Business Plan Proposal to Multnomah County

October 2012

Coalition Partners:

Foster-Area Business Association

Foster-Powell Neighborhood Association

Mt. Scott-Arleta Neighborhood Association

ROSE Community Development

Southeast Uplift

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Executive Summary

The Wikman-Arleta Coalition Partners – ROSE

Community Development, Southeast Uplift,

Foster-Area Business Association, Foster-

Powell Neighborhood Association and Mt.

Scott-Arleta Neighborhood Association –

propose to purchase the Wikman Building

from Multnomah County.

The building, which is located at 4420 SE 64th

Avenue, would be rehabilitated and reused as a

business center and event space. These uses

were selected because they best combine the

preferences of the community with market

demand and financial feasibility.

Coalition Partners raised $15,000 toward initial feasibility work, consisting of $3,000 in

individual and organizational contributions and a $12,000 Development Opportunity

Strategy (DOS) grant from the Portland Development Commission.

Extensive research was conducted to determine the market demand for the uses proposed

here. The Wikman-Arleta Building Market Analysis and other information is included in

Appendix 2. These documents identify comparable properties in southeast Portland as

well as rents and occupancy rates.

In order to obtain financing, the purchase price must be determined by a third party

appraisal. The Coalition Partners believe that the assessed value of $505,340 is high; we

propose to split the cost of a third-party appraisal with the County in order to determine

whether the project is financially feasible for both buyer and seller.

The Wikman Building would be owned by a new nonprofit corporation organized for the

purpose of operating the neighborhood center. Because the new nonprofit would not

have the capacity to take on debt, support from the County would be required in one

form or another. This could be in the form of: 1) Assistance in fundraising so that the

building could be acquired debt-free; 2) Loan guarantee; or 3) Contract sale. The

Coalition Partners are open to negotiating with Multnomah County to arrive at a

mutually beneficial solution that creates a positive future for this unique neighborhood

asset.

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Wikman Building Vision

The principal goal of the Coalition Partners is to preserve one of the most historic

buildings in southeast Portland and repurpose it to meet community needs. The Arleta

Library was built in 1919 as a Carnegie Library thanks to a community fundraising effort.

Restoring the building will strengthen the community by providing a place for

community activities, programs and events. The building will also strengthen the

neighborhood economy by creating an identity and providing office space that can act as

a business incubator.

Lea Wikman was an immigrant from Finland and chairman of the Multnomah County

Community Action Agency. She was dedicated to empowering and providing assistance

to low income citizens. After her death, the County named the building in her honor and

continued to provide public services there. This project will be the next chapter for a

building that has served Foster Road neighborhoods in Multnomah County Districts 3 & 4

for almost 100 years, reaching as far out as Gilbert, Bell Rose and Powellhurst.

Coalition Partners

ROSE Community Development was created by outer southeast residents in 1992 to

revitalize our neighborhood. ROSE has developed and operated more than $40 million

worth of affordable housing and organized a variety of other neighborhood

improvements such as the Lents Homeownership Initiative, a collaboration of more than

50 organizations that created 320 new homeowners in five years; construction of

Marysville and Harney Parks; and the Child Care Neighbor Network.

Since 1968, the Southeast Uplift Neighborhood Coalition, a 501(c)(3) nonprofit

organization, has provided critical staff and organizational support to thousands of

volunteers fostering safe, vibrant and diverse neighborhoods within our coalition

boundaries. Southeast Uplift empowers citizens to effectively resolve challenges and

uplift communities through a variety of skill-building techniques and resources. Its

community programs include fiscal sponsorship for neighborhood association programs

and other small nonprofit organizations working in mission-aligned areas, Solarize SE,

Neighborhood Small Grants, Graffiti Abatement Community Grants and Land Use and

Sustainability support. Among its core beliefs are that organized neighbors can shape the

future of our communities, including envisioning and enacting positive change. Through

collaboration, we co-create the communities we want to inhabit.

Southeast Uplift is headquartered in Inner Southeast, in a multi-tenant building which it

owns and manages. It also owns another building, purchased by the community, restored

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and re-purposed to become a nonprofit coffee and neighborhood gathering place with a

special emphasis on parenting support. It was the fiscal sponsor throughout the

remodeling process for the nonprofit now running that program, "Cafe au Play".

Foster Area Business Association is dedicated to assisting in the creation of a business

district that provides accessible products and services for the neighbors, business owners,

employees and visitors as well as a cohesive group that assists in changing the

community’s vision of the Foster Road area through sponsoring community events and

supporting revitalization projects like the Wikman-Arleta building.

The Foster-Powell and Mt. Scott-Arleta Neighborhood Associations consist of

neighbors working together to help improve our neighborhoods. They provide a forum

where people can share their concerns about livability in our neighborhood, learn about

resources, connect to broader issues that affect our community, and meet their

neighbors. Everyone who lives in the area bounded by Duke Street on the south, Powell

Boulevard on the north, 82nd Avenue on the east, and Foster Road on the west is a

member of these associations.

Community Priorities & Uses

Over the past year there has been steady participation from members of the community

via steering committee meetings, visioning sessions and community benefit

organizations. In two community visioning sessions a vast majority of people voted on a

community center as the #1 use for the building.

1st choice 2nd choice 3rd choice TOTAL

Community Center 17 4 2 61

Credit Union 2 6 4 22

Art & Music Center

2 1 17

Small Business Incubator 0 5 2 12

Multigenerational Center 3 1 0 11

Office Space 0 4 2 10

*A first choice vote is given 3 points, a second choice 2 points, and a third choice 1 point

A credit union was the second most popular use for the building. However, all of the

credit unions serving the Portland area were contacted and none expressed interest in

locating at the Wikman Building. Also, the amount of capital and renovation needed to

accommodate this use may trigger seismic updates that would push the entire project

over budget. The other suggested uses are compatible with typical community center

activities and would not trigger expensive code requirements such as a seismic retrofit.

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Several community benefit organizations, community centers and local businesses

expressed interest in leasing space in the Wikman Building. The uses that that were of

interest to these organizations were similar to those identified in visioning sessions.

Wikman Uses

THA Architecture was hired to complete a Wikman Building Renovation Plan (Appendix

1). To complete the plan, a thorough physical inspection of the building was completed

and building codes were considered. In the process, Coalition Partners successfully

initiated an appeal of occupancy limits to the building that significantly increased the

number of people legally allowed in the main space of the Wikman Building, from 26

occupants up to 107 occupants. This makes the future reuse of the building more flexible

and economically viable.

*Red = Office Space (1,879 Sq. Ft.)

*Yellow = Meeting Space (1597 Sq. Ft.)

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The architectural plan provides flexible space that could accommodate meetings, events

offices and retail. To determine the most promising use, we compared three scenarios: 1)

Neighborhood Center; 2) Business Center; and 3) Retail. Both the Neighborhood Center

and Business Center options would have offices for rent in the east rooms and mezzanine,

while the main hall and first floor conference room would be rented by the hour.

Neighborhood Center offices would be rented for $7.50 per hour to accommodate startup

businesses and nonprofits. The Business Center offices would be rented toward the high

end of the district’s rent range at $9.00 per square foot. The third scenario, retail, would

actually generate the highest rent at $12.00 per square foot.

The chart below compares the options.

Characteristics Neighborhood

Center Business Center Retail

Uses Main hall and conference room: event rental; East rooms: offices

Same as Neighborhood Center

Retail throughout building

Main hall rent $50 per hour $50 per hour $12.00 per sq. ft.

Conference room rent

$25.00 per hour $25.00 per hour $12.00 per sq. ft.

East wing rent $7.50 per sq. ft. $9.00 per sq. ft. $12.00 per sq. ft.

Basement rent (all scenarios)

$3.00 per sq. ft. $3.00 per sq. ft. $3.00 per sq. ft.

Annual rent generated

$46,482 $49,203 $49,893

The Coalition recommends the Business Center scenario because it best combines the

community’s desire for flexible use public space with financial feasibility. Lack of off-

street parking limits Wikman’s retail potential. The combination of meeting space and

offices are compatible and allow the building to be used daytime, evenings and weekends.

This scenario provides an opportunity for community and economic development

because the office spaces can shared along with utility and infrastructure costs to lower

overhead and free up working capital for startups and small business.

Possible sources of risk are competition and vacancy rates. Office vacancies in the

southeast submarket are relatively high. Also, there may be an unstable and low revenue

stream because of the short term leases and relatively low lease rates.

The main hall will be flexible space suitable for community meetings, workshops,

exhibits, meetings and events. This was the most popular use described in visioning

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sessions and could allow for partnerships opportunities with Portland Community

College, Mt. Scott Community Center and Southeast Uplift.

All three organizations have expressed interest in utilizing the site to increase their

capacity in Outer Southeast. Portland Community College is interested in the site for

their Workforce and Economic Development Program, Mt. Scott Community Center is

interested in the space for their child care program (demand currently doubles their

capacity), and Southeast Uplift is interested in a meeting space in Outer Southeast. A

nonprofit kindergarten has also expressed interest in utilizing this space for classes.

Several artists and musicians believe the Wikman Building would be a great venue for

shows and exhibits. The space could also be used for weddings, parties and other events.

See Appendix 5 for Letters of interest.

Purchasing Wikman

The proposed purchaser of the Wikman building would be a new nonprofit entity.

Individually or together the Coalition Partners do not have the capacity to assume

Wikman Building debt without putting their missions at risk. Three ways that

Multnomah County could assist the project are described below:

1) Assist with fundraising

Multnomah County and the Coalition Partners share the goals of preserving the Wikman

Building and building community in Southeast Portland. The project’s ability to carry

debt is fixed by the Net Operating Income generated by rents. The County’s potential

profit from the sale of the building correlates with the amount of non-debt financing that

can be raised. Support from the County in identifying funders and developing grants

would serve the interests of both the County and the project.

2) Loan guarantee

Obtaining financing for any commercial real estate is difficult in this economy. This site

presents special challenges because of the nature of the project, the new ownership entity

and the project location in a pre-gentrification neighborhood. A County guarantee would

improve financing terms and may be the only way to get private financing.

3) Contract sale

The Coalition Partners understand that a contract sale is not the County’s preference. It

may be the only feasible way to finance the project. We project that all but approximately

$170,000 of the $480,000 project cost can be raised toward a down payment, which would

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reduce the amount that the County would have to carry on contract. The sale price to the

County could increase to the extent that its financing terms were better than that offered

in the market. A contract sale would give the County the most control over the property,

as well.

Acquisition Price

In our initial proposal, the Coalition Partners stated that we were willing to pay market

value for the property. The question is what is market value? The last independent

appraisal – which estimated a value of $750,000 – was done at the top of the market in

2006. Lenders typically require that an appraisal be less than six months old. The

County’s tax assessed value of $505,340 was not established by an independent third

party.

To estimate the value of the Wikman building for this analysis, we divided estimated Net

Operating Income for the proposed uses by a cap rate of 7.5% to derive a value of about

$220,000. We also compared the Wikman Building with two comparable Foster area

properties. The first, the Bob White Theater, which is one block away from Wikman and

sold for $350,000 in January, 2012. The second is the Odd Fellows Hall at 9216 SE Ramona

and is currently listed for sale at $340,000.

Property Price Square Ft Price/Sq Ft

Wikman – assessed value $505,340 4,877 $103.55

Wikman – cap rate estimate $222,651 4,877 $45.65

Bob White Theater $350,000 9,887 $35.40

Odd Fellows Hall $340,000 9,030 $37.65

The project is not financially feasible at an acquisition price of a half million dollars.

Before more resources are expended on this project, we propose that the County and the

Coalition Partners split the cost of a new appraisal, which would cost about $5,000. With

better information about the value of the building, both sides would be in a better

position to decide how to proceed.

Financials

According to estimates, revenues from rented space come very close to matching the

operating cost for running the building but ultimately fall short. In order to keep the

building operational, the proforma includes proceeds from fundraising benefits. These

events would add both fundraising and community awareness value.

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Revenue

The rental rate for office space was taken from average market rates derived in the market

analysis in Appendix 4. The revenue from community spaces were estimated by

collecting revenue data from Southeast Uplift, Mt. Scott Community Center and East

Portland Community Center. Revenue projections were estimated based on both per

event and per square foot rental rates at the comparable facilities. This number was

applied to the amount of event space available in the Wikman Building. The building’s

revenue from office and event space were added to generate a total revenue number for

Wikman.

We plan to supplement the rental revenues from Wikman with fundraising from two

annual benefits. The Association of Fundraising Professionals and the book “Fund-

Raising: Evaluating and managing the Fund Development Process.” (James Greenfield,

1999) agree that on average, it costs fifty cents to raise one dollar from benefits and social

events. According to this, two events costing $1,000 each can generate $4,000 for the

building and create a small surplus above operating costs.

Operating Costs

Operating costs were generated from actual numbers in 2011 as well as 3 year averages.

Additional details can be seen in the operating budget in Appendix 3.

Fundraising Plan

The fundraising plan for the Wikman Building

includes a loan, urban renewal funds from the

Portland Development Commission, foundation

grants, individual contributions and in-kind

donations such as professional services and

building materials.

The loan amount of $172,787 was determined

based on the Net Operating Income from the

preferred Business Center scenario. The expected

terms on a conventional bank loan are 6% interest

and 25-year term. Interest on contract sales is

typically 2-3% higher than a conventional loan.

The Wikman Building is located in the Lents

Town Center Urban Renewal Area. Projected

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sources from the Portland Development Commission are $150,000 from a Neighborhood

Livability Grant and $12,000 from a Development Opportunity Strategy (DOS) Matching

Grant. The DOS Grant has already been awarded and was used to pay for pre-

development expenses. PDC’s website states that typical Livability Grants range from

$5,000 to $50,000. The next round of funding will be available in February/March 2013.

Foundation grants are budgeted at $100,000. The Oregon Foundation Databook lists 13

foundations that provide capital grants in the Portland area. The average grants from

these sources range from $6,365 to $161,500. The application deadlines are spread

throughout the year. We believe it is possible to reach the foundation grant goal within a

year of securing the go-ahead from Multnomah County.

Cash and in-kind contributions are estimated at $26,825 and $20,000, respectively. Nearly

$10,000 has been contributed to date from individuals, organizations and vendors. The

project has already generated great enthusiasm in the neighborhood. Great potential

exists for a campaign like the famous “buy a brick” campaign that helped build Pioneer

Courthouse Square in downtown Portland. Contributions will be sought via events, direct

mail, social media and donation jars at neighborhood businesses.

Conclusion

The redevelopment of the Wikman Building is challenging from several perspectives. The

building is nearly 100 years old. Fundraising is tough and financing commercial space is

even more difficult today. Market rents barely cover projected operating costs. Public

services are being cut at all levels. The Foster Road neighborhoods are coming alive, but

competition is stiff with other more established eastside commercial districts. The

Coalition Partners are ready to rise to the challenge and are prepared to work with

Multnomah County to write the next chapter in this proud building’s history.

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Acknowledgements

Multnomah County:

Chair Jeff Cogen

Commissioners Judy Shiprack, Deborah Kafoury, Diane McKeel and Loretta Smith

Mike Sublette

Portland Development Commission

Lents Town Center Urban Renewal Area

Representative Alyssa Keny-Guyer

THA Architecture

MEP Engineering

Susan Walker Building Inspections

Mt. Scott Community Center

Alison Wicks

Allison Curtis

Anne Dufay

Beth Crane

Carl Wikman

Christian Smith

Eavan Moore

Erika Palmer

Jason Barnstead-Long

Jason Kallingal

Joe Reed

John Mulvey

Liz Hutchinson

Mary Louise Ott

Meg McHutchinson

Mike Masat

Nancy Chapin

Nathan Jones

Nick Sauvie

Noelle Labrousse

Owen Wise-Pierik

Sarah Iannarone

Terah Beth Vargas

Victoria Oglesbee

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Appendix

1. Financial Proforma

2. Wikman Building Renovation Plan by THA Architecture

3. Wikman-Arleta Building Market Analysis by Alison Wicks

4. Rent Comparables

5. Letters of Interest