Portland Ritz-Carlton developer waffles on affordable housing pledges

Portland developer Walter Bowen signed an agreement with the Portland Housing Bureau last March pledging to make 27 luxury condos in his opulent Ritz-Carlton tower affordable to people like the plumbers and drywallers working on the building.

At first blush, it seemed like a resounding victory for the city and a key affordable housing policy. But 2 ½ years after Bowen’s company broke ground on the project, it remains unclear what he intends to do.

Bowen’s representatives have on several occasions indicated he has no intention of putting cut-rate condos in the ultra-exclusive structure. A spokesperson says the developer likely will not but is still weighing his options.

All that ambiguity has been good for Bowen. The longer he dangles the possibility his new tower will offer affordable condominiums, the longer he can delay paying an $8.1 million fee that would otherwise have come due early last year.

Among the thousands of pages of city records obtained by The Oregonian/OregonLive are emails suggesting city officials don’t believe Bowen has any intention of including the affordable units, despite the agreement.

“They forced us into a loophole to pay it later, once the building is built, by agreeing to provide affordable units even though they do not intend to actually do so,” Portland Housing Bureau manager Dory Van Bockel wrote in April.

In other words, the city has been outmaneuvered and outsmarted. Bowen has employed an unprecedented and perfectly legal strategy to defer the payment and keep the city at bay. The delay tactics could keep the $8.1 million, which the city would put toward affordable housing elsewhere, unavailable at a time when the housing is sorely needed.

The situation raises the question of whether the city has been aggressive enough when working with developers on affordable housing deals as Portland enters the seventh year of a housing emergency.

Bowen has become one of Portland’s premier local developers, with two major downtown developments under his belt and a third — the unfinished Ritz-Carlton tower, known as Block 216 — already reshaping downtown’s skyline.

He’s also made prior affordable housing promises that have yet to pan out.

In the spring of 2020, Bowen’s team proposed fulfilling the Ritz-Carlton tower’s affordable housing obligation with a new apartment building on downtown Portland’s South Park Blocks. Only later did Housing Bureau officials realize that Bowen had already promised the same 60-unit structure to another city bureau back in 2016.

Bowen’s company has yet to break ground on the apartments, nearly six years since it agreed to build them and more than two years since the original deadline for completion.

Much is riding on his latest project, which will include the Ritz-Carlton hotel, 134 condos that will share branding and amenities with the hotel, and prime office space. It’s being built on the site of a former cart pod and parking lot at Southwest Tenth Avenue and Alder Street.

Portland officials are looking for a win after two years of negative press and a frightening deterioration downtown, emptied by the pandemic and rocked by raucous and at times destructive protests.

Bowen has some allies in high places. In a text message last May, Mayor Ted Wheeler told Commissioner Dan Ryan that Bowen wanted to meet with him. “He is the developer of the Ritz project downtown,” Wheeler wrote. “It’s very important that this project move forward without delay.”

Wheeler and Bowen have met six times in the last 12 months. Now, the two are on a first-name basis.

“Low-income housing is essential to revitalizing our downtown to the benefit of all Portlanders,” Wheeler said in a written statement to The Oregonian/OregonLive. “My administration and I have met with Walt Bowen periodically over the past year. I often meet with leaders in our community to support both large and small businesses.

“We look forward to the positive economic impact Walt’s investment will bring to the west end of downtown,” Wheeler continued. “However, Walt and any other developer in the city must follow the city’s housing regulations as they are written. Any developer who does not follow the city’s housing codes can be subject to significant penalties.”

Bowen’s supporters say now is not the time to hassle him. He’s walking a financial and logistical high wire getting his 1 million-square-foot project financed and built. The building has become more than just another downtown tower, they argue — it is a symbol of hope and resurgence for a struggling city.

“This is the keystone project,” said Homer Williams, a fellow real estate developer. “If we’re going to bring the city back, this is it. Walt’s making the biggest bet of his life. He’s already put $100-$150 million into the building. He needs all the help he can get from the city.”

Bowen spokesperson Pat Walsh said focusing on the $8.1 million misses the larger point. The building will generate $10 million per year in new tax revenue and 2,000 jobs once the hotel is up and running.

Bowen’s companies expect they will have paid $25 million in various fees, taxes and other costs to the city by the time the building is complete.

Bowen and his backers could also benefit from big tax breaks for properties, like the Ritz-Carlton tower, located in a federally designated “Opportunity Zone.” Virtually all of downtown Portland is in one of these zones, which means investors in Bowen’s tower could significantly reduce or even eliminate any capital gains tax.

The first big ask

Since it went into effect in February 2017, Portland’s inclusionary housing policy has required any private project with 20 or more residential units to price at least a fifth of them to be affordable to households making 80% of the median family income or less.

The program offers another option: If they don’t set aside the units, the developers can instead pay a fee to the city, allowing it to build the affordable housing elsewhere.

Builders say the program is a bad deal. The tax cuts and other benefits offered by the city in return fall far short of what they could make from full-price units, they argue. Construction of multifamily projects fell steeply in the years since the policy took effect.

Bowen’s company, BDC/Washington Street LLC, broke ground on the Ritz-Carlton building in August 2019. A year before that, Bowen’s people were in City Hall pressing for concessions.

At issue was the formula used to set the fee facing developers who choose not to include affordable units. The city based the fee on the building’s total square footage.

Keeping the existing formula “would, frankly, kill the project,” said Brian Owendoff, Bowen’s liaison to City Hall. He told the City Council that the formula should only count the square footage devoted to residences, not the hotel or offices that would share the building.

The council agreed, voting unanimously to tweak the formula. The Ritz-Carlton tower’s fee fell from $26 million to $8.1 million.

Bowen’s representatives were soon asking for more relief.

In April 2020, Phil Beyl, a Portland architect also on the Bowen team, confirmed to Van Bockel, the Housing Bureau manager, that Bowen would not include the affordable units in the Ritz-Carlton building. And he wanted the $8.1 million fee further reduced or deferred.

“As this will be a significant payment that comes due at the peak of the world’s Covid-19 crises and the international economic upheaval that accompanies it, our client has asked us to investigate any/all opportunities for deferring fees like this to more closely align with the completion of construction,” Beyl wrote.

The $8.1 million would come due when the tower got its final building permit – which turned out to be March 2021.

But that month, the developer changed direction and signed the agreement to provide the affordable units after all. The deadline went away.

Another crisis emerged around the same time. A $1.6 million construction excise tax was coming due, and the project didn’t have the money.

It was a short-term cash-flow issue, Owendoff informed city staffers. But if they didn’t get some help from the city, construction could grind to a halt.

“These are challenging times and we really need your assistance in making this happen to keep this project moving forward,” Owendoff said in March 30 email to Brett Eisenbrown, his main contact at the Housing Bureau.

Owendoff said that Bowen’s company could pay $500,000 of the excise tax. But the city would need to accept a promissory note — a promise to pay later — for the $1 million-plus balance.

The Housing Bureau said it couldn’t accept a promissory note.

The looming crisis fizzled a couple weeks later, when Owendoff said the project’s lender had agreed to forward the money needed to pay the tax.

But the hard feelings persisted.

Owendoff claimed the city had misled the project team when it ballparked the excise…