Multifamily production fell 5.2 percent in Portland in 2019 as developers reacted to rising costs and a flood of project deliveries by pulling back.

The Bureau of Development Services issued permits for projects comprising 4,634 multifamily units last year. That was down from 4,887 permitted units in 2018.

“I think it’s going to slow down even more,” said Sam Rodriguez, senior managing director at Mill Creek Residential Trust, a major multifamily developer in the city. “The deals have gotten thinner. Cost has gone up. Construction costs are escalating across the board at about 5 percent a year, and then rents have flattened. And there’s still concessions in the market.”

Multifamily housing production has fallen far from 2017’s high mark of 5,993 units permitted. That year, developers racing to get ahead of inclusionary housing requirements pushed projects across the finish line at a clip that was an astonishing 44.4 percent gain from the prior year.

That boom in housing production continues to echo, with new buildings stabilizing slowly and competition for tenants holding the lid on rents.

While lower, 2019’s housing production rate was in line with the years prior to 2017.

The Bureau of Development Services does not regularly publish permit data totals. The city agency released the numbers in response to a 91��Ƶ public records request.

The multifamily market has bifurcated since inclusionary housing requirements took effect on Feb. 1, 2017, according to developers and permits. More small multifamily projects are moving ahead with fewer than the 20 units that trigger inclusionary housing requirements. Weekly permit intakes released by BDS are replete with 19-unit building proposals.

Other projects that are moving ahead tend to be large: full-block or superblock developments such as Security Properties‘ Pepsi Blocks and Press Blocks projects, and NBP Capital‘s RiverPlace development. Conspicuously missing are the midsize projects that characterized multifamily development before 2017.

“It’s a pretty difficult environment,” said Gus Baum, director of development for Security Properties. “Construction pricing continues to be unpredictable, but high.”

Within weeks, Security Properties is planning to seek permits for Pepsi Blocks’ first phase, Baum said. The first phase includes an approximately 200-unit multifamily building and construction of a woonerf, a shared street through the property at Northeast Sandy Boulevard and 25th Avenue.

Security Properties is phasing the project to allow the bulk of market-rate units to hit the market later.

“The Pepsi Blocks, because it’s a planned development, we’ll hopefully do a greater than minimum share of affordable units in the first phase,” Baum said.

Funding for affordable housing is washing over the housing market in the wake of the city’s $258.4 million housing bond and Metro‘s $652.8 million bond.

“There’s a lot of money for affordable projects because of the bonds, and that’s taking away resources for market-rate projects,” Baum said.

For now, flat rents and steadily escalating costs give little reason to expect a turnaround in Portland multifamily development, developers said.

“It’s still a pretty soft market to be delivering product,” said Chris Nelson, co-founder of Capstone Partners, a Portland-based developer.

After years of steep increases, rents in Portland have flatlined, making multifamily development less enticing. Average rent for a two-bedroom Portland apartment was down 0.1 percent in February compared to a year ago to $1,330, according to an Apartment List report.

Rents nationally grew 1.7 percent during the same period, led by Phoenix (3.5 percent), Austin, Texas, (3.4 percent) and Charlotte, North Carolina (2.5), Apartment List reported.

Developers have reacted by diversifying their portfolios by product type and geography. Capstone is one developer that has looked to the suburbs, building a multifamily project in downtown Tigard.

Tigard and Beaverton have worked to attract developers including Capstone and Rembold Properties to bring urban-style projects to the suburbs.

“It’s been a strategic focus of those municipalities to activate their urban cores, and part of that is bringing households to the urban cores,” Nelson said.

Otherwise, Capstone has largely stepped back from multifamily development, instead building industrial facilities for Amazon and other users, and some office spaces.

Policymakers and developers are evaluating the city’s inclusionary housing policy. In the past three years, the city has permitted or is in process to permit at least 601 units from 91 projects. The City Council softened certain requirements, but developers have called for further changes.

Other regulations have added costs, developers said. A requirement for bird-safe window glazing in the Central City has dented project pro formas. For one Mill Creek project, the cost for the window package almost doubled, from $500,000 to $900,000, because of bird-safe glazing, Rodriguez said.

“Things like that are just making it more difficult,” he said.

Portland multifamily permits

Apartments/condominiums in projects with three or more units

2019: 4,634

2018: 4,887

2017: 5,993

2016: 4,149

2015: 4,582

2014: 4,344

2013: 2,763

2012: 1,835

2011: 900

2010: 638

Source: Bureau of Development Services

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A long-awaited hotel project is continuing to advance, with a public hearing before the Beaverton Planning Commission scheduled for Wednesday.

Commissioners will consider a request for design review for the proposed five-story, 121-room hotel on the Westgate property near Beaverton City Hall, at the southwest corner of the intersection of Southwest Rose Biggi Avenue and Crescent Street. The project’s designer is Arris Studio Architects.

The developer, Canterbury Hotel Group, previously told the city it hopes to ink an agreement with Hyatt to use the Hyatt House brand. The hotel will be managed by InterMountain Management.

The Beaverton City Council in December 2017 approved a with Canterbury. The city, which bought the property in 2005 for $4.9 million, gave it to Canterbury for no charge.

Design and construction are estimated to cost $23.5 million. Deacon Corp. will serve as general contractor.

According to the development agreement, the hotel will be a “five-story, high-quality, upscale lodging facility of approximately 120 rooms.” Amenities will include a “spacious lobby, lobby bar, fitness facility, business center, sundry shop, guest laundry facilities, boardroom, and an outdoor terrace with a swimming pool.”

A 3,000-square-foot restaurant space is planned on the ground floor, but a tenant has not been announced yet.

The city has been trying to develop the Westgate property, formerly home of the Westgate Theatre, for several years now as part of the Creekside District Master Plan. A 2015 development agreement with Rembold Properties to construct a two-building, 230-unit mixed-use development, a new hotel and a possible arts center on the property fizzled when Rembold backed out of the hotel portion in 2016. This forced the city to issue a second RFQ. Rembold, however, went on to develop the mixed-use project, The Rise Central; construction began in summer 2017 and is expected to finish this winter.

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After years of false starts and setbacks, Beaverton may finally get the downtown hotel that city officials have long sought to attract.

The Beaverton City Council has approved a development agreement with Portland developer Canterbury Hotel Group to build a five-story, 120-room hotel on the Westgate property near City Hall.

Beaverton is heavily subsidizing the deal. The city will hand over the property to Canterbury, even though the city paid $4.9 million for it in 2005. Beaverton also agreed to waive $150,000 in development fees.

Tyler Ryerson, Beaverton’s senior development project manager, defended the agreement, saying providing the property for free is necessary to get the hotel built.

“For what we’re requiring for the development, they need assistance,” he said. “There’s a (financial) gap there.”

A residual land value appraisal put the parcel’s worth at $0, Ryerson said.

The council approved the development agreement by a 4-1 vote on Dec. 12.

“The city is really carrying the burden of the financing,” said Councilor Betty Bode, who cast the sole dissenting vote.

The project is part of what Beaverton officials hope will be a wave of development downtown. Rembold Properties‘ The Rise Central – a mixed-use development featuring 230 apartments – is being built on a neighboring parcel.

“One of the processes that we’ve been going through is to figure out how downtown Beaverton is going to go and redevelop,” Ryerson said. “It’s been pretty difficult to get redevelopment to get started and we haven’t really had much before these last couple of years.”

Mayor Denny Doyle described the hotel project as a “dynamite shot in the arm” for downtown Beaverton.

“It’s just overwhelmingly cool to see this actually, most likely, almost positively going to happen,” he said.

Design and construction of the hotel are estimated to cost $23.5 million. Once operational, the hotel is projected to generate annual property tax revenues of $275,000, and $300,000 in lodgers’ tax, according to city estimates.

The hotel will be managed by InterMountain Management. Deacon Corp. will serve as general contractor. Construction is projected to begin in October 2018.

Canterbury is pursuing an agreement with Hyatt House to use the brand, city officials said.

Canterbury will also seek a $500,000 transit-oriented development grant from Metro, Ryerson said. The hotel parcel is close to MAX light-rail service.

Led by CEO Arvind Patel, Canterbury has at least nine hotels in Oregon, including five near Portland International Airport. The company did not respond to a message seeking comment.

Beaverton officials are eager to attract a local chef to open a high-end restaurant in the hotel. Bode criticized the deal because a restaurant tenant is not in place.

“If this is going to be such a hot deal, we should have a restaurateur who wants to participate,” she said.

Restaurant tenants often don’t want to commit until a building is closer to completion, Ryerson said.

The development agreement caps a long journey for Beaverton. City officials have sought to attract a hotel since a study found a need for more hotel rooms. In 2016, the city entered into negotiations with O’Reilly Hospitality Management of Springfield, Missouri, to develop a hotel on the parcel at The Round. O’Reilly opted not to move forward with the project after a six-month study period, prompting the city of Beaverton to again issue a request for qualifications.

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