Naitos debate selling Galleria
Once thriving, mall languishes without changes
Key members of the Naito family for the first time are floating the idea of selling the Galleria boutique mall, the decaying white elephant of Portland's downtown retail district.
Steve Naito, whose late father, Bill Naito, renovated the former Olds & King department store into the Galleria in 1976, says there is now support in the family for selling the five-story building to the city for redevelopment into a two-block office, retail and housing complex.
'Given the state of affairs, we think a sale is the best answer,' he said.
The family, which until recently had been fractured by internal feuding, has had five years to renovate the building and hasn't done it, said his brother, Bob Naito. 'Maybe it's time for someone else to do it.'
But Sam Naito, the family patriarch and chief executive of H. Naito Corp., opposes his nephew's plan Ñ and he has majority control over the Galleria. He says the family merely is waiting for a major retailer who was willing to lease the space and pay for an estimated $20 million in building renovations.
Steve Naito has emerged as a bridge builder in the family. He and his brother, Bob, are seeking to steer the family company in a more aggressive direction.
The Portland Development Commission has been interested in acquiring the building for the last decade, said PDC Executive Director Don Mazziotti. In 1999, PDC and downtown business leaders pushed hard for renovation of the aging structure and since then have tried to influence its retail leasing.
However, PDC's power to act may be in jeopardy. The agency has put future projects on hold pending appeal of a recent court decision that ultimately could put a tight lid on PDC's urban renewal expenditures.
Moreover, Mazziotti said he couldn't be more specific about what his agency might do now until the completion Ñ expected in late February Ñ of a study of the downtown retail market that PDC and the Association for Portland Progress initiated last year.
'It's a huge opportunity for the city and for our family,' said Steve Naito, an attorney who backs recent studies calling for a national/regional brand tenant in the Galleria and linking it to the adjacent SmartPark garage at 10th Avenue and Morrison Street to expand retail, office and housing space.
In this scheme, construction of underground parking would replace the spaces lost in the SmartPark structure, which would become office or residential space.
The Galleria, a vibrant commercial hub in the late 1970s and 1980s with coffee shops, restaurants and bookstores, requires, at a minimum, a $3 million seismic upgrade, new elevators and escalators.
End of a family feud
Since Bill Naito's death in 1996, his heirs have been squaring off with Sam Naito's side of the family over the best use of their real estate. After resolving a four-year lawsuit this month, they are seeking a corporate division of property Ñ including the Galleria building. Sam wants the company to remain intact.
Meanwhile, the once thriving Galleria languishes, much to the disappointment of shoppers and real estate leaders. West End business leaders see the 250,000-square-foot building Ñ listed on the National Register of Historic Places Ñ as the cornerstone of the area's retail.
The Naitos have waited so long to fill the space Ñ located on both the streetcar and light rail lines Ñ that they are now encountering a weakened retail market. Downtown vacancies now range from 4 percent to 6 percent, compared with an average 3 percent in recent years.
'We're as anxious as anyone else to get the building in a good condition,' Sam Naito says. 'We're not picky. We have to find someone willing to pay for it. We've had big nationals come in, but they want to pay next to nothing and have us do all the work.
'We have to be able to come out of it with an investment cost. All these pundits making critical remarks, they should be in our shoes and see what it is. We'd like to have a tenant in there, too.'
Real estate sources say the Galleria could sell at anywhere from $65 a square foot Ñ which is what the Nordstrom building sold for in August 2001 Ñ to up to $100 a square foot.
'It is going to be critical to 10th Avenue development,' said Craig Schweitzer, a broker at Trammell Crow Co. who has worked with the Naitos.
'Clearly, it's a big part of the West End planning process,' said Mike Holzgang, a senior vice president at Colliers International, a real estate brokerage firm. 'The West End is going to thrive so long as the Galleria thrives.
'What it boils down to is, a user will drive what ultimately happens to that building. The Naitos are certainly cautious about the type of user that ultimately goes into that building. They have always been good stewards about their real estate assets.'
Lots of potential tenants
In recent years, Sam Naito has turned down Office Max, Starbucks, Gordon Biersch Brewery and telco hotels interested in moving to the Galleria for reasons ranging from too trendy to an unwillingness to help pay for its renovation.
Two years ago, the Art Institute of Portland attempted to lease 70,000 square feet of space in the largely empty Galleria. President Steven Goldman said they would have gutted the building and shared in the costs to renovate, but in the end they were discouraged by the Naitos.
The institute and Gordon Biersch are moving to the Brewery Blocks instead.
'Many of us liked the Galleria site, but I'm not sure the feeling was mutual,' Goldman said. 'There was some debate or confusion among owners about what to do with the building. To me, it's a beautiful building and could be a venue for exhibition space, public meeting space, gallery or museum.'
At the time, Sam Naito said the family had a plan for three floors of retail in the Galleria and was not sure that academic use was appropriate for the site.
Now, Sam Naito says an unnamed Chinese restaurant has plans to lease space on the first floor, next to Roberto's Ice Cream. The second and third floors are largely empty. A few offices are scattered on the fourth and fifth levels.
Only one new anchor tenant, International Furniture Faire, has moved into the Galleria this year. The Naitos also have opened a furniture consignment shop next door to its Made in Oregon store.
It's not quite what the city, or other Naitos, envision for the West End's future.