Three Hotels Approaching Foreclosure in the Heart of Portland Offer a Warning to City Leaders

In an era where people can work from anywhere, few choose downtown Portland.

That’s clear from a July study by ECONorthwest, not yet finalized, that shows that on any given day, there are 55% fewer workers downtown than before the pandemic. In the same report, consultants estimated that it would take until 2034 for office vacancy in downtown Portland to drop below 10%, the ideal range.

One consequence of an empty city center: fewer reservations at the city’s best hotels. In the past week, wweek.com reported that the elegant Benson Hotel in downtown Portland complained of losing a corporate client who booked 300 rooms a month.

Now www learned that three high-end downtown hotels, including the city’s iconic Hilton, are in foreclosure proceedings with the banks that issued their mortgages.

Such proceedings are the first sign that downtown Portland’s vacuum has reached a critical stage.

The owners are furious. Greg Goodman, whose company owns a patchwork of downtown properties, calls the vacancy rate “a full-fledged disaster” and says city leaders “are not doing anything about it.”

However, most corporations with downtown offices do not require workers to return.

Portland General Electric’s 900 downtown employees can work remotely if they choose. So can the 1,900 Standard Insurance workers who once occupied two huge buildings downtown and the 600 employees of NW Natural.

Environmental consulting firm ClearResult recently downsized from a 60,000-square-foot waterfront office building at 101 SW Main St. to a 5,000-square-foot conference room in the same building, saying www is “leading by example for other companies seeking to reduce their environmental impact”.

According to the latest estimates, the availability of offices in the center is 26%. But the real number may be much higher.

David Squire, executive vice president of real estate brokerage Newmark, estimates that a much higher proportion of office space is still rented but unused. He says those spaces will show up in the vacancy figures when five-year and 10-year leases expire in the next two years.

“You have an opening, and frankly, a bigger number to focus on has to do with office utilization,” says Squire. “It’s much, much lower.”

Squire’s brokerage has several buildings that are 99% leased on paper, but are only 40% occupied. Many of those leases expire within 24 months. “This is a conversation that’s happening in every downtown business,” he says.

Those numbers have city leaders sweating. Two weeks ago, www reported that Mayor Ted Wheeler plans to introduce an ordinance to the Portland City Council that would waive one-time fees for developers who agree to convert office buildings into affordable apartments for a minimum of 15 years.

But experts say those charges are a mere drop in the bucket of what it costs to convert an office to residential space.

Squire says the mayor needs to do a lot more if he wants to spur conversions.

“It can’t be done without some help from the city. The numbers just don’t work,” says Squire. “Excess office space has been coming in for years. Has Portland stubbed his toe? Absolutely.”

An exodus of tenants from downtown office space puts building owners in an impossible bind: reinvest more capital to refinance the loan and hang on, or go into foreclosure and hand over the keys to the bank.

And if there’s one industry that’s giving office buildings a taste of what’s to come, it’s downtown Portland hotels.

In the past week, www reported that Benson had lost two large clients due to conditions at the center, according to an email written by a senior Benson executive and obtained by www. “Too many bums and crazy people running around. Suffice it to say that I am furious!” the executive wrote.

An examination of court and property records by www found that three hotels have reached a more alarming stage than the Benson: the banks that hold their mortgages are preparing to foreclose.

Nathan Sasaki, owner of Apex Real Estate Partners, says their fates show the consequences of an abandoned downtown.

“If we don’t do something with downtown, there’s going to be a lot of properties that end up in foreclosure,” says Sasaki. “We haven’t even started to feel the pain yet. Banks are trying to keep these properties off the foreclosure list, because why would you want to repossess something you know is a disaster? But eventually they have to.”

The Hilton and Duniway hotel in Portland

921 SW 6th Ave. and 545 SW Taylor St.

The Portland Hilton and its associated Duniway building have a combined 782 rooms; together, they constitute the largest hotel in the city. The Hilton has 21 conference rooms and rises 22 stories. The Duniway underwent a massive renovation just five years ago and was renamed in honor of pioneering newspaper publisher Abigail Scott Duniway. It features a two-story cocktail bar and a lawn games balcony on the 11th floor.

But both are about to be auctioned by the bank holding their mortgages.

The 22-story Portland Hilton was built in 1962. The neighboring 20-story Duniway was built in 2002. The hotel is owned by an institutional investor, that is, an entity that raises money to invest in assets.

In 2020, a judge put both hotels in receivership because they had not paid the mortgage to the bank. (A trustee is a neutral third party who comes in to manage the business and its finances in an effort to get it out of financial difficulties.)

Property records obtained by www show that the bank will put the two properties up for sale on September 13 at a courthouse auction.

The building’s owners owe more than $270 million to the bank, records show. Those same documents offered a glimpse of how things went the day the lender gave notice of the building’s sale. “The server spoke to the manager on duty at the Hilton Hotel. He refused to give his name.”

Dossier Hotel

750 Southwest Alder Street

The Dossier’s lenders began extrajudicial foreclosure proceedings earlier this year after the building’s owner defaulted on mortgage payments between March 2021 and May of this year, according to property records.

The building itself was first erected in 1999 but, after a massive renovation, it reopened as a Dossier in 2017. The hotel is adorned with local art and chandeliers hang in its function room. Guests are offered discounts at Knot Springs, which the hotel touts as the “town wellness club.”

The property will be auctioned on November 29 “on the front steps inside the main entrance of the Multnomah County Courthouse.” Records show the building’s owner owed the lender $8.7 million, as of May.

Provenance Hotels, the parent company of the subsidiary that owns the Dossier, was previously owned by Gordon Sondland. A Texas company recently purchased Provenance this summer. Sondland is now on the board of the parent company.

Correction: An earlier version of this story said that Duniway was built in 1962. In fact, Duniway was built in 2002. WW regrets the error.