Portland leaves empty promises instead of affordable housing in South Waterfront

block49.JPGView full sizeBlock 49, now a gravel lot on South Waterfront's south side, is the city's only viable site for affordable housing. City leaders hope to have a 209-apartment building under construction there in November.

In the heart of the

, a gravel-covered lot is littered with a rusty lawn chair, a dusty 40-ounce Budweiser bottle and broken promises.

Nearby, a tram car glides up the hill. The streetcar whirs past a new park. Thirty stories of luxury condos jut skyward. The only thing missing is what was supposed to be on the lot: an apartment building for the poor.

Seven years ago, Portland city leaders pledged that South Waterfront would include 430 apartments or condos for low-income residents. But the city has failed to deliver a single one.

South Waterfront remains a neighborhood exclusively for the affluent despite more than

.

The

, the city's urban renewal agency, has spent $13 million buying South Waterfront land, among other things, for affordable apartments. Most of that money has gone to South Waterfront's lead developers.

What happened? The city's ever-changing plans and the recession made financing difficult. And in spending taxpayers' money, city executives failed to follow their own policies and didn't flex powers they fought for in talks with developers.

PDC leaders say they did their best while pressured by City Hall and developers to get other South Waterfront projects built. "Had this been a normal transaction, our policies would have been followed to a T," said Bruce Warner, executive director.

But housing advocates remain frustrated with the city's empty lots and empty promises. More than 6,000 households are seeking low-income housing in the region, according to the Housing Authority of Portland.

"The people in charge of this should be ashamed," said Susan Emmons, executive director of the

, a Portland nonprofit that helps low-income seniors find housing. "We're turning people away from shelters."

Former industrial enclave

For decades, industry anchored the riverbank near the Ross Island Bridge. But by the early 2000s, the mills and shipbuilders had closed, leaving warehouses and weedy lots. That's when developer

joined the neighborhood.

Williams, fresh from his success building Portland's Pearl District, bought land in the area and began talks with then-Mayor Vera Katz about a high-rise neighborhood. Land at the time sold for less than $20 a square foot.

Williams and city planners crafted a plan for luxury towers rising 300 feet above a streetcar line and a park, and an aerial tram to link

to a waterfront campus. The city billed the 130-acre neighborhood as the largest economic development project in Portland history.

. In it, city leaders, Williams' company and OHSU executives laid out how they would share the cost for South Waterfront's public works projects. The PDC, which has access to millions of public dollars through property taxes, negotiated the deal for the city.

southwaterfrontmap.jpg

Under the contract, Williams' company was required to build low-income housing along with its condos, some fetching $1 million or more.

The affordable housing units would be sprinkled within condo towers and in stand-alone apartment buildings. Under the contract, North Macadam Investors, Williams' company, had to include 30 affordable condos among the first 480 it built, plus 400 affordable apartments. The PDC pledged to offer subsidies to help pay for the apartments.

Construction on the first 200-apartment building for low-income residents was supposed to start by October 2005. By then, the city had pledged for years that South Waterfront would be comfortable for people of all incomes -- OHSU surgeons as well as janitors. For example, the city wanted apartments that rented for $585, making them affordable to janitors earning $11 an hour,

.

Also as part of the 2003 contract, PDC officials wanted to make sure they paid a fair price for land they bought from the developers in South Waterfront. They knew that once they used taxpayer dollars to pave streets and extend the streetcar line, land values would rocket.

, PDC executives said they needed to "immediately pursue" buying property and consider condemnation. If they waited, land costs could triple and raise the cost of a single project by $3 million or more, the report said.

Cheryl Twete, the PDC's former development director who negotiated the deal, said city leaders asked North Macadam Investors to sell land before values climbed. Williams declined.

If they couldn't buy land early, the PDC report said, city leaders could require landowners to sell at a discount. "This means the purchase price will not be based on the appraised value after the improvements have been placed," the report said.

That language became part the 2003 development contract. "I remember that language," Twete said. "We negotiated very long and hard over that."

Finding the money

The developers slipped behind schedule after two years.

The 200-unit building was supposed to be built over an OHSU parking garage on a site known as Block 33. But OHSU executives delayed the garage, saying they couldn't finance it. Without it, North Macadam Investors couldn't build the apartments.

At the time, PDC officials faced growing pressure to find money for cost overruns on the tram project. With the real estate market on an unprecedented upswing, though, PDC had money. So,

. The city, developers and OHSU all committed to boosting their share of public works projects. The tram was funded and built. The park and streetcar were funded and built, even though both projects -- priorities for developers -- had been scheduled to come after the first low-income apartments.

"The excuse has been we don't have the money," Emmons said. "But we seem to have the money to do things we want to do. We want to build an aerial tram, we find the money. We want to build the streetcar, we find the money."

The city did make progress on affordable housing in that 2006 contract. PDC executives negotiated with the developers to buy one block and secure rights to build on another site. But that came at a price. The PDC agreed -- near the peak of the real estate market -- to pay $3 million for the right to build above the OSHU garage at Block 33. The city also paid $5 million for a lot at the neighborhood's south end called Block 49.

The PDC's

said it would "offer and pay a price that the Commission believes is 'fair market value' based on an approved appraisal."

But four months after the City Council approved the deal,

. The city overpaid by 28 percent.

Where the money went

The Portland Development Commission, the city's urban renewal

agency, has spent $13 million in pursuit of affordable housing in South Waterfront, but the district doesn't have a single affordable apartment or condo. Here's where the city spent its money:

$3 million:

Paid to Oregon Health & Science University for future

parking stalls at a lot called Block 33.*

$3 million:

Paid to North Macadam Investors for the air rights to build apartments over a planned parking garage at Block 33.*

$5 million:

Paid to North Macadam Investors for a lot called Block 49.

$2 million:

Loan to North Macadam Investors to design a building at Block 49.

* OHSU has refunded $1.5 million of the parking rights and will refund the other half. OHSU also has bought the air rights for $1 million in credits toward future transportation system development

charges, plus a share of any profits if OHSU sells Block 33.

Source: Portland Development Commission

PDC executives also didn't exercise their contract rights to force the developer to discount the prices. Twete said calculating the discount and negotiating  with developers was too difficult. The PDC had to finalize the South Waterfront contract -- which covered the land deals and the tram funding -- before a crucial deadline to pay the tram's contractors.

But

, a senior fellow at the Urban Land Institute, said deadline pressure is no excuse to skip an appraisal.

Under pressure

"Every city staff is always under pressure," said McIlwain, a former lawyer who has worked on similar negotiations. "These kinds of deals involve a lot of money. When someone cuts a corner, you end up undermining public trust."

Even without the inflated prices, North Macadam Investors would have done well on Block 49. The company bought

, along with a

, in 2005 for $3.1 million, or about $28 per square foot. In two years, the company resold the two properties -- including one to the city -- for a combined $13.2 million, or about $122 a square foot.

However,

, Williams' partner, said the sales were far less profitable than they appear. He said the company spent $11 million preparing the two blocks for development.

In exchange for the developers selling their land, PDC officials also waived the developers' obligation to build 400 affordable apartments. And until The Oregonian asked this week, the PDC had not monitored the developers' progress on building the 30 affordable condos. Warner, the executive director, told the PDC's board Wednesday that the lack of oversight was "unacceptable."

North Macadam Investors has built 1,080 condos or apartments in South Waterfront. The city hasn't documented a single unit that qualifies as affordable.

But Warner added that South Waterfront has made progress in other areas: Property taxes are hitting targets despite the recession, construction work included more minorities than expected, and a new MAX line soon will be built through the area.

"Overall, I'm really pleased with the progress of this area," Warner told the board.

Switches, turns

Now, with

, Block 49 is the city's only viable site for affordable housing.

The PDC made Williams' company a loan in 2007 to design a building. To date,

. As part of the 2006 contract, the city also agreed to let Williams' company develop the building for a $1.7 million fee. The firm did not have to compete in a public bid against nonprofit developers, as is typically required.

Since then, the real estate bust drove off private investors needed to help pay for the deal, and City Hall's changing priorities caused further delays. In 2007, Erik Sten, then a city commissioner, changed the project's concept to house homeless veterans. The switch meant the city's poorest residents would have a home in South Waterfront. But it also required even bigger public subsidies, from a budgeted $10 million for one building in 2003 to more than $30 million today.

Still, Margaret Van Vliet, the city's housing director, is eager to start the

. She announced last month that construction would begin in November. That's an aggressive schedule given that the city still needs to find a nonprofit to operate the building and lock up financing in a struggling market.

But Van Vliet is optimistic: "I recognize that there's some history with this development. But I believe we've got a viable project that's ready to go."

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