Guest post: Rose Quarter development rights…and wrongs

Rose Quarter development map (image courtesy William Macht) 

EDITOR'S NOTE: In an effort to make Portland Architecture a multi-contributor site, the following is a guest post by William Macht, adjunct professor of urban studies and planning at Portland State University. Macht is also a member of the Stakeholder Advisory Committee assembled by Mayor Sam Adams and the Portland Development Commission to address the Rose Quarter and Memorial Coliseum. (The SAC's next meeting is September 28.)

As you'll see, Macht is critical of the development agreement that exists between the Blazers and the city, but supportive of Mayor Adams' defense of Memorial Coliseum. 

If you'd like to submit a guest post to Portland Architecture, email editor Brian Libby at [email protected].

To understand the right course for the Coliseum and the Rose Quarter, one needs to remember Santayana’s famous dictum, “Those who do not learn from history are doomed to repeat it.” Mayor Adams seems to be on a course to do so.

In 1960, Mayor Terry Schrunk and the Council hired leading national architect Gordon Bunshaft and his SOM firm, who designed an innovative building with a roof that covers 3.25 city blocks and is supported by only four columns topped with ball bearings that allow it to flex. Its 60’-high glass curtain walls yield spectacular views across the river to downtown from its concourse, which is democratically placed in the center of the stadium, so that those in the most and least expensive seats meet in the middle, unlike the windowless Rose Garden whose seating and services are economically stratified.

Memorial Coliseum (photo by Julius Schulman, from the book Modernism Rediscovered) 

Mayor Schrunk and Council gave the City a precious multipurpose gift to be used for a wide variety of public purposes. Unlike what some would have us believe, the Coliseum was not built for the Trailblazers who would not exist for another decade. Nor was it built for private pro-fit. A public entity, MERC, that now runs the Convention, Performing Arts and EXPO centers, ran it in the public interest for over 30 years.

Shortly after Paul Allen, then reputedly the world’s second richest man, acquired the Blazers in 1988 for $70 million [now valued by Forbes at $338 million], he sought public support to build a new stadium for his team. He convinced the City to put up $45 million, which he matched in what was termed a “public-private partnership”, to build the Rose Garden that he would own. A consortium of bondholders led by TIAA-CREF financed the balance with 8.99% bonds that Allen refused to personally guarantee. 

In February 2004, after interest rates had fallen sharply and his team was doing poorly, Paul Allen defaulted on the bonds and put his Oregon Arena Corporation [OAC] into voluntary bankruptcy to escape the then $198 million debt. Having lost the Rose Garden to the creditors, Allen went into bankruptcy court and offered $90 million to buy it back, and did so in 2007. While the repurchase price has not been revealed, Allen forced the creditors to take an apparent loss of over $100 million.

In this “public-private partnership” with the City, Allen insisted on another public contribution, effectively a 30-year non-competition operating agreement through Allen’s OAC management of the Coliseum, as well as the Rose Garden. 

Although the deal on its face was structured to look very favorable for the City, since the city gets 60% of net income from the Coliseum, and the Blazers must pick up any operating losses, when one looks at the whole deal, it emasculates the Coliseum as a City asset. Under this arrangement, if the Blazers stage an event in the Coliseum they get to keep 40%, but if they schedule the same event in the Rose Garden, they keep 100%. As rational economic beings, they profit most by putting just enough in the Coliseum to keep it close to breakeven, so they need not pay operating losses and can reap the larger returns in the Rose Garden.

Rose Quarter and environs (image courtesy William Macht) 

And because the City must pay any capital repairs and improvements to the Coliseum, it has not accumulated reserves to pay for them. Deferred maintenance at the Coliseum makes it less competitive, a circumstance that is in the Blazers’ economic interest. Apparently, Allen had done the same thing at the Rose Garden because when Allen lost ownership of it, his company insisted that the creditors invest $40 million in renovation to make it what it called “a first class facility.” 

Despite the Coliseum operating agreement, and allegations that the Coliseum is a money-loser that should be demolished (which the Blazers were happy to endorse in the 2001 Rose Quarter plan) the City has actually realized a modest profit there. Using business accounting, the city has made $3.7 million in the last 10 years, even though that includes three years of the bankruptcy and three years of the Great Recession. Yet when I pointed this out recently on OPB’s Think Out Loud, Allen’s business manager had the temerity to say that it was  “the City’s good deal” that was the reason that Allen had to declare bankruptcy, somehow equating the annual $380,000 average city profit with $198 million of defaulted Blazers’/OAC debt.

So the real problem with the Coliseum is not its physical structure, but rather its deal structure. Despite claiming to have lost money managing the Coliseum through OAC [now PAM], Blazer president Larry Miller stated “The current agreement is also very important to our business model, so any changes to the agreement will need to add significant benefits to PAM. At present, it is difficult to envision changes to the agreement that would fully protect interests vital to PAM…PAM reserves the right to decide in its sole discretion whether it will agree to any such changes.”

Without PAM profits, that ‘business model’ which PAM seeks to protect must be the non-competition agreement protecting the Blazers’ economic interests in the Rose Garden. The non-competition agreement has now been in effect for over 17 years, longer than a patent, and its continuance will preclude any other proposal, as well as optimization of the profit and community potential for the City. 

Despite repeated requests, throughout the yearlong planning process the PDC and the Blazers/PAM have failed to produce operating income and expense data for the Coliseum, programmatic history and other data of the type normally published by operators of publicly-owned arenas. PAM has withheld such information on the stated ground that its disclosure would “reduce the competitiveness of the Coliseum as a facility”. Yet publication of more detailed data by the public owners of the Spokane Arena, for example, has not harmed its competitiveness. It is logical to expect quite the reverse to occur; that is, publication of lower event rental fees for the Coliseum would reduce the competitiveness of the Rose Garden, which PAM apparently seeks to prevent by non-disclosure.

 

Reasonable arguments can be made that the operating agreement extension option rights in 2013 and 2018 are extinguished by the event of default caused by the voluntary bankruptcy, and/or, that the anti-competition agreement’s 30-year potential term is void as against public policy. Even if the legal challenge did not succeed, through the voluntary bankruptcy and anti-competitive behavior, the Blazers have proved themselves to be unfit private partners in any future public-private partnership.

Under its 1992 development agreement with the City, negotiated under Mayor Clark but amended several times when Mayor Adams was chief-of-staff to Mayor Katz, the Blazers were given what are erroneously referred to as “development rights” to the Coliseum and portions of the Rose Quarter, and which are scheduled to expire November 24th of this year. In fact, these are actually “Development Rights of First Proposal” since any Blazer development proposal, even if exercised, could be simply rejected by the City without consequence to it, which would be free to solicit proposals from other developers.

In addition there are many preconditions to any rights, many of which have not been met. The City has not declared the area "available for non-public use development", nor could it because it has not examined the need for public-use development, which is defined in the agreement to include "recreation." On that score alone, the Obletz MARC proposal, and others are ripe for real consideration.

Nor have the Blazers submitted a proposal with adequate specificity for review. In fact, the mayor has said publicly, and been quoted, that the Jumptown proposal floated earlier was “terrible.”

Furthermore, the agreement requires the Blazers to develop and submit a “master plan”, which the Blazers have not done. The "master plan" required to be submitted by OAC/PAM for this proposal was in fact the 1992/2001 urban design review done without regard to current conditions a decade later. Nor was it a true development plan and certainly not one prepared by OAC/PAM. Yet it was accepted by the Council in 2001 when Adams was chief-of-staff to Mayor Katz. This legerdemain is not worthy of a public-private partnership in the public interest, nor worthy of the ostensibly transparent public process initiated by the Mayor a year ago.

2009 Rose Festival Grand Floral Parade, Memorial Coliseum (photo by Brian Libby) 

Under Mayor Adams’ task force, headed personally by the Mayor, the PDC solicited concepts for “repurposing” the Coliseum.  Proposals for the rest of the 40-acre Rose Quarter were expressly excluded. From 96 proposals submitted, three proposals were selected for review to be made by a more detailed request for proposals [RFP] from the three. The Mayor aborted the RFP process when he determined that none of the three proposals could be implemented with available resources, as we in the minority had warned, and when his personal effort to meld the three proposals was unsuccessful.

Nevertheless, the Mayor has now announced that he is negotiating with the Blazers/PAM a pre-development agreement, one element of which could be extension of the development rights. In other words, the Mayor is treating the Blazers/PAM as though they were the winners of an RFP competition selected through a public process, entitled to negotiate a new public-private partnership, even though the competition was only for the Coliseum and was, itself, aborted by the Mayor. If the Mayor negotiates a pre-development agreement prior to expiration of the right of first proposal, both the perception and reality of unfairness will be obvious.

Beyond the procedural unfairness lurk the substantive problems of the Coliseum and Rose Quarter that remain unsolved. Nothing is being done to remedy the underlying deal structure that condemns the Coliseum to marginal public use. Nor is anything being done to remedy the complaints of the Coliseum’s major tenant, the Winterhawks regarding the condition of the building. And nothing is being done to determine and undertake those select improvements that could expand and optimize public and private uses of the arena, concourse, meeting rooms and 40,000 SF exhibit hall without reducing the Coliseum’s competitiveness for larger events.

Instead, the Blazers/PAM plan to reduce the seating from 12,000 to about 7,000 seats is a thinly veiled plan to permanently make the Coliseum less competitive with the Rose Garden. There is no public benefit in reducing seating capacity because it is the largest events that are the most profitable. The reduction of seating capacity precludes events like the Davis Cup tournament and full house events like popular concerts, graduations, and the Obama and Nader rallies. 

The Blazers justify the reduction contending that fewer seats make the bowl more intimate. Yet without reduction of bowl size, it is difficult to understand how fewer seats and larger holes in the same sized bowl leads to greater intimacy. What is clear is that fewer seats make the Coliseum less competitive with the Rose Garden for larger, more profitable events. A more intimate venue could be done flexibly in a way that preserves the ability to hold larger events, for example through use of a collapsible band shell, curtains or other temporary devices.

Moreover, both the Blazers and the Mayor labor under the illusion that increasing the sports and entertainment functions of the Rose Quarter will solve its underlying problems. In fact, since those uses are primarily event-driven, and mostly occur on some evenings and weekends, further development of such type will exacerbate the crowding during event times and do nothing to complement it during slack times. 

The major urban planning problem of the Rose Quarter is that it is disconnected from the urban fabric both programmatically and physically. Go there any time other than event time, most any weekday, and more than 2500 parking spaces will be vacant, garages locked, and there is activity too minimal to even support the succession of retailers and restaurants developed by the Blazers/PAM.

There could be actions that would ameliorate these conditions and begin to bring the Rose Quarter back into the city. A very simple and potentially profitable first step would be to remove the City garages from Blazer control and add them into the SmartPark system to provide needed parking for the Left Bank and other businesses across the street. But until the Mayor and Council let the development right of first proposal expire and challenge/terminate the operating agreement, nothing can change. 

The Mayor’s effort to bring the Rose Quarter within the Interstate Urban Renewal Area to absorb large portions of its tax increment funds for an entertainment complex to be developed by urban entertainment center developer Cordish with the Blazers/PAM would be throwing a good deal of money, time and talent toward solution of the wrong problems. It would also take scarce resources away from many potentially viable and needed projects within the Interstate URA.

However, rather than being roundly criticized by the Oregonian editors as having “caved in to a few puffs of pressure – and took razing the Coliseum out of the picture” Mayor Adams should be commended for learning its architectural value and changing his mind. Moreover, no editor has explained the fiscal folly of demolishing the Coliseum, a public asset valued by the county assessor at $57.1 million, that can and does operate profitably 365 days a year for up to 12,000 citizens, in order to spend $55 million of scarce new capital for an open-air stadium for up to 7,000 baseball fans that would host home games on only 70 days during the summer and could not even begin to cover its debt service.

Having intelligently changed his mind on Coliseum demolition, so too should he change it and end negotiation of a pre-development agreement with the Blazers/PAM, and at the same time challenge/terminate the operating agreement. 

Mayor Adams has amassed all of the City’s development resources under his control.  One wishes that he would use them as wisely as did his predecessor Mayor Terry Schrunk and the Council in 1960 when they had designed and created an innovative and democratic architectural landmark, for public use to benefit diverse segments of the public, in honor of its veterans, and dedicated to service of the public at large, not private monopolistic profit.

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Comments

[gerrrg]

The one and only thing that peeves me (though Paul Allen's actions over the years have annoyed me quite a bit), is that Canzano opened his big trap.

[Douglas K.]

I'm in favor of fewer seats in the MC simply because fewer seats=wider seats. The average American backside circa 1960 was somewhat smaller than today. I think 12,000 to 7,000 is a preposterous reduction, though. The venue should be able to seat between 8,000 and 9,000 for hockey and basketball, accommodating a reasonably large Winter Hawks crowd (or, someday, a WNBA team).

[Stephen]

Thanks for the great explanation for the whole mess. I am more informed but only slightly less confused. My head hurts now.
The politics and waste of this whole deal are mind blowing.
The city and the Blazers need to stop screwing around.
Here is what they should do:

Keep the Arena, renovate the building as it is with better seating and creative options for small venues. Make it a place for more upscale acts and things. Let the Rose Garden be for the Blazers and Monster Truck events. No competition there, just Ying and Yang compliments.
Get mixed use development in the area with an emphasis on entertainment. Get that dead spot on the river greened up and connected to the rest of the waterfront.
People need to be living and working in the area with supporting services as well.
Make the existing parking structures multi-use and add more as required.
Is it really so freaking hard?

[Matt J]

Thank you for this post. We all know that it all comes down to $. This is the first time I have seen it spelled out so clearly. At some point I would hope the city hires, or we elect, someone that can compete with these kinds of larger entities that clearly know how to outswing, outwit, and outmaneouver in the boardroom.

[Mickey]

Yes, the powerful business interests are far
more sophisticated and motivated than most of our politicians, and top management at the city, PDC, etc. I have seen it first hand. And Dr. Macht's assessment concludes the same in a respectful manner.

The folks at PDC for example which is run by an engineer from ODOT, spend much of their time posturing for public perception. They spend the balance watching the performance of their double ended city and state contributions of their million dollar PERS balances.

Don't believe me? What have they been doing with the $200 million a year they spend? Too much of it gets wasted. It's shameful.

[Amy Rose]

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[marc]

Look, if you have a 1968 VW Bug and a 2010 VW Bug, the newer one will naturally attract more use because it's better looking, has more room, has more power, etc. Certainly, if there was no 2010 VW Bug, the 1968 version would attract more use - but it would never be a 2010 Bug.

With respect to the Colliseum and Rose Garden, the analogy holds. More events would be attracted to the Rose Garden because it's a larger facility with more features, etc. Were the Rose Garden never built, the Colliseum would undoubtedly get more use - but that wouldn't make the Colliseum the Rose Garden (or economically self sufficient).

Money is certainly the issue. However, the Colliseum was built in the 1950s and can only be "upgraded" just so much. The Colliseum will never be a serious competitor to the Rose Garden for first class events.

Just because the architects think it's something special doesn't mean the Colliseum has not outlived its usefulness.

[Brian Libby]

Marc,

Your analogy is off.

We don't have a 2010 bug and a 1968 bug in the Rose Quarter and Coliseum. We have a two-car garage with a 1960 Corvette and a 1992 Buick. And now people have tried to replace the 1960 Corvette with a 2010 Kia.

Memorial Coliseum has not outlived its usefulness. There is an economic justification for having two differently sized arenas next door to each other.

What's more, you can't simply belittle or marginalize the people two whom the Coliseum's architecture is important. It's not just architects nor a small band of people. It's the National Trust for Historic Preservation, the very national organization tasked with protecting landmark buildings. It's the US Green Building Council, the national organization overseeing sustainable design and construction. These organizations and the American Institute of Architects have all called for the MC's preservation.

You're right that money is a big part of the issue. But buildings and facilities are not always interchangeable. It's not just about upgrading the Coliseum. It's about preserving the only arena in the world with a 360-degree glass view. Having one-of-a-kind designs and protecting them isn't naive or economically unsound. Irreplaceable places have broad economic value to the community.

Again, you have to look at your original analogy here. These arenas are not all the same. Building designs matter. Memorial Coliseum was built as a utilitarian multipurpose arena originally, but now it has that and greater value as the epitome of great midcentury modern architecture. It's four city blocks resting on four columns - a masterful work of engineering. It's a glass box wherein the bounty of natural light symbolizes the way our World War II and Korean War veterans overcame dark forces. The whole building is a veterans' memorial.

You don't just demolish places like this solely out of metrics of usefulness and economics. If the MC didn't have this economic value as an ongoing arena, then maybe the architecture alone wouldn't be reason enough to save it. But the Coliseum DOES have a viable purpose, so coupling that with the irreplaceable architecture makes a very compelling case for its preservation.