Ikea Commits to Portland

PORTLAND, OR-The Sweden-based home furnishings retailer Ikea will anchor Cascade Station, a 120-acre swath of development-ready Port-owned land along the light rail line to Portland International Airport that has been primed for development since early 2001. The commitment comes after months of negotiations and is expected to kick start 2 million sf of mixed-use development in an area for which the necessary infrastructure–from utilities, tree-lined streets and light-rail stops to sidewalks, grassy knolls and benches–has been in place since the light rail line was completed more than four years ago.

In February, after the city and developers found out about Ikea’s interest in opening one of its 400,000-sf stores in Portland, the development plan for the area was quickly revised to correct a miscalculation regarding the retail component of the master-planned development. The original plan–for 400,000 sf of retail in buildings no larger than 60,000 sf–was not successful, they said, because it was essentially a neighborhood shopping center without a neighborhood due to its proximity to the airport.

The revised plan–which calls for 800,000 sf of retail including one retailer anchor with a 205,000-sf footprint (Ikea’s preferred footprint), another with a 185,000-sf footprint and a third with a 90,000-sf footprint–allows for the kind of destination retailers that should draw enough customers from the region to create a market for smaller retailers such as coffee shops bookstores and restaurants. That, in turn, should give companies a reason to relocate their employees to the area, sparking prelease commitments that the developers could then use to obtain construction financing for the project’s 1.15-million-sf office component.

The office component was cut back from the original 1.32 million sf to allow for the expansion of the retail component. For the same reason, the number of hotel rooms in Cascade Station was cut back from 1,200 to 250 and plans for a 24-screen movie theater were scrapped altogether. A gas station fronting Airport Way remains part of the plan. The changes were approved by the Portland City Council in February but weren’t reflected in the Portland Development Commission’s six-year-old development agreement with Cascade Station Development–a joint venture of Bechtel Corp. and Trammell Crow Co.– until June.

Cascade Station was a key element of the plan when the City of Portland made the decision to invest in urban renewal funds into the extension of the Airport Max light rail line in 1999. As part of the negotiations, the Port granted the city’s urban renewal agency, the Portland Development Commission, the long-term development rights to the Cascade Station land in exchange for the PDC’s $51.2-million financial commitment to the construction of the light rail line to the airport.

Believing that successful redevelopment of the property would depend on private sector financial participation; the PDC assigned the development rights to the Bechtel-TCC joint venture in exchange for a $28.38-million senior obligation bond and a $14-million junior obligation bond. The PDC then used the senior note to pay off the tax-exempt bonds issued to cover the PDC’s portion of the light rail line.

In addition to amending the 1999 development agreement, the PDC in June directed staff to negotiate a restructure of its remaining financial interest in the development of Cascade Station, the $14-million junior obligation bond. Generally, payment on the junior note would come from gross revenues generated by the Cascade Station development. Instead of waiting for that, the proposed restructure calls for the PDC to assign its junior note back to the Bechtel-TCC JV in exchange for development rights to 36 acres of Cascade Station land planned for office development, which Trammell Crow would then acquire from the PDC for $14 million.

Numerous conditions must be fulfilled before the proposed restructure would become effective. Among them is the requirement that the Bechtel-TCC JV consummate a sale and assignment of a ground lessee’s interest with Ikea. With Ikea’s announcement today, that appears to be close at hand.

Ikea’s closest store is in Renton, WA, is immediately south of Seattle. Other mega-box destination retailers not yet in Oregon or Washington include Cabella’s and Bass Pro Shops, the dueling hunting-and-fishing gear retailers.