The Portland Metropolitan Building Owners and Managers Association (BOMA) recently convened an industry roundtable. It was moderated by Marty Brantley of the Oregon Economic and Community Development Department.

Participants:

MARTY BRANTLEY
Director
Oregon Economic and Community Development Department

MARK FITKIN
Managing director
CB Richard Ellis

JIM MARK
CEO
Melvin Mark Cos.

JOHN MITCHELL
Western region economist
U.S. Bancorp

JORDAN SCHNITZER
President
Harsch Investment Properties

TODD SHEAFFER
Chief operating officer
Specht Properties Inc.

JOHN STIREK
President, development and investment — western operations
Trammell Crow Co.

MARTY BRANTLEY: What barriers to growth do we face in the Portland metropolitan region?

JORDAN SCHNITZER: First, ask where the strongest markets on the West Coast are for office, flex, retail and multi-family housing. It's where there's the largest single-family housing growth, and that's driven by the most affordable lots. Sacramento, Riverside, we've seen huge housing growth in Las Vegas, and big office growth as well. Here in Portland, folks keep hearing about lack of industrial land, and yet maybe the issue is as simple as asking: "Do we have enough affordable land for housing?" You want to keep an urban growth boundary (UGB), you want to keep quality of life. We say the reason we're all here is for quality of life, but this isn't our favorite market from a business standpoint. If you have affordable housing, you have sprawl. And if you don't want sprawl, then what kind of strategic business plan do you develop that has a strong economy?

JOHN MITCHELL: I think the industry mix is a critical issue: Riverside, San Bernardino, Orange County, they sailed through the recession, driven to a significant extent by consumer spending. Las Vegas — you've got retirees, a domestic destination, low cost relative to California. You come to Portland — or the Bay Area or Seattle — and you see three metropolitan areas that were heavily dependent on the technology boom, and you saw dramatic declines in all of those places as the technology sector imploded. Now things are looking better. We're back to employment growth in Portland, albeit very slow. They're back to employment growth in Seattle. The Bay Area is stabilized, but it's still very weak in that you're not seeing significant employment growth.

JIM MARK: I have never heard housing affordability given as a reason why people don't move here. We have one of the fastest-growing 25- to 34-year-old sets. A consistent theme I hear from people within that group who join the Intels and Nikes is: "We took Portland, and one of the reasons is the affordability of buying a first house."

MARK FITKIN: Here's the feedback we get out in the marketplace. Take a company that's looking at five different cities to locate in — part of the issue is finding the site, but a lot of it has to do with: What is the cost for me to employ a body here? What's the cost of housing? What's the tax structure? At the end of the day, there are alternative choices. As opposed to coming into Portland, they're going to Sacramento or Reno, somewhere other than Portland. We're getting less than 20% of them.

MARK: Definitely we have a tax-structure issue — companies saying that for their top executives coming into this region, getting taxed at 11% basically is a nonstarter.

FITKIN: I think it's been the aggregate of the cost of housing, the wages, the tax environment, and then maybe load that with some red tape and entitlement issues. When you line up the competitive markets for a user, we're less than average.

TODD SHEAFFER: We've rested on the laurel of quality of life to the detriment of economic well-being. When you try to protect all areas from growth, you limit the places for people to build homes. Economic well-being goes down, and there's a certain point where people don't care about quality of life unless they can maintain a certain lifestyle.

BRANTLEY: We developed a strategy 30 years ago that said we were going to develop urban growth boundaries. Is it out of date? Does it need modification to get back in balance?

MARK: When Senate Bill 100 [establising statewide land-use planning] was introduced, this was a different Oregon. We were more agriculturally based. I would start to put the control back into the local communities. Look at the Hillsboro area: To continue trying to pull in 100 acres here, 50 acres there — I think you have to have a commitment to getting local control into areas like that, pulling out stupid plans like Damascus, Boring. It's ludicrous. We've taken the sensibility out of our land-use system. We're not adding on logical pieces like we did in the '80s and '90s, where Intel comes in, you have 500 acres that you're going to add on.

SHEAFFER: When Senate Bill 100 was passed, the timber and agriculture industries were ranked number one and two in the state. So it wasn't just a quality of life issue. It was for the economic well-being of the region. Things have changed drastically. I don't know where they're at now, but I hear they're down in the bottom of the top 10. So they shouldn't get the same priority. They're being used now as tools by 1000 Friends of Oregon and others to try to advance their agenda.

BRANTLEY: So what is the solution?

SHEAFFER: One thing that should be considered is changing the priority of farmland — the high bar for developing it. We can't bring in land in Damascus — how are we going to fund the transportation infrastructure? You're going to pay three times there for infrastructure what you would pay down at Langdon Farms [south of the Willamette River in unincorporated Clackamas County]. That's a waste of public resources, of land that probably has more environmental value than the Langdon Farms piece.

BRANTLEY: What about the definition of industrial land?

SHEAFFER: Your department has done a good job in talking about the importance of the traded sector. Frankly, I wonder if that is too narrow. It's not an issue of industrial land — it's employment. Looking to the future, I wouldn't be surprised if you see less and less of true manufacturing occurring in this state, more and more of the value-added, intelligence-based industries, which are probably going to be housing and office space rather than industrial. Employment is what we're focused on, not industrial versus other uses, except in specific areas — port areas and others where you really need to allow Oregon Steel and other industries to continue.

JOHN STIREK: It's interesting because we all want to hang all this on the urban growth boundary, and in other markets we're applauded for having an urban growth boundary. They look at us and say: "Wow, I flew into Portland and it was beautiful. I could get to the coast. People tell me about their 15-minute commutes." Those are the quality-of-life things we love to say we have. I think what's really broken is just the process. It's not so much the UGB, it's the uncertainty within that process. When it takes two years or five years, or you can get appealed forever, 10 years on a particular project, the message that sends to other business users is, this is a tough place to do business. If businesses had certainty on how long it takes to say: "Do we add 200 acres, or do we expand around an Intel core?" The uncertainty is what kills you. In a business, you move on to the next location.

SCHNITZER: I think it takes a discussion saying: "Dinking around on whether it's Langdon Farms, 200 or 300 acres here or there, is a waste of time. We've got to create 25,000 to 50,000 acres over the next 20 years, come hell or high water, to hell with the urban growth boundary." Or we say: "There is no more land. There are no 200-acre exceptions. We're never going to have nine 200-acre industrial site options again." We're bitching about the boundary instead of focusing on what's going on inside it. Let's assume the ocean was all around us. If we were unable to expand the UGB, we wouldn't be sitting here and saying: "How do we expand it?" We'd be saying: "We're an island. What are we going to do within the island? Let's get a strategic plan about high-profile jobs, intelligence jobs. Let's develop a strategy and work towards that."

MARK: I think we are working within the island. I think we've studied the concept within the island — people basically neglect following through. The housing industry has a 20-year supply of land. What we've neglected over the years is the supply in shovel-ready land — so many sites ready to go. We had at one point, I think, 9,800 acres in '94. It wasn't even an issue — we had plenty of land. Then we got down to 118 industrial acres out in the Sunset Corridor.

SHEAFFER: There's no market factor when we look at the land supply. There are pieces of land that people are not wanting to sell. Intel is holding land for expansion. There's a farm family that doesn't want to sell their land. That is considered available land. That's a problem, and one we can address. In San Francisco, New York, L.A., Boston, they've got huge education resources. They have huge other resources that people want. Portland lacks that.

MITCHELL: Go back to the late '90s — we were on a tear. You could point to — wow, we've got the public transit system, we've got the UGB, we've got rapid job growth with high-wage jobs. Then we get the bust, and now all of a sudden we're focusing on creating jobs again. How the hell are we going to get these jobs back? We can talk about quality of life, but there are lots of alternatives to Portland, whether we're talking Reno, Boise, Spokane, that have land, have different regulatory environments. It's a different world. We could have the luxury of focusing on growth control five years ago, but now we've gone full circle and we're trying to generate employment. They were having an urban growth boundary debate in Las Vegas, and one of their commissioners said, "We don't want to become another Portland."

BRANTLEY: Let's go on to national trends. Where do Portland and the metropolitan area fit in?

STIREK: The markets that are working are the ones that got through the recession softer than the others. Southern California survived pretty well.

BRANTLEY: Why?

STIREK: Diverse economy, not overly dependent on one particular industry, especially high tech. So you had better diversification to ride through that storm. The interesting thing is that across the board, demand has been pretty ugly for the last two, three years, and the only moves we've seen are really moves toward efficiency. So you see a build-to-suit; they're really consolidations, corporate America trying to lessen their overall expense, trying to get more efficient. You had some element of pent-up demand after the war. It was almost like on January 1, the light switch got turned on and everybody's planning projects and moving forward. Some of them are demand-driven, and others are from real estate hacks like ourselves, basing it on an economic recovery that may or may not prevail here.

BRANTLEY: If that economic diversity is a key factor, how do we stack up right now?

MITCHELL: What's critical is the industry structure relative to that business cycle. Southern California had defense, biotech, consumer stuff. Oregon is loaded with producer durables — we had a much higher percentage of activity in information technology. We weren't at the level of the Bay Area, but we were pretty close to Seattle and Austin, and we were hit very hard. Our sector was not diverse relative to this cycle. It was OK in some other cycles. But now you've got business investment rising nationally. Employment is rising, which of course is absolutely critical to filling space and having a positive absorption rate. Oregon in the last 12 months is one of the more rapidly growing states in employment. But we're still coming up from what we lost.

FITKIN: From an institutional investment standpoint, institutions clearly have heavily invested in real estate over the last couple of years. I would say the demand for product in this marketplace has fallen in ranking. A lot has to do with the perception of our economy, taxation, the school issue. Clearly there's capital expenditure under way. The industrial users are not just moving across the street; they're emerging as new users. There's not been a lot of it, but there's activity.

BRANTLEY: Are there sectors that seem to be growing faster than others right now?

STIREK: Health care and higher ed.

MITCHELL: Transportation equipment — the railroad car business, the truck business, the RV business. And the high-tech stuff — output's been rising, earnings have been good.

BRANTLEY: Sketch out a 20-year framework — where should we go in order to balance ourselves so we don't go through this again?

SHEAFFER: We don't know what it will be in 20 years, so to try to direct little sectors is a mistake. I think you'll continue to see outsourcing. It makes sense — why wouldn't you put labor-intensive production in another country where it's cheap? For us to say we're going to keep this manufacturing here is a huge mistake. It will go overseas.

BRANTLEY: I agree with you, but at the same time, there are some manufacturing sectors that are here for a reason.

SHEAFFER: Value-added, high-end. I do agree, Marty, but I think you have to be careful about thinking that will continue.

MITCHELL: Oregon is an aberration — the massive expansion in manufacturing that we saw here, particularly in technology. Look at Bureau of Labor Statistics data long-term — manufacturing employment is going to continue to go down. I'm concerned about the notion that we can sit here and say: "It's going to be this industry or that industry." It's not like they're lined up outside and we get to pick and choose. We have to have an environment where firms can expand and grow and start — maybe in things that we're not thinking about now.

BRANTLEY: So how do we do an economic plan when we don't know who the economic players are going to be?

MITCHELL: It's a matter of infrastructure, education, ability. I don't think it can be very specific.

SHEAFFER: For us to compete and retain the high-wage jobs — you want the infrastructure in terms of education. I think that's key. We may not be a biotech leader for years and years. That doesn't mean that we shouldn't invest in OHSU, or we shouldn't boost PSU's capabilities, because that's how we're going to attract the best and the brightest to this area. That's a big kick for Intel, if you don't provide enough educational opportunities to bring the biggest and brightest support.

MARK: I think we have to adjust our taxes so you can have white-collar jobs here. When you look at white-collar job growth, especially in the central business district over the last 10 years, it's been mostly in the public sector. You look at the amount of office buildings built — we don't have taxation that welcomes people into the core.

BRANTLEY: As businesspeople, what do you do with these parameters? Do you say: "This is the way the Portland area will be for a while, so we'll keep our toe in the water, but we're really going to be investing in the Richlands and Boises and Las Vegases of the world."

SHEAFFER: That's why we're in other markets. We like Portland, quality of life. But we think that the growth prospects in the five- to 15-year period will lag other markets until we figure out who we want to be and how we're going to get there.

STIREK: If you can generate something locally that seems to make sense, there's plenty of money to invest. The institutional investors, I think they want to be here, but once they kind of get in here, it's really a battle — a lot of them want to get out large sums of money, and Portland's the kind of town where you nickel and dime it to death in order to build a large presence here. So it gets overlooked.

FITKIN: In the past few years, I don't know that we were ever off the radar screen, but we were a two-tier, three-tier choice.

BRANTLEY: Where are we now?

FITKIN: I think there's money that wants to be placed here. No question.

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