Finding the Bottom in Portland, Ore.

Despite the prevalence of rent reductions and concessions throughout the City of Roses, “things are stabilizing,” according to Gary Winkler, senior broker-multifamily investments in Colliers International’s Portland, Ore. office.

Portland, Ore.—Despite the prevalence of rent reductions and concessions throughout the City of Roses, “things are stabilizing,” according to Gary Winkler, senior broker-multifamily investments in Colliers International’s Portland, Ore. office.
Newer high-rises tend to push down rents in the older product, though garden-style assets appear to be more stable, notes Winkler, who believes the city is at, or near, the bottom. From 2008 to 2009, rents in the city actually increased 80 bps, though the surrounding areas saw between 1.5 percent and 6.4 percent declines.

“I think we have hit a rental bottom as far as what rents are at what type of NOI is brought in,” he notes. “The question is, what’s going to happen with cap rates—will we hit the value bottom?”

Cap rates are currently in the mid-7 percent range, though the market is experiencing compressions and is expecting to continue its upward climb. Transaction volume was down 78 percent year-over-year, according to the Colliers’ Portland Multifamily IQ Investor Quarterly, year-end 2009. Compounding this, the metro is anticipating its first take back of a distressed asset this summer.

However, the overabundance of supply and the high unemployment rate (as of January 2010, the unemployment rate for Portland-Vancouver-Hillsboro, OR-WA was 11.3 percent, according to the Bureau of Labor Statistics) may prove to cause more problems throughout the city, as the vacancy rate has increased to about 6.5 percent throughout the metro, with rates as high as 10 percent in certain markets.

“We do have a lot of newer properties, and the difficulty is [achieving the] required rents in order to make them cash flow,” Winkler tells MHN.

Class A assets appear to be the worst performers, with B product faring relatively better. This is perhaps due, at least in part, by the shadow market created by condos in the downtown area.

If any opportunities do exist, Winkler believes they are due to the basic market fundamentals and the fact that “positive leverage is back.”

On the bright side, notes Winkler, “Portland is a good market when people are reasonable, so I think we’ll be a great market once we go through the pain of equalizing.” On the flip side, the city cannot support a large number of luxury apartments, so absorption is essential.