Critics say Family of Funds is forsaking low-income areas

Already facing a city attorney's investigation over its internal deals, a Portland Development Commission spinoff agency now is battling accusations that it's edging away from its primary goal: serving low-income areas.

While the Portland Family of Funds struggles to make progress on two building projects on Northeast Martin Luther King Jr. Boulevard, an internal memo given to the Portland Tribune this week indicates the agency is poised to invest in another potentially lucrative downtown project. It would be the agency's third downtown project, along with the Armory Annex renovations and the Meier & Frank redevelopment.

Called 10W, the new downtown project calls for buying and renovating the Mekka Building at Southwest 10th Avenue and Washington Street. It would house the Family of Fund's headquarters, as well as offices and retail stores. The empty mustard-colored building has been for sale for several years.

'It's just a real estate project brought to our attention,' said PFF General Manager Kenny Asher. 'If we can make it an office building and if we can make it an attractive project, we may move there.'

This latest project, however, concerns city officials, developers and others in the real estate industry.

The Family of Funds was created by the Portland Development Commission two years ago after it received $100 million in federal tax credits through the New Markets Tax Credits Program, which is designed to spur investment in low-income neighborhoods. The agency supports itself by recruiting investors and taking in fees for its projects.

Yet two of the Family of Funds flagship projects on MLK Boulevard remain stalled.

The Heritage Building, a historic building between Failing and Shaver streets, has lost its largest tenant, the Family of Funds, after it moved this week to temporary headquarters at the Fox Tower on Southwest Broadway.

The Heritage Building project has not jelled as tenants and financing changed, Asher said.

Meanwhile, the Vanport Square project at Northeast Alberta Street and Killingsworth Avenue may lose a crucial anchor tenant, Vesta Corp.

Even if Vesta drops out of the Vanport project, Asher said his agency will keep working on it and find a new anchor. 'There are aspects of the project we'd like to include if some additional money can be raised,' he said.

Asher acknowledges that his 2-year-old agency has had growing pains.

'There is tension between projects in deeply distressed communities and projects that are downtown or in proven markets,' he said. 'We're trying to battle against that and be effective.

'It doesn't mean that we're not committed to it and to all of the communities we're working in.'

Sources say Family of Funds directors started to alter their game plan about 10 months ago when they found constructing in economically troubled neighborhoods was difficult and not paying off.

'Whatever (the agency was) designed for is not working,' said a real estate insider who did not want to be named. 'It was clear as soon as they found out there wasn't the money and support in these areas, it changed. They discovered they couldn't do the size of development that produced lots of money.'

'It's like hooking a jet engine to a toaster,' said a PDC staff member who also asked not to be named.

Portland Family of Funds already has borrowed $1 million from the PDC and needs another $5 million investment to fully complete the Armory Annex project in the Pearl District, which it manages for Gerding/Edlen Development Co.

Portland Center Stage plans to move into the annex, and has sought additional features that would expand the budget from $28 million to $33 million, said Asher, who denied the project is over budget.

'If there is success in raising the money, we'll be able to add other features,' he said.

Mayor has concerns

Mayor Tom Potter asked the city attorney on Jan. 14 to look into the Family of Funds and the PDC after a City Club report cited multiple conflicts of interest.

The mayor 'has concerns about the Portland Family of Funds and has had several conversations with PDC about it,' said Potter's chief of staff, Nancy Hamilton. 'He has the same concerns the people of Portland have Ñ that their government be as accountable and transparent as possible. And he has asked the city attorney to look at the relationship between PDC and PFF. That's what the mayor is focusing on.'

Commissioner Sam Adams said, 'I'm in the process of asking my own questions of PFF.'

Asher contends that the relationship between the two agencies is appropriate.

After controversy arose last month, the agency assigned a team to come up with ways to counter criticism Ñ which ranged from complaints about its fees to its relationship with the PDC.

The document, called the Public Relations Threat Matrix, produced outlined responses to questions about projects managed by the Family of Funds, ranging from the redevelopment of Meier & Frank to Vanport Square.

In response to criticism that the Family of Funds 'is funneling projects and money to itself and its rich partners while MLK projects are languishing,' the memo suggests that staff talk about several projects in development in the MLK area and that it's 'actively looking for good deals to close with the right partners.'

A media release from Family of Funds on Monday followed that directive, stating that the agency 'will not use PDC funding to funnel loans or investments to businesses' outside the public process.

Finances hard to understand

Venture capitalist Ralph Shaw, a PFF board member, said people take shots at the agency because they don't understand its finances.

'The armory transaction was extraordinarily complex,' he said. 'As we get more experienced, we'll know better what the government wants.'

Shaw and other business leaders say the Family of Funds can be effective in bringing jobs and development to Portland. That's particularly important for a city with an unemployment rate that hovers at 6.8 percent.

'We're not getting any jobs. People are leaving,' said parking garage executive Greg Goodman. 'It's real positive, and an integral part of Portland being able to compete.'

The challenge, says Edmundo Hidalgo, who manages $15 million in New Markets credits for the Phoenix economic development agency Chicanos Por La Causa Inc., is to 'not make bad deals into good deals but to make marginal deals into good deals.'

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