After seven years, a multifamily building opens

Officially, the real estate investors, architects and construction executives who gathered in Northwest Portland last week came together to celebrate the opening of Merx , a 126-unit mixed-use building.

But in a sense, they were celebrating the last breath of the pre-pandemic real estate cycle.

Merx was conceived in 2017, before COVID-19 delayed projects around the nation and sent construction prices spiraling by making everything from loans to concrete more expensive.

“We started this process seven years ago, so the landscape was somewhat different,” said project co-owner Richard Smith, founder of Deacon Development . He undertook the project with Steve Deacon, founder and board chairman of Deacon Construction . The two are longtime colleagues Smith was Deacon Construction’s first full-time hire in 1982 as project engineer.

Merx, at 1910 N.W. Pettygrove St., was part of a wave of projects submitted just before Portland’s inclusionary zoning rules took effect, requiring affordable units in apartment buildings of 20 units or more. The property was purchased for $2.55 million in October 2017.

Deacon Construction began construction of the 57,412-square-foot building in August 2022, enduring pandemic-related disruptions and workforce challenges, a historic ice storm and delivery delays of construction materials.

On July 10 the Merx project team held a grand opening for the building, where leasing has begun. The property is part of a generation of multifamily buildings in the Slabtown neighborhood a former industrial area bordering the Pearl District .

“This one’s been in the works for quite a while,” said Andrew Naegeli, CEO of Deacon Construction, which served as general contractor for its sister company, Deacon Development Group (the companies are operated separately). “It was a difficult project to get started.”

Throughout construction, prices rose.

“As soon as we could (value engineer) it, the price would go up,” Naegeli said.

Financing also proved a challenge. Initially, project owners Steve Deacon and Smith approached the U.S. Department of Housing and Urban Development for financing. HUD was not interested in expanding its portfolio in Portland at the time, Smith said.

“We had to start over from a financing perspective,” he said.

Eventually, the investors secured a loan from Oregon Community Credit Union .

Now, the building is open. It comes as Portland’s once-tight rental market has seen some loosening, with vacancies rising to 6.2 percent, according to Multifamily NW ’s spring 2024 report.

Merx stands out as one of the few multifamily projects delivering this year. Multifamily permit applications were on track to fall 82 percent to 393 through May on an annualized basis, according to census data analyzed by brokerage HFO Investment Real Estate .

“The multifamily housing market, nationally and within the Portland (metropolitan statistical area), is experiencing significant challenges,” HFO wrote in a recent report. “High interest rates, material and labor shortages and regulatory hurdles contribute to declining new multifamily housing starts and permits.”

Merx’s units are all studios or one-bedroom units, with an average of only 320 square feet. The apartments are styled for urban living for singles or couples, with full kitchens and Murphy beds in certain units. Some of the apartments are laid out in shotgun fashion, much longer than they are wide.

Deacon Development is not alone in delivering small units to Portland. The city had the nation’s second-smallest new apartments in 2023, according to results of a RentCafe study released in June. Portland apartments averaged 685 square feet, down 7.3 percent in the past decade. Seattle had the nation’s smallest new apartments on average 661 square feet. The national average was 916 square feet.

Merx features a two-story concrete podium topped by five wood-framed stories. The building has 911 square feet of retail space.

The building’s design changed after project entitlements, said Alex Yale, president of YBA Architects , which designed the building. Nineteen apartments were added, a parking podium was removed, and a rooftop amenity deck was added.

“We wanted to differentiate with design,” he said.

The project would be difficult to begin today, said Ian Lewallen, president of Deacon Development.

“It’d be really challenging,” he said. “We have four projects that are essentially permit-ready right now, but just given the nature of the capital markets right now, it’s not really feasible.”

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