D o w n t o w n d e v e l o p m e n t
Eugene officials scored a coup last month in securing the right to buy eight properties ripe for redevelopment in the heart of downtown.
But the collective asking price of $13.65 million is so high that people familiar with downtown development say nothing will happen unless the city offers significant public subsidies, which could include property tax breaks, parking garages, loans, demolition work and other types of help.
"It's very difficult on your own as a private developer to make such a significant investment without the city taking an active role," said Steve Korth, director of real estate and development for McKay Investment Co., which owns Oakway Center on Coburg Road.
The city secured the purchase options in hopes of luring a firm to redevelop two blocks of Broadway, west of Willamette Street. The area is rife with empty storefronts, most of them in the buildings owned by Eugene landlords Tom Connor and Don Woolley.
Downtown experts say public subsidies often are key to downtown development. They note that Broadway Place apartments, the Aurora apartments on East 11th Avenue and The Tate condominiums on Olive Street all received property tax breaks or other types of financial assistance. So will WestTown on Eighth, an affordable-housing complex scheduled to break ground next month.
The prices that Connor and Woolley and other Broadway property owners are asking in their option agreements with the city are hefty, no matter how they are analyzed.
If the asking prices are evaluated based on the size of the buildings, they would range from $38 to $178 a square foot. In comparison, some downtown buildings that have sold in the past two years fetched between $66 to $117 a square foot.
But a major Broadway redevelopment probably would raze most of the old structures and build from the ground up.
In that case, based on the size of the parcels, a buyer would be paying from $81 to $260 a square foot for the land.
That's far higher than bare land prices in thriving suburban retail locales in Eugene.
For example, on busy Coburg Road, land has recently sold for $35 to $50 a square foot, real estate experts said. At the busy corner at North Delta Highway and Green Acres Road, land has recently sold for $38 a square foot, they said.
A downtown developer would face additional expenses, too. He would have to demolish the old buildings, and perhaps have to remove asbestos or do other environmental cleanup. Only then could he begin the new construction.
Without public subsidies, all of these expenses would make it difficult for a developer to turn a profit, said Korth, of Oakway Center.
"It's hard to find developers to do a high-risk deal," he said.
Connor and Woolley, who are active West Coast property developers, want $7.85 million for four Broadway buildings, including the vacant, four-story Centre Court building at Willamette Street and the adjoining excavated pit.
Assuming a buyer would demolish the buildings, the asking prices amount to between $81 and $214 a square foot for bare land.
Asked if that's realistic for downtown Eugene, Woolley said that he didn't know, before adding that it depends on what a developer would build on the properties.
`What's their plan? What's their (building) density?' he said. `It depends on what that market is and what (a developer) can get on the property.'
Woolley said he and Connor are not currently interested in redeveloping their neighbors' properties.
"We're going to maximize the value of our property, so that is either going to come through selling it or rehabbing it to some level," Woolley said. "What that level is, I don't know today."
John Bartell, a Portland-based developer, spent more than a year working with Connor and Woolley on a previous Broadway redevelopment concept. That plan called for a hotel, a movie theater, apartments, condos and offices on 2 1/4 blocks.
Bartell said the option prices for the Broadway properties appear to be prohibitively steep. At those prices, "it would be difficult" to make a redevelopment project work, he said.
Denny Braud, of the city's Planning and Development Department, said downtown redevelopment often requires city help.
"And that varies between financing assistance, tax exemptions, selling property - in some cases below market value - and providing parking accommodations," he said. "Those are all examples of things that we have done in the past."
The city is cultivating another downtown development project separately from its attempt at Broadway renovation.
Portland developers Tom Kemper and Ronald Skov are negotiating with the city to build 106 condominiums on a city-owned vacant parcel on West 10th Avenue, across the street from the Eugene Public Library.
The developers have proposed buying the property from the city for $192,000, or $7.50 a square foot.
Earlier this year, the city hired an appraiser, which put the value of the property at $970,000, or $38 a square foot.
Kemper and Skov also are asking for 10 years of property tax breaks, which the city provides to qualified downtown housing projects.
Kemper said he is analyzing whether it makes sense to expand his housing project by acquiring two adjacent buildings from Connor and Woolley, who want $3.15 million for the pair.
"It's the old problem of buying land with buildings on it, having to pay for the buildings, and having to pay for them to be knocked down," Kemper said. "We have a lot of number-crunching to do."
He added, "It all comes down to numbers. It has to make financial sense."
Under the purchase options, the city could buy the properties for the asking prices, or give the options to someone else, such as a developer.
The City Council will discuss the city's next step Nov. 27.
City Manager Dennis Taylor is expected to recommend that city officials see if developers are interested in pursuing a Broadway redevelopment project.
Braud, of the Planning and Development department, said the city already has received a couple of inquiries from developers. He declined to name them.
Korth, of Oakway Center, said he doesn't mind city subsidies for downtown development as long as the project meets a community need.
"If that is the goal of the community, then the city should be able to provide some form of assistance," he said.
"But this should be driven by what the community wants, not what a developer wants."