91视频

Crews in Northeast Portland are finally turning what was once a collection of old Pepsi warehouses into a 4.7-acre mixed-use development, Security Properties announced recently.

Construction of the first phase, including the Splash Apartments, was poised to start a year ago. The building permit for the eight-story structure had been issued 鈥� as had the alteration permit for restoration of the now 60-year-old bowstring-truss bottling plant. Excavation equipment was on site at 875 N.E. 27th Ave., in the Kerns neighborhood. Everything appeared set and ready to go.

However, behind the scenes that was not the case.

The project鈥檚 financing had stalled. Oregon officials in February ruled that developer Security Properties could not use a tax-exempt bond portfolio and low-income housing tax credit to cover construction costs.

The Splash Apartments will hold 219 apartments. Originally, 44 would have been for renters earning 60 percent of the area median income or less to meet city requirements. In return, the developer would gain flexibility regarding capacity, height, and site configuration.

Security Properties wanted to build all affordable units within the first phase of development, in the Splash Apartments. Two legal entities were created to separate the affordable and market-rate components, said John Marasco, Security Properties鈥� chief development officer.

鈥淎t the end of the day, I think in very simplified terms,鈥� he said. 鈥淭he state (officials) could not wrap their arms around having a mixed-income building with affordable housing units together with market-rate units.鈥�

Oregon Housing and Community Services (OHCS), a state agency that helps finance affordable housing, stated in an email that the Pop Blocks development’s proportion of market-rate units to affordable units was too high for the state to fund it.

OHCS’ funding for affordable rental housing is limited to 鈥渨here a maximum of one-third of the units in a housing project, housing development or other residential housing financed by the department may be rented to households with an income level exceeding 120 percent of median family income level.鈥�

The amount of market-rate units initially proposed for Splash Apartments would’ve been 79 percent — far greater than one-third.

Without the tax-exempt bond portfolio, the team had to switch gears completely, Marasco said. Financing for the project changed to a conventional market-rate development approach, except that each residential building would include the minimum number of affordable units required. For the Splash Apartments, that meant there would only be 11 (the required 8 percent minimum) rather than 44.

Delivery for the remaining affordable apartments will most likely be drawn out over 10 years, Marasco said.

The tax-exempt bond portfolio cost Security Properties about $450,000, he estimated, and then it was blocked.

When the project stalled, the market was still reeling from the pandemic, and costs of construction materials were at unprecedented highs. As a result, the construction budget presented a big challenge, according to Marasco. It increased by approximately 8 percent between October 2021 and June 2022, when excavation work began.

The total budget was initially about $113 million. In total, the delay increased project costs by about $6.5 million, Marasco said, primarily due to interest rate increases for federal funding.

鈥淔rankly, because of the delay and not being able to close on our original plan,鈥� he said, 鈥渢he entire project cost went up, and as a result, the rents related to the units had to go up. It鈥檚 just something, unfortunately, that we think didn鈥檛 need to happen.鈥�

In nearly 40 years of working in development, Marasco said he had never encountered such a situation. The development team, OHCS and the Oregon attorney general鈥檚 office had worked together for nearly 18 months on the affordable housing concept for Splash Apartments.

At any point during this time, Marasco said, 鈥渢hey could have just (said), 鈥楲ook we really don鈥檛 think that this is going to work out for us. So, we鈥檙e not going to be in support of closing the tax credit structure.鈥�

鈥淲e would have been disappointed 鈥� but it would have enabled us to switch gears far sooner than what happened, which was essentially 鈥榟aving the rug pulled out from under the project, the day before the bonds were set to issue.鈥欌��

Pending approval of Oregon’s next governor, OHCS will introduce a bill that would remove barriers preventing it from making public funds available to mixed-income developments like this in the future, an OHCS spokesperson stated.

With contractor R&H Construction finally leading the charge, Pop Blocks鈥� first phase is anticipated to wrap in September 2024. It includes the Splash Apartments (designed by Mithun), the renovated bowstring-truss Pavilion Building with 10,000 square feet of retail space, a 10,000-square-foot public plaza, and 186 below-grade parking spaces.

Behind the Splash Apartments will be the Pacific Street 鈥�woonerf鈥� 鈥� a Dutch-style street to be shared by pedestrians, bicyclists, and slow-moving drivers.

Entitlement for phase two will begin early next year, Marasco said.