Wave of national investors arrives in Portland arena
New players view local real estate market as safe, steady
August 31, 2007
Melody Finnemore
Portland Business Journal
The last couple of years has seen some huge deals in Portland real estate -- led by sales of KOIN Center, U.S. Bancorp Tower and the Brewery Blocks, as well as the 46-property portfolio of local buildings formerly owned by Blackstone.
Those four deals in particular have something in common: They all brought new national investors to the Portland market, seemingly raising Portland's profile in the nation's commercial real estate marketplace.
Local brokers said large, national firms have long looked favorably upon Portland, but interest from such institutional investors has reached new highs during the last couple years.
"In the last 12 to 18 months, it has increased dramatically. You can easily look at the properties that have changed hands in the last year or year and a half and see that," said Buzz Ellis, a principal at Pacific Real Estate Partners.
"A lot of it has to do with the price per square foot and what it costs to own real estate in Portland," Ellis added. "A lot of these funds have been buying in larger cities like New York, Los Angeles or Seattle, and as those markets began to strengthen their price appreciation was fairly high. So, when those fund managers look in Portland, our price per square foot looks pretty good."
The wave of new owners includes Shorenstein Properties, which spent $1 billion buying Blackstone's 4 million-square-foot local portfolio, perhaps better known as the Equity Office Properties portfolio, since EOP assembled it over years.
KOIN Center landed in the lap of the California Public Employees' Retirement System, at a cost of $108 million. CalPERS itself isn't so new to the market -- it owns Bridgeport Village and has stakes in other Portland properties -- but its real estate representative, CommonWealth Partners LLC, is new here. Los Angeles-based CommonWealth chose KOIN as a CalPERS investment, negotiated the deal and is managing the property.
JPMorgan Asset Management arrived in the city last year, leading institutional investors that paid $280 million for a majority stake in the bank tower; JPMorgan and its institutional investors upped that expenditure this year, paying $292 million for the Brewery Blocks.
"One of the things we liked about Portland is that it tends not to get overbuilt and it's a stable, steady market that doesn't experience the same kind of ups and downs as a San Francisco or even a Seattle," said Andy Friedman, managing director of Shorenstein's Capital Transaction Group. "This was an opportunity to buy a portfolio with a diverse tenant roster in a market that has good supply constraint, a high quality of life, a talented work force and a low cost of living."
The San Francisco firm's purchase of the former EOP assets included downtown Portland's Congress Center and Umpqua Bank Plaza, as well as Kruse Way properties and three development parcels that could support an additional 550,000 square feet of office space. Shorenstein plans to break ground in September on a 15-story downtown building at Southwest First Avenue and Main Street, implementing EOP's original plans. Shorenstein will also build one or two new office buildings along Kruse Way.
Friedman said purchasing the Portland portfolio capped years of monitoring the Rose City as it evolved from a tertiary market into an increasingly profitable secondary sector.
Jennifer Medak, associate vice president for Norris Beggs & Simpson, said the number of Portland properties up for grabs adds to the attraction.
"There's been a lot of money spent as companies try to buy their way into the market, mostly because the closest markets -- Seattle and San Francisco -- don't have very many properties available. Portland is a good way to foray into the West Coast market," Medak said.
Innovative properties such as the Brewery Blocks, along with Portland's emphasis on sustainable development and livability, further enhance the city's marketability, according to Lana Baldock, a senior director of Cushman & Wakefield's office brokerage team.
"Portland really has the right dynamic," Baldock said. "It's a national model for transportation, we have the urban growth boundary, we have a strong work force, and we have affordable housing. All of those quality-of-life things have put Portland on the map."
Medak agreed, noting it may be several years before property owners begin to reap the economic rewards of green building, but the movement already is a key selling point.
The growing presence of national institutional investors in Portland means it has become more difficult for local players to compete in the market, not only in terms of investment opportunities but also the chance to manage those properties.
"If you have national companies buying properties, they have relationships with the national management companies so it makes sense for them to hire those companies to manage their Portland properties as well," Baldock said.
Shorenstein Properties plans to take a different approach, according to Gregg Meyer, senior vice president of asset management. The management team for its Portland portfolio includes former Equity Office Properties staffers, who are located near the properties they supervise.
"That gives us an opportunity to be close to the tenants we rely upon to fill our office space and create a more robust management style," Meyer said.
As more national institutional investors buy Portland-area properties, most agreed, rental rates are likely to rise. Tom Fellman, first vice president at CB Richard Ellis, said the increases are likely but still will not mirror national levels.
"The negative for investors is that we don't have the huge increases in rent and our growth is slower. On the other hand, we don't have the busts they see in San Francisco or Seattle," Fellman said.
"Everybody nationally likes to look at this market because it's a very steady, stable market. The appreciation may not be what it has been the last 10 or 12 years, but it's still a very safe market. That's the tradeoff." |
