Andrew Neilly
Gallen.Neilly & Associates
PH: 925/930-9848

Office space - Shorenstein Properties' downtown Portland project breaks a seven-year drought in high-rise construction
Thursday, April 19, 2007
DYLAN RIVERA
The Oregonian

A family-run San Francisco real estate giant that recently bought its way to the top of Portland's office market intends to start construction by the end of the year on downtown's first high-rise office tower since 2000.

Shorenstein Properties also will start planning the final two office buildings in the Kruse Way office corridor, where rents and tenant demand are the strongest in the region.

Doug Shorenstein, chairman and chief executive, disclosed those plans Wednesday as he introduced his company to Portland-area real estate and business leaders. In the largest commercial real estate deal in Oregon history, his company last month paid $1.13 billion for 46 buildings and three development sites -- equivalent to the dollar volume of about five years' worth of typical Portland-area office transactions.

Shorenstein said the company would begin the downtown project even without securing an anchor tenant for the building. That represents a reversal from a prior owner, Equity Office Properties Trust, which had insisted it would not start construction without significant lease commitments.

It also places Shorenstein in a contest with Portland's Tom Moyer, who earlier this year said he would soon build an office tower without the financial security that comes with pre-leasing commitments.

"The empirical evidence, with low vacancy rates and existing job growth, justifies the need for additional space two years out," Shorenstein said Wednesday.

Shorenstein Properties owns 25 million square feet of space in 11 metro areas across the nation, including Seattle and San Francisco. It has studied Portland for many years and was attracted to the region's moderate job growth and "reasonable" growth restrictions, which curb competition among commercial real estate developers, Shorenstein said.

The company typically holds and manages buildings for 10 to 20 years, Shorenstein told a sold-out breakfast gathering of the Commercial Association of Realtors Oregon/Southwest Washington. The company borrowed about 65 percent of the Portland purchase price, a relatively low fraction of debt.

The Shorenstein family put about $100 million of its own money in the deal, making it the second-largest stakeholder after the Yale University endowment.

With the purchase, the company obtained buildings that comprise 85 percent of the Kruse Way office market, where rents are among the highest in the region at more than $30 a square foot, Shorenstein said. The company's two development sites are the last in the corridor, he said.

He set no date for development. Potential development sites in Johns Landing and the Washington Square area would require more study, Shorenstein said.

The company's long-term holding period and community involvement won accolades from the Portland real estate community Wednesday.

"They have a long track record, they care about their tenants and the community that they're in," said Jordan Schnitzer, president of Harsch Investment Properties, a commercial development firm.

Other development firms said they welcomed the competition.

Vanessa Sturgeon, president of Tom Moyer's TMT Development, said Moyer would not be deterred by Shorenstein's intent to build.

"Tom Moyer develops for the long term, and there's always going to be competition in a market and there's nothing wrong with positive, healthy competition," Sturgeon said. "But Tom Moyer's a Portland man, TMT's a Portland firm and if history is any indicator, we deliver what's right for the Portland market."

Moyer personally financed construction of the Fox Tower, which opened in 2000 with 93 percent occupancy.
Known as First and Main, Shorenstein's downtown project would rise next to the Justice Center downtown, at the west end of the Hawthorne Bridge.

The project became controversial last year, when Multnomah County said it intended to build a courthouse there, and threatened to condemn the site, although the county did not have funding for the project.

Doug Butler, facilities director for Multnomah County, said Shorenstein officials had met with him to discuss their plans. Butler said he hopes a tunnel can be built during the office tower's construction that could allow for a secure, underground connection from the Justice Center to a future courthouse east of the First and Main site.

Shorenstein is "open to discussion to help any way we can," to facilitate the county's plans, said Charles Malet, executive vice president and director of leasing and asset management for Shorenstein.

Shorenstein bought the portfolio from The Blackstone Group, which bought Equity Office for $39 billion in what was the largest leveraged buyout in U.S history when it closed in mid-February.

Within days of the closing, Blackstone sold off multibillion-dollar pieces of the Equity Office empire from Boston to Seattle.