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Shaull Property (3535 W Powell Boulevard, Gresham) Due Diligence Report #1

Report Release Date: April 27, 2021

Contents • Background• Private Acquisition and Development Proposal• Renewed Public Acquisition Discussions• Property Overview• Due Diligence Consideration #1: Forest Health Assessment• Due Diligence Consideration #2: Site Cleanup Needs & Potential Costs• Ongoing Research, Questions, and Next Steps

Background In 1990, the Shaull family sold 34 acres of agricultural land at 3333 W Powell Boulevard to the City of Gresham, now identified as the undeveloped SW Community Park site. The Shaulls retained ownership of the adjacent 7.82 acres of land at 3535 W Powell Boulevard where their home was located (see Figure 1, below).

Figure 1: Shaull Property and SW Community Park

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City of Gresham Parks staff prioritized acquisition of this property for future SW Community Park access directly from Powell Boulevard, as a location for vehicular parking near Powell, and to protect its wetland and upland natural resources. Over the years, staff had conversations with Helen Shaull about potentially purchasing her property, and in 2003, the City offered $1.35 million to be paid over a 10-year period, while allowing Ms. Shaull to continue to live on the property until the end of her natural life. Despite the offer being over the fair market appraisal of $933,000 at that time, Ms. Shaull declined the offer.

In early 2019, Helen Shaull passed away. In June of 2019, executors of her estate contacted City of Gresham staff with news that Mrs. Shaull’s Will had provided “right of first refusal” terms to purchase her property. According to the executors, the Will stipulated that the City of Gresham would have 30 days to purchase the property at 90% of the appraised value, estimated by City, Metro, and EMSWCD land acquisition staff to be in the $1 million to $1.5 million range. The Will further stipulated that if Gresham passed or was otherwise unable to purchase the property, Metro would have the next 30 days to purchase the property, under the same terms.

At that time, the City of Gresham did not have any remaining Local Share funds from Metro’s 2006 Parks & Nature bond measure and had no other sufficient source of funding available for land acquisition in its adopted budget. The City was in a particularly challenging financial time for its General Fund, which supplies funding for Police, Fire, Planning, and Parks services, and was in the process of reducing services by millions of dollars to fill an estimated $9 million to $12 million funding gap. The General Fund budget had in fact been passed that year despite not meeting adopted financial policies. In addition, 30 days is an extremely short window of opportunity for a public-sector entity to execute a property purchase, and while it was unknown at the time, the due diligence process would have uncovered the need to perform Environmental Site Assessment work that would have precluded a purchase within this timeframe, even if adequate funding had been identified.

The City reached out to its land acquisition partners at Metro and the land acquisition program at East Multnomah Soil and Water Conservation District (EMSWCD) in search of funding support. Both entities had played integral funding roles in the acquisition of the Gantenbein Dairy property a few years earlier along Division Street, to the north of SW Community Park and the Shaull property. They have also always been invaluable in identifying other potential non-profit funding partners, but in this instance, no entity was found who could purchase the property outright, without a legally executed commitment of full repayment.

Lack of funding and the inability to organize a meaningful public engagement process and execute property due diligence requirements for any publicly financed land acquisition within the 30-day windows meant the organizations were forced to pass on the “right of first refusal” terms. However, the City stated to the executors of the Will that they remained highly interested in purchasing the parcel and would continue the search for funding. Gresham also offered to the executors the idea of a purchase agreement contingent on passage of the November 2019 Metro Parks & Nature bond measure and subsequent public support, but this was logistically unacceptable for the executors of the Will.

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Private Acquisition and Development Proposal Subsequently, although the property was never advertised on the open market, it was secured by SGS, LLC for approximately $1 million. It appears that the property transaction occurred without an Environmental Site Assessment (ESA) process. In October of 2020, SGS submitted a development application to the City of Gresham for a residential single-family home subdivision on the property, titled “Headwaters Subdivision” (see Figure 2, below). The final application included development of 30 single family lots and associated street and utility infrastructure on approximately 4.4 acres of the parcel, and dedication of approximately 3.5 acres (the floodplain, wetlands, and associated riparian buffers) to the City of Gresham to be protected in perpetuity. The dedication of this area to the City without the need to expend public resources is considered a benefit, as the wetlands portion of the property is considered by Natural Resources Program staff to have the highest wildlife habitat benefits on the site (discussed further below). The Headwaters Subdivision application was deemed complete on 12/14/20, and on February 18, 2021, was approved by the Gresham Land Use Hearings Officer with conditions (File No. DRD/MIS/TR/VAR 20-26000300 for a Subdivision, Miscellaneous, Tree Removal, and Major Variance for a 30-lot subdivision, variance to dead-end street standards, and a tree removal permit on a 7.82-acre parcel). Figure 2: Headwaters Subdivision

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Objections by the public over this proposed development of the parcel were expressed throughout the development review process. Predominant community concerns expressed were:

• Loss of forest canopy (see Figure 3, below) • Fragmentation and loss of reptile, amphibian, and bird habitat • Destruction of Native American artifacts that may be on the site • Displacement of green space with housing • Lost opportunity for additional access to nature in close proximity to a lower income area of

the City Figure 3: Headwaters Subdivision Preliminary Tree Removal Plan

John Bildsoe and the Friends of Grant Butte Wetlands community group have been particularly active in calls for protection of natural resources on the Shaull property through public acquisition.

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Renewed Public Acquisition Discussions In November of 2019 the Metro Parks and Nature bond measure passed, and since then Metro has worked to define project eligibility criteria and public outreach requirements for “Local Share” projects. Gresham will receive $5.4 million in Local Share from the bond measure for projects that provide access to nature, combat climate change, protect fish and wildlife habitat, and promote racial equity. The City has now received the project eligibility and public outreach criteria from Metro on March 19, 2021, so is able to begin the process of Local Share project identification and application for funding. With this assurance of funding in hand, and after discussions with City Council, staff initiated conversations with the current landowner/ developer about what the terms of a possible sale to the City may be. This information, along with information collected about the status of external funding partnerships, community support via a Community Local Share Survey, and property due diligence will be used to inform a Council decision on whether to proceed with a City purchase of the Shaull property with a portion of the City’s Metro Local Share. Figure 4: Council Decision Factors

Cost and Valuation The owner demonstrated a tentative willingness of SGS, LLC to sell the property to the City, but for no less than $2.5 million. While this amount reflects a higher cost per acre than other City land acquisitions for natural resource protection purposes, this property is unique and provides values for the adjacent SW Community Park site that are difficult to quantify. The Multnomah County real market value for the property for 2020 is $2,310,310. Comparing the estimated profit margin the developer is able to achieve with the Headwaters Subdivision housing development [considering the open market value of 30 single-family home lots at roughly $140,000 each and the cost of the developer’s initial land acquisition ($1 million) and planning, design, and construction of infrastructure to serve the lots (estimated at $1.2 to $1.4 million)] with the profit

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margin from a $2.5 million acquisition from the City, they are estimated to be relatively similar (not accounting for site cleanup or potential remediation costs discussed later in this report). A stipulation included from the developer on a City purchase was that the City would make an acquisition commitment soon, prior to his desired start of construction for the Headwaters Subdivision. In order to construct during periods of dry weather, he was planning to submit infrastructure plans to the City for permitting in Spring 2021 with the goal of construction through Summer 2021 and sale of home building lots in the fall. In order to retain this schedule during the Council deliberation process, he was proceeding with the engineering of the infrastructure needed to serve the homes and would expect to be compensated for these expenses with the final sale price of the property, i.e., the longer the process took to reach a decision the higher the price would be. To ensure a decision by City Council could be reached to authorize staff to begin a formal negotiation process prior to the developer’s desired start of construction and as soon as possible, a tentative date of May 4 was established on the City’s Preliminary Council Agenda, and several efforts were initiated simultaneously to gather the information needed to make an informed Council decision. External Funding Partnerships City staff and members of the Council reinitiated conversations with Metro and EMSWCD to inquire about the possibility of a public partnership between the organizations to fund the acquisition of this parcel from the property owner/developer. While the City has not received financial commitments from either entity, these discussions are ongoing at this time. Community Feedback and Participation As Gresham’s $5.4 million in Metro Local Share dollars must be invested based on feedback from the community, the City launched a “Gresham Parks Community Survey” on April 5 to collect public preference data on park and natural resource investments that could be made with the City’s Local Share dollars. The Shaull property acquisition was listed as one of ten possible projects, which were chosen based on their ability to meet Local Share project selection criteria. The survey closed on Monday, April 26, and the results are currently being tabulated and processed. The City expects to release this information around May 11. All indication is that acquisition of the Shaull property is heavily supported by the community, although it is important to note with property acquisition negotiations that they are never guaranteed to succeed, and due diligence information on the property (discussed later in this report) was not available at the time of the survey’s release. Property Due Diligence Items Concurrent with the Community Local Share Survey, City staff received permission from the owner to access the full property and began conducting “due diligence”, or the research phase of buying a property. Results of due diligence research informs policymakers of any risks associated with the property acquisition such as title complications, environmental issues, tax debts, or, given the community’s interest in the Douglas fir grove on this property, the health of trees and other natural resources on the site. The week of April 12-16, 2021 provided City staff their first full access to the Shaull property and the many (approximately a dozen) structures.

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At this point in the due diligence process, tree health and other concerns have been identified at the site. The following three sections describe those issues, how they relate to community concerns expressed for this parcel and estimated future management and cost implications for the City. The issues are of sufficient significance that Gresham City Council requested this report be compiled and made available to the public to inform subsequent public discourse on the City’s direction. Contact has been made with the property owner/developer to inform him of the City’s concerns, and at this point the City does not believe the construction schedule presented is realistic given environmental cleanup issues present on site. If the City decides to pursue a purchase of the property, the owner/developer has requested the City provide a formal offer in writing for him to respond to. If extended, an offer’s price and conditions will need to account for the due diligence findings presented below. Property Overview The Shaull property is the last relatively undeveloped private land holding within the Fairview Creek Headwaters- a mosaic of wetlands, open water, prairie, forested uplands and forested butte found between W. Powell Boulevard, NW Division Street, and SW Hartley Avenue (see Figure 5, below). Just over 160 acres of publicly held land protect habitat, scenic, and recreation values of a unique urban natural area that includes a large basin between Grant Butte and Troutdale Pendant Bar Terrace—an upland ridge to the east. This basin collects ground- and surface water from the adjacent uplands and serves as the primary headwaters for Fairview Creek (flowing north) while also feeding into Johnson Creek (flowing south) during particularly high-water events. Figure 5: Grant Butte Natural Area and Fairview Creek Headwaters

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Land uses adjoining the site include residential to the west and open space to the north and east. Commercial properties are common along the south side of Powell Boulevard. The southern portion of the Shaull property, along W. Powell Boulevard, consists of a fallow grass field of non-native species, predominantly reed canary grass. Wetland, open water, and floodplain functions are protected here by a regulatory riparian buffer that limits development potential and requires mitigation for impacts. The northern portion of the Shaull property area consists of a second growth forest of Douglas fir, with an understory of Himalayan blackberry and non-native grasses. An abandoned house with multiple outbuildings is located in the central wooded portion of the property. Past agricultural activity (cattle grazing and hay fields) can be seen in historic aerial photos for the Shaull property and the SW Community Park area, earlier acquired from the Shaulls. Wildlife use of the Shaull property is predominantly insect, small mammal, and bird based. The forested portion of the Shaull property provides habitat for migratory songbirds, and potentially for nesting raptors. City surveys of the southern portion of the Fairview Creek Headwaters over multiple years found a lack of turtle use in this area, likely due to the peaty soils in this area. Use of northern Fairview Creek Headwaters wetlands, with more silty soils, is common by native western painted turtles. These turtles nest on the sunny south facing slopes of Grant Butte in the north, but have not been observed on the SW Community Park area, which is consistent with their nesting area preferences. The wetland portion of the headwaters provides habitat for river otter and wetland bird species such as American bittern, wood ducks, and common yellowthroat. The lack of evidence for active turtle and amphibian use of the forested portion of the Shaull property and the adjacent SW Community Park reinforces the suitability of this area for active nature-based recreation. In comparison to the central and northern portions of the Fairview Creek Headwaters complex, active recreation is less likely to negatively impact basking or nesting turtles or amphibians migrating between wetland and upland habitat types. Current informal human recreational use of these undeveloped parcels appears frequent. Walking trails between the forested and wetland portions are evident and multiple dog walkers and hikers are found currently using both the public SW Community Park and a small walkable strip of unfenced area on the private Shaull property. Potential for passive recreational use of lands owned by the City will continue to be significant under either a private housing development or full public ownership scenario, as the need for access to nature is high in this area with close proximity to schools, lower than average incomes, high racial diversity, and high housing densities. Due Diligence Consideration #1: Forest Health Assessment A second growth Douglas fir grove covers approximately 3.5 acres of the Shaull property and extends an additional 3.7 acres onto the adjacent SW Community Park parcel. Conditions throughout the grove in terms of structure and diversity are the same: The grove was densely planted, and without proactive thinning over the years, the Douglas firs have grown in crowded condition, resulting in sparse canopies, a lack of lower limbs, broken branches, and limited understory as little light can penetrate to the forest floor. Trees on the sunnier eastern portion of the grove have a comparatively better structure and demonstrate better vigor. Evidence of recently fallen trees is found only in the

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western half of the grove. This is consistent with past finding of a tree pathogen, Laminated Root Rot (LRR), by City staff within the western portion of the grove on the SW Community Parcel; 14 trees in this portion of the grove have been removed by the City to address public safety risks associated with LRR. LRR management requires removal of infected trees to protect public safety, and removal of associated root wads to prevent additional spread of LRR in areas of high value trees. When affected trees are in proximity of homes, backyards, or trails, unexpected tree failure poses a significant public safety risk. The nature of this root decay is such that unexpected tree failure can occur even with proactive monitoring in place. In our western Oregon climate, LRR-affected trees may demonstrate little to no apparent canopy distress prior to tree failure, making diagnosis in advance of tree failure very challenging. Infected trees may appear healthy and vigorous, but structurally have been compromised and a minor windstorm can result in tree failures of the type seen in this grove (tipped over trees with small root plates or snapped trunks near the base). Given the presence of multiple failed trees meeting this description in the SW Community Park portion of the grove, permission was requested of SGS, LLC to survey failed and dying trees for LRR on the Shaull property. Independent review for Laminated Root Rot (LRR) was conducted on accessible recently failed trees within the Douglas fir grove that spans the Shaull property and the adjacent SW Community Park site by both consulting arborist Teragan and Associates (on 4/12/21) and by US Forest Service forest pathologists (on 4/13/21). All four tree health specialists confirmed presence of LRR on the western side of the Douglas fir grove on both the private (Shaull) and public (SW Community Park) parcel. This is consistent with past City management of LRR-infected trees in the western portion the SW Community Park, and consistent with reports from an immediately adjacent neighbor who reported 8 tree failures this past winter within the grove. Management Implications Proactive management of an LRR-infected grove near active use areas includes removing infected trees and their roots, then removing adjacent trees and roots to inspect for LRR. This protocol necessitates removal of at least one healthy abutting tree (to ensure no LRR has yet infected any of the root wad). There is no way to test for LRR without analyzing the roots; even in trees killed by LRR, the infection may not be present throughout the entirety of the root wad. There are homes immediately to the west edge of the Shaull property, and as such there is a high degree of liability given proximity of tall trees with likely LRR-infected roots and compromised integrity. This risk is exacerbated by the influence of strong winds at the site. Roughly 20 trees (at a minimum) that are in immediate contact with recently failed trees, should be removed (and infected stumps pulled) in the short-term to protect occupants of adjacent homes. If LRR is found on the pulled stumps, additional adjacent trees will need to be removed (and infected stumps pulled). Even with that level of precautionary treatment, more trees would likely need to be removed over time to protect future park users as well as the homes along the western boundary of the Shaull property.

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Figure 6: Laminated Root Rot Management Best Practice

The tree experts noted a high number of trees in the grove also have broken tops and similar features which increase the chance of decay and tree or major branch failure from causes other than LRR. They also noted that removal of the LRR-affected trees will put additional wind stress on the newly exposed trees, increasing chance of failure in these trees. These newly exposed trees developed over time as crowded interior trees, and as such they lack some of the robustness of root support and ballast branches that can be seen on trees that developed under more sunlight- and wind-exposed conditions (such as those at the eastern edge of the Shaull property which have a much denser canopy, and which have likely developed a root system over time better able to withstand wind forces). Future Forest Condition Under Possible City Ownership Regarding the need for tree removal related to LRR, if the City owned the Shaull parcel and wished to regain lost canopy, replanting the treatment areas with tree species that are immune to Laminated Root Rot would provide a renewal of forest conditions and increased biodiversity at the site. This effort would result in a gradual transition of the western portion of the grove from a conifer forest to a deciduous forest, following removal of between 20 and 189 trees. (Note: 189 is a worst-case scenario estimate based on LiDAR-measured tree heights on the eastern portion of the Shaull grove and represents the trees able to strike a house or backyard. These are the trees that would need to be assessed for LRR or high windthrow potential following removal of LRR-infected trees.)

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Figure 7: 3535 Trees with Potential Risk to Neighbors

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Due Diligence Consideration #2: Site Clean Up Needs & Potential Costs A significant amount of household waste, discarded appliances, and remnants from past farming and maintenance activities is found throughout the forested portion of the site, much of it hidden beneath an understory of blackberry vines. Nearly every of the approximately a dozen structures on site are filled with the prior occupant’s belongings mixed with trash and other debris, and large piles of mixed waste are spread throughout the upland portion of the site (see Figure 8, below). In addition to the massive volume of household debris and related waste materials, which is consistent with recent neighbor reports of long-term hoarding on the property, there are remnants of past agricultural-related and equipment maintenance activities. Presence of an above-ground fueling tank (see Figure 9, below), an abandoned vehicle, chemical and oil drums (see Figure 10, below), and smaller containers of pesticides, varnishes, and other chemicals were noted in and near structures and scattered throughout the forest floor. Figure 8: Accumulated household debris and mixed waste

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Figure 9: Above-ground fueling tank

Figure 10: Chemical and Oil drums

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The presence of a 50-gallon metal drum was observed on-site with the chemical label of Perclene (DuPont) still visible despite some corrosion. Perclene is a formulation of Perchloroethylene (PCE), a chemical commonly associated with groundwater contamination from unregulated use in the 1950s to early 1970s. PCE most often enters the environment via fugitive emissions from dry cleaning and metal degreasing industries, and by spills or accidental releases to air, soil, and water. When released to soil, PCE will evaporate fairly rapidly into the atmosphere due to its high vapor pressure and low rate of adsorption in soil, though release of larger amounts may leach through sandy soils to reach groundwater. It is important to note that this observance does not confirm that PCE was used on the property. Under a potential City ownership scenario, Phase I and Phase II Environmental Site Assessments (ESAs) will also be needed throughout the property to determine if a cleanup is needed. Conducting a Phase I ESA is standard due diligence in property purchases where past land development activities have occurred. If the potential for site contamination is found in a Phase I ESA, a Phase II ESA is typically conducted to characterize the extent and degree of contamination so that a land purchaser understands their remediation obligations. City staff confirmed with Environmental Site Assessment and remediation professionals that a Phase I and II ESA will need to be completed on the property in order to gauge the level of contamination present, if any (and associated remediation requirements and costs), and City protocol dictates this be done prior to any property transaction. The ESA work cannot be conducted in advance of site clean-up due to the extensive amount of mixed waste throughout the forested portion of the site. To assess initial clean-up costs, a professional site remediation contractor was brought to the site and a resulting range of initial clean-up cost estimates was provided. The estimate to remove and properly dispose of all the materials and structures in advance of the Environmental Site Assessment work was between $561,000 and $902,000. After the surface materials and structures are removed safely, the ESA I and II work could commence. The current property owner/developer has not yet commissioned this work to be done and does not have the same level of ESA obligation under a private development scenario. Once commissioned, site clean-up and assessment would take up to 6 months to complete. Exact cost estimates for the Phase I and Phase II ESA work could not be provided until professionals can visually assess the site for soil staining but is likely to cost in the range of $100,000 to $150,000. Of even less certainty would be potential costs for remediation and ongoing monitoring and reporting that could be needed, depending on what Phase II ESA testing reveals. With this new information gathered in the first phase of the City’s due diligence work, any future negotiation discussions with the current owner, who originally set a $2.5 million asking price for the property, need to consider site debris clean-up and structure removal costs as well as future risks and costs related to forest management needs and remediation of potential site contamination. The City has recently drilled a pilot test well for source water testing at the north end of the Southwest Community Park parcel. The “Sand and Gravel” drinking water source aquifer’s depth (approximately 1,200 feet at this location) and protection by thick confining layers makes it highly

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resilient to potential contamination. The presence of a City-owned test well immediately to the north of the Shaull property will be valuable to test and monitor water quality. It should be noted that per City protocols and Oregon Health Authority standards, before any groundwater production well is drilled, a full investigation for a wide suite of pollutants, including PCE is conducted. Water quality testing at the new pilot well drilled at the north end of Southwest Community Park is already scheduled to be conducted the week of April 26, along with the well’s water volume production testing that will be conducted in that same timeframe. Ongoing Research, Questions, and Next Steps At this time, due diligence on the property and potential options for City ownership continues. Discussions with Metro and EMSWCD about potential funding partnerships also continue. Answers to several questions are being investigated, including but not limited to the following:

• To what degree does the presence of Laminated Root Rot at the site diminish its value as a City Parks asset? What site and community benefits could be achieved with forest restoration work and at what cost?

• Under what conditions may the City be comfortable extending an offer to purchase the property after Environmental Site Assessments (ESAs) have been completed, the property has been cleaned up and structures removed, and any contamination remedied by the property owner? What are the financial and legal risks involved? What would the cost basis be, and could a deal be reached with the property owner/developer?

• Under what conditions may the City be comfortable extending an offer to purchase the property “as-is” at a reduced cost? What are the financial and legal risks involved? What would the reduced cost basis be? Are there state or federal cleanup assistance programs this property would qualify for under City ownership to reduce legal and financial liability? Could a deal be reached with the property owner/developer under this scenario?

• Under any scenario, how can the City ensure any potential contamination at the site is remediated and does not pose any risk to public health and welfare or wildlife? What are the City’s legal allowances and limitations in these processes?

Staff will continue to engage City Council in discussions via executive session (when appropriate discretion is warranted) and public meetings to obtain comments from the public and move toward decisions as quickly as possible. As more information is obtained, a second Due Diligence Report may be prepared and distributed publicly. If you would like to submit a public comment or question on this topic, please send it to Rebecca Brooks at Rebecca.Brooks@GreshamOregon.gov. Thank you.