PORTLAND — While still insisting publicly that his high-stakes Ritz-Carlton development in downtown Portland is fully funded, real estate developer Walt Bowen is again fishing for dollars from local investors.
BPM Development, Bowen’s company, this week sent out invitations to various stockbrokers, money managers and other investment professionals to an online update on the Ritz project. “Join us virtually to learn about this unique OZ (opportunity zone) real estate investment opportunity,” reads an invitation.
At just about a million square feet, the Ritz will cost nearly $600 million to build, making it one of the largest and most expensive real estate developments in city history. The risk of the project has soared due to the pandemic, social unrest in downtown Portland, and the lasting effect either could have on tourism or high-end real estate.
A Bowen spokesman warned against reading too much into the resumption of fundraising. It does not, he said, mean that the project is running short of cash or that costs have been significantly higher than expected.
The new money will be used in part to build a contingency fund and to repay Bowen some of the money he’s already invested in the Ritz project, said Pat Walsh, the spokesman. Bowen has never confirmed the size of his stake. But financial documents indicate that he and his friends and family have poured at least $25 million into the 35-story building.
The new fundraising effort comes on top of a larger private equity raise that got underway last year with a target of $113 million. Walsh would not disclose whether Bowen has successfully reached that goal.
The project is located in a federal opportunity zone, which gives investors tax benefits on top of any profits the project may generate.
Bowen isn’t the only party looking for new financial partners to lessen their own risk. Mosaic Real Estate Investors, which issued an enormous $400 million construction loan for the project, is attempting to sell some of the debt owed by Bowen’s company, Walsh confirmed.
Bowen’s Ritz-Carlton was always risky. To meet profitability goals, the hotel, the condominiums and the office space will have to fetch prices never before seen in this market.
It was a gutsy bet on Portland from a more bullish era. The project that would bring the first five-star hotel to Portland was a “response to the rapid proliferation of commerce and affluence in Portland,” read one of the private placement memos.
The world, of course, has changed dramatically since groundbreaking. COVID-19 walloped the hospitality business, and it’s unclear when it will recover. Demonstrations and vandalism have convinced some merchants to shut down. Office workers are staying home. And intractable homelessness just seems to get worse.
Suddenly, the idea of selling multi-million-dollar condos at Southwest Ninth Avenue and Alder Street seems even less likely.
Brad Golik, a broker with Christie’s International Real Estate in the Pearl District, predicted the condos will be a tough sell, particularly the smaller units that are priced in the prospectus at around $1.9 million for 1,200 square feet.
“I don’t like that location,” Golik said. “You have the Target store next door and the crowd that it attracts and that city park that is fenced off and covered with graffiti.”
Betting on the Oregon “brand” is a risky act these days, said Bob Ames, a former bank president, civic leader and real estate investor in his own right.
“The fate of this project may well become a referendum on downtown Portland,” he said. “And the fate of downtown depends on leadership.”
Some business leaders have torched Mayor Ted Wheeler and other public officials for their inability to clean up downtown.
But Bowen and his people exude the unshakeable optimism characteristic of real estate developers. The building won’t be complete for another two years-plus, by which time they expect the pandemic to be a distant memory.
“Walt has zero concerns relative to the project, is optimistic about the prospects for Portland and is looking forward to its completion in 2023, when everyone fully expects life to be back to normal and thriving,” Walsh said. “The timing for this project couldn’t be more optimal.”
It’s undeniable that after a long, lucrative career in real estate and senior housing, Bowen’s resources are significant. Just last month, as he’s shepherding the $590 million Ritz project in Portland, Bowen’s company purchased the corporate headquarters buildings of PetSmart in the Phoenix area for $110 million.
Bowen has managed to eliminate one nagging headache. His company, BDC/Washington Street LLC, now owns the ground on which the Ritz project is being constructed. Bowen managed in March to buy out the prominent Goodman family, which had leased the land to Bowen.
Public documents indicate that BDC Washington Street paid $30 million for the parcel. Walsh declined to divulge the purchase price and would not confirm or deny the $30 million sum.
Construction costs have risen dramatically, putting both developers and buyers in a difficult spot. Walsh said it’s impossible at this point to say whether those increasing costs will require changes to the project budget.
“Constantly changing fluctuations in construction pricing make it difficult to predict with reasonable certainty the costs to be finalized in in the coming months, he said. “For this reason, we are setting aside equity raised at this time as an additional contingency fund.”
Mosaic, a high-profile real estate lender, stepped up to make a huge construction loan for the project. It is now trying to sell some portion of that debt to other lenders, investors and others.
Mosaic officials did not return phone calls.
Walsh confirmed Mosaic is looking to lessen its position in the project but added that is not unusual.
“This is a very common practice among lenders, and it has zero impact on the project or the borrower as the terms of the loan remain the same,” Walsh said. “As far as the borrower is concerned, the selling off of a portion of the note by the lender is a seamless non-event.”
Patrick Clark, a local real estate broker specializing in high-end condos, confirmed he’s been contacted by prospective buyers of the Mosaic debt.
“Various lenders that are looking at buying that debt have reached out to me to determine what is the condition of the condo market,” Clark said. “Condo prices are climbing. And I hope the market continues to improve. But clearly, the market today is not what it was when the Ritz project was conceived.”