Published: April 4th, 2012
Jeff Sakamoto, fourth from left, a graduate student at Portland State University's Center for Real Estate, answers an audience question during a breakfast event at the Multnomah Athletic Club. A team of six graduate students conceptualized converting a 16-acre piece of land in Hillsboro into an entertainment complex with a mix of residential multifamily housing, hotel, commercial retail and restaurant space. (Photo by Sam Tenney/DJC)
Three months ago, Mark Fisher, the vice president and managing director for The Standard and StanCorp Mortgage Investors LLC, charged six graduate students at Portland State University’s Center for Real Estate with the challenge of identifying the highest and best use for a 16-acre plot of land The Standard owns in Hillsboro.
His charge had three conditions: their idea should be innovative, it should be feasible and it should add value to the property. On Monday he saw the results for the first time.
"Not in a million years would I have thought of an entertainment destination," he said.
For a property almost entirely zoned for industrial use, Fisher was surprised to see that the student’s proposal included zero office space. Instead it included an entertainment destination anchored by a large movie theater and sports bar arcade, with a mix of residential multifamily housing, hotel, commercial retail and restaurant space.
"Frankly, I was quite impressed," Fisher said.
With an average occupancy rate of 95 percent in the target market, the Sunset District hopes to capitalize on projected housing demand by making itself available to 3,000 additional Intel jobs, expected to enter the market by 2014, and another 1,000 jobs at Kaiser Permanente, which is planning to open a nearby hospital by 2013.
Currently, the area is nearly built out by aging garden-style apartments and the group is proposing to maximize value on The Standard’s land by building two mid-rise, concrete podium and wood-frame structures, totaling 273 units.
This past Wednesday, the students vetted their conceptual plan to more than 100 industry professionals at a breakfast event at the Multnomah Athletic Club, hosted by the Oregon chapter of the National Association of Industrial and Office Properties.
Mid-rise construction is more costly than garden apartment construction and requires higher rents to achieve the yields necessary for financing. During the presentation one audience member asked how the students planned to push rents from the $1.13 per square foot currently found in the area, to the $1.45 per square foot the students anticipate.
"What really drives that number to where we need it to be is the amenities that go around it," said Jeff Sakamoto, workshop student and president of Bridgeport Capital Group Inc.
"Not everyone can pay that (price), but there is a population that wants to live in this type of environment and is willing to pay that."
Sakamoto said the idea is to make the Sunset District a viable alternative for residents who work in the suburbs but want a downtown living experience in Hillsboro similar to that found in the Pearl District in Portland.
"So rather than just have housing, we wanted to provide some of those amenities that would create that kind of urban feel out in the suburbs," Sakamoto said. "That's what really drove a lot of this."
Mark Fisher, center, vice president and managing director for The Standard and StanCorp Mortgage Investors addresses a group of PSU graduate students following their presentation of a development plan. Also pictured are Bob LeFeber, left, a principal broker with Commercial Realty Advisers, and Dan Petrusich, president of Melvin Mark Development Co.
That's also where the movie theater and entertainment arcade enter the equation. The students picture those businesses as being a Regal Cinemas and a Dave & Buster's (picture a Chuck E. Cheese's for adults that serves beer).
Matthew Craigie, workshop student and economic development manager for the city of Woodburn, said one challenge will be getting the Regal to relocate to the new center.
A Regal is currently located with a long-term lease just down the road. He said a stipulation in that lease agreement dictates that only one first-run theater can exist within a three-mile radius. But he said Regal's current theater is also old and outdated, and the idea would be to recruit the company into a new facility once its lease expires in 2020.
Adding to the mix will be an upscale, three- to three-and-a-half-star hotel modeled after a Hyatt Place, Hyatt House or Aloft.
"What we found out from talking with hoteliers out in that area is that sub-market of the Portland region, all of the hotels are seeing 90 to 95 percent occupancy," Craigie said.
That compares to a 70 percent projected average occupancy rate for hotels in the Portland metropolitan market, according to the student's report. Hillsboro's high hotel occupancy is driven by Intel, Nike, Columbia, Accumed and other business-related traffic, as well as youth-related sports tournament travel.
Despite the planned development of a 165-room Embassy Suites and a 106-room Hampton Inn nearby, Craigie said their hotel would fill a niche for higher-end rooms. Together with restaurants like the California Pizza Kitchen and Oswego Grill, Craigie said the development is designed to create dwell time.
"It's the dinner-and-a movie type thing," he said. "Go grab a beer and go play skee ball."
Dan Petrusich, president of development at Melvin Mark, and a panelist for the student's presentation, applauded the plan's creative use of parking, which straddles a 28-foot drop in slope.
"Instead of seeing it as a big disadvantage, they turned it into an advantage," he said. "They designed it without ramping."
That will help the project keep its costs down, and the plan estimates $13,000 per parking stall – a number that Petrusich said is phenomenal. All in all, the project estimates total land and construction costs of $17 per square foot and approximately $95 million to $100 million.
During the presentation one audience member asked Fisher if The Standard had plans to develop or sell the property. Fisher said that while the company did not currently have plans for either, the student’s proposal made a lot more sense than the land’s current industrial zoning.
"Until Monday afternoon we never imagined that this would be (the students') plan," he said. "Or that it would be so logical."