1 million. Project financing will be provided by a private loan and developer equity. Multnomah Street Apartments has submitted proformas to support their Assumptions. The 10-year income projections derived from the proformas show:

(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.

As shown in scenario 1, the Project’s internal rate of return is 7.74% 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 internal rate of return is –1.80% 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 7.74% internal rate of return associated with the abatement, rents would need to be an average of $159 per month, or 14%, 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 Multnomah Street Apartments to the Planning Commission and City Council.

ACTION