$3 million for Homer might be a good deal, after all

I was prepared to be offended at the City of Portland paying $3 million for development rights that its appraiser now says are worth only $1.5 million (see the Oregonian's story here, and Jack Bog's post and readers' comments on the topic, here), until I crunched some numbers.  First, the background.  The City agreed to pay a company controlled by Homer Williams $3 million for the right to build 400 units of affordable housing on top of a two-block parking garage that OHSU is going to build in North Macadam / South Waterfront.  After the City agreed to pay $3 million, the City's appraiser said the development rights are worth only $1.5 million.

I'm not so sure it's a bad deal for the City.  In fact, I think the City could make it a good deal, in either of two ways. 

First, the number-crunching.  In evaluating multi-family land, the important number is the price per unit.  If the City can build 400 units here, and if there are no hidden costs (a big "if"), then this works out to a land (air) cost of $7500 per unit, which is at the low end of what people are paying for apartment sites in Portland.  The City may have got a good deal out of this, even if it wasn't intentional.

What, then, should the City do with its good fortune?  One answer is to sell the development rights (on the open market, please) and let the buyer build unaffordable housing above the OHSU garage.  The City might be able to get $20,000 or $25,000 a unit for the development rights and actually turn a profit on the deal in the range of $4 million or more, which the City could use to provide affordable housing somewhere else.

As an alternative, the City now has an affordable way to diversify the impact of social services that until now have landed hard on the Buckman neighborhood.  It's apparent to anyone who passes by Pioneer Square that our city has a fair number of homeless people on the streets, who seem to spend their time on and around the bus mall.  As the trolley will connect South Waterfront to the bus mall, this is a logical place to build a homeless shelter and transitional housing.  It's been surmised that some of the street people are there because of drug problems, and as the tram will connect the area to treatment facilities at OHSU, it's doubly logical to use these two blocks to provide social services in the form of housing.  I'm realistic and politically incorrect enough to point out that the concentrated presence of social services on these two blocks will help to make the housing across the street more affordable, also.

Comments

[Jack Bog]

They need a methadone clinic down there, too, right across from Sharon's office. Go by streetcar!

[Randy Leonard]

I've been wrong before.

[Isaac Laquedem]

Commissioner, it's not to say that I support the City paying too much for something (unless it's buying the something from me), but that the value may actually be there. I think it would be difficult for an appraiser to value the air rights above a garage that hasn't been built yet, in a neighborhood that hasn't been developed yet, and the opinions of several appraisers could be all over the map on this one. It's a much more difficult assignment than valuing a house in a subdivision that looks more or less like all the other houses in the subdivision, where there are 5 or 10 sales a year to use as comparisons.

[Randy Leonard]

Issac-
Actually, I was more endorsing your creative suggestion of locating services that are currently concentrated within the Buckman neighborhood to South Waterfront than I was reconsidering my vote against this deal.