In downtown Portland, signs of life are slowly returning. More restaurants and coffee shops are serving patrons, large retailers such as Powell’s Books are welcoming customers, and some professionals are returning to offices.

The pandemic devastated commercial real estate – and specifically the urban office market – while other sectors such as industrial and multifamily housing were affected less. Protests throughout 2020 that at times turned violent combined with a proliferation of homeless camps and litter to create negative impressions of downtown.

For a while this past summer, it seemed as if COVID-19 was waning and office work would soon return. Then the Delta variant scrambled plans. Ever since, the lingering question has been: When will downtown return to normal, or something like it?

According to boosters and analysts, downtown’s fate will follow the office worker.

“A return to office is critical,” said Matthew Goodman, vice president of Downtown Development Group, a major Portland real estate developer and owner. “Daily workers are the lifeblood of downtown’s ecosystem. The ancillary restaurants and services, they depend on those office users.”

Businesses that offer professional services, such as law firms, are leading the return to downtown offices.

Stoel Rives, Portland’s largest law firm, asked its 282-strong workforce to return to the Park Avenue West office twice a week beginning Nov. 1 and then three times a week beginning this month, said David Filippi, co-managing partner at Stoel Rives.

“So far, the response has been pretty positive,” he said.

Downtown is still the best place to meet clients and do business, Filippi said.

“We believe that downtown is where we want to be,” he said. “It’s where we have been for decades, and we fully plan to be downtown as long as we’re a firm practicing together.”

The atmosphere downtown seems to be improving, Filippi said.

“It’s gotten better recently,” he said. “Things have been cleaned up, and we’re starting to see things open up a little bit more.”

Another law firm, Buchalter, announced a rare new downtown lease on Nov. 3. The 50-person firm will move into Fox Tower by April 1, 2022, taking 17,000 square feet on the building’s 15th floor.

That will hardly make a dent in a downtown Portland’s bulging office supply. Office vacancies hit 19.9 percent in the Central Business District during the third quarter, according to JLL. Net absorption was underwater to the depth of 238,573 square feet, and 509,825 additional square feet of office space was in development.

Vacancies have probably not hit their high-water mark yet, said Tim Harrison, a research manager at JLL in Portland.

“The recovery will start in 2022, but it’s going to take a long time to get back to pre-pandemic vacancy levels,” he said.

A flood of new office buildings hit the market in 2020 at the worst possible time, and it will take years to absorb, Harrison said.

JLL itself has doubled down on its Pearl District space, at 1120 N.W. Couch St., by signing a long-term lease to expand.

Some companies with lease renewals two or three years away have taken advantage of the downturn by signing renewals at attractive rates and terms. Landlords have been eager to make deals to keep buildings occupied, Harrison said.

“Professional services and finance is generally where you’ve seen the majority of tenants coming back, with tech sort of being the last holdout,” he said.

Retail vacancies have enabled a new cohort of entrepreneurs to buy into downtown Portland, Goodman said. Grits N’ Gravy, for instance, opened its first brick-and-mortar location there. Downtown Development Group has welcomed other locally owned retailers – Foxy Coffee Co., Everybody Eats PDX, The Sudra and Dogtopia – to downtown.

“For a long time, downtown wasn’t the sort of place where people could afford to make inroads,” Goodman said. “I think there’s a new sort of entrepreneurial spirit in the core.”

At the same time, Portland officials have placed a renewed emphasis on cleaning up downtown, in part because of pressure from People for Portland, a newly formed advocacy group that has blanketed the city with ads.

“You’ve seen a noticeable sense of urgency placed on elected officials,” Goodman said. “It makes me very hopeful in the near term for positive change.”

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A couple of tenants in Fox Tower have agreed to lease renewals in the latest vote of confidence in downtown Portland.

Professional services firm Moss Adams is renewing its lease for a total of 38,874 square feet on three floors in the 27-story building. Regal Cinemas also recently renewed its lease, which includes a ground-floor entrance and the entire third floor.

“Moss Adams’ renewal is a sign that tenants are comfortable and confident in the long term of downtown,” said Vanessa Sturgeon, chief executive of TMT Development, which developed Fox Tower and now manages it.

Regal Cinemas has resumed showing movies at Fox Tower with COVID-19 precautions in place. Movie theaters, as venues for indoor gatherings of strangers in enclosed rooms, were hammered by the pandemic.

“It says that people know that the vaccines are working, so there’s renewed confidence from theatergoers,” Sturgeon said.

Both Moss Adams and Regal Cinemas have long occupied space in the building. Terms for the new leases are confidential, but Sturgeon described them as “standard market-rate deals.”

The Fox Tower leases add to a string of new leases and renewals downtown by tenants such as SERA Architects, Lane Powell and On, a footwear company.

“What you’re seeing now is everyone who had to put their decision-making off and on hold; they’re looking past the pandemic and they’re signing normal deals now,” said Tim Harrison, research manager for JLL in Portland.

After a quiet 2020, leasing trends have returned to normal in the urban core. Downtown leasing activity in the first quarter of 2021 was approximately 650,000 square feet – on par with first-quarter results in 2018 and 2019.

Downtown Portland has been beset by protests that at times turned violent, along with homeless camps and trash that have marred the city’s reputation. City officials and groups such as the Portland Business Alliance and Downtown Portland Clean & Safe have grappled with how to clean up downtown.

“Downtown needs some attention right now in terms of cleanliness,” Sturgeon said. “Hopefully we’re taking the summer to really focus on that right now as a city and as citizens.”

Matthew Goodman, vice president of Downtown Development Group, said appearances downtown seem to be improving thanks in part to former Mayor Sam Adams. He is serving as a close advisor to Mayor Ted Wheeler.

“I have definitely seen improvements in the last few months in the cleanliness of the urban core in Portland,” Goodman said. “We all acknowledge there’s work to be done. I think (Adams’) efforts have yielded progress so far.”

Some of Downtown Development Group’s tenants have renewed their leases.

“Fortunately for us, most of our users like their space and intend on keeping a presence downtown,” Goodman said.

Interest from prospective tenants is still strongest in the West End and the Pearl District, but touring interest in downtown properties has ticked up, he said.

Goodman said he expects downtown to turn a corner when office workers return this summer.

“I’ve heard Labor Day as being a line-in-the-sand date for some large users, and that’s going to jump-start the downtown ecosystem because there are so many ancillary businesses – think cafés and restaurants – that depend on that foot traffic downtown,” he said.

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The Portland Clinic and developer Rendina Healthcare Real Estate are engaged in an effort to deliver a new medical office building to the West End of downtown Portland.

The proposed seven-story, 140,000-square-foot building would rise on a half-block at 804 S.W. 12th Ave., between Taylor and Yamhill streets. The property currently is serving as a surface parking lot, and as home to a trio of food carts. The location is near the clinic’s existing downtown location, at 800 S.W. 13th Ave.

Rendina, a national health care developer, was selected through a request for proposals issued by The Portland Clinic. Cushman & Wakefield represented the local health care group.

The project is poised to produce the first major medical office building in downtown Portland in decades, said Greg Goodman, president of Downtown Development Group. The Goodman family owns the property targeted for development. A long-term land lease agreement has been reached.

“I love their concept,” Goodman said. “It’s a great opportunity, and I think the people who are in (the deal) will do real well.”

The Goodman family has owned the 12th and Taylor property for about 45 years, he said. With more people living downtown, it makes sense that there’s increased demand for services including health care, he added.

ZGF Architects is designing the building, and Skanska USA Building is on board to serve as general contractor. The project will be subject to the city’s design review process; early assistance has been requested. ZGF Architects staff declined to comment on the design.

The project is being called the West End Medical Center. The facility will have room for primary care, internal medicine, cardiology, orthopedics, diabetes care, dermatology, gynecology, neurology, rheumatology and urology. Plans also call for 8,000 square feet of retail space and on-site parking.

Rendina, based in Jupiter, Florida, has developed more than 7.75 million square feet of health care space nationally for clients such as Cleveland Clinic, Community Health Systems and Tenet Healthcare Corp.

“The Portland Clinic got us excited about this project from the beginning,” Rendina President Steve��Barry stated in a news release. “We are fortunate to be working with one of the most trusted health care providers in town that has built a culture around relationship-based care. The Portland Clinic’s involvement, combined with the premier location of the West End Medical Center at 12th & Taylor, will make this project the blueprint for the future of health care delivery in a downtown setting.”

Barry did not respond to interview requests.

For The Portland Clinic, the new building will extend a century-long presence in the West End. CEO Dick Clark, in a news release, described the planned facility as “conveniently located, modern and contemporary in design and packed with health and wellness services.”

The project represents the transformation of yet another downtown parking lot into a gleaming commercial building. Many of those lots are owned by the Goodmans, stemming from properties bought for City Center Parking, which was founded by Walter Goodman in 1955.

The medical building proposal is an indication of how the nature of downtown development has changed, Greg Goodman said, since the advent of Portland’s inclusionary housing policy. It requires developers of multifamily projects with at least 20 units to dedicate a percentage of them as affordable or pay a fee in lieu.

“We don’t get calls anymore on apartments,” Goodman said. “We get calls on hotels, some office and in this one case, medical. But the numbers don’t work for housing.”

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One of the tallest projects under way in Portland is rising quickly in downtown, not far from near Tom McCall Waterfront Park.

The 469,000-square-foot 140 Columbia mixed-use tower will have 349 residential units, 236 motor vehicle parking spaces on levels two through five, and more than 14,000 square feet of ground-floor retail space. GBD Architects designed the building for Dallas-based developer Alamo Manhattan, and Andersen Construction is serving as general contractor.

The structure is being built at 140 S.W. Columbia St., adjacent to the KOIN Tower, on a 0.92-acre full block. There will be a five-story full-block podium topped by an L-shaped tower; the north wing of the tower will be 20 stories, while the west wing will be 15 stories.

Rooftop balconies will distinguish the sixth, 15th and 20th levels, with amenity space included at each of these levels. The sixth floor will have a 3,200-square-foot terrace, and the 20th floor will sport a large lounge and community room for residents.

“Right now they’re working on level 10, on the south half of the deck,” Andersen Construction project engineer Cody Cloe said. “So, there’s PT, rebar and in-slab stuff going in; probably most of the activity is up there right now.”
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Crews are averaging completion of one post-tensioned concrete deck every two weeks. Recently, they set post-tensioned cables, rebar and MEP systems in preparation for slab pours.

On lower levels, Western Partitions Inc. carpenters are framing interior walls and installing drywall, while specialists lift and place facade panels.

Major subcontractors on site these days include: R2M2 Rebar and Stressing, whose ironworkers are laying rebar and post-tensioned cables; Ocean Park Mechanical, whose workers are installing both dry and wet HVAC and plumbing systems; Eastern Steel Erectors, whose ironworkers are erecting structural steel, stairways and other fittings; Patriot Fire Protection, whose sprinkler fitters are installing equipment; and Andersen Structural Inc., whose carpenters are performing structural concrete work.

The building will replace a longtime surface parking lot owned by Downtown Development Group. However, a concrete “bunker” providing entry from Southwest Clay Street to below-grade parking serving KOIN Tower has been retained. It will be incorporated into the new building, which wraps around the existing structure without relying on it for structural support.

The 140 Columbia exterior facades on Southwest First Avenue and Clay Street will feature a gradient pattern stretching from the tower to the parking structure. The pattern begins with smaller window openings that become larger and more transparent toward the corner of First and Clay. Similar patterns are found on the rest of the building.

Construction of facades on the first five levels is being done with prefabricated wall panels that include everything from metal framing to envelope materials as well as precast concrete facade panels manufactured by Knife River at its Harrisburg plant. The complete wall panels are being trucked to the highly constrained site as needed and lifted into place with a mobile crane and carpenters from Western Partitions Inc.

Brick masonry will be the predominant exterior material on levels six through 20.

“They’ve got some precast panels being flown on the north face of the building that actually have waterproofing and everything in the panel,” Cloe said. “These prefabricated wall panels have the finished product on them in most cases.”

Project delivery is scheduled for late 2020.

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Owners of Portland’s new generation of mixed-use buildings are hungry for commercial tenants, and restaurants are highly desired. Yet their presence below high-end apartments and offices has at times presented problems.

Greg Goodman, president of Downtown Development Group, met recently with the owners of Stretch the Noodle, a popular Chinese food cart in downtown Portland. They are considering a move into a brick-and-mortar location.

Goodman is seeking commercial tenants for his new building at Southwest Third Avenue and Ash Street. Construction of the six-story building is in the final stages, with a temporary certificate of occupancy in hand.

Discussions between the restaurateurs and the landlord came to a halt, however, after Goodman’s HVAC contractor, which handles the ventilation system, warned him that a Chinese restaurant would not be a good fit for a building with residential units, because of cooking smells and smoke, Goodman said.

Downtown Development Group is still actively seeking tenants for the building – possibly a different restaurant, a fitness center or another retailer.

“We’re looking at everything and anything,” Goodman said.

The building, designed by GBD Architects, has 130 apartment units above the ground floor. Of those, 20 percent are designated as affordable at 80 percent of median family income.

Conflicts between restaurants and residents are becoming more common as urban density increases and developers seek buzz-worthy restaurants as ground-floor tenants.

For landlords, restaurants are often regarded as attractive tenants, generating foot traffic and publicity. And in Portland, it’s a way for designers to satisfy central city design guidelines that call for ground-floor “active uses.” Restaurants have also helped fill some of the gap left by the shift of much traditional retail to online commerce.

Typically, restaurants operate in mixed-use buildings without giving rise to any major problems, landlords said. But there have been other incidents.

In a recent episode that garnered extensive media coverage, developer Cairn Pacific was forced to install a rooftop scrubber on The Carson, a new building in Slabtown, to alleviate smoke coming from Mama Bird, a fried-chicken restaurant run by chef Gabriel Pascuzzi.

Residents of The Carson and a neighboring Cairn Pacific building, the L.L. Hawkins, complained, spurring the ventilation upgrade.

Installation of the scrubber is expected to cost Cairn Pacific approximately $125,000 to $150,000, principal Tom DiChiara said. Final costs are still being tallied, but the equipment seems to have solved the problem, he said.

“This wasn’t a cheap repair, but it seems to work to address the issues we were having,” DiChiara said. “It’s been up and running for a few weeks, and we haven’t had any complaints.”

The smoke issues presented by Mama Bird were a “unique circumstance” because of its wood-burning stove and nearby apartments, DiChiara said.

“I’ve done many, many mixed-use buildings and never had these issues,” he said.

Duane Simard, who owns and operates Stretch the Noodle with his wife, Xuemei, said he was disappointed to not reach an agreement to occupy the 230 Ash location. Duane Simard said the couple engaged a consultant, toured the space and prepared a proposal before they were told it wouldn’t work.

“It did bother me that they would say our food had an odor – that it’s odiferous,” he said. “It has a very nice aroma.”

Stretch the Noodle currently operates out of a food cart at Southwest Third Avenue and Washington Street, where regulars often wait 40 minutes for hand-pulled chao mian and other dishes.

Simard said he suspects delays in arranging financing for the restaurant also played a role in the Goodmans’ decision to move on.

“I really like Greg,” he said. “I wish we could have worked that out.”

There are other examples of Chinese restaurants at mixed-use buildings in Portland. Beam Development‘s building at Southeast Eighth Avenue and Stark Street is home to Danwei Canting, a restaurant that focuses on food from Beijing. The restaurant is vented to the roof, Beam principal Jonathan Malsin said, and hasn’t posed problems with smoke and odors – even with a roof deck near the vent.

“It hasn’t been an issue,” he said.

Beam also hasn’t had any issues with Wa Kitchen Kuu, a ground-floor restaurant at the Slate building at the Burnside bridgehead, Malsin said. Slate has office space and residences above the ground floor.

Other mixed-use buildings also house restaurants that heavily feature smoked or fried meats, including Bullard on the ground floor of Provenance Hotels‘ Woodlark Building. Provenance did not respond to an email message for comment.

Approximately four locations, including Mama Bird, have given rise to smoke complaints in the past year, Multnomah County spokeswoman Kate Willson stated in an email message. Details on the complaints were not immediately available.

Elsewhere, a Houston restaurant called Turkey Leg Hut in November was ordered to temporarily stop smoking meat at night after neighbors filed a lawsuit, . And in 2016, a restaurant in Cambridge, Massachusetts, was forced to shut off its grills after neighbors complained. The restaurant switched to cooking with gas, a .

Going forward, developers will need to tackle these issues during build-out, DiChiara said.

“Lessons learned,” he said.

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Earlier this month, on a temporary stage set up on the Block 216 parking lot for a ground-breaking ceremony, an investment manager pitched to an audience of potential investors and VIPs an opportunity zone fund for the 35-story tower in downtown Portland.

Lenders and investment managers from San Francisco and Philadelphia discussed the $600 million project, the scale of which had attracted national capital. Mayor Ted Wheeler heaped praise upon the project. Meanwhile, a sleek, black Bentley sat parked where only days earlier an Iraqi food cart had been selling $8 shawarma.

An 844,117-square-foot tower with a Ritz-Carlton hotel and condos may not be the type of urban renewal foreseen by advocates of opportunity zone tax breaks, but it’s the type of project attracting investment.

It’s unclear how much of a role the Block 216 opportunity zone fund is playing in the project. Mosaic Real Estate Investors previously announced a $460 million, four-year construction loan. Terms of Ritz-Carlton’s deal have not been disclosed.

Tracey Nguyen, a partner at Baker Tilly Capital in Philadelphia, is managing the Block 216 opportunity zone fund. She referred requests for comment to Pat Walsh, a spokesman for developer Walt Bowen’s BPM Real Estate Group. Walsh declined to comment on the project’s financing.

Nationally, it’s difficult to assess how opportunity zone funds are functioning, who is using them, which zones are attracting registered funds or how much money they’re raising.

Opportunity zone funds are not subject to public disclosure, and there appears to be no comprehensive list or database of registered funds.

Opportunity zone funds stem from a federal tax law enacted in December 2017. The funds provide tax benefits for long-term asset holders. After 10 years, investors don’t have to pay any tax on capital gains realized for a property.

It was pitched as a boon for places passed over by the long economic expansion. Opportunity zones are “designed to spur economic development and job creation in distressed communities,” according to the Treasury Department.

Portland’s opportunity zones drew national interest because they cover much of the city’s most desirable real estate, including portions of downtown, the Pearl District and the inner Central Eastside. Yet, so far, opportunity zone activity appears to be modest.

“It hasn’t been a tsunami of opportunity zone funds, but I continue to see activity there,” said Dan Eller, a tax attorney with Schwabe, Williamson and Wyatt.

Eller said timing has been a deterrent for some clients who had considered opportunity zone funds.

“Some people had transactions that were ongoing that happened to be in opportunity zones, and looked into doing an opportunity zone fund, but just the timing of connecting investors with their project didn’t work, and so the fund didn’t take off,” he said.

Sturgeon Development Partners has raised $8 million for its opportunity zone fund; the firm’s goal is $330 million. The fund is backing construction of a 126-room hotel in downtown Salem. Demolition began at the site on July 15.

“Interest has been very steady,” co-founder Vanessa Sturgeon said.

More Sturgeon Development Partners fund projects lie in the future, she added.

“We expect to leave the fund open for the next four years or so, and continue to take investments on a rolling basis,” she said.

Sturgeon is eyeing Portland’s Central Eastside Industrial District for a second project: a seven-story office building to be constructed with cross-laminated timber. She declined to reveal the property’s precise location.

The Sturgeon Development Partners opportunity zone fund is one of a handful backing local projects. The Goodman family’s Downtown Development Group is working to form single-asset funds for both the Eleven West mixed-use tower at Southwest 11th Avenue and Washington Street, and the PAE Living Building at Southwest Second Avenue and Pine Street, co-President Greg Goodman said.

The Eleven West project will involve an opportunity zone fund in a 50-50 arrangement with a partner, said Goodman, who declined to identify the other investor. Construction of the project, which won Design Commission approval in December 2017, has not begun yet.

Eleven West vested before inclusionary housing rules required developers to provide below-market-rate multifamily units. The project wouldn’t be financially possible today, Goodman said.

“There hasn’t been a new high-rise in downtown Portland in 28 months with inclusionary housing,” he said. “While the opportunity zoning is good, it doesn’t offset the inclusionary zoning on the high-rise. The inclusionary zoning has shut that market down.”

Some investors have shied away from investing in multi-asset opportunity zone funds, fearing a lack of control or oversight compared to single-asset funds. A potential stumbling block is that investors must also be prepared to pay income tax on deferred gain in 2026.

In May, a bipartisan group in Congress introduced companion bills to require data collecting and reporting that was stripped from the original opportunity zone legislation. The bills were referred to the Senate Finance and House Ways and Means committees and have not advanced.

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Construction can continue apace on the 100 Columbia project in downtown Portland now that the developer has secured a $96.5 million loan.

The loan was arranged by commercial real estate firm HFF on behalf of developer Alamo Manhattan and will be repaid over four years, Multi-Housing News reported. HFF previously obtained for the project team a $47.4 million loan “in a joint venture equity partnership with Diamond Realty Investments,” according to Multi-Housing News.

The Bureau of Development Services late last year issued a building permit for the project, and ground was broken in January on the 0.92-acre site at 140 S.W. Columbia St. Andersen Construction is serving as general contractor.

The estimated value of the project is $75 million, according to BDS documents.

GBD Architects‘ design for the project was approved by the Design Commission in November 2017. Plans call for a 20-story tower with 348 residential units, 15,000 square feet of ground-floor commercial space and rooftop amenity spaces at multiple levels.

Approximately 244 motor vehicle parking spaces will be included in an above-grade garage. Also, 521 bicycle parking spaces will be provided.

Construction is tentatively scheduled for completion in 2020.

The property owner is Downtown Development Group via Lot 53 LLC. It acquired the property in 2013 from the Louis Dreyfus group, according to media reports.

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The first piece of Downtown Development Group‘s Ankeny Blocks plan is quickly coming together in Portland’s Skidmore/Old Town Historic District.

230 Ash, rising on a half-block parcel along Southwest Ash Street, between Second and Third avenues, will offer five stories of apartments above ground-floor retail space. The former surface parking lot’s transformation is providing something rarely seen in the immediate area: new residential units.

General contractor Lease Crutcher Lewis is building 230 Ash, which was designed by GBD Architects.

“It’s a nice, exciting time for the project,” Cesar Aviles, project manager for Lease Crutcher Lewis, said last week. “Currently we’re working on our wood framing, where we’re up to level four, starting level five. We did all the concrete, and we’re starting on our exterior mock-up … we should get steel started in late February for the curtain walls that support the brick, and we’re shooting to have our roofing around March.”

Then crews will start drying in and performing interior work, Aviles said.

“We’re working on metal framing down on the ground floor, and then a lot of MEP rough-in throughout the building,” he said. “Where people can find space, they’re getting stuff done.”

Design requirements were stricter for 230 Ash than for typical projects because the property is within a historic district listed on the National Register of Historic Places. Nevertheless, the team plans to pursue a Leadership in Energy and Environmental Design platinum rating for the project.

The 133 apartments on floors two through six will be either studios or one-bedroom units. Developers took advantage of Multnomah County’s Multiple-Unit Limited Tax Exemption (MULTE) program to gain a 10-year property tax abatement by offering 20 percent of the apartments below market rate to people making 80 percent of the median family income or less.

At the ground level, 7,955 square feet of retail space will be available for multiple tenants – likely at least one restaurant. 230 Ash also will provide 58 motor vehicle parking spaces underground as well as 201 long-term bicycle parking spaces. A rooftop space will provide additional tenant amenities.

Exterior work is expected to continue through the end of July, while interior work will proceed through at least September. A certificate of occupancy is expected to follow, likely in October if current schedules hold steady.

Downtown Development Group will retain ownership of 230 Ash once it’s finished. HSM Pacific Realty is handling leasing of those spaces.

“It’s an interesting location,” Aviles said. “Voodoo Doughnuts is just up the street and you get a bunch of tourists. And yesterday, actually, the restaurant Mother’s (Bistro & Bar) was doing their grand opening, so they had probably a 300-person parade with a band and stilt walkers that was going on while Northwest Natural was doing their gas tie-in … there was a lot going on, a lot of fun stuff.”

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The Portland Design Commission voted Thursday to approve plans for a 35-story tower that will transform Portland’s skyline, disband the city’s largest collection of food carts and set a precedent for the much-discussed and yet-to-be-built Green Loop.

Commissioners approved the Block 216 project Thursday with conditions despite objections expressed by city transportation and environmental services bureaus, whose representatives said they hadn’t had adequate time to consider issues ranging from overhanging street lights to a century-old water pipe.

The 844,117-square-foot project was valued at $245 million by the Bureau of Development Services. The building, designed by GBD Architects, will provide the West End a luxury hotel, office space, condominiums, retail space and dining space.

In an unusual move, commissioners voted 4-0 to approve the tower and podium design despite a staff report that recommended denial until various technical issues related to the tower’s frontage on Southwest Ninth Avenue could be resolved. (Commissioners Don Vallaster and Andrew Clarke were absent).

“We’re not there yet, and we’re not supportive of the conditions that have been proposed,” PBOT senior planner Fabio de Freitas said before the commission voted.

The project was on its way toward staff approval, de Freitas said.

“We believe we’re going to be able to get to yes,” he said. “We just haven’t had the information, nor the time, yet.”

The commission’s approval now shifts responsibility for high-stakes changes on Southwest Ninth Avenue to city bureau staffers. They could deny a permit or impose conditions, in which case the applicant could appeal to the Design Commission.

The project will be the first to front the Green Loop – a concept for a bicycle- and pedestrian-friendly street throughout central Portland.

“This is a nonstandard street by every level of interpretation,” de Freitas said. “We’ve been working diligently with the developer to work through toward concept approval. We just haven’t gotten there yet.”

Much about the Green Loop remains to be decided even as developments such as Block 216 go ahead.

“We honestly found some folks who weren’t familiar with the Green Loop concept within those service bureaus,” GBD Director Phil Beyl said.

The project, located on a full block bounded by Southwest Ninth and 10th avenues and Washington and Alder streets, comes from local developer Walter Bowen’s BPM Real Estate Group. The block is owned by the Goodman family’s Downtown Development Group. The deal is structured as a long-term land lease; the Goodmans will continue to own the block.

“This is frankly the largest private-sector project to break ground since Big Pink (U.S. Bancorp Tower) in 1980, so this is a step in the right direction,” said Brian Owendoff, a local real-estate broker who is representing Bowen.

The project will displace Portland’s largest food-cart pod. The block hosted more than 50 food carts earlier this year. The number has dwindled as some carts have moved.

The project team hopes to break ground in June or July 2019, Owendoff said. The food carts would be evicted before then. The tower is projected to be open and operational in October 2022, Owendoff said.

“The approval’s great, but the real work now begins,” he said. “We’re looking forward to moving dirt and creating a 100-year building that will frankly increase real estate taxes, hotel taxes and income taxes to the city of almost $10 million a year.”

The project team also includes HKS Architects and Howard S. Wright, a division of Balfour Beatty.

Thursday’s meeting saw a flurry of last-minute changes to the design. A story was eliminated from the podium that fronts Southwest Ninth Avenue. One floor of the 35-story tower was converted from office to hotel, increasing the number of rooms from 232 to 249. Design changes were made to a floor containing a swimming pool that will be visible at the corner of Southwest Ninth Avenue and Washington Street, pulling the floor back into the structure.

The tower and podium were also redesigned so the tower “nests into the podium,” said Kyle Andersen, a GBD Architects principal.

Block 216 was the last undeveloped full block in downtown Portland. Its development marks the largest step yet in the steady elimination of surface parking lots in inner Portland in favor of vertical development.

The Block 216 project will likely be the largest Portland building of its era. A lack of available land, development headwinds and zoning restrictions make anything larger unlikely for the foreseeable future.

Even as commissioners voted to grant design approval, some expressed misgivings.

“It seems like we could be setting a precedent here to short-circuit bureaus,” Commissioner Jessica Molinar said.

It will be the project team’s task to meet conditions set by city staff, Commissioner Sam Rodriguez said.

“The risk is being borne here by the applicant,” he said. “If they can’t get there, they can’t get there. The whole thing goes away. I’m happy to put that burden on them if they’re happy to take it.”

Further delay of the project could threaten its viability, Rodriguez added.

“If we don’t show some flexibility to move with big, complex projects like this, we’re not going to see them,” he said.

It was critical to get approval Thursday, Owendoff said after the meeting.

“There’s an old saying in real estate,” he said. “Time kills deals.”

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Downtown property owners and some of Portland’s wealthiest families are busily looking to form opportunity zone funds by taking advantage of a tax break in federal law.

Opportunity zones emanate from a federal tax bill that was enacted in December 2017. Seeking to encourage investment in blighted areas, the law allows for certain tax benefits for long-term real estate investors.

The opportunity zones are drawn from Census tracts. In Portland, that has yielded a curious situation that has made some very wealthy people very excited: Portland’s opportunity zone covers some of the city’s most expensive and desirable real estate, including downtown and portions of the Pearl District, South Waterfront District and Central Eastside Industrial District.

“Portland’s opportunity zone is a fabulous opportunity zone, and it’s getting a lot of attention nationally,” said Vanessa Sturgeon, a Portland developer who has formed a public opportunity fund.

Portland’s opportunity zone is home to recently constructed business hotels, multifamily developments and corporate office projects. Broadway Tower, soon to be home to Amazon, is in Portland’s opportunity zone. So is the new Woodlark Hotel on Alder Street. So is Portland’s largest building, the U.S. Bancorp Tower (better known as Big Pink), and its tallest building, the Wells Fargo Center.

Opportunity zones could also figure in major planned redevelopments. Both the Broadway Corridor and Oregon Museum of Science and Industry’s campus are within opportunity zones.

Sturgeon said she and two others who have formed Sturgeon Development Partners are considering a handful of sites for one or more major opportunity zone projects. Nick Fritel is chief financial officer and Robert Pile is vice president of construction. They’re seeking to raise about $328 million for the projects.

Sturgeon said she and her partners are considering sites on both sides of the Willamette River.

“We’re really working on four different tower sites,” she said. “So we’re in due diligence on several sites. We don’t know whether we’ll do one or two, but they’re sprinkled all over Portland.”

Sturgeon Development Partners is also using an opportunity zone fund to back a hotel project in Salem. The 126-room hotel would be built on the site of a condemned parking structure at 195 Commercial St. S.E.

“The Salem market, it’s really becoming part of the greater economic region of Portland, and it’s highly underserved right now,” Sturgeon said.

Sturgeon was approached by Chris Duffin, president of LMC Construction, about redeveloping the property.

“It’s a block that is blighting downtown Salem, and the city is supportive of seeing something there,” she said.

The offering period for Sturgeon Development Partners’ opportunity zone funds began on Nov. 30 and ends March 31, 2019.

The Goodman family is also considering forming an opportunity zone fund with other investors to develop the Eleven West tower, said Greg Goodman, co-president of Downtown Development Group.

An opportunity zone fund will be used to develop Eleven West, and another one will be used at Downtown Development Group’s property at Southwest Second Avenue and Pine Street, Goodman said. Eleven West received design review approval in December 2017 but ground has not been broken yet.

Downtown Development Group will own half the opportunity fund at Eleven West, Goodman said. The Goodmans have hired Newmark Knight Frank to find and evaluate potential joint-venture partners.

“11-W will get capitalized,” Goodman said. “It will get done.”

The advent of opportunity zones has sparked bidding wars for highly desirable properties.

“You really have to pick your spots because you’re already seeing a bid-up for spots in opportunity zones,” said Todd Gooding, president of ScanlanKemperBard.

SKB plans to use opportunity zone funds for at least two multifamily projects – one in Tigard and another in Vancouver, Washington. The new developments will have 180 to 200 multifamily units each.

“Having the longer-term capital is extremely attractive for the stability of our portfolio and to create real, long-term wealth,” Gooding said.

For developers, opportunity zone benefits could push across the finish line some projects that have been on hold because of inclusionary housing regulations and escalating construction costs.

“Some of these projects that wouldn’t pencil might pencil,” Sturgeon said.

Interest in opportunity zones has been high locally, said Owen Blank, a real-estate attorney and partner at Tonkon Torp.

Opportunity zones have the advantages of deferring, reducing and eventually forgiving capital gains tax, he said.

“It’s a far more flexible program than some of the other tax credit programs, (such as) like-kind exchange,” he said. “Any kind of capital gain could be invested in an opportunity zone fund. It doesn’t have to be from the sale of real estate, or even the sale of a business.”

Opportunity zone funds are beneficial for long-term investors. Merchant developers, or investors looking to quickly flip a property, will not realize many advantages from these tax treatments, Blank said.

Discounted tax rates kick in after five years and seven years. But the biggest benefit happens after 10 years.

“The benefit that has really caught people’s attention is if you hold the investment for 10 years, and then sell your stock in the fund; the appreciation in value escapes tax,” Blank said. “You can imagine why that’s caught some people’s attention.”

Opportunity funds are still new, and some questions remain to be resolved by future Internal Revenue Service guidance, Blank said. For example, how investors can exit, or what happens when an investor dies, remain unanswered.

“There are still some significant unanswered questions pertaining to the operational issues over those 10 years,” Blank said.

Other opportunity zones include areas around Portland International Airport, Gresham, Beaverton, Hillsboro, Forest Grove, Tigard, Tualatin, Wilsonville and Oregon City. Oregon has 86 opportunity zones, and there are about 9,000 scattered throughout the nation.

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