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Even though the Portland Development Commission plans to spend $88 million to buy U.S. Postal Service property appraised at $63 million, the city won’t lose money on the deal, according to PDC staffers.

That is the gist of the message they delivered to the PDC’s board on Wednesday, despite the fact that more than $3 million of taxpayer money will be at risk.

The board unanimously approved a purchase agreement with the U.S. Postal Service after hearing testimony from Bruce Wood, the PDC’s real estate and construction services manager, and Eric Jacobson, senior program coordinator for the PDC.

The property at 718 S.W. Hoyt St. is the postal service’s main distribution complex in Portland; it covers about 13 acres. The city plans to develop public amenities like parks, but also allow commercial and high-rise residential development after the land changes hands and city development guidelines are rewritten.

鈥淵ou may ask, 鈥榃hy are we paying $88 million when the appraisal is $63 million,’ 鈥� Jacobson said at the meeting. 鈥淭he answer is that the appraisal was a current use appraisal.鈥�

That limits any development to current use of distribution with little room for improvements. But ongoing city planning for the River District Urban Renewal Area will change that, Jacobson said.

鈥淲e’re expecting the entitlements to change through the city’s planning and master planning process,鈥� he said. 鈥淲e’re expecting there to be greater intensity of uses and we’re expecting to be able to sell (portions of) the property in the future for considerably more than we’re buying it for.鈥�

New entitlements for the River District could results in floor area ratio increasing from 4:1 to 7:1 with height limits increasing from 75 feet to 250 feet, he said.

鈥淲e’ve also identified opportunities for street enhancements, transportation to and through this area as well as public parks,鈥� he said.

Jacobson said the postal service site will allow 3.9 million square feet of development.

鈥淭hat creates an opportunity for employment with over a million square feet of commercial space,鈥� he said. 鈥淥ur affordable housing commitment with (the Portland Housing Bureau‘s) commitment to this property will mean more than approximately 700 affordable units and more than 2,000 residential units altogether.鈥�

Commercial development will also create jobs and generate property tax revenues for the city, Jacobson said.

鈥淥n a new present value in today’s dollars, it will generate more than $10 million per year 鈥� a significant benefit to the community,鈥� he said.

The risk taken by the city includes a $2.5 million down payment and $900,000 put into an escrow account. The postal service will put the $2.5 million toward its purchase of the Colwood property, where it plans to build a new facility for about $157 million. Federal money will cover the remaining $69 million cost of new construction.

鈥淲ithin the next month we are planning to make a $2.5 million payment to the postal service and the postal service in turn would use those funds to make an option payment on the replacement facility,鈥� Jacobson said.

The payment will be made with certain conditions, he said, but still with some risk until the cost of the post office’s new facility is nailed down.

鈥淭he main thing is that we don’t have a guaranteed maximum price on the replacement facility,鈥� he said. 鈥淲hat we’d do in the next 30 days is we would do a peer review of the postal service’s cost estimate to help mitigate that risk.鈥�

Wood said another reason the cost of the new postal service facility has not been pinned down is that the drawings for it aren’t finished yet.

The purchase will be made in part with a $75 million, 10-year, interest-free loan from the River District URA pot to the PDC’s business management fund. The Portland Housing Bureau will contribute $13 million to create 30 percent affordable housing in residential development.

The Broadway Corridor Framework Plan, adopted by Portland City Council in October, supports developing the postal service property and any adjacent PDC properties with a mix of private uses, adding affordable housing, renovating Union Station and enhancing public facilities.

Wood said the postal service would need about two years before it could vacate the property. Then demolition could begin.