Portland City Commissioner Nick Fish Doubles Down on His Argument That More High-End Housing Supply Doesn’t Ease Demand

Portland City Commissioner Nick Fish Doubles Down on His Argument That More High-End Housing Supply Doesn’t Ease DemandResidents of Pearl District condos fear a new development will block views of the Fremont Bridge from their windows and Fields Park. (Abby Gordon)

It was the first time in 12 years the City Council had completely overturned an approval from Design Commission, an all-volunteer panel that signs off on big projects.

Fish, who is up for reelection, sided with a chorus of Portlanders who argue that the city need not foster private-sector development to address the city’s rent increases. (For some of the neighbors, that’s a self-serving argument in favor of views from their own condos.)

And yesterday, in the midst of Council deliberations about extending a tax break to private developers in exchange for affordable housing, Fish took a moment to double down on the argument against fostering private-sector development—that building high-end apartments doesn’t help those most impacted by Portland’s rent increase.

"There is a view that is getting some traction in the media," says Fish. "I call it ‘trickle down housing,’ and the idea is that … if we continue to have 95 percent or more of our housing at the luxury level, that we will over time be a benefit to those people shut out of the market."

City Commissioner Nick Fish (at right).

Regardless of his precise inspiration, Fish made the wider case for why that vote against private-sector development wasn’t important, even as economists and business leaders express alarm. (One architect told WW that developers are weighing canceling local projects.)

"If you take the logic of what some economists have said," Fish said. "what they’re really saying is the person who can’t find a luxury apartments to live in, is going to go out to 158th and Powell and displace someone who is a low-income unit run by Joe Weston. That is so preposterous on its face, that it is not worthy of our discussion."

WW hasn’t found anyone who argues that the Portland resident who is seeking to live in the most expensive housing (say, the Pearl, where the Fremont Place Apartment might be built if Council doesn’t continue block the project) would next choose to move to the least expensive neighborhoods (the sections of East Portland commonly called the Numbers) if that person couldn’t find any apartment.

"In my opinion, Commissioner Fish is just wrong about how housing markets like Portland’s work," Cortright emails. "All the parts of the the housing market are connected. If there isn’t enough supply at the top end of the market, those people don’t go away, they bid for other housing. Folks that would have gone to Fremont Place bid up other Pearl and NW Portland units, and probably bid up stuff on the close-in East Side as well, that pushes down vacancies and pushes up rents there. People that would have been in Sunnyside or Hosford or Sellwood or Kenton move further out. Eventually, that even shows up in the rents on older apartments in outer Southeast."

"That’s exactly what happened between 2010 and 2015, when the number of new apartments completed fell dramatically because of the recession, while at the same time, more and more people moved here," Cortright adds.

Most notably, Cortright estimates that according to one economic study, Fish will need come up with 130 units of affordable housing to make up for the economic impact of blocking 275 units of housing on less well-off Portlanders.

The past five years wasn’t some random epidemic of greed; it was because we had a shortage of new housing, and in the face of rising demand, higher income people outbid lower income people for a slowly growing housing stock. We’ve lived through history that simply proves [Fish] wrong.

Also: Virtually everyone agrees that more market rate housing reduces rent increases and reduces displacement. Don’t take my word for it: Even the most liberal academics agree. Miriam Zuk and Karen Chapple run the Urban Displacement Project at the University of California, Berkeley: Their estimates show that adding two market rate apartments have about the same effect on displacement rates as building one unit of public housing. See discussion here:

Based on that estimate, to make up for the displacement effect of NOT building Fremont Place, Commissioner Fish is going to have to come up with something like 130 units of affordable housing. Those are currently running in the range of $300K (and up), so that’s like $40 million worth of affordable housing you would have to build to offset the displacement from not building Fremont Place.

Rent increases in Portland have dropped from double digits a year and a half ago to negative today. The reason that has happened is because so much more market rate housing has become available in the past 12 months. And that’s producing vacancies all over town, and not just in high income properties, but in the existing older apartment housing stock.

In fact, the process of filtering in the housing market is how nearly all affordable housing gets built. Most housing gets built, at least initially, for middle and upper income households. As it ages, it becomes less desirable, and the original tenants move on, and the newer tenants typically are lower in the income spectrum.

In effect, the housing market works like a game of musical chairs: If there aren’t enough chairs, then some people get pushed out. In musical chairs, it’s the slow. In housing, it’s the poor. For a non-technical explanation of house this works, see this great infographic from Sightline Institute.

But this process of filtering doesn’t happen when you block the construction of new housing. If there aren’t enough new chairs added to the game, rich people end up in smaller, older chairs (houses) and the poor face shortages, rising rents and eviction. That’s why in some places the 1950s era ranch home is the affordable housing stock in a metro area, and why in other places (like the Bay Area and LA), tiny, aging ranch houses can command $1 million or more.

If you care at all about affordability, you have to build all kinds of housing, including for upper income households. If you don’t, the ones who will pay the price will be the ones that Commissioner Fish says he cares about.

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Is Macy’s a Retailer or a Real Estate Company Sitting on a Property Goldmine?

Do you shop at Macy’s Inc. (M – Get Report) for shoes and a suit, or maybe something heftier — floors in a commercial space or even an entire building?

If you said answered "all of the above," you know more about this legacy retailer right now than most investors. These days, the property-rich Macy’s is generating a huge share of bucks from real estate deals.

Between 2015 and 2017, Macy’s has brought in some $1.3 billion in cash from real estate, according to the company’s Chief Financial Officer Karen Houget during an earnings call this week. Not chump change. By comparison, Macy’s hauled in $3.7 billion in cash from its operations as a retailer.

Among Macy’s recent real estate deals is one for $30 million to sell the top seven floors of its Chicago store on State Street to a private real estate fund sponsored by Brookfield Asset Management. The deal is expected to be completed during the first half of this year. This showcase location within the "Loop" Retail Historic District was the flagship store of Marshall Field and Company, a Chicago-based department store chain Macy’s bought in 2005, and features a Louis Comfort Tiffany mosaic vaulted ceiling dome, among other fanciful trims.

In March 2017, Macy’s sold a downtown Minneapolis store for $59 million, following sales announced in January 2017 that brought in $95 million in cash for one store each in San Francisco and Portland, Oregon.

Also in San Francisco, Macy’s has been active with its real estate holdings at Union Square, one of the city’s main hubs.

Macy’s owns multiple buildings there and has sold one — the 243,000-square-foot men’s store for $250 million — and has plans to sell another. The men’s store will be incorporated into the Union Square main building and feature street-level space for high-end upscale retail shops leased to third-parties. It is holding onto the main building, which at 700,000 square feet will be the largest department store in the Bay Area, according to Macy’s.

For sale also is a building that used to house the flagship store of I.Magnin, a luxury department store chain based on the West Coast. In the late 1980’s, I.Magnin became part of Macy’s, and in 1999, Macy’s physically joined the flagship store with a Macy’s. Now, Macy’s is separating the buildings and selling off the 240,000-square-foot I.Magnin portion, which CFO Houget said during the earnings call is part of San Francisco’s colorful retail history.

Macy’s hopes to sell it by the end of this year.

Macy’s Share Pop on Strong Fourth-Quarter Earnings Are Macy’s and Other Struggling Retailers Finally a Buy?

"In some ways, what Macy’s is doing is taking unproductive assets, monetizing them and then using that capital to invest in future growth initiatives," Neil Saunders, managing director of GlobalRetail Data told TheStreet.

The real estate money will keep flowing, apparently.

Macy’s prized possession: its iconic Herald Square store in New York City.

Houget said that an alliance with Brookfield to redevelop 50 properties has so far zeroed in on nine properties. If those were sold, added Houget, "the cumulative value of these nine properties is estimated to be approximately $50 million, plus a retained participation in the upside profits of the three largest assets." While none those stores would close, she said, they would be reconfigured in different ways.

Raking in dough isn’t the only advantage to teaming up with Brookfield. "The benefit of the Brookfield partnership is mostly that Macy’s can focus on the day-to-day running of the business," said Saunders, "while letting Brookfield take care of property disposals and asset monetization."

Saunders added that Macy’s is using the sale of its real estate assets like a "war chest" to rebuild its business.

The company has been on a tear in real estate since welcoming William Lenehan, an expert in real estate trusts, to its board last March and Douglas Sesler as executive vice president for real estate, a month later. Neither executive was available for an interview on Wednesday when contacted by TheStreet.

In addition, Macy’s is still exploring what to do with its iconic Herald Square location, which takes up an entire city block of prime midtown Manhattan real estate. The flagship location is worth some $3 billion, estimated Adelaide Polsinelli, a senior managing director and principal of real estate investments firm Eastern Consolidated. Ka-ching!

Meanwhile, shuttering of lagging stores continues. In August 2016, the company said it would close 100 stores, followed by an announcement in January 2018 of 11 more.

Even though Macy’s real estate assets are helping the company through a rough patch, said Saunders, it is not the solution: "Macy’s is a retailer, and it needs to get the retail side of its business right."

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