Oil plan prompts waterfront worries

Safety concerns could scare off financing, tenants says project developer

By Cami Joner, Columbian retail & real estate reporter

Published:

 
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A real estate developer charged with remaking Vancouver's waterfront is warning that safety concerns surrounding a proposed oil terminal at the Port of Vancouver might make it tougher for him to pull off the showcase project that has attracted millions of dollars in public investment.

Barry Cain, president of Tualatin, Ore.-based Gramor Development, said he could have trouble getting financing for his company's long-planned waterfront development of housing high-rises, parklands, shops and offices. Cain said the proposed terminal, about three miles downriver from the development site, adds a new element of financial risk — from both real and perceived safety issues — to the $1.3 billion redevelopment.

If it came to a choice between the oil terminal and reconnecting Vancouver to its waterfront, Cain believes the city should favor revitalizing the former Boise Cascade paper mill site.

"I can tell you the economic benefit from the waterfront (project) dwarfs any economic benefit the city would have by having the oil terminal," Cain told The Columbian. "If the oil terminal would negatively affect the development, then it shouldn't go forward. Most people wouldn't want to take a chance on that."

No matter what happens with the oil terminal, Cain and project investors face serious financial pressure with a signed deal to redevelop Vancouver's waterfront. Developers from Columbia Waterfront LLC agreed to pay $8 million of the city's nearly completed $45 million project to build access to the site. Payments of $350,000 are due every year. A $5.8 million lump sum is due in 2015, said Matt Ransom, project development and policy manager for the city.

Political and economic development leaders don't foresee an "either-or" decision.

"We have to work together to balance those different aspects of our community," said Vancouver Mayor Tim Leavitt, who describes Vancouver's waterfront redevelopment as one of the keys to Vancouver's future identity.

Lisa Nisenfeld, president of the Columbia River Economic Development Council, sees no fundamental conflict.

"We have to balance all the elements for prosperity as well as preserving the environment for our grandchildren," she said.

Accident raises concerns

Cain first raised the issue at a Port of Vancouver public hearing, saying his project's financing could be compromised by safety concerns over trains carrying up to 380,000 barrels of crude oil on tracks that pass the site daily. His public comments came on the heels of a July 6 oil train derailment and explosion in Lac-Megantic, Quebec that killed 47 people.

Such incidents could raise questions among his project's investors and its potential residents, said Cain. Others raised similar issues and additional concerns about the potential for compromised air quality, oil spills, and climate change impacts. But the three-member commission nevertheless approved the oil terminal project. The Tesoro-Savage proposal next must undergo an examination by the state Energy Facility Site Evaluation Council, which would make a recommendation to Gov. Jay Inslee, who has final say.

Others besides Cain see a potential conflict between the proposed oil terminal and Vancouver's urban future. A recent letter from Hood River, Ore.-based environmental group Columbia Riverkeeper implored the port to track investigations into the Lac-Megantic explosion, fueled by trains carrying Bakken oil.

Experts say crude from the Bakken formation contains an extremely high content of hydrogen sulfide vapor, creating the threat of explosion. The chemical makeup of Bakken crude oil also could be a detriment to development due to emissions with the odor of rotten eggs, said the July 22 letter, signed by the organization's attorney, Lauren Goldberg.

"Hydrogen sulfide air emissions during even regular operations present very significant potential impacts to public health and safety as well as the planned development on the Vancouver waterfront," Goldberg said.

Will Macht, a Vancouver resident and adjunct professor of urban planning and development at Portland State University, also shares Cain's suspicion that the proposed oil terminal will be an obstacle to development.

Macht said he couldn't imagine Portland's leadership allowing a project like the oil terminal to site near upscale residential development along the Willamette River.

"Suppose you were trying to develop downtown Portland's South Waterfront or RiverPlace where the Pearl (District) meets the river and the Port of Portland made a decision to put coal or oil trains running next to the river," Macht said. "That would kill the project."

Macht has a keen interest in the waterfront project, having worked with graduate students who crafted mock plans to redevelop the former Boise site.

"This is the only chance Vancouver will have to get its downtown right on the riverfront," he said. "If the Port of Vancouver screws it up by putting oil trains in, they're going to kill the baby that Barry Cain is trying to give birth to and raise on the river."

On the other side, Ed Lynch, a longtime Vancouver business leader and philanthropist who was an early backer of the waterfront redevelopment, said he doesn't agree with Cain's assessment that oil trains will make the site less appealing for residents.

"If I was contemplating a (waterfront) condo, it wouldn't change my mind one iota," said Lynch, a retired executive of Kiewit Pacific Co. in Vancouver. "The trains go by and that's part of the deal."

Huge public investment

Cain is the lead spokesman for a group of local investors under the name Columbia Waterfront LLC who paid $19 million for the 32-acre former mill site in 2009. The group consists of Gramor and four local investors: Steve Oliva, Allan Kirkwood and Steve Hansen of Clark County and George Diamond of Portland. Investors want the waterfront project, which offers spectacular river views, to be "a place where everybody wants to be," said Cain.

Their project will eventually include 22 blocks of development focused on reconnecting downtown Vancouver to the Columbia River.

Those plans have been heartily supported by $45 million in city, state and federal funding to create new roads and infrastructure to serve the property.

Developers in return agreed to provide at least 2,500 apartment and condominium units, 400,000 square feet of office space and 100,000 square feet for shops and restaurants. They must also provide 10 acres for parks, extend the waterfront trail through the site and install streets, sidewalks and utilities, an estimated $34 million worth of work developers must deed to the city upon completion.

In its written agreement with the city, the development group agreed to begin street construction, secure permits and make the final, $5.8 million balloon payment by 2015. It's that looming deadline, some believe, that is grounds for more concern to developers than the presence of oil transport trains.

And the project will only advance if people want to live and work there.

"It's demand, not a train going by" that will determine the waterfront project's viability, said Eric Fuller, a Vancouver broker and president of Eric Fuller & Associates commercial real estate firm.

"When there's demand, lenders trip all over themselves to lend money," he said.

Fuller thinks Cain's points about perceived safety hazards are valid, but believes that, in the end, any potential conflicts can be resolved.

"I think his questions will be answered in the positive," he said.

Some lenders said they never let up on residential project funding, even during the recession, although certain housing markets remain stronger than others. Apartment building is most active, said Rich Hubbard, senior vice president of Wells Fargo's commercial real estate office in Portland.

"But we've not considered a condo-for-sale project for quite a while in this market," he said.

Safety 'our first concern'

Jointly proposed by San Antonio, Texas-based Tesoro Corp. and Salt Lake City-based Savage Companies, the oil terminal would generate $4.5 million in annual lease payments to the port, for a total of $45 million over the 10-year term. The companies have said their proposal would generate an estimated 250 temporary construction jobs and up to 120 full-time positions at the terminal, which would receive trains with oil from North Dakota's Bakken shale formation. The facility would store oil for shipment to U.S. refineries.

Nisenfeld, the CREDC president, reasoned that another local port would get the construction jobs, permanent jobs and revenue of building and operating the terminal if Vancouver's port had voted it down.

"There's nothing the Port of Vancouver can do about whether the oil trains pass by the waterfront," she said. "The BNSF (Railway) controls those lines and they will be optimizing their investments as more and more (oil) shipments go to Asia."

A port spokeswoman said the port has supported waterfront redevelopment by changing railroad movement through the area as the first phase of a $275 million rail access project. Shifting the railroad's westbound entrance into the port allowed the city to build underpass routes to the waterfront at Esther and Grant streets to open the former mill site for development.

"We built our new entrance early and that freed up the Boise Cascade site's sale to occur," said Theresa Wagner, a Port of Vancouver spokeswoman.

Wagner said public safety will be the port's first priority when trains begin transporting oil into the facility proposed by Tesoro and Savage.

"The tragedy in Quebec is a clear example of why safety will be our first concern," she said. "That's one of the reasons we chose Tesoro-Savage was their record of safety."

But those records are far from perfect, according to federal records that rank Tesoro as one of the nation's top 50 toxic-air polluters. Data shows the company paid $1.1 million to resolve more than 4,000 Clean Air Act violations at refineries in Washington and three other states, the largest penalty of this type in the 40-year history of the EPA's clean fuels program.

In 2010, an explosion killed seven people at Tesoro's petroleum refinery in Anacortes. Tesoro received a $2.39 million fine -- the largest ever assessed by the Washington State Department of Labor & Industries -- following a state investigation. Saying the blast was entirely preventable, L&I cited Tesoro for 39 "willful" violations and five "serious" violations of state workplace safety and health regulations.

Port officials point out that Salt Lake City-based Savage Companies was voted one of the 10 safest companies in America by the EHS Journal, an online magazine designed for environmental, health and safety professionals. The privately owned supply-chain management company will oversee the proposed oil facility's operation.

Avoiding a showdown

Clearly, community leaders want to avoid any political showdown that would pit the waterfront project against the oil terminal.

Leavitt noted that while ports and oil bring jobs, condos and waterfront parks create the image of vitality Vancouver's leaders have long craved. He expects the city to take part in the process of analyzing the oil terminal project.

"We'll weigh in during the environmental review process," he said, adding, "but we (the city) are not the organization that issues the lease or gives the final yes or no to the project. That's the state."

Cain welcomes working with the city to address concerns about the proposed oil terminal.

"I really can't say at this point what we'll do. It's something we need to work on with the city," he said.

"We're putting a lot of effort into trying to make downtown into the livable place we want it to be, and that should be the first criteria we all think about when it comes to jobs at the port."