Deal for private development hinges on zone change

by: REVIEW FILE PHOTO: VERN UYETAKE - The Lake Oswego City Council this week advanced plans to sell the West End Building for $16.5 million. The city bought the 14-acre property for $20 million in 2006.The Lake Oswego City Council is moving ahead with plans to offload the publically held West End Building for private development, inching closer to ending seven years of debate over the property’s future.

The council on Tuesday voted to sell the WEB for $16.5 million to Kensington Investment Group, a firm based in the San Francisco area but with an Oregon office in Sherwood. The deal is contingent on a citizen board’s approval of a zoning change allowing retail and other uses on the 14-acre property at 4101 Kruse Way, now home to an 89,000-square-foot office building considered largely underused.

It’s unclear whether Kensington will continue using the site for office space or build something new there. Officials associated with the company have suggested developing multifamily housing at the back of the property and possibly a gym or specialty food store closer to the main road, according to the city.

Mayor Kent Studebaker said the firm’s offer was a “fair price” and might disappear if the council delayed accepting it.

Councilor Skip O’Neill agreed. He said selling the building now will allow the city to focus on other pressing needs, such as replacing aging facilities like city hall and continuing efforts to update and expand its water infrastructure.

“This conversation just goes around and around and around,” he said. “I think our best solution right now is to get this thing off the board and to concentrate on things we can fix; I don’t think this one’s fixable.”

The city has gone back and forth on whether to keep or sell the building since buying it for $20 million from Safeco Insurance in 2006 with the goal of constructing a community center there. The ensuing economic recession dashed plans for a recreation facility; meanwhile, the property’s value plummeted.

Advisory votes and public surveys have yielded no solid plan for what to do with the WEB. While many citizens have urged the city to keep the property, there is little interest in raising taxes to pay for it, Redevelopment Director Brant Williams told the council.

Tuesday’s hourlong discussion followed a longer public hearing held last month. On Sept. 24, the council heard from residents on both sides of the issue.

Some urged officials to sell the property to cut the city’s losses and return the land to the city’s property tax rolls. The city now spends about $1.5 million each year on the property, including loan payments, maintenance and operating costs.

Others called for keeping it in hopes of one day putting it to public use and keeping a public presence on the west side of town. Others have voiced concerns about the planned zone change, which could increase the intensity and density of development at the site, potentially leading to more traffic and noise in the area.

The council vote was 6-1 to authorize the city manager to sign the sale agreement and negotiate another deal to lease back the building until the city figures out where to relocate parks and recreation and water project staffers now working out of the WEB. Among various alternatives, officials are considering whether the city might use a vacant school building for that purpose.

Councilor Jon Gustafson was the only vote against selling the property to Kensington. He wanted to hold one more public vote so citizens could weigh in.

Gustafson said bad real estate investments involve two decisions: “The first is to buy at the top of the market. The second is to sell at the bottom.”

“Right now, it’s a paper loss,” he said. “With the second decision to sell, that’s where the poor real estate investment is realized.”

Had the council rejected Kensington’s offer, it could have entertained an informal bid from Nick Bunick, who developed the 300-acre area now known as Westlake. He said his nonprofit foundation, The Great Tomorrow, was prepared to offer the city $20 million for the property to put its headquarters there. He said the city could then continue using the property rent-free so long as it paid for the building’s operations.

As a nonprofit, the foundation must spend 20 percent of its money each year or risk paying penalties to the IRS. That’s where the $20 million figure came from, he said.

“I have no ulterior motives,” Bunick said. “I want Lake Oswego to be our headquarters.”

With the $16.5 million offer accepted, the city will now need to dig up another $1.1 million to pay off the $17.6 million remaining principal on its loan for the WEB. It is keeping an option to buy back all or part of the property if Kensington decides to sell it in the future. It also will need to finish applying for a zone change on the property before the sale can go through.

The Lake Oswego Planning Commission will consider the zone change within the next two or three months, according to the city.

Kara Hansen can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. and 503-636-1281, ext. 107. Follow her on Twitter, @LOreporter.

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