A San Francisco Investment Firm Is Snatching Up Old Town Real Estate
It’s Already Bouncing the Boiler Room, and Others Are Worried
ON AUGUST 11, Old Town karaoke mecca the Boiler Room announced new landlords were pushing it out of its corner space at NW 3rd and Davis after 15 years.
The bar’s fans immediately did what Portlanders do these days—raged on Facebook and elsewhere against the loss of another city institution. It didn’t help that the company that’s declining to renew the Boiler Room’s five-year lease,Swift Real Estate Partners, is based in San Francisco. The well-trod anger over Bay Area money having its way with Portland was unavoidable. Stories emerged of people leaving drunken, angry voicemails at Swift’s headquarters after the Mercury reported the company’s name.
Still, the Boiler Room’s impending closure has a different flavor than what Portland’s used to. Often when spots close, it’s because they can’t come to agreement on a proposed rent hike (like the Matador), or are hurting for business (P.R.E.A.M.), or there are major renovations in the works (Magic Garden). None of those factors were apparently at play in this case.
“The Boiler Room’s last night will be September 20,” the bar’s former general manager, Mike Reed, posted on Facebook on Thursday. “Not because of problems or city regulators, not because of customer service issues, fights, poor management, or even lack of revenue. The Boiler Room is closing because apparently the new Californian investment group/new landlord projects more revenue with a potential ‘Starbucks’ type of business or another daytime-use space in the corner unit.”
This model—maximizing profits for the sake of investors who pay into funds worth hundreds of millions of dollars—has been at the heart of Swift’s business for the past several years. And it turns out the Boiler Room and its immediate neighbors aren’t the only ones that stand to lose.
Property records show Swift has snatched up a half dozen buildings in Old Town in the last year and a half, prompting alarm from local businesses worried they might be pushed out, and anger from those who already have been.
“[Swift] indicated they feel Portland is well undervalued,” says Paul Wagner, whose startup company, CloudEngage, left its three-year home at 123 NW 2nd after he says Swift proposed a nearly 50 percent rent increase. “They plan to bring it more in line with Bay Area pricing. There’s no stopping what’s happening.”
Since April 2015, Swift has spent $36.7 million buying up buildings with the aim of paying off investors that include teachers in Texas and bankers in Switzerland. Thanks to its most recent, $12.1 million purchase in December 2015, the company now controls whole block faces along NW Couch (between 1st and 2nd) and NW Davis (between 2nd and 3rd)—including buildings that hold tenants like Floyd’s Coffee and Old Town Pizza. In April 2015, it spent $9.1 million on a building at NW 1st and Couch that houses Airbnb’s Portland offices. In July of last year, it spent $15.5 million to snap up more than three-quarters of a city block at SW 1st and Ash (including the building that houses the Mercury’s offices).
“Portland is being recognized by out-of-region investors as a place that hasn’t been picked over,” says Gerard Mildner, director of the Center for Real Estate at Portland State University. “There are opportunities for buying assets and repositioning properties.”
Notably, Swift purchased all this property from the same local owner: Fountain Village Development. That company, owned by prominent Portland developer John Beardsley, has been a leader in buying and managing historic properties for decades. In late 2009, as the real estate downturn forced him to declare bankruptcy (and lose some of his buildings in the process), Beardsley told theOregonian: “I’ve got by far the most historic buildings downtown. I’m a steward, and I’m not surrendering that.” Swift’s offers, it appears, softened that stance.
The question now becomes how the company will seek to make its investors money in a corner of Portland that’s been known more for noisy nightlife and social services than high-end real estate.
Swift’s president and CEO, Christopher Peatross, hasn’t been shy about his technique. The company focuses on buying “value-add” properties—that is, buildings that have existing tenants, but which can be improved to attract new tenants or higher rents.
For instance, after purchasing seven Silicon Valley office properties in 2014, Peatross told a Bay Area real estate publication he’d look to make money “as we either bring the rents that are now 20 percent below market [rate] up to market levels or bring in new tenants.”
In the case of the Boiler Room, the company has decided to bring in new tenants, and is reportedly looking for someone who will open their doors during the daytime, as opposed to only at night. Peatross didn’t return a message left with a receptionist. Todd Becker, a senior property manager for Swift in Portland, didn’t return the Mercury’s phone and email messages.
Tenants who have interacted with Swift since their buildings were bought relate varying stories (the Mercury recently secured a new lease).
“We had a long-term lease that has been honored by the last building owner and Swift, including an option that renewed that lease until August of 2019,” says Lynn Longfellow, executive director of the Oregon Nikkei Endowment, which runs the Oregon Nikkei Legacy Center, a museum dedicated to Japanese American history, at 121 NW 2nd. “Hopefully there will not be any problems with them honoring it. So far there haven’t been any issues.”
Things aren’t so sanguine just around the corner. Since Swift purchased the Norton Hotel building that houses his business, Floyd’s Coffee Shop owner Jack Inglis says he’s had an extremely hard time getting the company to sit down with him about his lease, which expires in just under two years.
“We are very concerned about our future in the building,” Inglis tells theMercury. “When a new owner refuses to talk about renewing your lease, it usually means that they want you out.”
According to Inglis, though his building was purchased in December, it wasn’t until last week that he had his first face-to-face meeting with Becker, Swift’s Portland-based property manager. Inglis says he’s asked other tenants “whether they have had any luck actually speaking to anyone from Swift over the last eight months—to a person, they had not.”
“I think we all have concerns,” confirms Kecia Nathan, owner of the Whiskey Bar, which sits in the same building.
Some of that concern has waned in recent days for Inglis. After he first spoke with the Mercury, he says Swift reached out with an offer to extend his lease.
“We’ll see what happens,” he says.
Despite the worries playing out in Old Town, not everyone sees Swift’s arrival as a bad thing. Cliff Hockley, president of Bluestone and Hockley Real Estate Services, tells the Mercury the investor’s interest in the neighborhood—which is likely short term—might ultimately be transformative.
“It is a different dynamic and it’s going to continue and it’s not going to stop,” Hockley says. “I think it’s a positive thing. Portland is coming on the map.”
Full disclosure: Author Dirk VanderHart previously worked as a KJ at the Boiler Room.