Working class priced out, kicked out in new Portland housing boom
Enrique Rios, a 26-year-old Los Angeles transplant, lives with his fiancée and small dog in a 250-square-foot "micro-unit" apartment in Northwest Portland. It is the size of a college dorm room with space for a bed, a toilet and not much else. He cooks meals in a communal kitchen shared with other tenants.
Rios pays $995 a month.Seattle developer Footprint Northwest LLC bought the home that was at the site on Northwest Thurman Street in 2013, replacing it with a five-story, 54-unit building.
Call them "a-pod-ments," or hipster hovels, there are now hundreds of these micro-units in Portland. They are part of a real estate gold rush that is transforming Portland and is propelling housing costs to levels never before seen.
Seven years since the last housing bust flattened Oregon's economy, developers have let loose another tidal wave of building. From the red-hot Clinton neighborhood in Southeast Portland to St. Johns, developers are pouring hundreds of millions of dollars into glitzy apartment buildings.
Despite 22,000 new apartments coming on line in the metropolitan area since 2012, more than half in Portland proper, vacancies remain practically non-existent. That has freed apartment owners to charge eye-popping rents -- think $1,200 for a 400-square-foot studio, as much as double that for a one-bedroom.
The average rent in Portland has jumped 41 percent since 2010 to $1,242, according to Axiometrics, a Dallas real estate analysis firm.
The boom raises troubling issues of economic inequality, as rent hikes have spiraled far beyond workers' wage increases. The posh new apartment houses are prevalent on Portland's east side, historically the gritty home to the city's working class. Even developers share foreboding that the central city is becoming a playground for the affluent while the young and the old and the people in the service economy no longer can afford to live there.
Critics have coined a nifty phrase for the trend -- "economic apartheid."
Affordable housing has become a hot political issue up and down the West Coast as prices continue to escalate. But addressing the downside of popularity and growth is no easy task. Said one local planner: "This is capitalism. How do you fight it?"
While bureaucrats mull policy, people are struggling to stay in their homes.
"We're getting a hundred calls a week from local people in some sort of housing crisis," said Bobby Weinstock, of Northwest Pilot Project.
Developers discover Portland
Real estate developer Patrick Kessi has brought the apartment boom to St. Johns, the blue-collar neighborhood where he attended college and raised his family. His company in January completed the Marvel 29, a 165-unit, four-story apartment building in the neighborhood's commercial district.
The building filled in just six months, fast enough to convince Kessi he wasn't charging enough rent. Nine months after the building opened, Kessi upped the rents on select units 30 percent or more. Rent for a 400-square-foot studio with a view of the St. Johns Bridge increased from $900 to $1,300 a month.
For years, the $3 per-square-foot barrier was to the Portland apartment rental market as the four-minute mile was to track. It was a price few developers dared charge.
"Now, we've broken through $3 and we're headed for $4 per square foot," said Mark Madden, a local developer who's built about 600 units, about half of them micro-units, since 2010.
To be sure, the apartment boom is a problem many cities wish they had.
The construction cranes dotting Portland's skyline mean jobs, tax revenue, and increasing property values. The developers are here because people are moving here, attracted by the vibe, the climate and environment. Portland's population has jumped by more than 36,000 since 2010.
Under the typical formula used by economists, the city would need 15,700 new units to house that kind of growth. But because so many Portlanders live alone – 35 percent, well beyond the U.S. average – the actual need is significantly higher, city officials say.
The target market for the developers are the thousands of highly paid tech workers now working in the central city, particularly transplants from the Bay Area and Seattle who view Portland housing as a bargain.
"The city is really attracting a lot of young, educated people and those people are attracting companies with jobs," said Sam Rodriguez of Mill Creek Residential, a Texas-based developer.
It wasn't too long ago that condominiums were developer's product of choice. But today, it's all about rentals. Between Millennials who can't borrow or don't want to be tied down and baby boomers who want to retire in the central city, the urban apartment market is hot.
"You have this confluence of the two largest demographics in the country," said Homer Williams, a Portland developer. "You've got the baby boomers downsizing and the Millennials who can't upsize."
Dennis Sackhoff made his fortune building single-family houses through Arbor Homes. But he saw the demographic trends and pivoted to multifamily. His new company, Urban Development Group, has built more than 650 apartments in the last three years.
National and regional developers also have discovered Portland.
Mill Creek has built or is under contract to build 1,600 apartments, and is considering another 200 to 400.
American Assets Trust of San Diego is finishing up 657 apartments in the Lloyd Center and will soon break ground on a 1,000-unit apartment project nearby.
Capstone Partners completed 975 units, including the Grant Park village apartments in the Irvington neighborhood and the Burnside 26 in the inner eastside.
In addition to the 750 units he's already built, Madden is planning another 180.
Between them, these five companies have invested more than a billion dollars building more than 5,000 apartments since 2010.
Supply and demand
Because of the strong in-migration, vacancies hover at just 3 percent, which gives landlords enormous leverage to raise rents. Portlanders suffered a 15 percent year-over-year average rent increase in the 12 months ended in August, the steepest increase in the country, according to Axiometrics.
As a result, Williams said, the portion of income Portlanders can expect to devote to housing has increased from 25 to 35 percent. Renters moving from major West Coast cities are used to paying 40 to 50 percent of their income for housing.
The escalating rents in Portland have attracted the biggest institutional investors in the world, who are buying apartment houses at hefty premiums.
Like home-flippers from the last housing boom, the developers are now reselling buildings only recently completed to big institutional investors. Mill Creek in July sold the Cordelia Apartments in Northwest Portland for $47.5 million to TIAA-Cref. A month later, Capstone sold the Burnside 26 to BlackRock, a huge financial firm, for $41.5 million, a record for an eastside property.
Based on numbers provided by Capstone, it appears the BlackRock sale generated an $11 million profit – more than 30 percent. The company declined to confirm that number.
BlackRock almost immediately raised the rents. Candace Camarillo said after just seven months in the building, she was informed the rent for her 683-square-foot one-bedroom would jump 23 percent to $1,895 a month.
Camarillo, a 35-year-old software developer, moved.
Terminated at the Sovereign
Colby Gillespie, 63, had every intention of living the rest of his life in his studio in the Sovereign Apartments in downtown Portland. He lived in the building at Southwest Broadway and Madison since 1980 and the $750 monthly rent fit his grocery checker's budget.
But the new owner of the building had other ideas. In May, Randall Investment Co. informed Gillespie and the residents of the other 43 units that a planned renovation required everyone to be out by the end of the year.
"I have no idea where I'm going to go," Gillespie said. "I'm really angry. It's all very cold and corporate."
Gillespie and his neighbors are suddenly among Portland's "displaced," those low- and middle-income locals forced out by the boom. While the big new projects have gotten the headlines, smaller operators have been snapping up dozens of smaller, older apartment buildings.
Tenants are often forced out by building renovations or rent increases they can't afford.
Advocacy groups struggle to bring attention to the impact. The Community Alliance of Tenants claims hundreds of Portlanders have been forced out by landlords seeking higher rents -- known in the rental business as a no-cause termination. Last week, the group declared a renters' state of emergency and called for a year-long moratorium on no-cause terminations and stricter notice of rent hikes.
The next day, Portland Commissioner Dan Saltzman said he would introduce new tenant protections requiring that landlords give a minimum of 90 days notice of a pending termination – up from the current 30 days.
Whatever new protections are enacted, it comes too late for residents of the Sovereign.
Randall bought the building for $3.7 million from an affiliate of the Oregon Historical Society in May 2014. The company didn't return telephone calls seeking comment.
For a year, it seemed like life would carry on as usual. Helena Thompson, 51, moved into the Sovereign in February 2015. No one from Randall warned the musician and photographer her stay would be short, she said.
Three months later, Randall made it official: Tenants had to be out by year's end.
They scrambled for affordable alternatives.
Thompson is leaving Portland. A former San Francisco resident, she said she's familiar with gentrification and has no desire to watch it happen in Portland.
Gillespie lucked into a Northwest Portland apartment. His rent, though, jumped 28 percent.
"It's just on the edge of what I can afford," Gillespie said. "But I'm one of the lucky few who found something."