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The ambitious Old Town shoe manufacturing project that secured a risky $7 million loan from Prosper Portland earlier this year has failed to meet the city’s loan requirements.
Specifically, Made in Old Town, the group behind the plan to create a nine-building shoe incubator that it says will revitalize the beleaguered neighborhood, failed to meet the city’s requirement that it secure an additional $5.7 million to close the financing gap needed to build out manufacturing and office spaces in the two buildings it purchased this summer using the Prosper loan.
Yet Prosper, the city’s economic development agency, is offering leniency to Made in Old Town.
“Although MiOT did not achieve its original financing target by June 30, they are current on their loan payments to Prosper Portland,” agency spokesman Shawn Uhlman said in an email. “MiOT has also moved forward with site work, marketing, and business plan development using non-Prosper Portland funding and their personal efforts.”
According to a copy of the loan agreement, MiOT is in material default because it failed to raise the remaining funds.
As WW reported earlier this year, Made in Old Town’s original team of businessmen and former athletic apparel executives received funding from the Oregon Legislature and Prosper Portland in part by claiming it was in line to receive financing from peer governments.
For instance, to receive Gov. Tina Kotek’s approval to unlock a remaining $800,000 in grant money from the Legislature last year, Made in Old Town planned to use the Prosper loan as proof of matching financing. Kotek’s expectation was that MiOT would raise those matching funds privately. In short, the project tried to use one pot of public money to access another.
Kotek was unhappy at the time, according to spokeswoman Elisabeth Shepard, who said: “The governor expects recipients of taxpayer dollars to come to the state in good faith with viable projects that bring direct benefits to the public, and to meet the conditions set by the state in order to authorize funds. To date, this standard has not been met.”
Moreover, by unanimously approving the $7 million loan, Prosper Portland’s board flouted its own guidelines for commercial loans, written just 11 months before. The loan was bigger, for a longer duration, and at a lower interest rate than the agency’s guidelines would suggest is prudent. (MiOT also paid $6.9 million for the building, even though it had been appraised at $3.8 million.)
Uhlman added that MiOT “has made significant progress toward shrinking the project’s financing gap, including by identifying cost savings opportunities in construction.”
The group has seen some major changes in top leadership, including a new executive director in former longtime Nike executive Liz Rodgers.
Uhlman declined to say how short Made in Old Town fell from the fundraising requirements laid out in the loan conditions. He also declined to provide the updates he said the project provided to Prosper, saying they included “proprietary information.”
Made in Old Town spokeswoman Liz Fuller issued a statement to WW but did not respond to questions seeking information about how much of the $5.7 million financing gap remains. Fuller says the project “reduced build-out costs by $1.7 million” and that it’s secured $1.5 million in “initial private and debt funding.”
Fuller declined to say how many tenants had signed leases in the new buildings. (Last year, Prosper expressed confidence in the loan in part because MiOT said it had eight letters of intent from prospective tenants.)
“We’re still refining our membership model. We’re investing more in marketing and communications. And we’re getting ready to announce some major industry partnerships as we head into the new year,” executive director Rodgers said in an email.
When pressed on tenancy and the financing gap, Fuller said: “This is all we can share for right now.”
Uhlman says Prosper has not set a new date by which it expects MiOT to close the remainder of the financing gap, but says MiOT told the agency it expects to have “additional membership, leases, and vendors and an initial equity investment” by May 31 of next year.
