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September 17th, 2008 JAMES PITKIN | News Stories
 

Shipracked

Judy Shiprack wants to be your next county commissioner. Here’s what she doesn’t want you to know about a real-estate deal gone bad.

     
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LOFTY GOALS: Residents of Old Town Lofts (pictured here) have views of the West Hills and Steel Bridge.
Judy Shiprack’s campaign fliers for the Multnomah County Board of Commissioners boast of the usual commitment to change and include a roster of A-list endorsements.

Portland Mayor-elect Sam Adams and City Commissioner Randy Leonard both back Shiprack. Also behind her is the American Federation of State, County and Municipal Employees union, a powerful ally in any county race.

Shiprack’s qualifications as an ex-prosecutor and former state legislator are undeniable. But one piece of Shiprack’s résumé—not mentioned in her campaign literature—casts considerable doubt on whether she can be trusted as one of five commissioners responsible for managing a county with an annual budget of $1.2 billion.

Eight years ago, the Portland Development Commission loaned Shiprack $3 million to help build an eight-story condominium project in the heart of Old Town marketed to middle-income and first-time buyers. Billed by real-estate agents as “urban living at its finest,” the Old Town Lofts condos include studios and multistory villas.

Perched on the corner of Northwest 4th Avenue and Flanders Street, the building features indoor parking, floor-to-ceiling windows and kitchens by Neil Kelly designers. But beneath the surface, it’s riddled with construction defects that have led to years of legal wrangling and out-of-court settlements with tenants and the homeowners’ association.

Shiprack pitched the condos as an antidote to the drugs, homelessness and blight that plague Old Town. But now it’s the PDC that’s dogged by the project—described in internal PDC emails as a “slow, dragging, painful” affair.

Shiprack still owes $1.8 million in taxpayer money she borrowed from the PDC—a debt the commission has spent years negotiating with her to collect, so far with no success.

Meanwhile, the PDC is left saddled with collateral Shiprack put up for the loan, including 4,000 square feet of derelict ground-floor commercial space that’s never been sold. A homeless person this spring briefly took up residence there, entering through a broken window. Perhaps more troubling, Shiprack sold two parking spaces that were held as collateral by the PDC and were not hers to sell. That’s a possible felony under state law, but the PDC has never reported it as a crime, and police are not investigating.

“If someone intentionally converts proceeds that they know they’re not entitled to, that’s theft,” says Kevin Demer, a Multnomah County deputy district attorney. “That’s not rocket science.”

Shiprack, who collected a modest annual salary of up to $31,000 as executive director of the nonprofit that developed the project, says she never profited from the building and that her sale of the two parking spaces was an honest error.

According to PDC staff, the project wound up in debt mainly due to higher-than-expected costs and the moribund ground-floor commercial space—not poor leadership.

But a WW review of thousands of pages of PDC documents shows Shiprack’s handling of the project was at times haphazard and chaotic. In internal emails, PDC officials express increasing frustration with Shiprack’s management, described as “poor” and “unprofessional” by one staffer who worked with her.

Another PDC official referred to her in an email as “Judy Shipwreck.”

Shiprack, who’s running against former county staffer Mike Delman in the nonpartisan race to represent Southeast Portland, vigorously defends the project. She insists her role in leading it should be a plus in voters’ eyes.

“It’s an incredible, pioneering project,” Shiprack says. “I think it’s an extraordinary asset to the neighborhood.”

And despite complaints in internal emails, the PDC publicly puts a positive spin on the project.

“There are definitely some elements to this that are not ideal and need to be worked out,” says Komi Kalevor, the PDC’s interim housing director. “But when you talk about what is there, when you talk about home ownership and what’s going on through Old Town-Chinatown, there are lots of elements that have been a success.”

Bob Ames, a PDC commissioner from 1973 to 1979, gives the project a mixed review given the recent crash in the housing market.

“It’s a train wreck of some magnitude,” Ames says. “[But] frankly, I think their timing was a whole lot better than other recent developments. They at least got the units sold.”

A smart but dour California native, Shiprack moved to Portland in 1972. She’s spent her career largely in the public sector—as a Multnomah County deputy district attorney prosecuting misdemeanors and traffic offenses, then as a Democratic state representative for Southeast Portland from 1986 to 1991. Most recently, she served as director of the county’s Local Public Safety Coordinating Council.

Her first husband was Rick Bauman, himself a former Democratic state legislator who chaired the board of Baloney Joe’s homeless shelter when its founder, Michael Stoops, was exposed by WW in 1987 for extorting sex from homeless teenagers.

Her current husband is Bob Shiprack, whom she married in 2004 as the Old Town Lofts project was teetering. He heads the powerful Oregon State Building and Construction Trades Council and is a member of the board at the nonprofit she headed that built the condo project.

Judy Shiprack, 58, says her experience as a legislator, prosecutor and head of a nonprofit makes her a natural fit to help run Multnomah County, which operates jails, maintains bridges and provides social services. Being a county commissioner is a demanding $88,000-a-year job that comes with little thanks or even much public attention—except during turmoil like the “Mean Girls” meltdown under former Chairwoman Diane Linn.

The story of how Shiprack got PDC money—and how she lost it—stretches back to 1993, when she founded Link Community Development Corp. Its mission: to create jobs and showcase union craftsmanship by building low- and middle-income housing.

In 1995, Link built an 84-unit, low-income apartment project in Wilsonville. A year later it completed a 48-unit apartment complex in Pendleton, where the city hired Link to rehab a troubled downtown apartment building. Each project was successful.

Link’s big break came in 1999, when the PDC sought to meet its goal of bringing more businesses and middle-class residents to Portland’s Old Town—a neighborhood where the majority of residents lived on less than 50 percent of the median income.

Shiprack had an ambitious plan to build a 60-unit condo project with 4,000 feet of commercial space around the corner from the Blanchet House, a homeless shelter that attracts soup lines three times a day. Shiprack figured middle-income buyers would be lured by trendy lofts at half the price of similar digs in the Pearl District.

PDC officials welcomed Shiprack’s $14 million proposal with enthusiasm, crowing in internal memos that it fit perfectly with their goals and was headed by a team with “more than enough capacity and experience to complete the project.” That team included the well-regarded Gresham-based firm P&C Construction as lead contractor and the Pearl’s Robertson Merryman Barnes Architects.

The PDC allowed the project to proceed even though Shiprack provided less than the initial investment usually required for other PDC projects. Normally, developers must pay for at least 2 percent of the project with their own money. Shiprack put in just $25,000, or 0.2 percent. But PDC officials argued that was fine because Link was a “mission-driven nonprofit” and Shiprack was waiving a developer’s fee—though the latter turned out not to be true.

Even as Shiprack was later defaulting on her loans to the bank and PDC in 2003, emails indicate she asked the PDC to give her a $75,000 developer’s fee so she could start another development. But the fee—“more accurately called profit,” wrote a PDC official—was never paid because Shiprack defaulted on her bank loan.

Asked recently whether the PDC made a mistake working with Shiprack when she could not put down 2 percent, as PDC rules demand, Kalevor insisted that Shiprack had in fact met the requirement—that $25,000 is 2 percent of $14 million. He was wrong. Two percent would be $280,000.

HomeStreet Bank gave Shiprack a $10.9 million commercial loan, and Shiprack got the PDC to agree in 2000 to provide an additional $3 million construction loan to complete the project. All the money was due back in 2003.

Construction proceeded on schedule, and a grand-opening party in summer 2001 saw PDC officials sharing drinks with the union bosses who had backed Shiprack’s nonprofit. But problems cropped up almost immediately.

In December 2001, Shiprack asked the PDC and HomeStreet for an additional $200,000 for furnishings and improvements to the building. The $650,000 set aside in the project for unforeseen expenses had already been tapped. But the PDC kicked in half the $200,000 and HomeStreet gave the other half.

Shiprack had to lower the prices on the condos, first priced at $145,000 to $477,000, by up to 23 percent to keep them moving. But with the help of second mortgages from the PDC for first-time home buyers, the last of the units were sold in 2003.

However, with the ground-floor commercial space still vacant, Shiprack defaulted on the HomeStreet loan that July. The PDC had to bail her out and repay the remaining $971,000 she owed HomeStreet with public money, because the PDC had agreed back in 2000 to step in if Shiprack defaulted on the bank loan—a condition that helped Shiprack secure the loan.

Then, in September 2003, condo owner Noah Andrade sued Shiprack in Multnomah County Circuit Court, claiming the one-bedroom loft he paid $217,000 for in 2002 was infested with mold from serious water damage.

The lawsuit alleged the company Shiprack set up to sell the condominiums knew about the damage but covered it up. The suit describes how Andrade found the words “very wet” and “insul wet” scrawled on the walls but hidden under molding.

Shiprack, who firmly denied any coverup in an interview with WW, asked the PDC to help by buying Andrade’s unit. The PDC declined, and Shiprack’s insurance company eventually settled the lawsuit for an undisclosed sum.

Those construction defects set off a five-year battle between Shiprack and the building’s homeowners’ association that was finally settled this year in mediation—again for an undisclosed sum, though Shiprack estimated in a 2006 letter to the PDC that repairs to the entire building would cost $2 million.

Shiprack says it’s not unusual for a building to have construction defects—even one built to showcase union labor.

“It’s an outstanding building. It’s outstandingly constructed. That stuff happens,” she says.

Shiprack’s requests for PDC help cemented a pattern that repeated itself on at least nine occasions throughout the years, according to emails and other documents in the PDC file. Shiprack would run into trouble, declare an emergency, and ask the PDC to pony up more public money to fill the gap.

At first, the PDC was quick to comply with extended deadlines and cash infusions. But gradually officials grew wary.

“She keeps having emergencies,” wrote Siobain Beddow, a PDC underwriter, in a 2005 email to Kalevor. Beddow complained in the same email about Shiprack’s “poor planning and repeated need for immediate responses.”

Another pattern was Shiprack’s repeated failure to respond to PDC requests. On at least six occasions, PDC officials noted in emails and other documents that Shiprack was late in providing timely financial data and other information. In 2005, Beddow described the project to her boss as “an accounting mess.”

The mess was about to worsen. By 2005, it was clear Shiprack couldn’t repay the $2 million-plus she then owed the PDC from both her original $3 million construction loan and from the PDC paying off HomeStreet Bank. The agency responded by putting a lien on the derelict ground-floor commercial space and 24 unsold parking spaces in the building. Five of those spots have since been sold, but the PDC is still owed $1.8 million.

Former PDC Commissioner Ames says it’s not the first time the agency turned to inexperienced developers for a project that later wound up in trouble. Insiders say few for-profit developers in town will take on risky projects such as mixed-use, subsidized housing.

Current PDC officials defend their decision to bring Shiprack on board.

“There was due diligence done,” says Kalevor. “I think obviously the completion of the development was proof that they could do that part. And the sales of the units were pretty successful. We operated within the context of the larger economy.”

When the project was built, Portland real-estate prices were on the rise, reaching an all-time high last year. In that environment, the condos sold quickly. It was the failure to move the commercial space and a third of the building’s 63 indoor parking spaces that Shiprack and PDC officials say ultimately put the project in the red.

In emails, PDC officials blame the project’s location in troubled Chinatown and the construction defects for keeping the commercial space dead. Prospective buyers for the ground floor have included a nonprofit, a speculator and a dental clinic. But all backed out, even after Shiprack lowered the asking price from $750,000 to $550,000 last year.

Meanwhile, the PDC repeatedly urged Shiprack to propose an agreement on how she should exit the project and settle her $1.8 million debt to the PDC. Again, Shiprack delayed.

“I am taking the position with Judy that the PDC is not out to extract every last nickel, but that these are taxpayer dollars and we need to structure a fair exit,” Beddow wrote to her bosses in March 2005. “I think I finally got through today, but we’ll see.”

Shiprack’s exit proposal finally came four months later, in August 2005. She asked to pay the PDC $850,000 of the $1.8 million she still owed, with zero interest, in 20 years. In the meantime, she wanted the PDC to give her permission to sell 10 parking spaces so she could afford to hire a lawyer.

PDC officials rejected the proposal, calling it unilateral and unacceptable. They noted once again that financial reporting on the project was not happening, and asked about Link’s financial goals, which they said remained a mystery.

“Typically, a lump sum offer is attractive due to its impending and immediate nature,” Beddow wrote to Shiprack. “This lump sum offer is extended to so far in the future as to be difficult to evaluate as a genuine settlement offer.”

In October 2006, Shiprack revealed to PDC officials that she went ahead and sold two parking spaces for $40,250 and used the money to pay off her own debts on the project, including property taxes and homeowners’ association dues. PDC officials were alarmed at the act, known in financial circles as “conversion.”

Given the amount of money involved (and depending on how the PDC did its paperwork), Shiprack’s sale of PDC collateral could be first-degree aggravated theft, a felony of punishable by up to 10 years in prison, says Demer, the deputy district attorney.

Shiprack says she takes full responsibility for what she describes as an honest error. PDC officials forgave her, deeding the spaces to the buyers and allowing Shiprack to keep the money. Shiprack then asked to sell more parking spots. The PDC denied that request.

PDC officials are still negotiating with Shiprack on how to recover a portion of the $1.8 million she owes the public agency. After a walk-through in July 2007 of the empty commercial space, PDC officials wrote that Shiprack was unclear about both how many parking spaces were sold, and about the division of responsibilities between her and the homeowners’ association. Shiprack also mentioned a “whole number” of smaller defects in the building.

As the project enters its sixth year in default, Shiprack says she remains optimistic there will be a happy ending once the commercial space sells.

“This was a gamble. It was a new idea,” Shiprack says. “I don’t think this story is at a conclusion yet.”


Shiprack and Delman are running to replace Commissioner Lisa Naito, who is leaving office due to term limits and plans to produce a film and take cooking and wine-tasting classes in Ketchum, Idaho.

Jennifer Donovan—Judy Shiprack’s stepdaughter—bought one of the first condos sold in the building in 2001, for $173,000.

Starting in 2005, Bob Shiprack battled with the PDC over whether the agency should pay construction crews prevailing wage—a fight the union won when the PDC backed down in 2007.

Shiprack’s nonprofit, Link Community Development Corp., was dissolved by the Secretary of State’s Office for failing to pay its annual renewal fee. The dissolution occurred on Sept. 21, 2007—five days before Shiprack filed to run.

Before its construction defects were known, Old Town Lofts won a 2002 Excellence in Concrete Award from the American Concrete Institute and the Oregon Concrete & Aggregate Producers Association.

 
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