SamSpade1941 

Seattle like Portland make it hard for developers to develop property in a way that would best suit the needs of the market. Hence my continuing comments about excessive regulation having an effect on price.

Again remove regulation on how real estate owners can develop and utilize their property and you will eventually see the demand met and prices decrease as a surplus in the market happens.

jyl

That is the simplistic Econ 101 analysis: price (rent) is just demand vs supply, so more supply -> lower rent.

In reality, in the real estate development industry, supply is determined by price, and price is determined by location and condition.

Higher price drives growth in supply. Supply grows only as long as prices are high. When price flattens, supply growth slows. If price falls, supply growth slows greatly or stops.

Concretely:
1. Developers require a certain price/sq ft to build the new building. Due to land, construction, and regulatory costs, that price is high - in almost all cases, higher than price/sq ft for existing older buildings. So when the new building is ready for lease, the price (rent) /sq ft is higher than in the older building that it replaced. In Portland, construction cost for a commercial building (not a high rise) is over $200/sq ft, then add land, permits, system charges, etc and then add financing cost and developer's profit margin. For argument's sake, say you end up with $300/sq ft as the price the developer needs to sell for, to be willing to start the project.
2. Investors also require a certain rent/sq ft to buy the building from the developer. That rent, adjusted for operating expense which includes leasing cost, vacancy cost, building maintenance, property tax (about 2%!), business tax (about 4.3%), needs to produce an acceptable rate of return on the purchase price. That acceptable rate (called a capitalization rate) is 5-6% now. For argument's sake, say operating expense is 40% of rent and cap rate is 5%, which gives required rent about $25/sq ft for a new building purchased at $300/sq ft.
3. That's about the lowest feasible. In reality, retail rents are running significantly higher in most new development in Portland. $28-32/sq ft is not unusual.
4. Meanwhile, retail rents are significantly lower in most older existing buildings. (Exceptions for restored historic ones in particularly attractive locations, etc.) $15-$20/sq ft is possible.

See https://www.cityfeet.com/cont/portla...568aceafbfac54 for examples.

Thus, when an old building is replaced with a new building, the retail space rent always goes up. A lot.

And if development activity gets so ahead of itself that new building prices/rents fall steeply, then development activity simply stops/slows.

Real estate developers are not like a factory that has an assembly line and labor committed and will keep cranking out widgets even if price is falling. Each development is an individual decision made based on projected prices.

jyl

The development math is similar for residential (apartments) except that you can stack apartments 5-7-12-etc stories high to reduce the land cost/sq ft. At a certain height the total cost/sq ft stops declining and starts rising, because you're into more expensive construction (steel frame, lots of elevators, etc). The very lowest cost/sq ft for residential in Portland is around 3 stories because you don't have to install elevators and can still use the cheapest construction (wood framing, T11 siding) and don't lose space to common areas. But of course the land cost/sq ft is then high. The very lowest price required for a developer to do the 3 story project works out to over $350/sq ft. The very lowest rent required for an investor to buy the project works out to nearly $30/sq ft annually, meaning around $2,400/mo if 1,000 sq ft unit.

Which is why the same thing I just said about retail rent is true for residential rent: replacing old buildings with new development results in higher rents.

The higher rent effect, though, is more for retail because retail can't be stacked, it's all ground floor and street frontage.

merziac

Therein lies the rub, many of the new developments go unoccupied for years from ridiculous pricing, again with the greed.

Eventually some of them get rented to transplants from elsewhere that think its a bargain having been priced out from where they came and now have further priced out more people who struggled to afford it to begin with.

And yes I can show many examples, especially in my part of town right now, both commercial and residential.

If its not greed they would not hold out and cripple the actual development of the neighborhoods they occupy that could be built up to support what they are doing.

They have undoubtedly already made their money that allows them to sit on it and write off their losses for more profit, again, greed, corruption at some or many levels, greased palms, political will, influence and on and on.

jyl

All this should be pretty obvious, even for the math-allergic.

If new development didn't yield much higher rent than existing buildings, why would anyone go to the expense of new development?

SamSpade1941 

While I do not disagree that developers will not develop if they can’t rent the space. You really did a great job outlining all the hoops that developers in this part of the US must go through to develop property .

Excessive regulation (the type Oregon is known for) doesn’t foster lower prices , but it most certainly creates artificial inflation .

Portland isn’t larger than Dallas Texas or Kansas City and is about the same size as Oklahoma City yet property costs substantially more . And at this point you can’t make the argument it’s because more business is moving in. The latest trends point to just the opposite.

Those other metros actually want business / industry to come in.

gugie 

Sorry, but we're all greedy, merziac . When we sold our house in Redwood City to move to Portland, I took the highest bidder, not the one with the best personal letter. Almost all property owners think the same way.

I hope you don't think that makes me a bad person.

I'm more of a socialist when it comes to bicycles, I worked hard to get to where I am and can afford to do framework and such for less than market rate.

jyl

On regulation, Portland (maybe same in Seattle) imposes these burdens on development:
- Permit fees and system charges. These are substantial, can be $30,000/unit for residential. However, I don't see a way to avoid these. Development compels more spending on municipal infrastructure (streets, utilities, parks, etc).
- Design requirements like retail storefront and bike parking. However, requirements like off-street parking have been eliminated (that is a huge savings for developers), and developers are still able to use the cheapest possible construction (see all the T11, Hardieboard, and fiberglass panel finished apartments going up).
- Height and size limitations (zoning). I don't think these are particularly restrictive. You can build a 200 foot building covering 100% of the lot in downtown Portland, and a 40-60 foot (that's 4-6 stories) building covering 100% of the lot among most commercial streets. You can build a 35-45 foot building covering 60% of the lot in many parts of most residential neighborhoods. As explained earlier, going denser (i.e. taller) doesn't actually result in rents/sq ft being lower.

You can take all those regulations and zero them out in the development math, and you'll still end up with new development substantially more expensive than existing rents. (Along with stuff like 60 foot apartment buildings with no parking being plonked down in the middle of a neighborhood of houses far from transit service, which is really crappy urban planning).

jyl

You get the same contrast when comparing most coastal and/or growing cities to most inland "flyover" cities.

The land value is very different. Labor supply and costs are different.

Yes, regulation is different too, but that's not the largest factor.

gugie 

What you're neglecting is that Portland Metro has a growth belt (artifical line outside of which you can't build on). Dallas, KC, OKC, Fresno, there are a lot of cities that can just grow outwards.

That's a value judgement that the people of Portland Metro voted on. The fact that I can get on my bicycle and easily ride into the countryside is something that made living here desirable. It also keeps housing costs high "artificially".

As I've told many a person who complains about the "high property costs" in Portland Metro, there's something else going on. If you look at all of the major US West Coast metro areas, Portland is by far the cheapest - and has lots of high paying technology jobs (Intel for example). Coming from the Bay Area, SoCal, or Seattle, it looks cheap in comparison. There are neighborhoods in Portland that even 10-20 years ago were undesirable, but have been gentrified by people that have moved in, raising housing prices, and busines that cam afford the hgiher rents that these higher income families will support.

I've come to the conclusion that there's little that can be done to counter these forces except to adapt to the new reality.

jyl

Yeah, in the newly built apartment buildings the vacancy rate is as much as 20%, and 6-8 weeks free rent offers for a 1 year lease are common. Lots of new ground floor retail is also sitting vacant. The rent is simply too high for the market.

It will stay vacant. Investors would rather rent 80% of their units for high rents, than substantially lower rents to get 95% occupancy. And they would rather wait for a high budget retail tenant than lock in a lower retail lease for 5 yrs + 5 option.

Getting back to the topic...

Rent is only one of the challenges for a bike shop. Some of the shops that have closed were paying reasonable rents - they had revenue issues. Not naming names but you can guess which ones.)

Let's say you luck into a reasonably sized space in an older building and get a good lease at reasonable rent. Is there any way you think you could make a bike shop work? How would you do it?

By work I mean actually be profitable enough to be worth doing. Not working yourself to death for no money...

SamSpade1941 

I can’t speak for anyone else here, but having owned 3 successful businesses which I later sold . Yes I could , but I care very much about profit and not so much about hipster appeal. As I said earlier many of those other shops were trying to create some Kitschy Cool ambiance to attract people to their business for what reason I have no idea since they did not seem to care about selling bikes . As gugie said earlier Rivelo didn’t even assemble or service bikes ... seems kinda pointless to have a bike shop that doesn’t offer service . Maybe it’s just me but that’s counterintuitive for a bike shop.

gugie 

Selling a house in SF and moving to Portland is kinda like having a trust fund. People do all sorts of non-profitable stuff when that happens...

merziac

The PDX location opened in 2010 and yep rent was the cited reason, I can't imagine attendance didn't play a big part.

I don't see many going from PDX to Ashland for a certificate that might get them a minimum wage job. There has to be a greater draw and PDX provided that by proximity, perceived delusions of grandeur or such and the cycling culture that can be intoxicating, especially when you don't realize it is mostly perception and the reality is far more stark if you are not already in the thick of it which is far from any guarantee anyway.

Here's the the BikePortland article with many interesting comments from several viewpoints.

https://bikeportland.org/2019/10/03/...ortland-305608

mpetry912 

great thread. Has anybody thought about the possibility of a repair "co-op" with a membership model ? Like $50 to join and $3/hour for access to repair stand and basic tools ? in addition to parts, accessories and food / coffee etc ?

of course retail space is the limiting factor - I think it's driving many brick and mortar ventures out of business along with online retail.

Mark Petry
Bainbridge Island, WA USA

gugie 

So, flipping the question, why would getting that certificate in Portland get them a better paying job? If I'm not mistaken, most of the people that took the mechanics course were either paid for or subsidized by a shop that wanted to invest in their personnel. The framebuilding class was almost completely paid for out of attendees pockets.

merziac

No worries at all, we are merely selfish with our tiny corner of a hobby, not greedy.

The greed mongers are like I said before, maximum profit at all cost, take advantage of any sidestep developers, companies, investors, shell trading strip miners that could care less about whatever carnage they leave in their wake.

You are far and away exactly what makes PDX a cycling epicenter then, now and hopefully for a long time to come, you are one of the lucky few that can reconcile the labor of love side and the it has to be viable side of it and I'm glad you do.

You know what you're doing and know how to do it and it works for you, PDX cycling colored glasses don't skew your take on it but temper the practical side for you. A challenging balance to be sure.

I think that's the lynch pin of the shops and such, they go in with a dream and by the time it fades, it's too late to get out or right the ship without slitting their own throat while it die's a slow agonizing death anyway being the dream was probably misguided to begin with but was needed to get them there in the first place.

merziac

Not getting them a better paying job necessarily but being in PDX would seem to be a bigger better draw perceived or otherwise of getting a job at all in PDX the wonderful center of the cycling universe.

And Ashland certainly has it's own huge draw albeit different, their own awesome cycling culture, proximity to trails and plenty of epic riding of their own, etc, etc. I truly hope they continue for a long time as they provide much needed structure and expertise that is sorely needed.

Also seems like they would/could have cut out the framebuilding if the other classes were viable which it seems not.

norcalmike

our local co op is 5 per hour suggested donation or 75 year membership.

gugie 

jyl , Universal moving to Hillsboro may be a loss for you, but a gain for me and Andy_K Where are they moving to in Hillsboro?

SamSpade1941 

I actually consider it a win for me on the rare occasion I drive up to visit the physical store , I will not need to go into Portland proper which I am not a fan of doing.

merziac

It's not really far from me but I still don't go without good reason like going that way for something else or having to put my eyeball on something to make sure it will work for whatever it is.

jyl

I don't know - I was in there a couple weeks ago and didn't look like move was imminent - no big sale etc.

merziac

So, not disagreeing with most of this and circling back to say that it seems to me the whole regulation cluster suck is the mess that facilitates it, which has been my point all along.

Convoluted beyond any reason so no one can make sense of it while the powers that be, developers, contractors, city, county, state and likely many other even more and far less trustworthy hacks sit back, lick their chops and wait for the kinkiness to ensue so they can get hooks in by "helping", regulating and schmoozing their way to the bank with our $$$$.

As an aside, Revelo did have assembled bikes on the floor most of the times I went there but yes I don't think they thought it through, PDX was never going to drink the actual pine tar soap, $150 hatchet kool-aid to begin with, kitchy, hipster, fringe bikey is not a viable, sustainable business model.

Norther has been limited hours and by appt. for some time, he freely admits hanging out at the bike shop didn't work as a business model.

Again, many confuse "labor of love" with I'll start a business. Once you pull the trigger and get it off the ground, it's too late to unring the bell having been a misguided endeavour that likely took every resource to launch and was inadequate to begin with supplemented by sweat equity that drys up soon as reality sets in.

merziac

The one guy, ball cap and beard that has been there the whole time I have been going there told me it was happening, he wasn't happy either.

He said the property was already sold and would become condo/apartments.

They already have some of the best prices and may not care about having to move it so they stay well stocked, what do I know.