Not far from the Portland Art Museum, there's a private club that admits women but caters mostly to men. A place where greed and lust collide in the rapidly gentrifying West End.
No, it's not the Arlington Club. It's the Jefferson Theater, downtown's last big-screen porn house, located at 1232 SW 12th Ave.
On a recent "Full Frontal Thursday," patrons ogled barely legal male strippers who divided their time between a makeshift stage in front of the darkened screen and lap dances in the audience.
Some patrons leaned nervously against the walls like seventh-grade boys at a school dance; others engaged in various sex acts in shadowy corners and an adjacent smaller screening room.
Since 2001, the Jefferson Theater's landlord has been a city agency, the Portland Development Commission. That's when the PDC bought the theater's building, which has 80 apartments on the second and third floors, to preserve its low-income housing.
This week, however, marks the beginning of the end for the theater. A construction crew will break ground on a complicated project resulting in 80 cushy units of new housing for some of Portland's neediest citizens—and the eventual demolition of the porn palace.
In a Byzantine transaction nearly four years in the making, the PDC will upgrade downtown's low-income housing stock, provide shelter for the chronically homeless and sanitize the increasingly swanky "Cultural District."
"We've taken on a difficult task with the best of intentions to accomplish a number of challenging but worthwhile goals," says PDC chairman Mark Rosenbaum.
On one level, Rosenbaum is exactly right: The PDC has harnessed conflicting agendas to do its job—implement City Council policy.
But as with other complex transactions involving the city's urban renewal agency, it's less clear whether taxpayers are getting a good deal.
An analysis of public documents and interviews with real estate and housing experts paints a picture of a gold-plated $16.6 million project that provides a variety of direct and indirect subsidies to a neophyte developer, lines the pocket of a former PDC commissioner who approved the deal and, for all that effort, results in no more low-income housing than currently exists.
"When the PDC invests public money in a transaction, the deal ought to be transparent and the results easily measurable," says Pearl District developer Bob Ball, an agency critic. "From what I can see, this is neither."
In fact, the deal that will dim the screen of the Jefferson Theater cuts right to the central question of Measure 26-92 on the May 15 ballot—whether the PDC, which spends $250 million of public money annually with far greater discretion than any other city agency, should be more accountable to the City Council, and thus to voters.
In July 2001, the PDC bought the Jefferson West, a three-story brick building cater-cornered to the downtown Safeway, from construction-company owner Peter Hoffman for $2.6 million.
Despite the price tag, the Jefferson West was no prize. The apartments above the theater ranged in size from 115 to 300 square feet. Kitchens were in poor shape, and tenants shared bathrooms. There was no interior common space, which meant residents, many of them unemployed, spent much of their time on the street.
Almost immediately, the PDC began searching for opportunities to upgrade or replace the building.
As the surrounding neighborhood transformed, thanks in large part to PDC investment in other projects and the Streetcar, pressure increased on the agency.
Developers of nearby buildings such as John Carroll, who built the 18-story Eliot Tower, and Doug Obletz, who built Museum Place, an apartment complex that includes the new Safeway, pushed the agency to do something about the Jefferson West, which they saw as a locus for street crime.
In August 2005, Carter MacNichol, a partner of Obletz's, wrote a blistering three-page letter to the PDC, Mayor Tom Potter and Housing Commissioner Erik Sten. MacNichol demanded a solution to a "dramatic increase in negative street activity," including prostitution, drug dealing and armed robbery.
"Pimps have attempted to access our building," MacNichol wrote. "We have recently seen residents serve notice that they are leaving Museum Place because of the types of problems."
MacNichol urged "the sale of the Jefferson West block to a developer who will realize the potential of the west end blocks and move with haste in constructing new housing for the area."
When MacNichol wrote his letter, PDC was already working on a fix for the Jefferson West. In June 2004, according to PDC records, Mark Fraser, the owner of a one-story office building and a surface parking lot on the same block as the Jefferson West, approached the agency.
Fraser, 59, a commercial real-estate broker, had a problem. His tenant, Multnomah County, had just canceled a 10-year lease.
Fraser arrived at an elegant solution to both his situation and the chronic nuisances in the neighborhood: He proposed buying the PDC's property and developing upscale condos there. To free up the Jefferson West land without losing its affordable housing, he was willing to first build low-income apartments on his property.
But Fraser would need a lot of help. He had never developed a building of any kind nor done business with PDC before, nor did he have any experience with low-income housing.
Still, Fraser approached the agency at an opportune time. Not only were nearby developers eager to get rid of the Jefferson West, but the PDC's ability to finance any kind of replacement was evaporating.
The PDC depends on what's called "tax increment financing" for most of its budget. Essentially, the agency borrows against the future property-tax revenues of a defined geographic area, in this case the South Park Blocks Urban Renewal Area.
But that district's borrowing authority was due to expire in July 2008. Given the complexity of the deal Fraser proposed, there was no time to waste.
In January 2006, the five PDC commissioners, each of whom is appointed by the mayor, approved moving forward with Fraser.
The agreement was structured as two separate but closely linked transactions.
In a deal that closed last week, Fraser sold his land, which he bought in 1999 for $900,000, to a publicly funded development company he controls for $2.25 million.
In total, Fraser will receive about $16.6 million in public money to build the housing for the PDC. About $7 million will come from low-income housing tax credits; another $9.2 million will come directly from the PDC, and the balance from other public programs. For his role, Fraser will pocket a $953,000 "developer's fee." He will invest no money of his own in the deal.
When Fraser's building, which will be called the Jeffrey, is complete, the PDC will relocate tenants from the Jefferson West. It will then sell that property to Fraser for $1.93 million. He plans to demolish the structure and build high-end condos there.
Critics say replacing the Jefferson West with the Jeffrey is a worthy idea, but the PDC has structured a deal that is too generous to Fraser.
In early March, Will White, director of the city's Bureau of Housing and Community Development, wrote an internal email comparing Fraser's project with other recent city-subsidized low-income and homeless housing developments.
White noted that the costs of the Jeffrey are almost "twice as much on a per-unit basis as the next most expensive project."
Even the PDC's internal analysis judged the Jeffrey to be expensive.
"Construction costs of $200 per square foot are high by roughly $40 per square foot," wrote PDC loan analyst Siobain Beddow in a March 8, 2007, loan review evaluation.
"Architect's fees are nearly double what staff has seen for similarly sized projects," Beddow continued.
White's email also argued that Fraser's fee was way out of whack for number of units he would produce. White compared it with other projects, saying Fraser would get "a developer fee that was half again as much as the next most expensive project."
John Warner, PDC's project manager on the transaction, says the fee paid to Fraser is within the agency's policy and modest compared with other fees it has paid.
The prices at which the agency is buying and selling land also raise questions.
Since the two parcels of land are on the same block and will be scraped down to bare dirt for new construction, it's easy to compare them.
Fraser is selling his 15,000 square feet of land "as is" to the PDC-financed entity that will eventually own the Jeffrey for $2.25 million, or $150 per square foot. (The price resulted from an appraisal done earlier this year, PDC says.)
But he will buy the 16,860-square-foot PDC property on which the Jefferson West currently sits for $1.93 million, or $114 per square foot. (That price comes from a May 2006 appraisal, which valued the land at $2.43 million but estimated clean-up costs would be at least $500,000.)
By PDC's own reckoning, the land the agency owns is superior to Fraser's, because his is surrounded on three sides by other properties while the PDC land has street frontage on three sides, yielding easier access and better views.
"A landlocked parcel on a 'superblock' is not the best site for a developer," says Warner.
Warner says the agency is discounting the sale price to Fraser because its land needs environmental clean-up. However, Fraser's property needs clean-up as well.
Moreover, Fraser is getting paid for his land now but, according to the deal he struck with the PDC, does not have to pay for the PDC land until 2011, at the earliest.
Finally, the agency's $1.93 million sale price to Fraser is $670,000 less than PDC paid Hoffman six years ago for the Jefferson West. In contrast, Fraser will make a $1.35 million profit from the sale of his property, which he purchased only 18 months earlier than the PDC bought the Jefferson West.
Ball asks whether those seemingly favorable terms on the land value are simply an indirect subsidy to Fraser.
"If PDC needs to put subsidy into a deal to accomplish policy goals, that might be appropriate," he says. "But those subsidies should be as transparent as possible."
PDC's Warner says Fraser's possession of a key piece of land gave him leverage in negotiations but defends the terms of the deal, saying every aspect of it is well within PDC parameters.
At the heart of the May 15 ballot question about greater city oversight of PDC is the issue of the agency's culture.
In that context, Doug Blomgren's role in the Jefferson West transaction is revealing.
In January 2006, when the PDC green-lighted Fraser's deal, the commission's senior member was Blomgren, originally appointed by Mayor Vera Katz in 1997.
After leaving the commission in July 2006, Blomgren, a housing lawyer with the firm Bateman Seidel, represented Portland-based Homestead Capital in its dealings with Fraser and PDC. In other words, he benefited financially from a land development deal that he approved as a PDC commissioner.
Homestead provides financing for low-income housing by selling government-provided tax credits to investors. The investors pay Homestead cash for the credits, and Homestead hands the cash to the project developer, who does not have to repay the funds.
Fraser says that with PDC's assistance, he solicited bids from four firms and chose Homestead.
(In March, the Portland Tribune reported that Homestead's CEO, Deborah Saweuyer-Parks, is under investigation by the Oregon Department of Justice. Homestead, a nonprofit, paid Saweuyer-Parks $484,000 in 2005 and hired her husband as a consultant at $9,000 per month. Saweuyer-Parks denied any wrongdoing.)
Although no PDC rule prevents former employees or commissioners from doing business with the agency, Ball says he's troubled by the appearance of Blomgren's dual role. "What he's doing may be legal, but it doesn't pass the smell test," Ball says.
Blomgren denies any ethical impropriety. Although documents show that Homestead pitched Fraser for the business as early as July 3, 2006, eight days before Blomgren left the PDC, Blomgren says he only became aware that Homestead was involved in the Jeffrey transaction several months later.
Blomgren adds that he regularly declared conflicts of interest as a commissioner because his law firm often represented either the City of Portland or groups seeking to do business with the city.
He says that although he represented Homestead in negotiations with PDC on Fraser's deal, there is no ethical problem because he was long gone from the agency by then.
"I feel I've been careful to avoid any conflicts," he says.
Today, Blomgren is leading the charge to defeat the May 15 ballot measure that would give the City Council authority to approve the PDC's budget and require regular audits by the City Auditor.
He personally paid for the Voters' Pamphlet statements in opposition to the measure and has formed a political action committee, "No on 26-92," to fight greater oversight.
Blomgren says he supports the part of the measure requiring more audits but objects to greater budget authority for the City Council.
He offers a number of examples, including the Interstate light-rail corridor, in which he says city commissioners forced PDC to use urban-renewal money for questionable deals. "When you make the council PDC's budget committee, you invite council to pursue pet projects," he says.
All five members of the City Council support the ballot measure. Even the most developer-friendly commissioner, Dan Saltzman, wants more oversight.
"Dan thinks the measure will integrate PDC and city bureaus more closely," says Saltzman's chief of staff, Brendan Finn.
Blomgren may be right to worry about city commissioners using PDC for pet projects. But city commissioners report directly to voters, while PDC staffers report to a director hired by citizen commissioners appointed by the mayor.
Blomgren argues that distance from politics is the agency's strength. Ball and other agency critics says it equates to a lack of accountability.
In the case of the Jeffrey, for example, PDC's contribution tripled from $3 million in January 2006 to $9.2 million less than a year later.
Yet city commissioners—let alone taxpayers—never heard about the increase because of the agency's autonomy.
"The ballot measure would give us regular financial and performance audits of the PDC," Ball says. "We need to be able to measure what we're spending and what we're getting without smoke and mirrors."
Whatever voters decide, PDC is not quite free of the Jefferson Theater. Ray Billings, the theater's operator has already secured a lease on Old Town's Paris Theater, just five blocks from PDC headquarters. "It will be 24-hour-a-day adult entertainment," says Billings. "We had a 'soft opening' last week."
City housing director Will White accused the Portland Development Commission of favoring developer Mark Fraser's interests over city policy. "I continue to find that many PDC staff are not as supportive of the City housing goals as they ought to be," White wrote to PDC in a Jan. 19, 2007, email.
The operator of the Jefferson Theater, Ray Billings, disappeared for a couple of years recently but came back (see "Vanishing Act,"
, June 2, 2004).
The PDC was created by Portland voters in 1958. It has about 200 employees, who, unlike most other city employees, do not currently enjoy union or civil-service protection. They recently voted to unionize.
An example of city commissioners using PDC for pet projects is the agency's Old Town headquarters. Mayor Vera Katz urged PDC to acquire the so-called "Creative Services Center" at Northwest 5th Avenue and Davis Street in the '90s. Unable to find tenants, PDC moved into the building in 2004.
Developer Bob Ball supports Ballot Measure 26-92.