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How Portland Sold Its Banks on Walkable Development

Gresham, Oregon used to look like your typical suburb.
Lots of lawns and lots of parking. When Portland's MAX light-rail line
expanded to Gresham, developers saw an opportunity to bring something
different: walkable development. But a downturn in the local real
estate market interceded. One developer trying to build a four-story
condo project decided that he'd be better off with a video store
surrounded by surface parking.

Crossings at Gresham brought transit-oriented development to Portland's
suburbs, opening the door for financing to flow to similar projects.
Image: Myhre Group Architects.

-- Portland's regional government -- decided that wasn't good enough.
They bought the site outright. Then Metro proceeded to double down on
the original plans for the project, which it called The Crossings.
Four stories became five, making the development the tallest building
in Gresham. Condos became a mixed-use development with ground-floor
retail, sidewalk cafés and engaging street-level facades.

There was still one big problem: financing. Charlotte
Boxer, director of commercial real estate at Pacific Continental Bank,
was skeptical of Metro's project. "What would draw people to live
there, or what would make a retailer decide to lease there?" she asked.
"There was substantial risk on Metro's part and on ours as the lender,
because we had no comparables to go to that would say this would work."
For the project to succeed financially, they'd have to charge rents 25
percent higher than the going rate in Gresham, for a type of
development no one had ever tried there.

In many parts of
America, efforts to build transit-oriented, walkable communities are
foiled because financing can't be secured for projects that differ from
the templates lenders have become used to since World War II. In Salt
Lake City, for example, the local government's push for
transit-oriented development has been stymied because local banks won't lend to projects without huge parking lots.

do lenders balk at development that reduces car dependence? In a word,
inertia. "The lending industry appears to be very conservative, if your
definition of conservative is doing the same thing this year as you did
five years ago," said David Goldstein,
co-director of the Natural Resources Defense Council's energy
program and an expert on environmental real estate financing. Because
banks have no institutional memory of lending to transit-oriented
development, they are reluctant to do so going forward.

Portland, officials and activists have begun to escape this cycle. The
policies they've pursued to foster walkable development are instructive
for many American cities looking to grow without making traffic
congestion worse.

Even in transit-rich New York, economic development officials have subsidized developers who import car-oriented standards. They are happy to secure favorable lending terms, underwritten by the U.S. government, for multi-story parking decks.
It's safe to say that goals like enhancing the pedestrian environment
or attaining sustainability targets are not motivating these decisions.
Portland development officials do things differently. When planners
there decided that urbanism and sustainability were good outcomes, they
went out and started convincing lenders to change the way they do

Megan Gibb runs Metro's transit-oriented development program,
which works with developers and offers financial incentives for TOD.
The Crossings, for example, received discounted land, tax breaks, and
other financial incentives from Metro. "Our whole program is to build
more market-comparables," said Gibb. "The more TOD projects there are,
the more it builds on itself." Each project that gets built makes the
next one easier to finance.

Gibb also highlighted the
centrality of public-private partnerships to Portland's success.
According to Gibb, banks normally look at standard, car-oriented
development models and say, "We know this worked in the past. Why would
we want it to be any different?" When the public sector commits to
smart growth, however, bankers instead see that the government "thinks
this is really important and is willing to put their money where its
mouth is." For financial institutions that are often quite risk-averse,
government action provides the security necessary to move forward.

John Warner, who manages most of the TOD projects at the Portland Development Commission,
argues that at first, government may have to push the envelope to
convince banks that walkable development pays off. "Until you've got
examples that lenders can look back in time at," he said, "you have to
be doubly conservative and oversubsidize something to prove the
concept." Warner added that in Portland, where lenders have bought into
a consensus about the need for sustainable development, they've been
able to walk back many subsidies.

At The Crossings, Metro's
vision -- and incentives -- turned the project into reality.
Financially, it's a complete success, with 100 percent occupancy and a
sizable waiting list. It's won awards for transit-oriented design and
earned the praise of Gresham's residents and politicians. Perhaps most
importantly, however, it set an example.

Boxer, the initially
skeptical executive at Pacific Continental Bank who provided The
Crossings' financing, now says she is "very proud to say I have
financed the project." She also calls it "truly pioneering," providing
a model for how to bring walkable development to suburban locations.
The Crossings, itself possible because of the successful projects that
preceded it, helped pave the way for more and better transit-oriented
developments that followed.

Beranger condos, a new transit-oriented development in Gresham,
wouldn't have been possible without The Crossings' success. Image: Gresham Downtown Development Association.

in Portland, though, proponents of walkable development have more
convincing to do. One bank that's played a central role in financing
urban-style housing near transit, ShoreBank Pacific,
is still getting accustomed to projects with less parking, for
instance. "Having no parking for a business is still a pretty
challenging place to be," said ShoreBank VP Bonnie Anderson.

Moving forward, then, Portland will have to craft policies that
expand the comfort zone of lenders. Gibb and Anderson saw shared
parking and car-share as tools to mitigate banks' fears about financing
projects with fewer parking spaces than normal.

There are
also structural reasons that banks avoid transit-oriented development,
which can't be overcome by building a few market comparables. Because
profits from transit-oriented development tend to materialize more
slowly than from typical suburban development, new financing methods
are needed to make TOD more attractive to lenders. And of course, banks
respond to the regulatory environment. Portland makes many developers
adhere to principles of walkable development near transit lines.

true that Portland area bankers have yet to embrace the full range of
development needed to reduce car-dependence. But as the region attempts
to grow sustainably, it benefits immensely from development officials
like John Warner, who talks passionately about "the community
organizing needed to get all the stakeholders on board with the
absolute necessity of transit-oriented development." While here in New
York, where growth is ostensibly shaped by a citywide sustainability
plan, the chair of the local Economic Development Corporation still
thinks that not providing enough parking is "the worst thing we could do."

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