Category Archives: Real estate

Three opportunities to learn what is happening in the Oregon and US economies

I have been invited to present to three different groups in the next month.  There will be some overlap in the presentations, especially regarding my forecast for the Oregon and US economies over the next year or so.  At the same time, there should be enough of a difference makes all three worthwhile.

Topic: 2013: The Year of the Turbulent Turnaround
Who: Institute of Management Accountants Special CPE Breakfast Event
When: Wednesday, May 8, 2013, 7:30-9:00 am
Where: Crowne Plaza Portland-Lake Oswego, 14811 Kruse Oaks Blvd, Lake Oswego, OR 97035
How to register: Visit the IMA Portland Chapter’s website, and write “Breakfast” in the notes

 

Topic: Real Estate Forecast for the Next Year or So
Who: Association of Government Accountants, Portland Chapter Spring Conference
When: Thursday, May 30, 2013, 8:00 am to 5:00 pm
Where: Lloyd Center Doubletree, Executive Meeting Center, 1000 NE Multnomah, Portland, OR 97232
Note: Other presenters include Gary Blackmer, Director, Secretary of State Audits Division speaking on Oregon’s financial condition; Darrell D. Dorrell, Founding Partner of FinancialForenics on forensic accounting; Nick Beleiciks, State Employment Economist, Oregon Employment Department on Oregon unemployment and the labor market; and Paul Cleary, Executive Director, Oregon Public Employee Retirement System with a PERS Update.
How to register: Visit the AGA Portland Chapter’s website and download the registration form.

 

Topic: Oregon’s Public Employee Retirement System, or Can an 800 Pound Gorilla be Tamed?
Who: Washington County Public Affairs Forum
When: Monday, June 3, doors open at 11:00 am, speakers begin at noon
Where: Tanasbourne Old Spaghetti Factory, 18925 NW Tanasbourne Drive, Hillsboro, OR 97124
Note: The other presenter is Marc Abrams, attorney with the Oregon Department of Justice.All programs are video taped and broadcast over Tualatin Valley Television as well as being streamed from the Forum’s website.
How to register: There is not charge for admission. But, the cost of lunch pays for the room.  Please note, however, that only paid up members of the Washington County Public Affairs Forum are allowed to ask questions of the speakers.

 

 

PSU Center for Real Estate Quarterly Report finds most markets improving

psulogo_horiz_stdThe Winter 2013 issue of the Portland State University Center for Real Estate Quarterly Report has just been published online.

Ron Ross, from Compass Commercial Real Estate Services, provides a review and forecast for Central Oregon’s commercial real estate markets (PDF). He says in 2013, the industrial market should expect to see a drop in industrial vacancy rates and a slight rise in rental rates. He forecasts that retail occupancy will rise and rates will be expected to climb a bit. In the Central Oregon office market, Mr. Ross expects a one to two percent drop in vacancy and for lease rates to remain stable.

In the single family housing report (PDF), RMLS student fellow Evan Abramowitz reports that the market recovery continues, with improving home sales, and increasing upward pressure on prices. In the Portland metropolitan area, the median sales price continues to sputter upward to $315,320 for new homes and $287,000 for existing homes. Central Oregon is seeing signs of improvement, but wild swings in sales and prices from quarter-to-quarter provided little confidence in knowing how strong any recovery will be. The Willamette Valley and I-5 corridor continue to be challenged by stagnant or slightly declining prices.

In the multi-family housing report (PDF), Abramowitz finds a market that “has everything going for it.” He reports that rents have increased in the U.S. by just under four percent. At 2.1 percent, Portland vacancies are among the lowest in the country. The region continues to attract young migrants who seem hesitant to commit to homeownership. He finds that new construction continues to lag behind demand, but several new projects in the pipeline are expected in the next year.

In the office market report (PDF), OAR Student Fellow George McCleary finds a market that has improved modestly in 2012, with general economic conditions continuing a slow upward climb. Fundamentals have improved, and unemployment has dropped almost a full percent, to 7.8 percent. Vacancy is down and 100,000 square feet of space was delivered to the market, although speculative construction is still nearly nonexistent. He concludes that new space is unlikely to be developed before demand increases, forcing lease rates higher.

McCleary’s retail report (PDF) finds overall retail vacancy rate of 5.7 percent, up three tenths of a percentage from the same period last year. Absorption totaled 141,586 square feet for the year, and rents are up by 0.4 percent to $15.83 per square foot. He predicts that measures are expected to improve in 2013. Mixed-use projects drove much of the retail development in 2012, and that most development was build-to-suit or owner-user oriented. Speculative retail construction remains mostly absent, save for smaller infill projects, or ground floors of apartment buildings.

In the industrial report (PDF), McCleary that fourth quarter of 2012 was the tenth straight quarter of positive absorption in the Portland industrial/flex market. It also, however, saw the lowest number of leasing deals since the third quarter of 2003. Although there is a lack of space in certain classes, lease rates are generally still not supportive of speculative construction, as has been in the case for the past four years. Developers have constructed facilities, but nearly all development has been built-to-suit. This is expected to continue in the months to come, with market fundamentals eventually arriving at levels that support speculative development.

Growing pains in EB-5 program that provides green cards to foreign investors

Visa documentTwo stories have recently surfaced of some growing pains in the government’s EB-5 visa program.

With financing scarce and often difficult to obtain, it’s little wonder that real estate developers across the U.S. are looking for new ways to fund their endeavors. Within the past three years, there has been an increasing amount of interest in the EB-5 Investor Visa Program as a potential source of capital as foreign nationals seek to invest in the U.S. According to a number of recent reports, there is a growing class of foreign millionaires looking to invest in businesses and development projects through the EB-5 program. The Portland State University Center for Real Estate Quarterly Report recently published a primer on the ins-and-outs of the EB-5 program (PDF).

A recent story in the Miami Herald has—perhaps unfairly—characterized the EB-5 program as “selling greencards.” More precisely, the program provides green cards to investors who provide at least $1 million dollars (or, in some cases, $500,000) for projects that add at least 10 jobs to the local economy. The story is a sign that the press is now paying attention to the program.

A more interesting development is the Securities and Exchange Commission’s announcement that it had filed civil charges against—and received an emergency order to freeze assets of—the Intercontinental Regional Center Trust of Chicago. The SEC alleges misrepresentations or omissions in the offering documents and in documents filed with U.S. Citizenship and Immigration Services in connection with the applications for conditional permanent residency, specifically:

  • The offering documents made numerous false claims, including the receipt of all necessary building permits, franchise agreements with several major hotel chains, the availability of a state-sponsored bond facility, the value of the underlying land, the financial potential for the project to provide a return to investors and the refundability of administrative fees if visa approvals were not granted.
  • The sponsors provided falsified documents to USCIS in an attempt to secure conditional visa approvals for investors, which approvals were a precondition to release of each investor’s $500,000 investment to the issuer.
  • More than $2.5 million of $11 million in administrative fees were directed to the principal’s personal bank account in Hong Kong and most of the balance spent rather than available for refund.

As pointed out in a blog post, while there have been allegations of fraud around other regional center projects, this is the first EB-5 enforcement action filed by the SEC. Press reports from September 2012 indicate that an internal memorandum prepared by the USCIS noted that Regional Centers “are not even making good-faith attempts to conform their offering documents to basic securities regulations.” Press reports also indicate that the Department of Homeland Security’s Office of Inspector General has launched an investigation into fraud in the EB-5 program. The SEC notes in its press release for this action there was close coordination with USCIS in bringing the case.

This case confirms that both the SEC and USCIS are paying attention to EB-5 applications’ compliance with securities laws, and USCIS is now monitoring for securities law compliance in its review of visa applications.

Bid rigging and foreclosure auctions: The Sherman Act marches through the Heart of Dixie

From the “What Do You Mean I Can’t Do That? Department” …

Two Alabama real estate investors and their company pleaded guilty this month for their roles in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in southern Alabama, the Department of Justice announced.

Robert M. Brannon; his son, Jason R. Brannon; and their Mobile-based company, J & R Properties LLC, pleaded guilty to an indictment originally returned in an Alabama federal court. The indictment charged each of them with one count of bid rigging and one count of conspiracy to commit mail fraud.

According to court documents, the Brannons and their company conspired with others not to bid against one another at public real estate foreclosure auctions in southern Alabama. After a designated bidder bought a property at a public auction, which typically takes place at the county courthouse, the conspirators would generally hold a secret, second auction, at which each participant would bid the amount above the public auction price he or she was willing to pay. The highest bidder at the secret, second auction won the property. The Brannons and their company were also charged with conspiring to commit mail fraud.

The Brannons and their company are charged with participating in the bid-rigging and mail fraud conspiracies from as early as October 2004 until at least August 2007—that was during the housing boom, not after the bust.

To date, eight individuals and two companies have pleaded guilty in federal court in connection with this particular ongoing investigation.

Op-ed: Development myths drive streetcar

The following op-ed was published in the Portland Tribune.

For much of human history, mass transit has had the utilitarian goal of quickly moving people from place to place. Even Portland’s early streetcars were designed with speed in mind.

Advertisements touted how quickly people could get around by streetcar. One ad from 1920 boasted that University Park in North Portland was only 20 minutes from downtown by streetcar. That works out to a speed of more than 15 miles an hour.

Times have changed. Modern streetcars have become the pleasure boats of public transit: flashy, expensive and slow.

Today, Portland’s streetcars quietly glide through the streetscape at a leisurely pace. Portland’s new Central Loop covers 3.3 miles in about an hour and a half. At 2.5 miles an hour, that’s slower than most people walk.

If streetcars don’t improve transit times, then what do streetcars do?

Many ascribe the development of Portland’s heralded Pearl District to the streetcar. In truth the streetcar was more of an afterthought. The Pearl’s success began with a few pioneering developments that took advantage of historic building tax abatements to convert warehouses into condos. The success of these pioneering developments attracted other investments and more developments.

After these successes, an urban renewal area was created and the streetcar came along a few years after the birth of the urban renewal area. Development made the streetcar possible, not the other way around.

It’s impossible to find a clear-cut example of where streetcars are the single factor driving development. It’s impossible because streetcars are always just one part of a complex development package. The packages can include roadway improvements, tax abatements, rezoning and environmental cleanup. There is no way to determine whether a streetcar system is just one of many factors that boost development potential or is a vital linchpin without which development would be impossible.

Supporters argue that streetcars and other rail projects provide a magic key that unlocks zoning and uses of an area. They point to the “condotopia” that grew out of the banks of the Willamette River in Portland’s South Waterfront urban renewal area, now served by a streetcar and an aerial tram.

As early as the mid-1990s, however, private developers had their eyes on Portland’s South Waterfront. Yet, every single effort was shot down or stifled by the city’s planning process. One development didn’t follow a city commissioner’s vision for an ideal street pattern. Another development would have exceeded the city’s maximum allowable building height at the time (35 feet, or about three stories).

Even so, Portland’s planning class continues to argue that the aerial tram and streetcar have magically unlocked the ability to build waterfront skyscrapers.

In reality, there is nothing magical about streetcars and trams. City commissioners held — and still hold — the keys to unlock an area’s development potential. If rail and tram expenditures had been invested in roadway improvements, the South Waterfront would be celebrating its 15th anniversary of redevelopment instead of suffering round after round of fire sale condo auctions.

It remains to be seen whether the streetcar’s Central Loop can breathe life into Portland’s Central Eastside, Convention Center and Lloyd District. Large-scale rezoning to unlock development potential doesn’t need a streetcar. Investments in roadway improvements best serve the way the people actually travel, rather than the way we wish they would travel.

A streetcar by itself does nothing without these other key improvements.

Fad watch: From coast-to-coast small is the new big housing

Coming up next on HGTV … “Buying the Box” — Where home buyers shop for the smallest living space possible.

In Portland, folks live in a house the size of dining room and in New York, the mayor is pushing apartments no bigger than a few refrigerator boxes taped together.

OPB’s Think Out Loud radio show interviews the Portland owner of a “house” that is 128 square feet and was built on a 16′ x 8′ trailer. It has a stove that uses alcohol as fuel, a free-standing electric-oil heater, and a simple plumbing set-up. The tenants share wireless internet with the land owners. They don’t have a refrigerator or a shower.

New York mayor, Michael Bloomberg, apparently likes the idea. The week he announced a competition for architects to submit designs for apartments measuring just 275 to 300 square feet to address the shortage of homes suitable and affordable for the city’s growing population of one- and two-person households. While the apartments would be twice the size of the Portland house-on-a-trailer, there’s a good chance the New Yorkers would get fridge and a shower.

The big question: Is this just a curious new fad, or has the housing market taken such a big turn that tiny houses are the new McMansions?

Urban renewal meets the school bond: Will the school district build a parking lot for the ultra-posh MAC?

We’ve noted the moving target better known as the Portland Public Schools earmark in the mayor’s proposed “Education” Urban Renewal Area. The original earmark of $14.5 million was dropped to $10 million, with much of the money shifted to support the city’s “Cluster Development Strategy.” Lost in the money shuffle, however, has been any description of exactly what the $10 million is going to be used on.

Today, in the Daily Journal of Commerce, Lincoln High School’s principal drops a hint at how the money might be used:

Peyton Chapman, Lincoln’s principal, said the URA could benefit the school’s long-term plan to build a new facility, 1,682 workforce housing units and a large parking garage. Chapman recognizes that a number of bonds would have to be passed for the plan that could cost $130 million; however, she said the URA is necessary to establish essential partnerships.

In other words, the city will pony up $10 million, but the school district will be on the hook for a whopping $120 million—for a school that does not need to be rebuilt.

A parking garage?
Who need’s a parking garage in a multi-modal Mecca served by TWO light rail stops?

Only soccer fans and members of the ultra-posh Multnomah Athletic Club (initiation fee $10,200):

Chapman said the structures proposed in the plan could be used by other schools and area businesses. For example, the proposed two-story parking structure could be used by PGE Park and the Multnomah Athletic Club.

Now you know why we use the quotation marks around education in the “Education” Urban Renewal Area.

Millions go missing from the mysterious school district earmarks in Portland’s “Education” Urban Renewal Area

In an earlier post, we asked why Portland’s toniest high school was jumping to the head of the line to get rebuilt out of urban renewal dollars.

Now it seems that in less than two weeks, about one-third of that money has been taken away from the Portland Public Schools earmark. The money appears to have been transferred to Portland State University and added to the porkbarrel better known as the city’s (somewhat silly) “Cluster Development Strategy.”

Click to enlarge

Where is the urban renewal at Lincoln High School?

This is one of the bigger mysteries of the “Education” Urban Renewal Area.  It’s no secret that PPS, Lincoln parents, and the construction industry are eager to rebuild Lincoln High School.

Even so, no one seems to know what the city plans to do with the $14.5 million $10 million earmarked for PPS.  In particular, no one wants to admit that the money would go toward rebuilding the city’s public ivy. Here’s a tweet I got from PPS government relations:

Edu URA doesn’t guarantee a rebuild of LHS, inclusion of site merely allows for leverage & flexibility, if needed.

Portland’s League of Women Voters believe the blank check aspect the PPS earmark runs afoul of state law:

According to the Plan, $10 million will be spent on Lincoln High School redevelopment. There is no explanation of what is envisioned for the redeveloped site. We understand there are proposals for reconfiguring the school facilities to allow for possible condominium and commercial development. As noted above, ORS 457 requires that the Plan include descriptions of the projects, timing, costs and source of moneys. Council should insist that Portland Public Schools provides that information for inclusion in the Plan before adoption.

What’s taken away with one hand is given with the other

Even more curious is that Portland’s mayor has announced that he is “looking under every rock” to come up with $5 million to hand over to Portland Public Schools to stave off massive teacher layoffs in the beleaguered school district at the same time he’s taken $4.5 million away from the districts urban renewal earmark.

“Education” Urban Renewal Area question of the day: Why rebuild Lincoln HS?

One of the curious pieces of the proposed “Education” Urban Renewal Area is a chunk of money flowing to Lincoln High School. The ins-and-outs of how that money will flow to the school district have not been made public and there is some concern that any giveaways to the district may run afoul of state property tax limits.

The biggest question of all remains: Why rebuild Lincoln High School?

While the district get’s $14.5 million from the urban renewal area, it will be on the hook for another $100 million (give or take) to rebuild a school that does not need to be rebuilt.

Take a look at the figure below. Sure, Lincoln is crowded.  It is one of the most crowded schools in district’s portfolio.  But, the condition of the Lincoln building is one of the best in the district’s portfolio.

Crowding is not a building problem, it’s a school assignment problem. Many Lincoln students actually live closer to Roosevelt High School.  A simple transfer will relieve the crowding and save about $100 million.

Portland unveils its spending plans for the proposed “Education” Urban Renewal Area

The Portland Development Commission has unveiled its spending plan for the proposed “Education” Urban Renewal Area discussed earlier.

Notice that about 20 percent is used to buy off opposition from Portland Public Schools and Multnomah County.  More than one quarter of the budget is to buy the support of Nick Fish, the housing commissioner on the Portland city council.

Here’s another breakdown.  Notice that the Portland Development Commission skims a whopping 15 percent off the top of all the money raised.  That’s quite a commission for the Commission.

The Portland Development Commission meets Wednesday, April 11, 2012 from 3:00 PM – 5:00 PM to discuss the proposed urban renewal area.  It will be one of the very few times the public can provide comment.

The complete packet of information currently available is below: