johns landing development assessment -...

CH2M HILL | Leland Consulting Group | January 2012 2

Johns Landing Development Assessment

Contents

Project Overview and Key Findings ........................................................................... 3

Study Area Boundary ................................................................................................. 5

Development Assessment ......................................................................................... 6 Methodology ..................................................................................................................................... 6

Interviewees ............................................................................................................................................. 6 Opportunities for Transit Oriented Development in Johns Landing ................................................. 7

The Streetcar ............................................................................................................................................ 7 Willamette River ........................................................................................................................................ 8 Corbett-Lair Hill Neighborhood ................................................................................................................. 8 Downtown Access .................................................................................................................................... 8 Demographics .......................................................................................................................................... 8 Commercial Exposure on Macadam ......................................................................................................... 9

TOD Challenges in Johns Landing .................................................................................................. 9 Current Economy and Development Environment .................................................................................... 9 Comparables and Achievable Pricing ....................................................................................................... 9 Parcelization ............................................................................................................................................. 9 Existing Development ............................................................................................................................... 9 Macadam Avenue ................................................................................................................................... 11 Zoning ..................................................................................................................................................... 11

Strategic Context ............................................................................................................................ 11 Streetcars and Redevelopment .............................................................................................................. 11 Comparing Johns Landing to Other Streetcar Redevelopment Districts ................................................. 12 Regional TOD Context ............................................................................................................................ 13

Conclusions and Next Steps .......................................................................................................... 13



Project Overview and Key Findings

As the Cities of Portland and Lake Oswego moved ahead with planning for the Lake Oswego to Portland Transit Project (LOPT) in 2011, the Portland City Council sought a better understanding of the potential for transit-oriented development (TOD) in the Johns Landing segment of the proposed streetcar route. The Portland Streetcar has played a well-documented role in helping to spur vibrant, mixed-use, walkable development within the Pearl District, South Waterfront, and other central city neighborhoods. The question presented was whether the streetcar’s positive development impacts would extend to the Johns Landing area. In late 2011, CH2M HILL and Leland Consulting Group were engaged by the Portland Bureau of Transportation (PBOT) to assess the development potential if a streetcar were constructed within the Johns Landing corridor (see Map Figure 2). The assessment was performed primarily through interviews with property representatives and developers in the area and the review of previously-conducted research. This memorandum documents the consultant team’s findings and recommendations, which can be summarized as follows: The streetcar was seen by virtually all parties interviewed as a strong positive asset for the

neighborhood, and most interviewees liked the Macadam alignment better than the historic rail alignment. In general, developers believe that the streetcar brings both quantifiable and non quantifiable benefits to their projects. Quantifiable benefits include the ability to decrease parking for residential units (1.2 / unit is a target beyond the Central City), which makes new development less costly; and the streetcar’s potential to increase density, which increases revenues. The intangible or non-quantifiable benefits are the buzz, activity, and “story telling” opportunity that have accompanied the streetcar.

The Johns Landing area benefits from a number of positive characteristics. It has access to the Willamette River and the downtown employment base, and some charming streets in the Corbett-Lair Hill Neighborhood. Johns Landing also features a lot of neighborhood -serving retail and restaurants along Macadam.

The positive qualities of the Johns Landing area are offset by some significant challenges for development. These include the fact that the area is already largely developed (which increases land acquisition and development costs); most candidate properties for redevelopment are relatively small; and there are few apartment comparables in the area. (Apartments are the main form of residential development that developers are currently considering.) In addition, Macadam Avenue itself is seen as the area’s natural “main street” but also a street that is neither friendly to pedestrians nor a natural fit for TOD.

Unlike the Pearl District and South Waterfront, the project team was not able to identify any experienced, well-established development entity in control of a significant amount of property in Johns Landing. By contrast, the City was able to negotiate with developers who controlled 34 and 31 acres of the Pearl and South Waterfront, respectively, prior to extending the streetcar to those areas.

The current economic environment continues to make most new development—whether urban or suburban— difficult, and accurate projections of future development more challenging. Despite some positive recent economic signals, job growth and wages remain stagnant, and banks remain reluctant to lend.

While interviewees acknowledged the benefits of a streetcar, they were skeptical that the streetcar by itself could overcome the drawbacks to development summarized above. Unlike the Pearl District and South Waterfront, Johns Landing is unlikely to be a TOD “home run”—but it has the potential to be a “base hit”. The interviews with the development community and research by Metro and other agencies suggests that situations like the Pearl or South Waterfront—in which economic (a strong economy and lax lending) and physical



(abundant undeveloped land) conditions were in place—will be very rare in the future, and most other potential streetcar corridors will contend with challenges similar to those now faced by Johns Landing.

Johns Landing’s strengths—demographics, location, and natural amenities—combined with local and national challenges, suggest that TOD here will be somewhat slower and more incremental than that experienced in the Pearl and elsewhere between the mid 1990s and present. This is illustrated by Figure 1, which compares the on-the-ground development observed adjacent to the existing streetcar line to long-term projections made for the Johns Landing alignment on a per-mile basis. The chart shows that, based on aggressive development assumptions, a Johns Landing alignment could lead to a significant amount of development, but still only about one-fifth the amount of housing seen along each mile of the central city alignment. While the project team believes that even these long-term projections are somewhat ambitious (particularly those for jobs and commercial space), they do convey a sense of the magnitude that can be expected.

Figure 1. TOD Adjacent to Existing Streetcar Alignment and Johns Landing

Sources: PBOT/Portland Streetcar Inc, Bonnie Gee Yosick LLC.

2,618 2,769

560

1,487

-

500

1,000

1,500

2,000

2,500

3,000

New housing units per mile

New jobs per mile

Existing Alignment 1997 - 2008

John's Landing 2025 Projection



Study Area Boundary

Figure 2. Study Area and Potential Streetcar Alignments



Development Assessment

Methodology In order to assess the potential for development and change within Johns Landing, the project team conducted the following research:

Interviewed property representatives and developers (listed below). Reviewed relevant research and analysis completed by various public agencies, including:

o Lake Oswego to Portland Transit Project documents, Metro; o Portland Streetcar System Concept Plan, City of Portland; and o Transit Oriented Development Strategic Plan, Metro.

Reviewed properties for sale and lease throughout the Johns Landing area in order to understand the real estate fundamentals.

Reviewed the demographics of the area compared with three other parts of the City that have experienced varying levels of transit-oriented development (TOD) —the Pearl District, Hawthorne, and Mississippi.

Conducted other background research such as web searches and review of past articles from various news sources.

Interviewees The project team interviewed the following developers and property representatives (including owners and real estate brokers). The developers interviewed represent some of the firms with the greatest experience in medium and high density TOD projects in the Portland metro region, including projects in the Pearl, South Waterfront, inner eastside, and Corbett Lair Hill areas. The brokers interviewed represent both properties for lease and sale in Johns Landing. The project team contacted but did not hear back from numerous other real estate professionals. Matt Brown, Development Manager, Williams & Dame Development, Inc. Sam Rodriguez, Vice President for Development, Mill Creek Residential Trust Gary Vance, Director of Development, Holland Partners Group Vern Rifer, Founder, Rifer Development Company Bradford Nase, Owner, G.P. Nase Realty

Jim Mark, Melvin Mark Companies Matthew C. Johnson, Broker, Cushman & Wakefield Darren M. Duke, Senior Vice President, Colliers International Joe Beehler, Broker, Colliers International Ryan Pennington, Broker, Colliers International Beth Benz, Lex Associates, Inc., Johns Landing Property Owner Joe DeJager, Broker, Kidder Matthews Michael Heerman, Broker, HSM Pacific Realty Inc. Kirk Taylor, Executive Vice President, Investment Properties, CBRE



Opportunities for Transit Oriented Development in Johns Landing The area’s assets that were most often mentioned by the interviewees were the river, the intimate streets of the Corbett-Lair Hill Neighborhood, and good access to downtown. As a potential future asset in the area, interviewees were almost universally positive about the streetcar—but also felt that the “streetcar alone” would not change development dynamics in the area. These and other assets are summarized below.

The Streetcar The streetcar was seen by virtually all parties interviewed as a strong positive asset for the neighborhood, and most interviewees liked the Macadam alignment better than the shoreline alignment. Developers believe that the streetcar brings the following quantifiable and non- quantifiable benefits to their projects:

Ability to decrease parking ratios, which saves significant capital. Each additional structured parking space costs developers $30,000 or more. Standard suburban parking ratios for residential can be 1.6/unit or higher, even in compact developments, while 1.2 /unit is believed to be desirable and achievable in streetcar-adjacent neighborhoods beyond the Central City.

Ability to increase density, which can increase revenues under the right conditions. Developers believe that residents and employees are willing to accept density when high quality transit and neighborhood amenities are available. In addition, zoning is typically increased to allow greater building heights and floor-area ratios (FAR).

The intangible or non-quantifiable benefits are the buzz, activity and place making influence of streetcars. Many potential residents see the streetcar as a modern and attractive transit mode that can whisk them to work, entertainment, and other destinations. TOD developers’ marketing materials often feature images of the streetcar, but rarely if ever picture buses.

The Willamette River from Terwilliger Boulevard.

A local grocer in the Corbett-Lair Hill Neighborhood.

Source: www.portlandground.com.



Willamette River River views and access were seen as a tremendous positive because they create a unique sense of place, and residents and employers will pay a price premium for them, thereby making more types of development feasible.

Corbett-Lair Hill Neighborhood While Macadam Avenue itself was seen as a negative, the pleasant, quiet, and human-scaled streets, and range of neighborhood services to the west in the Corbett-Lair Hill Neighborhood were seen as a significant attractor. Research by Metro and others has shown that residents are willing to pay a price premium of up to 18 percent to live near “urban amenities,” such as grocery stores, restaurants, and coffee shops. Interestingly, the historic streetcar line that ran through Southwest Portland ran on Corbett and Virginia Streets in this area—not Macadam.

Downtown Access Easy access to jobs is typically either the top criteria, or one of the top several, when potential residents are making a decision about where to live. Therefore, easy access by transit, foot, bike, or car to downtown’s approximately 80,000 jobs is a big plus and will continue to attract people to Johns Landing over the long term. There is also approximately 1.5 million square feet of office space in the Johns Landing/Barbur Boulevard submarket, which presents another reason that potential residents might chose to live here; however, proximity to this job base was not mentioned nearly as much by those interviewed.

Demographics By and large, interviewees saw Johns Landing’s demographics as a significant positive for residential TOD in the area. The area’s demographics are summarized in Table 1 below along with the characteristics of other areas that have experienced significant infill and TOD during past decades: the Pearl District, Hawthorne, and Mississippi. As the table shows, Johns Landing residents have comparatively high incomes, high educational attainment, tend to be white collar employees, and be members of one- or two-person households. All of these attributes are typically seen as indicators that residents will have a preference for compact, urban housing types. Although somewhat fewer Johns Landing residents take transit to work, the transit mode share is still quite high when compared other areas further from the CBD. The one demographic trend cited as a drawback for TOD was that most households who have chosen the area in the past have been somewhat older when compared to the Pearl, and been looking for a quieter, more traditional residential neighborhood. This could present a challenge since many of the latest generation of apartment-driven projects cater to young renters in their 20s and 30s.

Table 1. Demographic Summary of Johns Landing and Other Portland TOD Areas

Source: ESRI Business Analyst Online, US Census, Leland Consulting Group, CH2M Hill. Most data is for 2010.

Demographic/TOD Indicator John's Pearl Hawthorne Mississippi

Landing

Per Capita Income $52,190 $40,318 $33,339 $18,012

Percent with College or Graduate Degree 62% 50% 57% 24%

White Collar Employment 83% 70% 76% 55%

Transit Mode Share 15% 19% 21% 18%

Median Age 41 38 36 31

1 and 2 Person HHs as Percent of Total 86% 97% 76% 58%



Commercial Exposure on Macadam Macadam’s high traffic counts were mentioned as a positive by some interviewees, especially when compared to the relatively low traffic counts in South Waterfront. Retailers and other commercial tenants frequently seek locations with the high levels of visibility and accessibility afforded by major arterial roads—hence the location of a grocery store, car dealerships, and numerous other retailers. By contrast, recent market analysis has indicated that high volume retailers such as grocers are unlikely to locate in the South Waterfront. Therefore, in the short term, one of the benefits of the streetcar could be to connect the residents in the South Waterfront with the commercial services in Johns Landing.

TOD Challenges in Johns Landing While Johns Landing has a number of assets, it also has several drawbacks for those who might be considering mid-rise (five story or more) mixed use development, the type of development generally being encouraged by the City. These drawbacks are explained below.

Current Economy and Development Environment 2011 and 2012 are still very difficult times to initiate new development of any sort in Portland and most other areas around the country. Employment growth, which ultimately drives most new development, is sluggish or nonexistent. The developers interviewed, and the real estate industry media, suggest that most developers are in a very cautious mode compared to five years ago. Therefore, they are seeking to build only in the most promising locations. Johns Landing was generally seen as a second-tier or B location.

Comparables and Achievable Pricing Despite the fact that the neighborhood is largely developed, there is no apartment project of a significant scale (80+ units) in the area. Almost all new infill residential development has now moved from condo to apartment development, therefore developers and lenders look immediately to apartment “comparables” and rent levels to project feasibility. Developers are looking for nearby achievable rents of at least $1.80 to $2.00 per square foot to justify development (or approximately $1,300 per month on a 700 square foot one bedroom apartment). These are the rents being achieved in other recent mid-rise projects, such as Tupelo Alley on Mississippi Avenue, The Cyan near PSU, the Enso, and 2121 Belmont. There is no similar project in Johns Landing, and the apartments reviewed in Johns Landing are renting in the $1.00 to $1.30 per square foot range. This is in part because most housing in Johns Landing caters to a slightly older market; younger renters in Northwest and inner East side Portland are willing to trade small, expensive units for more activity, restaurants, and nightlife.

Parcelization There does not appear to be any single developer or group of developers that is actively assembling property for the purpose of a large scale, mixed use development. The area is “chopped up” with very few properties available in single, large ownerships. While there are a handful of approximately two-acre sites that are available for purchase, these are really niche opportunities compared to, for example, Williams and Dames’ holdings in the Pearl, South Waterfront, and Foothills properties (34, 31, and 18 acres, respectively).

Existing Development The area is largely developed, and even properties that are developed at a low density are tenanted and relatively profitable. The presence of existing development generally drives up land acquisition costs and therefore makes new development more challenging. Again, this could be contrasted to the Pearl District or South Waterfront, where there were few existing profitable uses. Numerous three- to five-story Class A office buildings line the east side of



Macadam and these are unlikely to be demolished to make room for new development within the foreseeable future. Figure 3 shows one way to conceptualize the redevelopment potential of this corridor: by comparing the improvement value (value of buildings) on each property to the land value. Note that this ratio is only a rough approximation of redevelopment potential, since the tax assessor’s data on which it is based is imperfect and other factors, such as property access, visibility, slopes, and property ownership can also affect redevelopment potential. Properties with low improvement-to-land value ratios are underutilized—i.e., they are either vacant or occupied by one or more low-value buildings; these are shown in brown and have a high redevelopment potential—they are most likely to redevelop. High value, low redevelopment potential land is shown in yellow and orange.

Figure 3. Redevelopment Potential (Improvement to Land Value Ratio)

Source: Metro, Leland Consulting Group, CH2M Hill. Building and land value data is from 2010.



Macadam Avenue By contrast, Macadam Avenue itself was not seen as a good street towards which to orient development because of the traffic speeds and volumes and narrow sidewalks, and also because of the minimal amount of street-fronting retail there. Developers saw no easy way to transform Macadam into a pedestrian friendly “main street” since the number or width of traffic lanes are unlikely to be reduced. Despite its “edge” condition, developers could envision developing on Macadam, but orienting the front door of their projects to side streets. One developer pointed out that Sandy Boulevard may be the city’s most comparable arterial. Like Macadam, Sandy has high traffic volumes and speeds, no on-street parking, relatively narrow sidewalks, very good demographics in surrounding areas, and yet, relatively little major development that faces the street. Despite the drawbacks to development highlighted here, developers and property owners believe that redevelopment will take place in Johns Landing, and that the streetcar can encourage development. However, significant development is unlikely to happen in the near future, and will be far more incremental in nature than the development that took place in the Pearl and South Waterfront. While thousands of units were built along the original streetcar alignment in the 1990s and 2000s, several hundred dwelling units might be built here over the course of a decade.

Zoning Developers interviewed stated that one of the ways to facilitate development in Johns Landing would be to adjust the zoning surrounding Macadam Avenue to allow five and six story buildings. Currently, the zoning varies along Macadam and includes both residential and commercial zones of various scales. Numerous properties have a maximum floor-area ratio (FAR) of 2:1, and some also have height restrictions of 45 feet and below. In order to allow a mix of TOD types, including some five- and six-story mixed-use, mid-rise buildings, maximum FARs should be increased to 4:1 and maximum building heights should be between 65 and 75 feet. While most developers interviewed expressed a desire for these zoning changes, others were more focused on the issues of market, comparables, and parcelization described above, and were not familiar with how the corridor was zoned. In addition, there is awareness of neighborhood concerns about increases in height along Macadam and between Macadam and the Willamette River. (The project team did not conduct a complete review of zoning in the corridor to assess currently allowed FAR or building heights.)

Strategic Context

Streetcars and Redevelopment Streetcars and other rail transit are rightly viewed by policy makers, developers, and others as having a positive impact on adjacent TOD. Some of the natural follow-up questions are, “How much of an impact?” and “Will a streetcar make mixed-use development feasible?” In order to answer those questions, it is important to recognize that transit and transportation are just one factor that impacts a developer’s decision to build, or a resident’s decision to locate in a particular area. According to “Mixed-Use Development and Financial Feasibility,” published in Real Estate Issues in 2009, a range of factors influence the decision to develop.



These are illustrated in the urban redevelopment puzzle graphic at right and include the following and other factors:

The local economy; A strong real estate market for each given land

use; Demographics; On-site synergies for the given mix of uses; Compatibility with the neighborhood; Lending issues; Costs; Physical features; Phasing; and, Regulations and other issues related to the public

sector.

The answer, therefore, is the streetcar and a number of other factors influence development decisions. The most successful urban redevelopment—such as the revitalization that took place in the Pearl District in the 1990s and 2000s—results when most or all factors encourage new development. If all other factors are weak or discourage development at a particular time or location, rail transit alone is unlikely to alter development dynamics. For example, while Portland’s Blue Line MAX has seen high ridership since its opening in the 1980s, TOD has been much more modest.

Comparing Johns Landing to Other Streetcar Redevelopment Districts

Figure 4 shows some of the major variables that have influenced development in Portland’s TOD districts, and are likely to influence redevelopment in Johns Landing. These include the area controlled by a major property developer; economic conditions at the time that the district developed; and whether or not the area is located within an urban renewal area. Figure 4. Summary of Streetcar TOD Districts

Key Very positive Positive Neutral or negative

District Size of Major Development

Holding (Acres)

Economy During Build

Out

Urban Renewal Area

Pearl District 34 Very strong Yes

South Waterfront 31 Strong Yes

Foothills (Lake Oswego) 18 Weak/TBD TBD

West End 0.5 – 3.0 Very strong Mostly Yes

Johns Landing None at this time Weak/TBD 1/3 or Less

Other Potential Streetcar Extensions

Varies Weak/TBD Mostly No

Source: Leland Consulting Group and CH2M Hill.

Successful 20-Minute

Neighborhood

Economy

Public Policy & Regulation

Demographics

Transit & Transportation

DeveloperExperience

Design

Leadership & Organization

Neighborhood Desirability



Regional TOD Context Metro’s recently completed Transit-Oriented Development Strategic Plan corroborates the perspectives expressed by the interviewees contacted for this project: Johns Landing occupies a middle range of TOD potential. When compared with most of the region, it’s TOD “orientation” is low, and it is considerably lower than the Portland CBD and the areas already served by the streetcar. Figure 5 is a graphical representation of “transit orientation” developed by Metro.

Figure 5. The Portland Region: Transit Orientation Score

Source: Transit-Oriented Development Strategic Plan, Metro; Leland Consulting Group, CH2M Hill.

Conclusions and Next Steps The Portland Streetcar has been a powerful development stimulus in Portland’s Central City. As the Streetcar expands beyond the Central City into adjacent neighborhoods its effect will generally be to stimulate incremental change and infill, rather than to cause high-density urban districts to spring up around it within a short period. As the interviews conducted for this report indicated, this is because many of these areas are already developed, are parcelized, rarely contain large property agglomerations held by single developers, will generally face real estate conditions less favorable than those seen from 1997 to 2008, and have less immediate access to the downtown employment and cultural hubs, among other factors. Johns Landing, like many neighborhoods directly abutting the Central City, has lower density development and a mix of uses that features more residential. If the goal in these neighborhoods is to stimulate transit oriented development (and it may not be), it will require additional actions by the City or property owners. These include:

Zoning refinements. In Johns Landing, the Floor Area Ratios (FARs) would need to be increased to 4:1 or greater and permitted height increased to approximately 65 or 75 feet as described above. Other zoning modifications may also be necessary to encourage ground-level activity on Macadam and side streets, create a step-down effect between higher density development and residential neighborhoods, or achieve other goals.

John’s Landing



Macadam Streetscape Changes. Macadam is a high volume arterial that is not conducive to either pedestrian activity along or across it. The types of changes that could complement the streetcar include pedestrian safety improvements at key intersections, one or more additional signalized intersections, curb extensions or pocket plazas, wider sidewalks, and on-street parking. The last two changes would require additional right of way which would be difficult to design and expensive to construct. Signalized crossings will also improve connections between the residential neighborhoods to the west and the river—an important step for improving livability in the area. As the City implements the streetcar plan, staff should consider studying Macadam in greater detail to identify where and how to locate these improvements.

Property assemblage. Either the City or a property owner/developer will need to be pro-active in putting together the parcels needed to form a major development opportunity. The consultant team was able to identify one potential major development opportunity of about 6 acres in the Johns Landing area, illustrated in Figure 6. There are three different owners who each control about one-third of the entire area. All three properties are for sale, and are either vacant or built at a density low enough to potentially justify acquisition, demolition, and large-scale redevelopment. All other opportunities reviewed were of a significantly smaller scale. About two-thirds of the area identified below is located within the North Macadam URA.

Figure 6. Potential Major Development Property Assemblage

Financial incentives. The City, through PDC and other agencies, has been successful in encouraging development through financial incentives. These have included low interest loans, public-sector assumption of certain infrastructure costs, public amenities such as parks, master planning assistance, and tax abatements. Only one-third of Macadam Avenue within the study area (north of Boundary Street) is also within the North Macadam URA. That means a major source of development support is not available for most of the district. However, the City should take advantage of PDC staff development expertise and capacity for the part within the URA. Portland’s TOD Property Tax Abatement would also be a major incentive that would encourage development here.



Additional development on a significant scale will take place much more slowly or not at all, unless some combination of these actions occurs. The information from the interviews, and experience in other areas served by the streetcar, suggests that the three key actions would be construction of the streetcar, refinement of the zoning and changes to the Macadam streetscape. Each of these actions is essential; no single action is sufficient to stimulate development without the other two.

johns landing development assessment -...

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