Developer eyeing building conversion in Portland

A California developer is the latest to consider pursuing in Portland an office-to-residential conversion project a type of adaptive reuse that’s been hailed as a solution to empty urban office buildings but must overcome stiff costs and tough technical challenges.

The Mason Ehrman Building is a historic structure in the Old Town Chinatown neighborhood. Bayspring Real Estate Partners , based in the Bay Area city of San Mateo, has requested a historic resource review for exterior alterations to the building. That request is pending.

The Mason Ehrman property is actually two buildings: the original seven-story 1908 brick structure and a two-story 1940 annex. Bayspring proposes to convert the two-building complex into a mixed-use offering with 49 residential units, 8,452 square feet of office space and 3,510 square feet of retail space.

The project team has requested a Type 1x historic resource review by the city’s Bureau of Development Services . A permitting staff member will rule on the application sometime between July 24 and Aug. 24, BDS spokesman Ken Ray stated in an email.

If the project were to move forward, it would be the first office-to-residential conversion in Portland since the pandemic upended the commercial real estate market, real estate sources said.

The stakes are high: Public officials have looked to office-to-residential conversions as a way to transform empty buildings that have blighted downtowns. And Portland’s could use more help than most: it had the highest vacancy rate (30.2 percent) of any downtown office market in the nation at the end of 2023, according to Colliers.

“There’s been a great desire to achieve it, but like many things, adaptive reuse can only succeed in places where it makes sense from a cost basis,” said Ezra Hammer, a land use attorney for Jordan Ramis .

Overall, the Portland area had an office vacancy rate of 19.9 percent during the first quarter of 2024 better than the national average of 21.9 percent, according to JLL . The difference stems from a stark performance gap between the suburbs, which have been humming with leasing activity, and a relative dearth of new leases in urban Portland.

Bayspring has assembled a robust project team to pursue the conversion, including investor Prime Finance , architecture firm West of West and law firm Stoel Rives, according to city documents. Members of the project team did not respond to messages seeking comment.

Much of the planned work at the Mason Ehrman complex would take place in the interior, according to permitting documents. Exterior alterations would be limited to the original northern building, including ground-floor window and entry changes, additions of windows on the south side, rooftop mechanical units and a new interior light well and courtyard.

The original building is listed on the National Register of Historic Places , and both buildings are considered contributing structures to the New Chinatown/Japantown Historic District.

“It is part of the fabric of what makes our national landmark district a historic district,” said Nicole Possert, executive director of Restore Oregon .

The project will not go before the city’s Historic Landmarks Commission because the exterior alterations fall below the threshold needed for the commission’s review. The city’s decision on the application could be appealed to the Oregon Land Use Board of Appeals .

Prosper Portland , formerly the Portland Development Commission, was a long-term tenant of the Mason Ehrman Building before moving to One Pacific Square , also in Northwest Portland.

The Mason Ehrman complex has received significant investment from previous owners. A partial seismic improvement was done in 2001. Then in 2015, Beam Development undertook additional seismic work in the original building and adaptive reuse for office tenants in the warehouse building in a project alongside SERA Architects , Howard S. Wright and KPFF . The later project won a DeMuro Award for historic preservation from Restore Oregon in 2017.

The current owners purchased the building for $14.25 million in February 2023.

Developers in many cities have found success with office-to-residential conversions. In New York City, an ambitious project is under way to transform 25 Water Street, a 22-story former office building, into an apartment building with 1,300 rental units. In Milwaukee, J. Jeffers & Co. remade the 1924 Milwaukee Journal Sentinel building into 141 market-rate apartments with amenity spaces and heated underground parking in a $35 million project.

Cities that command high rents have typically been the setting for office-to-residential conversions. In Oregon, that means Portland.

“It’s most likely to exist here because we have the most distressed commercial assets, an acute housing crunch and some of the highest rental rates in the state,” Hammer said.

Los Angeles has been another epicenter of building conversions, with condos sprouting up in historic buildings downtown and near Los Angeles International Airport .

“It’s really been a tremendous boon,” Hammer said. Adaptive reuse “produces a very low carbon footprint, so you can produce housing without producing a lot of the externalities,” he added.

Cost remains the primary obstacle. Rules in Portland requiring seismic retrofits for buildings undergoing significant work are often a hurdle to developers, Hammer said.

“We’ve had a number of clients look at properties,” he said. “Most if not all of those decided not to move forward with an adaptive reuse project because of the cost associated with the earthquake retrofit.”

The issue is sensitive, because unreinforced masonry buildings are at risk of collapse in a major earthquake, which seismologists say is inevitable in Portland. In March 2023, the City Council approved regulatory changes meant to encourage use conversions. Commissioners enacted an exemption of up to $3 million from system development charges for projects that involve a seismic retrofit.

The Mason Ehrman may be more attractive for adaptive reuse than some older brick buildings, because it has already received some seismic retrofitting.

“Both buildings have had significant investment already,” Possert said. “It probably makes it a more likely candidate for conversion than, say, an (unreinforced masonry) building that hasn’t had any seismic work done.”

If Portland and other cities want to see more conversions, they need to expand waivers of development requirements, Hammer said.

“The approval process for adaptive reuse is relatively reasonable,” he said. “But they haven’t gone far enough in allowing people to play with their buildings in a way to maximize value.”

Copyright © 2024 BridgeTower Media. All Rights Reserved.