In another sign that Portland’s long real estate and construction boom is slowing, an ambitious plan to build more than 1,100 apartment units in the Lloyd District has quietly died.
The lender to the project known as 1400 Multnomah pulled the plug in late October claiming that developers Bob Bisno and Dan Palmer’s operating company had stopped making payments on their loan.
“Borrower is in default and appears to be insolvent,” the lender claimed in a lawsuit filed in October. “The real property, plaintiff’s collateral, is adrift.”
The suit alleges that the Santa Monica-based developers blew through $31 million and never got a single apartment built.
Few predicted this kind of disaster when Bisno and Palmer first came to town in 2016. Oregon had boasted some of the best job growth in the country, which fueled a surge of new arrivals and a housing shortage. An unprecedented explosion of high-end apartment construction followed, reshaping Portland’s skyline.
In 2011, only 445 new apartments came to market in the entire Portland Metro area. Three years later, the number had jumped nearly ten-fold to 4,367, according to the CoStar Group, a leading provider of real estate data and analytics. The frenzy peaked in 2018, when the number of new apartments reached 6,059. This year will not be far behind.
In all, more than 31,000 new apartment units were built in the Portland metro area over the last six years.
Until now, there’s been sufficient demand in the market to absorb the flood of new rentals. That may be changing, said Mark Barry, who for years has published a newsletter tracking the Portland apartment market. He pointed to predictions that the supply of new units will exceed demand for the next two years.
“We’ve never seen this kind of boom before,” he said. “Anybody betting against the Portland market has been wrong. But inevitably the pendulum is going to begin swinging back.”
What exactly happened to 1400 Multnomah is likely more complicated than just the changes in the economy. Greg Frick, a partner at HFO Real Estate Investments in Portland, points out that the developers got final approval from the Portland Design Commission in 2016, three years before the market showed any sign of weakening.
And yet, construction never began.
Bisno declined to comment citing the litigation. Similarly, the lender, and its local lawyer, Douglas Pahl, did not return phone calls or emails.
Four years ago, the developers seemed to have all the ingredients: the land, the plan and the capital. They paid $22 million for nearly five acres across the street from Lloyd Center mall. The site is currently the parking lot of the Regal Lloyd Center multiplex.
They also hired well-connected locals– Holst Architecture and Hoffman Construction — to plan, design and build the project, which included nearly 700 new apartments in two separate buildings.
They also got the backing of a high-profile lender that has since become an important player in Portland. An affiliate company of Mosaic Real Estate Investors agreed to loan $30 million to the developers’ operating company.
Mosaic is part bank, part investment fund. The firm was founded by Ethan Penner, a legendary and controversial figure on Wall Street, credited with creating entirely new niches in the finance industry.
The Lloyd District project is not Mosaic’s only Portland deal. Penner’s company landed one of the largest real estate development loans in the city’s history when it agreed to bankroll developer Walt Bowen’s planned 35-story downtown tower that will house a Ritz Carlton hotel. According to financial documents obtained by The Oregonian/OregonLive, Mosaic will loan more than $400 million to the project, which broke ground last summer at the block bounded by Southwest 9th Avenue and Alder Street.
But the big-name lender made little difference to 1400 Multnomah. The property sat idle for month after month.
Undeterred, the developers announced phase two of the project even though little if any construction had started on phase one.
Bisno and Palmer said they intended to buy additional property at the site that would allow them to build another 400 units. The developers said they would buy the Regal Lloyd Center movie theater and demolish it.
Mosaic agreed to loan the developers another $1.6 million, bringing the total to $31.6 million.
Some argue that the problem was not the economic cycle. They say it was the Lloyd District itself and the struggling mall at its heart. Unlike the Pearl District or the much younger Slabtown neighborhood in outer Northwest Portland, the Lloyd District has resisted developers’ best efforts to transform it into a hot new place to live and hang out.
American Assets Trust of San Diego in 2011 paid $92 million for 16 acres in the neighborhood. The company has built apartment buildings on the land and intends to do more, said Wade Lange, American Assets local manager.
“We’re excited about the Lloyd neighborhood and its potential for further growth,” he said. At the same time, “there are a lot of units that have been built. That’s keeping rents pretty flat. So it’s hard to make a multi-family project pencil given the higher construction costs.”
By last spring, it was all over. The developers’ company defaulted on the Mosaic loan in April, the lender claimed. Bisno and Palmer tried to bail out gracefully. They hired CBRE Group’s Portland office to sell the land. Their asking price: $22 million.
There were no takers.
Mosaic sued the developers’ company in October claiming it had defaulted on its $31 million loan. With penalties and other fees, the total due is now $36 million, the lender added.
In early November, a Multnomah County judge ruled for Mosaic and put the property in the hands of a receiver.
