A small thought on the PDC and Third and Oak

Today’s Oregonian brought an opinion piece by Randy Gragg on the Portland Development Commission and the Third and Oak property controversy.  Commissioner Leonard responded to it on BlueOregon (here), and Professor Bogdanski picks up on the story here.

Some background for the politically unconnected:  Before the agency moved to the Blairishly-named Justice Center, the Portland police bureau occupied a block at Southwest Third Avenue and Oak Street.  One quarter of the block was a stately building of some distinction.  Two undistinguished annexes took up the remaining three quarters of the block.  When the Police Bureau moved to the Justice Center, the block became surplus property.  A local developer and attorney, Robert Stoll, took on the stately building and renovated it into fine office space.  The developer built housing on the north half of the block.  The southwest quarter, which had served as the police garage, remained unused. 

The developer didn’t do anything with the quarter block and eventually Robert Scanlan, a prominent and experienced real estate developer, bought it.  (Mr. Gragg says that Mr. Scanlan paid $650,000 for the site, and that, "despite years of trying, couldn’t make a project pencil out.")  The reason, Mr. Gragg implies, is that whoever builds on the property has to provide 91 underground parking spaces for Mr. Stoll’s housing project next door, at no charge, and it would cost $50,000 per space, or $4.55 million total, to build that parking.

Later, PDC paid about $1.1 million for the property and offered it to developers.  Another developer, Trammell Crow, was interested in the site.  PDC was willing to have Trammell Crow develop the site and obtained an appraisal, with instructions apparently written by Trammell Crow, This appraisal said the property was worth $2.7 million below zero — less than nothing — because of the restrictions on development and the requirement to provide parking for the apartments next door.  Therefore PDC could reasonably give the property to Trammell Crow.

Should we worry about this nearly $4 million swing in value?  No, says Mr. Gragg: in his words, "PDC probably overpaid for the land in 2002.  But the use of the rather routine real estate technique of a negative valuation for subsidy and lending is hardly worthy of a city commissioner’s worry, much less an argument for major reform."

Mr. Gragg is wrong.  The city councilors are charged with watching the city’s assets, and Commissioner Leonard is quite right to inquire into why the PDC says that land that it thought was worth more than $1 million four years ago was worth negative $2.7 million in 2006.  (In fact, the mayor and the other three councilors ought to have the same concern as they all have the same responsibility to the taxpayers.)

What, then, should the City do with the Third and Oak property?  One possibility, if PDC is intent on giving it away, is to advertise for proposals along the lines of "if we give you this property, what will you build?" and then invite bids.  A second possibility is for PDC to condemn the right of the adjoining owner to have the 91 underground spaces and pay to remove the parking requirement.  PDC would then have an unrestricted parcel which would be much more appealing to a developer.  Third is to look for a project that’s less ambitious than another condominium tower: perhaps some ground floor retail, two floors of parking below ground (which could be built for much less than $50,000/space if the apartment owner will provide access through the existing parking to the north), and four or five floors of apartments above.

More generally, who should run PDC, the independent board or the city council?  I have some thought on the point, which I may post later.  For now it’s enough to note that PDC has run off the rails, and until it’s back on track Mr. Gragg is off base in complaining that the City Council wants to get into the locomotive.