As nearly a billion dollars of bond money was invested in affordable housing projects in the Portland-metro area, architects found paths to success. Don Sowieja, a principal with Ankrom Moisan Architects, and Trish Nixon, president and managing principal of LRS Architects, shared their thoughts on how different approaches to the design process can help push multifamily projects toward construction.

The city of Portland has taken major steps to encourage development, Sowieja said. One of these steps was consolidating permitting functions into a single bureau: Portland Permitting & Development.

“Prior to that shift in policy organization, you might expect three to four months before you go your first round of (plan review),” Sowieja said, adding that it now takes around six weeks.

Also, the Portland City Council last year passed its Housing Regulatory Relief Project, which temporarily suspended development and process standards that apply to building projects, such as bike parking, bird-safe glazing, and landscape standards. State legislation also has provided relief from requirements and contributed to the success of LRS Architects’ projects, Nixon stated in an email.

When it comes to the overall timeline for a project, Sowieja said the design process is critical.

“One of the things we’ve found is to keep it simple,” he said.

Keeping a layout and overall composition basic allows a project to move through the process more quickly, Sowieja said. Oftentimes a proposal’s details may be unclear to city staffers, so it’s important to keep an open line of dialogue with them, he added, to navigate the approval process. Communicating early with city staff ensures there are no surprises during the design review and permitting processes, Nixon stated.

The simpler the design, the simpler the compliance, Sowieja said. For multifamily housing, unit size and type matter.

“If you have three unit types – studios, one bedroom and two bedroom – and you have one each of those types of unit plans, that’s as easy as it gets for the city to understand, as well as for the developer to demonstrate in compliance,” Sowieja said.

Designing projects that require a minimal number of requests for modifications or variances helps improve timelines and overall efficiency, Nixon stated. Before starting to design a project, LRS Architects works diligently with clients to understand all requirements and minimize adverse impacts, she added.

For projects subject to design review, Sowieja said teams should know the rules and follow them.

“It’s right there on the page,” he said. “Reading what it says and doing what it says is the best way to move quickly through a subjective process.”

Although inclusionary housing is relatively new to Portland, many cities on the West Coast have similar criteria. In Portland, inclusionary housing requires all residential��buildings proposing 20 or more new units to provide��a percentage��of them at rents or sale prices affordable to households at 80 percent of the median family income��or below, the city’s website states.

Development teams should embrace the fact that it is a requirement for multifamily projects, Sowieja said. While there was consternation at the outset, most of the development community has figured out that it is a financial and organizational impact, he added.

Meanwhile, all LRS Architects apartment projects within the city of Portland in the past five years have been 100 percent affordable, Nixon said.

Demand for multifamily projects has declined in the past 2.5 years, Sowieja said, following a roller coaster of economic cycles, including the COVID-19 pandemic, inflation and interest rate increases. However, that has begun to change in 2025, he added.

“The design side is really picking up,” he said. “That takes a while to translate into construction starts, and construction is the big money and the larger economic driver.”

On the other hand, LRS Architects reports something different.

“We are seeing more exploratory activity, but not necessarily project starts,” Nixon stated, adding that such activity is taking place in the suburbs and not in the city of Portland.

LRS has seen a decrease in market-rate projects, according to Nixon. But the firm is involved in several active affordable housing projects in Portland. These include Garden Park Estates, which includes renovation and new construction (LMC Construction is the contractor), Jamii Court (O’Neill/Walsh Community Builders is the contractor), and Barbur Apartments (Todd Construction is the contractor).

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For a seven-story, 134-unit multifamily project planned in North Portland, Ethos Development implemented a version of the city’s inclusionary housing requirements by offering three-bedroom apartments that are smaller than the one-bedrooms in the same building.

In Analog PDX, a 134-unit project planned for a North Portland site, the five rent-restricted, three-bedroom apartments will average 772 square feet. The building also would have four market-rate, one-bedroom apartments averaging 810 square feet.

The City Council hated the proposal.

In two meetings in late April, city commissioners grilled developer Paul Del Vecchio, founding principal of Portland’s Ethos Development, regarding the unusually small three-bedroom apartments. Commissioner Jo Ann Hardesty called them “outrageous and egregious” and said that they didn’t meet the “sniff test” of the city’s inclusionary housing program.

Commissioner Dan Ryan, who oversees the Bureau of Development Services, said the project doesn’t satisfy the city’s goals for providing affordable housing for Portland families.

“This just isn’t high-quality family low-income housing,” he said. “This project does fall short.”

In the end, only Hardesty voted against the project’s tax exemption, and it was approved. Del Vecchio said he’ll move toward obtaining building permits with the aim of breaking ground at 1871 N. Flint Ave. in August or September.

But Portland developers said they and their investors were spooked by the council’s last-minute dive into the minutia of bedroom sizes. For developers, elected politicians meddling in floor layouts after a project had been in the city’s land-use approval pipeline for almost two years was a near worst-case scenario.

“This event today made it all the way to Boston, San Francisco and L.A.,” said Sam Rodriguez, senior managing director for Mill Creek Residential Trust, one of the most prolific multifamily developers in Portland, during the City Council’s April 21 meeting. “I had three investors call me freaking out. ‘What’s going on? Are we going to have our projects approved or not?’”

Noel Johnson, a principal with local developer Cairn Pacific, said the 11th-hour opposition to Analog PDX has already done damage, causing investors to wonder whether the council will be “playing politics with the individual project in front of them.”

“That’s just the best way to shut off new investment just as people are maybe thinking about it,” Johnson said in an interview.

Johnson also testified before commissioners on behalf of Analog PDX.

The debate regarding Analog PDX was the latest twist in the saga of Portland’s inclusionary housing policy, which was enacted in 2016 to require developers of multifamily projects of 20 units or more in certain parts of the city to offer affordable units with restricted rents or pay a fee in lieu.

In exchange, developers may apply for the city’s Multiple-Unit Limited Tax Exemption (MULTE) program. MULTE gives developers a 10-year property-tax break. City councils are empowered by state law to approve MULTE exemptions, making them the last step in the process before developers apply for building permits. (The program has a rolling cap on the exemptions to ensure that tax revenue doesn’t a hit too large in any given budget year).

Developers fear commissioners will use their power to approve or deny MULTE exemptions as an opportunity to meddle in multifamily building projects late in the process – after they’ve been designed, engineered and approved by the Portland Design Commission or Bureau of Development Services staff.

“They’re basically suggesting the MULTE program is a discretionary checkpoint,” Del Vecchio said in an interview.

That is not something that was part of the inclusionary housing program when it was promulgated in 2016, Housing Bureau Director Shannon Callahan said.

“We had not contemplated when we drafted the original housing code a situation where an individual MULTE would be denied,” Callahan told commissioners. “But we did contemplate at some point we would reach the overall cap,” she said, referring to the agreement on tax exemptions with Multnomah County.

Hardesty’s and Ryan’s offices did not respond to interview requests. But in council meetings, the commissioners suggested Del Vecchio was doing an end-run around inclusionary housing rules.

“I just want to know if any of you would live in those bedrooms – a three-bedroom unit that is smaller than a studio,” Hardesty said.

Del Vecchio expressed frustration that he was hauled before commissioners to defend the project. He said the meeting cost him thousands of dollars to compensate his project team experts who testified – Allison Reynolds, a land-use attorney at Stoel Rives, and Carrie Strickland, founding principal of Works Progress Architecture.

Analog PDX meets inclusionary housing requirements via what is known as the reconfiguration option. Essentially, developers may provide an equivalent number of affordable bedrooms rather than units. Former Commissioner Steve Novick pushed for the option to encourage developers to build affordable family-size apartments rather than just studios or one-bedrooms.

“Our strategy to reconfigure to three bedrooms was a genuine attempt to provide what we believe to be the most needed affordable housing type,” Del Vecchio wrote to the City Council.

Ethos isn’t the only developer to propose small multi-bedroom apartments, Callahan said in an interview.

“We’ve been seeing some units that are smaller than a unit of lesser bedrooms,” she said. “It was one of the more extreme examples.”

The MULTE approval process has given the City Council a deep familiarity with the multifamily housing pipeline, Callahan said.

“Council is able to see – because they have approval over the MULTE – at a very granular level what is being produced in the market,” she said.

Part of the push and pull between developers and commissioners is over the council’s goal to provide affordable housing for low-income families. Commissioners said such small three-bedroom units could be filled by groups of singles, and not families.

Del Vecchio said he has no control over who rents his apartments, and isn’t even allowed to ask because of Fair Housing rules.

“You’re just creating caricatures of people,” he said. “Who knows who’s going to move into anything? You just don’t.”

The inclusionary housing program has had a series of unintended consequences during the past five years. Among them: developers building many 19-unit apartment buildings to remain just below the threshold required to provide affordable units.

As a result of Analog PDX and other projects, the City Council instructed the Portland Housing Bureau to regulate bedroom sizes in inclusionary housing projects. New administrative rules, which became effective April 23, require reconfigured units to be larger than the average size of each of the unit types with fewer bedrooms.

The Housing Bureau will also issue a request for proposals, probably this summer, for a consultant to evaluate the city’s inclusionary housing program, Callahan said.

Meanwhile, Ethos Development is selling off its land holdings in Portland, Del Vecchio said. After Analog PDX is completed, Ethos will do no new multifamily projects in the city for the foreseeable future, he said.

The post A three-bedroom unit fit for a family? appeared first on Daily Journal of Commerce.

How about an affordable condo in the same building as a Ritz-Carlton hotel?

The developers of the 35-story being built in downtown Portland have indicated to city officials that they will offer price-restricted units within the $600 million building to meet inclusionary housing requirements. That’s a reversal from earlier plans to instead pay the Portland Housing Bureau a fee in lieu estimated at $7 million to $8 million.

The units are proposed as for-sale condos, not rental apartments. The only previous Portland project to bring to market for-sale condo units with inclusionary housing restrictions was a Habitat for Humanity project, stated Martha Calhoon, a spokeswoman for the Housing Bureau.

BPM Real Estate Group has indicated it will allot 20 percent of the Block 216 units to be affordable at 80 percent of area median income. With 138 units in the massive mixed-use tower, 28 would be designated as affordable, according to the Housing Bureau.

The choice raises the prospect that affordable-housing tenants will not only share a building with Ritz-Carlton hotel guests and office tenants, but also floors with luxury condo buyers. That will make the market-rate condos a tough sell, said Brad Golik, a Luxe Christie’s International Real Estate broker who specializes in luxury condos.

“That really takes away from the lure of the Ritz-Carlton, quite honestly,” he said. “People are buying the exclusivity of it, and allowing affordable housing takes away from that.”

Based on 2020 data, prices would be set at $226,404 for a studio unit, $250,449 for a one-bedroom unit and $318,664 for a two-bedroom unit. Those prices are pegged to annual incomes ranging from $51,600 to $66,320. Any mortgage payments would depend on buyer financing.

That compares to prices for the market-rate units of about $1.6 million for a one-bedroom unit to upwards of $7 million for top-floor penthouses.

Perception-sensitive luxury real-estate buyers may shy away from the building, Golik said.

“Who’s going to pay those prices if they don’t have that exclusivity they expected with the Ritz-Carlton brand?” he said. “I don’t think that’s a win for the people buying it, quite honestly.”

BPM Real Estate Group, led by local developer Walt Bowen, did not respond to messages seeking comment via a representative.

Listing agent Sarita Dua of Keller Williams Realty declined to comment.

Last year, Bowen’s group sent investors some documents forecasting prices of $1,350 to $1,900 per square foot for the condos, The Oregonian reported. But a lot has happened since, and the market and perception of living and working downtown has changed dramatically.

Not only has the deadly coronavirus made sharing floors with others seem unappealing, but the virus and ongoing protests have curtailed retail business and turned downtown streets lifeless, at least temporarily.

“The idea of living or working downtown is very different today than it was before George Floyd,” Cairn Pacific multifamily developer Noel Johnson said, referring to the death of a Minneapolis man that sparked nationwide protests. “And so, in the face of that uncertainty, it makes sense not to incur the extra $8 million paid to the city.”

Sensationalistic media coverage of the sometimes-violent protests in downtown Portland hasn’t helped. One prospective East Coast buyer who was interested in the condos held off while watching the protests unfold on TV, Golik said.

“They’re painting a picture that the city is burning down,” he said. “It’s not that way everywhere in the city, but it’s what he’s seeing, and it’s put a negative feeling on moving to Portland.”

Block 216, which will be one of Portland’s tallest buildings upon completion, attracted blue-chip brands such as Ritz-Carlton and an opportunity zone fund managed by Baker Tilly Capital. Mosaic Real Estate Investors contributed a $460 million, four-year construction loan.

Providing affordable housing on-site also means Bowen’s group will have fewer condos to sell at top-of-market prices during a period of economic uncertainty. If the project team sets aside 20 percent of units as affordable, 110 units would be available for luxury buyers.

Luxury condo buyers face no great rush to snap up a property, Golik said.

“For many of them, it’s a second (or) third home,” he said. “They can be patient. With what’s going in the city, they will probably be much more patient, I would guess.”

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Dennis Sackhoff, like other multifamily builders in Portland, is adapting to inclusionary housing rules with a measure of creativity.

City rules, which took effect Feb. 1, 2017, require developers of multifamily buildings with 20 or more units to provide a portion of affordable units (ranging from 8 percent to 20 percent) or pay a fee-in-lieu. Sackhoff’s company, Urban Development Group, has three qualifying projects under way in the Sellwood-Moreland neighborhood in Southeast Portland.

The Sackhoff triangle includes the Yukon Flats, a completed four-story, 54-unit building on Milwaukie Avenue near hip brunch restaurants and a food-cart pod. The building’s apartments are for lease. An Yukon Flats units at rates of $1,175 for a studio and $1,350 for a one-bedroom unit.

Still under construction is a 91-unit building, also four stories, at Southeast 17th Avenue and Tenino Street, next to a sushi restaurant and near a new CVS pharmacy. The project is coming out of the ground, with first-floor framing in place.

Both Yukon Flats and the 91-unit building will have only market-rate apartments. The reason that works is because a third planned building, at 1645 S.E. Nehalem St., will include a greater-than-required ratio of affordable units via an off-site transfer. However, while the lot at that address is fenced off, no work has begun.

Sackhoff’s strategy will mean 145 market-rate units will be ready for lease before any rent-restricted affordable units become available. The delay in affordable housing construction meets the Portland Housing Bureau‘s rules, an agency spokeswoman stated.

The arrangement meets the procedures for an off-site transfer, Housing Bureau spokeswoman Martha Calhoon stated.

“Under the off-site transfer option, receiving sites are required to meet reasonable equivalency standards, and must be located either within a half-mile of the sending site or in an area with the same opportunity score (or higher) as the sending site,” Calhoon wrote in an email. “Opportunity scores are based on the services and amenities in an area so, yes, we would say that off-site transfers like the (Sackhoff projects) are accomplishing the program goals of creating more affordable housing in walkable neighborhoods near active transportation, employment centers, open spaces, high-quality schools, and various other amenities that enhance quality of life for residents.”

Sackhoff did not respond to requests for comment through David Mullens, project manager for Urban Development Group.

The number of rent-restricted affordable units that will be built at the Nehalem Street property may be in flux. Previously, the proposal was for 58 total units in four stories. Then on March 3 the developer submitted a new permit application to add a fifth floor, which would expand the project to 75 total units.

Of those original 58 units, 31 were required to be affordable to renters earning no more than 60 percent of area median income and nine units were to be affordable to renters at no more than 80 percent of area median income. The remaining 18 units would be market-rate.

With the developer’s request to add 17 units, the Housing Bureau may require a percentage of those to be affordable. The construction type would change to III-B – potentially a brick or block base with a wooden roof.

The Housing Bureau plans to conduct a market analysis to recalibrate inclusionary housing’s off-site program options to “increase flexibility and utilization,” according to the bureau’s inclusionary housing website.

A different approach

Another developer active in Sellwood-Moreland is trying an entirely different approach. Native Land Development has two multifamily projects under construction in the neighborhood: one with 28 units at 5434 S.E. Milwaukie Ave. and the other with 30 units at 5605 S.E. Milwaukie Ave.

The two projects are 100 percent affordable. All 58 units are studio apartments dedicated to inclusionary housing. Rents are $924.

The 30-unit building, while modest in size, will have the most inclusionary housing units of any building in Portland, according to a Housing Bureau tally.

“There is a lot of hype on it being super difficult to build with (inclusionary housing), but it depends on your style, how you run and your stakeholders,” said Austin Turner, a Portland development consultant who is working with Native Land.

The developer has received more than 100 rental applications for the 28 units at the first project, Turner said.

The projects are made possible via a series of public subsidies. Among them: system-development charge waivers and a 10-year property-tax exemption.

Native Land also found contractors willing to compromise on price.

“We asked people to take discounted rates to make it happen,” said Rowen Rystadt, a project manager with Native Land.

The projects were designed by Ralph Tahran, a Lake Oswego architect who was a co-founder of Otak Inc.

“I think everyone is working toward the right goal, which is increased density in these areas,” Rystadt said.

Native Land Development started in Centralia, Washington, with a focus on building affordable housing on American Indian reservations, Rystadt said. The company is led by Leah Wells-Swanson of West Linn.

Fee-in-lieu

Another inclusionary housing option allows developers to pay a fee into the Housing Bureau’s inclusionary housing fund instead of building affordable units. Developers for projects that vested before inclusionary housing took effect can also opt in to inclusionary housing to receive bonus floor-area ratio, which allows larger buildings to be built.

So far, developers of 10 properties have paid fees in lieu totaling $410,698, according to the Housing Bureau. Each opted in to inclusionary housing voluntarily to receive bonus FAR, Calhoon stated. The largest payment to date – $175,810 – came on behalf of a five-story, 88-unit hostel project at East Burnside Street and Southeast 16th^�� Avenue.

To date, no project team has opted to pay the fee-in-lieu instead of providing units, Calhoon stated. But developer BPM Real Estate Group is expected to do so for the 35-story mixed-use tower now under construction on Block 216 in downtown.

The fee-in-lieu payment will be triggered by issuance of a commercial building permit. Based on prior information provided by the project team, the fee for Block 216 is expected to be approximately $7 million to $8 million, stated Ken Ray, a Bureau of Development Services spokesman.

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The Portland Housing Bureau has released updates to administrative rules governing the city’s inclusionary zoning program.

The changes were issued July 30 following a public comment period. The administrative rule changes include fixes to reflect city ordinances and state legislation, add definitions of terms, and incorporate feedback from early assistance meetings.

Inclusionary zoning took effect on Feb. 1, 2017. Developers of multifamily buildings with 20 or more units are required to provide a portion of affordable units (ranging from 8 percent to 20 percent) or pay a fee-in-lieu.

The amended rules are at: .

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A new proposal in Northwest Portland shows how developers are getting increasingly creative to avoid Portland’s inclusionary housing thresholds.

Cairn Pacific is proposing six buildings, each with approximately 18 apartment units. With that arrangement, the developer can build about 108 units, with none required to be offered to low-income renters.

Portland’s inclusionary housing rules exempt buildings with fewer than 20 units. For larger buildings, developers must provide a proportional amount of apartments at rents affordable to people who earn less than either 60 percent or 80 percent of the Portland area’s median income, or pay a fee in lieu.

Noel Johnson, a principal at Cairn Pacific, said the proposed project would not be built if it had to include affordable units, which bring in less revenue for the developer.

“The reality is basically no projects pencil with inclusionary zoning,” he said.

Other developers have moved forward with projects that fall just below the 20-unit threshold. A 19-unit building is under construction at 4130 S.E. Division St. That building is from a limited liability company that lists Anita Chan as manager. It was designed by Baysinger Partners Architecture.

In a September 2018 report, the Portland Housing Bureau said the pace of constructing buildings with fewer than 20 units was in line with recent years. In 2017, 13 percent of building permits were for structures with fewer than 20 units, according to the Housing Bureau.

“This proportion is consistent with what has been occurring since 2012 as Portland emerged from the recession,” the report stated.

Still, 2017 saw the most such buildings constructed since 2012. Data for 2018 were not immediately available.

Gerard Mildner, a Portland State University real estate professor, said it’s not surprising developers are finding a way around inclusionary housing rules.

“Folks are really scratching their heads over this, and if it takes a lot of 18-unit buildings, they’ll do it,” he said. “I think a more likely reaction is to go to the suburbs.”

The 20-unit threshold is embedded in the 2016 state law that permitted municipalities – with Portland foremost in mind – to enact inclusionary housing ordinances. The law says inclusionary zoning rules “may apply only to multifamily structures containing at least 20 housing units.” Developers have responded by building multiple structures of fewer than 20 units on the same site.

Johnson said he expects to see more such projects.

“That’s kind of I think the new normal in terms of how Portland’s going to be producing housing in the short run,” he said. “The reality is we either produce housing, or we don’t produce housing.”

Portland has no flexibility to change the 20-unit threshold without a corresponding change in state law. Some small projects have included affordable units anyway.

“The Housing Bureau is encouraged that 14 residential projects with less than 20 units have voluntarily opted into the inclusionary housing program (paying the fee-in-lieu or providing affordable units) due to the incentives provided, and many others are considering doing the same,” stated Eileen Park, spokeswoman for Mayor Ted Wheeler, in an email. “The city will continue to consider options to incentivize more affordable housing.”

Cairn Pacific is best known for developing a series of large mixed-use projects in Northwest Portland’s former Con-way area, now rebranded as Slabtown. These include the Leland James and L.L. Hawkins buildings, with tenants such as New Seasons Grocery and Breakside Brewery.

This new proposal calls for a series of five-story buildings at 2123 N.W. 30th Ave., and the adjacent block. Jones Architecture is designing the buildings on 30th Avenue, and Waechter Architecture is designing the others.

Using different architects is meant to provide some variety in design, Johnson said. The new buildings will be next to townhomes designed by architect Rick Potestio for Cairn Pacific.

“I’m trying to get a potpourri of designers working in that area to get an eclecticity of design,” Johnson said.

Cairn Pacific’s intention is to create a walkable, livable neighborhood for families within a short jaunt to Forest Park, Johnson said.

The multifamily buildings will have amenities such as bike rooms, storage, common areas and at-grade parking. Cairn Pacific plans to use cross-laminated timber. The material has become popular for office projects in the Portland area, but not multifamily projects.

The proposed buildings are in early-stage design, Johnson said. They’re likely to be a mix of one-bedroom and two-bedroom units, with perhaps some three-bedroom units.

The small buildings will be sited on corners wherever possible, to give them more light and air and better energy performance, Johnson said.

The post A ‘new normal’ for multifamily projects appeared first on Daily Journal of Commerce.

The next wave of multifamily development in Portland may be in trouble.

With inclusionary housing rules narrowing margins and raising questions from investors, some developers are waiting on the sidelines. Others are testing the waters, talking with major equity investors about what returns they’ll accept, and with their architects and contractors about how to control costs.

Developers who are watching the post-inclusionary housing pipeline said multifamily deliveries will slow dramatically in 2020 and 2021. The slowdown could worsen Portland’s supply issues, and cause another housing crisis, they warn.

There are a number of reasons why multifamily projects aren’t penciling out. Construction costs are still rising faster than inflation, although they have leveled off from dramatic jumps a couple of years ago. Rents are stagnant, limiting the income developers can draw from new buildings. And new regulations, including inclusionary housing and rent control, are limiting profit and causing investors to move more cautiously, developers said.

“I’ve actually run numbers on two dozen deals, and I can’t make them work,” said Brad Schnell, managing director of development at Greystar.

Others developers are finding the same thing.

“We’re all in the same boat,” Schnell said. “We’re all just scratching our heads trying to make sense of this market.”

National equity investors are not interested in accepting the lower returns Portland’s market is now offering, developers said. Equity investors are looking to other fast-growing cities that have fewer question marks.

“To find equity, you’ve got to have somewhere between 5.75 percent or 6 percent return on cost or yield, and we’re sub-5 (percent) on everything we’re looking at,” Schnell said. “It doesn’t come close to penciling. We wouldn’t even want to bring it to an investment committee.”

Portland’s regulatory approach is not helping, developers said. Inclusionary housing reduces revenue, and new rent control rules, while not overly punitive, raise questions of whether the City Council and state Legislature will further tighten the screws.

“We try to play ball, but I think they need to know that the level of complexity that they’ve added in the last two years to deals is not conducive to increasing supply,” said Sam Rodriguez, senior managing director of Mill Creek Residential Trust, a Dallas-based developer that has built prolifically in Portland during the economic expansion.

The development pipeline is collecting an increasingly curious backlog of major projects that have received design approval from the city of Portland, but haven’t moved forward with building permits.

“Projects just don’t pencil,” said Noel Johnson, a principal with multifamily developer Cairn Pacific.

If projects don’t move forward, housing supply will dry up, developers warned.

“It is going to be a problem,” Schnell said. “It’s probably 24 months away.”

A number of mixed-use projects with multifamily components appear to have slowed, if not stalled. Eleven West, a 24-story tower from Gerding Edlen Development and Downtown Development Group, has not moved forward after receiving Design Commission approval in December 2017. The multifamily portion of the Press Blocks in Goose Hollow is waiting, but the developers are moving ahead with the office buildings, for which building permits have been issued, city records show.

Mill Creek is one of the few developers that has proposed new, sizable multifamily projects under inclusionary housing rules. The merchant developer, backed by national equity investors, has three major multifamily projects in development:

• At 4804 S.E. Woodstock Blvd., Mill Creek is proposing a five-story building with 185 to 195 multifamily units at the site of the Joinery building, which would be demolished. There would be 0.75 parking spaces per apartment. Neighbors have vociferously objected to the project, but the site is not subject to design review.
• At 1120 S.E. Morrison St., Mill Creek wants to build a seven-story building with approximately 234 units and a 0.75 parking ratio.
• At 2135 N.W. Nicolai St., between Slabtown and the Northwest Industrial District, Mill Creek is planning Modera Nicolai, a six-story building with approximately 200 units and a 0.55 parking ratio. A design advice hearing has taken place.

Taken together, the projects would add more than 600 units to Portland’s multifamily market if all were built.

“Our theory is if you do full blocks, you get some economies of scale,” Rodriguez said. “It’s really hard to make it work, and the only thing we think that might help us is just the size of the deals. That’s the only somewhat advantage that we have.”

Rodriguez pointed to forecasts showing rent growth of 2 percent a year, or slightly more, after the current round of pre-inclusionary housing projects is absorbed into the market in 2020-21.

“We’re hoping that the new increases in rent that we’ll see once a lot of this stuff gets absorbed, with construction costs, economies of scale and so forth, are going to put us on a good gliding path to a successful deal,” he said. “That said, it’s not panning out so far. The construction cost numbers are still pretty impactful in the overall deal, and then the city just doesn’t seem to stop with the additional regulations.”

Some projects have gone back to the drawing board, as developer Alamo Manhattan has done with a portfolio of South Waterfront properties owned by Prometheus Real Estate Group of San Mateo, California. The project received city design approval, but instead of breaking ground, Alamo Manhattan is going back through design review with a redesigned project that would be subject to inclusionary housing rules.

“We are trying to make it work,” said Wade Johns, vice president at Alamo Manhattan, a Dallas-based developer.

It’s unclear if the project will move forward, Johns said.

“We don’t know yet,” he said. “We are in a due diligence period. We had a (design advice) meeting with Portland Design Commission, which went well. We have been meeting with the Housing Bureau, which we have found to be very collaborative and eager. We are trying hard to understand it to try to make it work.”

Johns predicted developers would eventually adapt to Portland’s market conditions.

“It’s going to take a while for people to figure this out, but I think that they will,” he said. “Portland is such a dynamic, wonderful city. People want to be there so badly. I think they’re going to figure it out.”

The post Developers warn of multifamily slowdown appeared first on Daily Journal of Commerce.

For developers contemplating multifamily projects in Portland, the City Council‘s appeals process represents a perplexing puzzle.

After the City Council upheld the Pearl District Neighborhood Association‘s appeal of the Design Commission’s approval of the Fremont Apartments, developers began to wonder where the council stands on new housing projects.

“It’s chilling for anyone who goes down the fairway with entitlements,” Cairn Pacific principal Tom DiChiara said.

The City Council reconsidered its decision to uphold the appeal and opened the door for further discussion. Now the council is scheduled to revisit the appeal on May 10.

In the case of the Fremont Apartments, if the development team were required to go back to the drawing board, the project would change substantially. The proposed 17-story tower would no longer be vested under pre-inclusionary housing rules, so any new application would have to include affordable units.

Inclusionary housing rules require developers to either set aside 15 percent to 20 percent of multifamily units as affordable units or pay a hefty fee. Fremont Apartments was part of a flood of multifamily projects – totaling 19,000 units – that were submitted for city approval before inclusionary housing rules took effect on Feb. 1, 2017.

The developer of the Fremont Apartments, Lincoln Property Company of Dallas, did not respond to interview requests.

The back-and-forth regarding the Fremont Apartments has added to a sense of uncertainty for multifamily projects that come before the City Council. The council also voted to allow a height increase for NBP Capital‘s proposed multifamily towers in the RiverPlace area; that project has not been examined by the Portland Design Commission yet. Instead, NBP Capital reportedly circulated project information at City Hall.

The uncertainty comes amid broader signs of oversupply in luxury apartment housing and increased costs for land and construction. Developers have expressed concern that the economic expansion, now in its ninth year, can’t keep going forever.

Rents have declined in Portland, slipping 0.6 percent in March compared to a year earlier. Many managers of new luxury apartment buildings have taken to offering concessions.

“There is a lot of fear and hesitation and challenge to keep our development cycle going,” Brad Malsin, principal of Beam Development, said at a City Council meeting in March. “Land prices are escalating, construction prices are escalating and people are fearful – developers are fearful that (with) inclusionary zoning, we can’t make a lot of projects work.”

Malsin began to criticize the City Council’s initial move to uphold the neighborhood association’s appeal of the Fremont Apartments, but he was cut off by Mayor Ted Wheeler.

“That process is not closed,” Wheeler said. “Move on.”

In a subsequent interview, Malsin added that allowing neighbors to halt a project at City Council sends a bad message to developers.

“I think it’s problematic, and you’re sending out mixed messages,” he said. “The Fremont Place Apartments are a prime example of people – citizens – intervening at the wrong stage of the development process.”

The public has ample time to comment on development proposals during early stages, Malsin said.

“To have people come in at the last minute and have people say you’re blocking my view, I find that incredibly disturbing and undermining public process and public planning,” he said.

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The Portland City Council on Wednesday voted to make property-tax breaks available in exchange for affordable housing units from developers who beat the 2017 inclusionary housing deadline.

At Mayor Ted Wheeler’s urging, commissioners voted 4-0 to make the Multiple-Unit Limited Tax Exemption (MULTE) program available to development projects that vested before the Feb. 1, 2017 – the effective date of inclusionary housing requirements.

An enormous wave of applications beat the deadline, meaning those projects are not required to provide affordable housing. Without extending the MULTE program, up to 19,000 market-rate housing units could be built as developments with no affordable units included, Wheeler said.

“MULTE is a proven tool that we can use to get affordable units in the pipeline in the near term,” Wheeler said. “We’re in a housing crisis – as you’re all aware – and the need is immediate.”

Commissioner Amanda Fritz expressed serious reservations about extending the MULTE program after hearing testimony from Housing Bureau officials that the subsidy amounts to about $900 per unit per month.

“I am concerned about a $900-a-unit subsidy for new construction,” she said. “When I was a low-wage earner, I didn’t expect to be able to live in new construction.”

Fritz declined to vote on the matter, stepping out of council chambers to allow the rest of the council to approve the ordinance in her absence. As an emergency ordinance, the MULTE extension required unanimous support for passage. After the four remaining commissioners approved the measure, Fritz returned to her seat.

Commissioner Nick Fish said offering the MULTE program to developers is better than doing nothing.

“The mayor has proposed a tool, and it’s an imperfect tool and it’s not even my favorite tool, but it does offer the promise of getting some affordable units, and I think in a crisis we should be opportunistic,” Fish said. “I’ve heard some criticism around the margins, but I haven’t heard something that convinces me that we shouldn’t try. I’m persuaded that this is worth trying.”

The ordinance takes immediate effect. It allows developers to opt in to the MULTE program, providing a 10-year property-tax exemption to the residential portion of a development. In exchange, the developer must provide 20 percent of bedrooms in a given project at rates affordable to renters at 80 percent of the Portland area’s median family income or less.

Only developments with 20 or more housing units are eligible. The program has a $3 million cap on a rolling five-year basis due to an agreement with Multnomah County that limits how much tax revenue the city of Portland can forgo.

The program can support only about 300 affordable units in any five-year period, interim Housing Bureau Director Shannon Callahan said.

Brad Malsin, whose firm Beam Development has played a major role in redeveloping the Central Eastside, said he supported extending the MULTE program as a way to buttress the housing market. A downturn is coming, he warned.

“The development cycle takes three to four years between concept and delivering to market,” he said. “So we’re reaching that point where things will change. We’ll hit a cliff, and I believe residential development will fall significantly unless we take some action.”

Applications for the program will be accepted through June 30, 2020.

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Inclusionary housing memorandum (PDF)

A year after inclusionary housing rules took effect, a key Portland agency is providing support for developers’ complaints that the rules have dramatically reduced new multifamily housing proposals in the fast-growing city.

The Bureau of Planning and Sustainability, in a one-year review of Portland’s inclusionary housing policy, recommends changes to the rules that require developers to provide affordable units in sizable multifamily projects.

New development applications have fallen steeply, and the development pipeline risks running dry within two years, according to the BPS report.

The bureau’s report comes shortly after the one-year anniversary of the policy’s Feb. 1, 2017, effective date. It was quietly posted on the bureau’s website on Friday.

The city of Portland would “need to start seeing significant increases in land use review and building permit applications over the next six to 12 months to replace development pipeline units that will be delivered to market over the next 18 (to) 24 months,” according to the BPS report.

The four-page report from BPS senior economic planner Tyler Bump recommends the city “explore a process to make adjustments or modifications to the Inclusionary Housing Zoning Code and Program requirements.”

Since inclusionary housing took effect, permits were filed for 17 projects that would be subject to inclusionary housing requirements. Of those, 12 came from privately financed developers and five were backed by the Portland Housing Bureau.

The Housing Bureau’s five projects offered 353 affordable units and no market-rate units.

The privately financed projects added up to 565 market-rate residential units and 89 affordable units. Of the affordable units, 69 were available to renters at 80 percent of the Portland area’s median family income, and 20 were pegged at 60 percent of MFI.

Developers warned even before the policy took effect that the rules were infeasible and would slow new development. The policy requires developers to either designate a percentage of new multifamily building units as rent-restricted or pay a substantial fee.

Mayor Ted Wheeler is considering changes to the inclusionary housing program, spokesman Michael Cox said.

“The mayor is concerned about the slowdown in new development permit filings, and it does warrant BPS and PHB exploration of potential adjustments to make the program more effective,” Cox said.

As part of the review, BPS in January convened focus groups. Developers in those groups raised concerns about how heavily buildings will be taxed after the program’s 10-year property tax subsidy ends, and how lenders value buildings with a 99-year affordability requirement.

Wheeler and other city officials are also looking for ways to stimulate approximately 10,000 multifamily units in the development pipeline that were submitted before inclusionary housing requirements took effect. City officials said they’re considering whether to offer incentives similar to those in the former Multiple Unit Limited Tax Exemption (MULTE) program. The potential incentives package will be presented to the City Council in March, Cox said.

The slowdown in applications for new projects comes as new apartment buildings have opened, reducing average rents throughout the Portland area. Managers of some luxury buildings have stepped up concessions they’re offering to new renters.

The surge in supply has “compressed shorter-term returns” for multifamily developers, said Mark Desbrow, principal of Green Light Development.

Meanwhile, land and construction costs have remained high.

Inclusionary housing links market-rate and affordable developments, so when market-rate development slows, it also affects the number of new affordable apartments in the pipeline.

The Housing Bureau and BPS have the authority to make administrative changes to inclusionary housing rules. Any more fundamental changes would require City Council’s approval.

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