5 MLK stands a muscular 17 stories on a full block at the Burnside bridgehead, making the audacious statement that business can be done just as well in Portland’s close-in Eastside as it can across the river in downtown.

Designed by Chicago’s GREC Architects with nods to neighbors such as the looming Yard building, 5 MLK was a $110 million bet by The Green Cities Co. on Portland’s once-soaring commercial real estate market. The building is stuffed with amenities for office tenants, including high-tech air circulation that can be segregated from residential units, private outdoor terraces and a sprawling gym.

What 5 MLK does not have is an office tenant. The gleaming new building has 120,400 square feet of newly constructed Class-A office space – every bit of it vacant. For now, the owners are missing out on about $4 million a year that the office space on floors two through six would bring when fully leased.

The tower is one of many new office buildings that have run headlong into a global pandemic, an unforeseeable event that has frozen commercial real estate. How projects like 5 MLK bounce back from the pandemic will have a significant impact on Portland’s overall economic recovery.

“We have a large inventory of space (in Portland),” said Kelly Saito, one of four managing partners at The Green Cities Co., which formerly was the investment arm of local developer Gerding Edlen. “There were new deliveries before us which maybe paved the way for establishing the newest generation of new buildings within the city.”

Many projects to renovate existing buildings have made some older products more competitive with new office space.

“Over the same period of time, we had a number of the existing (Class) A-B buildings downtown that have been repositioned, renovated, had amenities put in,” Saito said. “So on top of the new construction, there’s a fair amount of inventory of existing space that’s been renovated or is being renovated.”

Since the pandemic emerged a year ago, there has been very little leasing activity in Portland as office tenants waited to make any major decisions. 5 MLK received its first temporary certificate of occupancy in September.

(5 MLK, a mixed-use building, also has 220 apartments that last week were 16 percent leased as well as 14,000 square feet of retail space. An underground garage has approximately 158 parking spaces.)

Total office vacancy in Portland rose to 15.3 percent in 2020, up from 12.3 percent a year earlier and the highest mark since 2010, according to JLL. Average asking rates slipped slightly to $33.61 per square foot.

Saito said asking rents at 5 MLK are in the “mid-$30s” per square foot on a triple-net basis. Apex Real Estate Partners is representing the space.

Before the pandemic, developers largely agreed that the dream of the 2020s was alive in Portland. In-migration boomed in recent years as Seattle and Silicon Valley tech companies relocated or expanded in the more affordable Silicon Forest. That changed in 2020, when net migration fell to about half of its 2016-17 peak, according to the Oregon Office of Economic Analysis.

Commercial real estate experts are watching for any signs of the market emerging from the pandemic. The effects of the pandemic are hard to overstate: Actual physical occupancy of U.S. offices fell to 17.6 percent on average, according to JLL, as workers stayed home in droves.

Companies such as Facebook have signed major leases in cities such as New York and Chicago, while also rolling out accommodating work-from-home policies. That’s drawn questions about how resilient the office market will be in 2021 and years to come.

It’s not yet clear what the new normal looks like, Saito said.

“Clearly, there’s downward pressure in general given both inventory and where demand has fallen to,” he said. “And demand has diminished in the short term, for sure. That’s directly related to working from home. There’s no question that when things return to normal, that normal will be different to some extent – and there’s a lot of projections being made about what that might look like.”

While questions remain about the future of office space, the sector may be buoyed by a broad economic recovery. Many economists are forecasting a strong rebound as the U.S. emerges from pandemic-related shutdowns in an atmosphere of low interest rates and pent-up consumer savings. Wall Street titan Goldman Sachs, for example, earlier this month raised its forecast for U.S. GDP growth to 6.8 percent in 2021.

That should trickle down to office demand, said Ryan Severino, JLL’s chief economist.

“As the economy bounces back, you should see a commensurate change in demand as well,” he said during a Feb. 11 webinar.

Physical occupancy should also come back to near pre-pandemic levels, Severino said.

“We reasonably expect that by the end of the year, the majority (of) people would be back in an office space,” he said. “Remote work is going to expand, but we don’t see this as being the death knell for office and the demand for office space. Employees do want to be in an office.”

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What was once Gerding Edlen is moving into the future with a new name and a reorganized corporate structure.

One of Portland’s most prominent development firms has shed co-founder Bob Gerding’s name to become Edlen & Co.

At the same time, the investment management part of the firm, which became independent last year, has rebranded as The Green Cities Co.

“It’s kind of a natural transition,” said Mark Edlen, who co-founded Gerding Edlen and now Edlen & Co.

Here’s how the corporate reorganization breaks down:

The Green Cities Co.

What is now The Green Cities Co. traces its history to 2009, when Gerding Edlen founded Gerding Edlen Investment Management. The investment company owns and manages real estate and invests of behalf of institutional partners.

It quickly grew, establishing significant footprints in Boston, Chicago and the San Francisco Bay Area, in addition to Portland. (Holdings in Los Angeles and Seattle have been sold).

Green Cities has $2.7 billion in assets under management, said Molly Bordonaro, one of four managing partners.

In April 2020, Bordonaro and three other managing partners – Kelly Saito, Brent Gaulke and Patrick Wilde – bought out Mark Edlen and Roger Krage. The move made the investment management company independent of Gerding Edlen, and kept the investment company in local hands instead of an outside third party’s.

“It’s the best thing to create alignment with our investors and create greater value moving forward,” Bordonaro said.

Commercial real estate has absorbed a major blow from the COVID-19 pandemic, with rents and occupancy rates falling as office users reevaluate their needs and wait out the disruptions.

“We feel very strongly about multifamily and the markets we’re in,” Bordonaro said. “As far as office, we do believe it will take a little bit longer. But people are going to return to the office.”

Locally, Green Cities is looking to fill the office space at 5 MLK – the recently completed 17-story building that it owns through a fund. The mixed-use building has 120,400 square feet of office space, all of which is vacant. 5 MLK also has 220 apartments and 15,000 square feet of commercial space. The project is part of a boom in development at the east Burnside bridgehead that includes Yard, Sideyard and the Fair-Haired Dumbbell.

“We’re very bullish on the opportunity in that neighborhood,” Bordonaro said.

The multifamily sector has also shown resilience through the pandemic, she said.

“We’re very confident in multifamily,” she said. “And to be honest – even urban multifamily, we’ve not seen real degradation in value.”

The company will continue to focus on investments with environmental sustainability and social value, Bordonaro said. Green Cities is both a minority- and woman-owned enterprise.

Green Cities has also formed its own development and property management companies. While most employees are working remotely for now, Green Cities inherited Gerding Edlen’s former offices in the Pearl District.

“We are very confident that we’ll be able to continue to grow the firm as we have over the last 10 years,” Bordonaro said.

Edlen & Co.

Edlen & Co. is the direct descendant of Gerding Edlen, a Portland powerhouse that developed 5 MLK, Oregon Health & Science University’s Center for Health and Healing, The Ardea, Eleven West (with Downtown Development Group) and many other buildings locally and throughout the United States.

Bob Gerding, who founded the firm with Mark Edlen, died in 2009. The firm had kept the original name until announcing the change Jan. 8. The partners are Edlen, Roger Krage, Jill Sherman and Matt Edlen.

Sherman, who joined Gerding Edlen in 2003, said the company’s record of innovation remains part of its DNA.

“We’ll never forget the origins of the company, and Bob and Mark and what they founded is special and unique,” she said. “That legacy – regardless of the name – will always be our foundation.”

Gerding Edlen had long pushed projects with an affordable housing, equity and environmental sustainability ethos. Edlen & Co. is doubling down on those commitments, Mark Edlen said.

“Where I’m at in my career, I want to focus on projects that are much more community-based,” he said.

Edlen & Co. has under construction in Gateway an affordable housing project that will be completed this spring. The developer is also working on a De Paul addiction treatment center in East Portland.

A multifamily project in partnership with Albertina Kerr will have 150 units, including some for people in need of social services and others for low-income renters.

Edlen & Co. also has properties in Spokane, Washington, and Salt Lake City, Utah, and Bend that are planned as future sites for workforce or affordable housing.

The firm has “observed the divergence of haves and have-nots” grow wider in recent years, Edlen said.

“The biggest challenges cities are going to face in the next 20 years are social equity,” he said. Affordable housing “has always been a subset of the business. As I step back from day-to-day management, basically we’re trying to see if we can scale it up and serve more people.”

Edlen has long had a fascination with cutting-edge sustainable development. He serves on the board of the Bullitt Foundation, which oversees the Bullitt Center, a net-zero office building in Seattle. Edlen & Co. is now developing the PAE Living Building, which is intended to be the largest Living Building Challenge-certified structure in the world with net-zero energy, water and sewage.

Edlen & Co. plans to occupy an office in the PAE Living Building upon its completion, likely in August or September.

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