Posted on 09/23/2005 2:36:34 PM PDT by ex-Texan
A joint venture pays $77.5 million for the high-rise Portland Center Apartments and will sell units as early as next spring
A team of Portland developers plans to announce today that it has bought the high-rise Portland Center Apartments for $77.5 million in a deal that will convert the three massive towers into condominiums.
The purchase of 537 units is believed to be the largest condominium conversion in the Portland area, which has seen a flurry of apartment buildings converted to for-sale units in recent years. It also marks one of the highest Portland-area prices ever paid for an apartment building: $144,320 per unit.
"Holy smokes, that's amazing," said Gary Winkler, a multifamily property broker with the Portland office of the Colliers International brokerage.
The deal is the latest sign that the Portland-area condominium market, like the housing market, remains white hot. The same historically low mortgage rates are fueling both -- and increasingly making multifamily buildings worth more money as condos than they are as apartments.
The Portland Center Apartments join other high-profile conversions, including the Uptown Heights Apartments in Northwest Portland, the Hamilton Arms Apartments near PGE Park and The Lexis in the Pearl District.
The latest conversion opens a new era for a pioneering part of Portland's downtown. The trio of high-rises, which stand 22 to 25 stories tall near Portland State University on Southwest Harrison Street, were built in 1965 as the first residential towers in the South Auditorium Urban Renewal Area.
Nels Hall of Yost Grube Hall Architecture in Portland said he studied the buildings when he was a student at the Massachusetts Institute of Technology in the 1970s. While the plentiful parks and buildings set back from the street give it a less intense feel than the more contemporary Pearl District, the South Auditorium was remarkable for mixing housing, offices and parkland, Hall said.
"It was one of the few urban renewal districts in the country that encouraged mixed-use development and had an overall plan that respects the block pattern of the city," Hall said.
In the decades since, Portland's downtown has become even more popular as a residential destination -- particularly for condominium buyers -- laying a financial foundation for the current conversion plan.
As low mortgage interest rates made homeownership more affordable, renters have fled apartment buildings to buy a home.
As a result, apartment owners have increasingly been forced to reduce rents and add incentives to keep units occupied, Winkler said.
The average rent for a one-bedroom apartment in the Portland-Vancouver area in the second quarter of this year was $644 a month, almost unchanged from the same quarter two years ago, according to RealFacts, a California-based market research firm. Home and condominium prices have skyrocketed over the same period.
The changed environment has made apartment properties, once valued for the income stream they generate over the years, more in demand for their value in a quick sale. Condo converters are willing to pay so much for the concrete and steel itself that many apartment owners feel like they have little choice but to sell.
"You can move that cash into something else that cash-flows better," said Winkler, who was not involved in the Portland Center deal.
Such conversions may be great for the building's owner -- in the case of Portland Center Apartments, the Chicago firm Equity Residential -- but they tend to force out some renters.
College students and the elderly make up a significant number of residents at Portland Center, several renters said Thursday.
"If they wait a couple of years after I finish my engineering degree, yeah, I'll be able to buy," said Michael Thomason, a Portland State student.
But for now, Thomason said, all he can afford is the $690 a month he pays in rent.
"I've dealt with harder stuff," he said Thursday about being forced to move. "I'll get through this, too."
Scott Stehman, of Reliance Development Inc., a partner in the venture that is buying the buildings, said he expects to give formal notice of the conversion plans to residents in the first tower today. A meeting with all residents is set for Tuesday.
The first units could be sold to buyers in the westernmost building, at 255 S.W. Harrison St., in spring 2006, developers said. The units in all three buildings would be converted by 2008.
"We find if you can give people a timeline it makes them comfortable with what's going on," he said. "It may not be the best news, but at least they know. . . . and they can gain some control of whether they leave and how they move."
By state law, tenants' current leases must be honored, said Howard M. Feuerstein, an attorney with the Stoel Rives firm and a condo law expert who represents the conversion team. But tenants under month-to-month arrangements can be given as little as 30 days' notice to vacate, he said.
Shopping Center and the Hamilton Arms, said he will give preference to current tenants when it comes time to sell the units. But tenants will most likely have to vacate as renovations are phased in, because some renovations will involve asbestos abatement, he said.
* * * A unit of Wall Street's ____________ * * * has put up most of the equity for the deal, developers said.
"What we're promoting here is a great location and tremendous views at a price point that's under the Pearl District and under South Waterfront," Stehman said.
While new condos in the Pearl District and South Waterfront areas fetch as much as $400 a square foot, with few units for less than $325,000, the Portland Center conversion will ask less.
Stehman said developers plan to charge $185,000 to $800,000 for units ranging from about 575 square feet to 1,600 square feet. Most of the units will be priced for less than $325,000, and every unit's price includes a parking space, he said.
I know these towers well. The smaller units are tiny shoe box sized apartments with only 575 square feet. Under the business plan filed by the new owners of the building, a unit like that would sell for about $ 185,000. Today, many of these units are rented to students and retired elderly; they rent for about $ 500 a month. Why would anybody in his right mind buy a shoe box for $ 125,000 more than it is worth?
Also, these units overlook a park that is adjacent to Portland State University. The units are surrounded by the university and other apartments occupied by students and elderly tenants. During the school year, the park is filled with students doing what students do in Portland. Dancing to loud music, drinking beer and smoking herbs are sights that seen regularly. In the summer the park turns into a place where transients can be seen laying about. Portland attracts the homeless from all over the U.S. because the country provides lots of free services.
Do buyers want to pay over $ 300,000 for a bird's eye view of student and transient activities? Check the box: ______ Yes. _______ No. Why am I hearing the sound of giggles and laughing in the backgound?
The project was financed by major investment group based in New York City. I'm not going to mention the group's identity here for obvious reasons. But I would say, that if I owned that stock I would sell it sooner rather than later. Just my private opinion, people. I have every right to comment on a news worthy article. Not making fun of the company. But somebody may have sold a project into the housing bubble and made a ton of money.
The problem with real estate is that you can't short your house very easily.
(Rental costs) = (interest payment + maintenance costs - mortgage deduction - liquidity or risk premium) ...er, I think... If not then there should be an arbitrage oportunity and property will convert rather rapidly between rental and condo. Maybe someone will check my logic.
Rent control is funny because it just drives up the price of existing non-regulated property while instantly killing new rental development (just suggesting it kills rental supply as developers dive for cover).
I love liberals. No one can screw over poor people better than a good liberal. Its almost comical.
Sounds like they may have created a whole new slew of Republican voters in Portland. The law of unintended consequences...
The investors who purchased the building are based in Portland. But they utilized a NYC investment group to finance the deal. To my way of thinking, this was not a major deal from a NY perspective (< $ 80 million). I would guess that investment group in NY never sent an official to inspect the properties. They probably relied on reports from people in Portland. First class air fare and a hotel may be very cheap with hindsight if the investment looses money.
That is why I said: "If I owned stock [in that company] I would sell it sooner rather than later."
I do not see much of a market for tiny condos (575 sq ft) selling for $ 185,000 in an building overlooking a park filled with homeless people and dope smoking college students.
Just my opinion, people. I have a right to express my private views. Please hold your flames.
One mistake made by those who favor rent control is perceiving that landlords and tenants are somehow in competition with each other. In fact, that's not true. Landlords want to rent out apartments; tenants want to live in them. Their interests are not competitive, but rather cooperative. The real "competition" for tenants is other tenants. Rent control doesn't serve so much to protect tenants from landlords, but rather from other would-be tenants.
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