Developer Tom Moyer considering options for stalled Park Avenue West tower [The Oregonian, Portland, Ore.]

May 29--TMT Development's effort to get crews working again on the stalled Park Avenue West office tower took a body blow earlier this month when the Portland Development Commission turned down a lease deal and opted to stay in cheaper Old Town quarters.

TMT had told the city that it could get construction financing if PDC agreed to relocate.

But the $170 million downtown Portland project could still be salvaged after a 13-month hiatus, thanks to interest from Pacific Life Insurance Co. The insurer has confirmed to The Oregonian that it is interested in financing the construction project and is negotiating terms with TMT, the real estate developer headed by Tom Moyer.

"We don't have a loan right now with TMT; we don't have a signed contract," said Pacific Life spokesman Tennyson Oyler. "But we are working with them."

The deal, if it comes together, would be a victory for Moyer and for Portlanders tired of seeing a block-sized hole where a retail and office building used to be. But in the era of a frightening economic implosion and enduring credit crisis, developers in general face a formidable funding equation.

Lenders typically want to see a building 75 percent pre-leased before they'll extend financing. They want strong tenants, a good location and a large equity contribution by the developer.

Even with the PDC pre-lease, the Park Avenue West would have been well short of 75 percent. But without the city's urban renewal agency and its 170 employees, the building stands at just 43 percent.

So what now?

TMT President Vanessa Sturgeon is tight-lipped, and declined to address Pacific Life or other specific possibilities. "We're trying to regroup and make a decision about what we want to do going forward," she said.

Behind the scenes, the company may be trying to get around the pre-lease requirement by offering up additional collateral unrelated to the new building. Pacific Life's Oyler said he is unfamiliar with those discussions.

TMT's two major prospective tenants at Park Avenue West -- Nike and the Stoel Rives law firm -- are still apparently on board, though Stoel Rives is keeping its options open.

"We are in regular contact with TMT Development about leasing arrangements at the Park Avenue West building and TMT's progress in securing financing," said Bob Van Brocklin, Stoel Rives managing partner. "We are also talking with our current landlord."

Nike still plans to take a significant chunk of the building's ground-floor retail space for one of its Niketown stores, according to sources close to the deal who aren't authorized to talk about it publicly. Nike did not return phone calls.

By some measures, the city's downtown core has actually held up well through the economic crash. The downtown vacancy rate stood at a respectable 10.5 percent at the end of the first quarter, according to CB Richard Ellis. That's up from the boom times but less than half the vacancy rate in overbuilt Seattle, for example.

Brian Owendoff, managing director of CB Richard Ellis's Portland office, said there is demand out for more downtown space that should keep vacancies at what he considers decent levels. He said his firm is tracking 14 tenants that require 40,000 square feet or more. At this point, there are only six downtown buildings that could accommodate them.

CB Richard Ellis is not involved in the Park Avenue West project. But Owendoff predicts TMT will get it built one way or another.

"As a former real estate developer, I do not see TMT walking away from a significant investment that has been made to date," Owendoff said. "Construction costs have dropped approximately 15 percent over the past six months, and are at or near the bottom. The lack of large blocks of class 'A' space tells me a larger user will step up as a pre-lease tenant to restart construction at Park Avenue West."

On the other hand, rents have gone down, too -- largely because landlords have been forced to grant concessions to struggling tenants. And moving beyond downtown, the market is far more grim. Sunset Corridor, the Kruse Way district and other suburban markets have vacancy rates approaching 25 percent.

The market has been plagued by tenants downsizing as they attempt to weather the economic storm.

Businesses in the greater Portland area gave up more than a million square feet of space in the fourth quarter of 2009 alone. That was the largest quarterly reduction in the local market's history, according to a recent report from FirstService PGP Valuation.

In that kind of environment, it takes a gutsy lender to underwrite a large construction loan.

Ratings agency Standard & Poor's downgraded some of Pacific Life's bonds earlier this month, citing the company's already "high exposure" to construction loans, high-end resort loans and hotel loans.

Pacific Life said it was surprised by the downgrade, since it has not experienced a loan default or foreclosure in the last five years.

-- Jeff Manning

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