Despite challenges, North Anchor project leader pushes forward with optimism

Urban Development + Partners has worked for five years with the city of Lake Oswego to bring a project that would include a hotel, housing and retail to the heart of downtown Lake Oswego. Due to economic challenges, the city extended the deadline for the project by two more years (until July 2026).

Yet, despite setbacks to the North Anchor development — first skyrocketing construction costs and then rising interest rates — UDP President Eric Cress is optimistic.

“We remain really excited about the project. We are excited about what this means for Lake Oswego and, a number of years from now, we will look back on what we built with the city and be proud of it and there will be a lot of pleased and happy customers and happy residents having a nice home to live in in downtown Lake Oswego,” Cress said.

Cress chatted with the Review about what has gone wrong with the project and how UDP has adjusted to salvage it.

When UDP first agreed in 2019 to work with the city on the development, which would sit at the corner of State Street and B Avenue, Cress said there was plenty of available financial capital in the construction industry. That all changed in the early 2020s, he said, first due to inflation, rising construction costs and supply chain delays, and then with the Federal Reserve increasing interest rates to temper inflation in 2022.

“That essentially shut down a lot of the debt and equity that was available for market rate, new construction,” Cress said, adding that standard practice is not to secure capital for a project until permitting and other legwork is complete.

‘The community wants something that is attractive’

Cress said a simple townhome development may have been feasible, even with the financial constraints, but that did not reflect the city’s vision for a more dynamic site.

“This is a prime location, a prime site and at a corner that has tremendous potential for the city long term and will have a tremendous impact on the city long term. I think the community wants something that is attractive and wants amenities,” Cress said.

He added that the mixed-use project that would include structured parking and a vertical design is especially challenging in this economic environment. Alternatives like a surface parking lot, or no on-site parking at all, weren’t viable.

“That is not going to meet the city’s requirements for what they are looking for for the building. They are looking for an activated sidewalk where you have storefronts and pedestrian-oriented access to retail and amenities. And the site isn’t big enough. The site would be too constrained to have a surface parking lot,” he said, adding that Lake Oswego isn’t an urban enough environment to support a parking-free project.

‘We need some of the fear to dissipate’

Another challenge, Cress said, is getting financial backing outside of the Pacific Northwest due to perceptions of Portland. This necessitates attracting financing from within the area. Cress said he could not disclose existing financial backers but that they include banks and individuals who are familiar with Lake Oswego.

“Capital providers who were interested in the Pacific Northwest, some of those have moved on and it’s harder to get them to look at something in and around the Portland area. That I would say is starting to ease up a bit, but Portland still has its challenges,” he said.

UPD and the city have altered the project to make it more appealing for investment. Along with the tax increment financing program the city approved to reduce the project’s tax burden, UDP has implemented changes like reducing the number of parking spaces and adding a gym and spa so that they can raise hotel rates.

Cress added that the additional two-year delay to the project — which means construction is now slated to begin by July 8, 2026 — provides time for the company to attract additional investment and a cushion for existing financiers in case of a major macroeconomic event. However, Cress was optimistic that economic conditions would improve and cited a recent report showing inflation has cooled, meaning the Federal Reserve could lower interest rates at some point soon. The UDP president added that he has experienced booming cycles that are followed by a downturn and eventual recovery before. He expects that to happen again. But he said potential financiers need greater assurance. Cress said the company is optimistic the project could actually break ground much sooner than the July 2026 deadline, saying that this could take place in late 2024 or the first half of 2025.

“We need some of the fear to dissipate. A project of this size— it’s a medium-sized project— takes institutional capital to build. Those institutions don’t get paid to be contrarian. Despite the fact we are at the end of a winter period here and things are starting to thaw, (you aren’t going to get) contrarian investment. Banks tend to be quite conservative,” Cress said. “We are getting close to a period where it’s a really good time to invest in a project like this.”