Soft drink superblock: Security Properties buys five acres of PepsiCo distribution center for 'urban village'
Another significant acquisition of acreage is moving Portland's transition forward from a medium to a big city.
A joint venture between Seattle-based Security Properties Development Company and Beijing Jade Investment Group closed Sept. 6 on a deal purchasing the PepsiCo Distribution Center's five-acre superblock between Northeast 25th and 27th Avenues and Northeast Holladay Street and Sandy Boulevard.
Some Kerns residents might be glad to see Pepsi leave the neighborhood: while it provided jobs, the light industrial complex resulted in lots of trucks idling and clogging roads in the changing neighborhood with residents right across the street.
"I think the transition of moving from a distribution light industrial use to more of a residential and neighborhood retail use is going to have a very significant, positive impact on the neighborhood," said John Marasco, chief development officer at Security Properties. "The truck traffic we know is problematic for the neighborhood, because that's one of the reasons Pepsi is moving. They get continual complaints and we witness during our due diligence that it's constantly trucks moving in and out of that property, and trucks sitting idling for long periods of time: none of that is conducive to any sort of residential use."
SP and Jade have been in discussions during the past two years on potential collaborations — specifically the creation of mixed-use, pedestrian-friendly and transit-oriented communities in the Portland area.
"We're excited for this partnership as well as the opportunity to create a thoughtful, amenity-rich community that further contributes to Portland's urban development," said Xiaorong Zhai, vice president at Beijing Jade Investment Group.
Security Properties will serve as master developer of the property and is in the process of interviewing architects to begin initial concepts for the multi-phased redevelopment project. Beijing Jade Investment Group will serve as Security Properties' initial capital partner on the redevelopment.
"This site is central to everything that makes Portland such a special place to live, work and recreate," said Gus Baum, director of development at SP. "We see Sandy becoming Portland's next great boulevard, and this Large Site Master Plan will play a significant role in its continued transformation."
"(This site) is exactly the sort of thing that we look for. It's a significant piece of property in an emerging neighborhood," Marasco said. "For a developer, that provides an opportunity to do our own plan for future developments and then manage that development on into the future, as opposed to coming into a neighborhood, acquiring a piece of property and building one project and leaving — so we're especially excited for the potential to actually help shape the growth of the neighborhood."
SP's Portland portfolio already includes more than 1,000 conventional residential units, along with some office space about to come online.
"This site provides opportunities for offices, it's got exposure to (Interstate) 84, it's very close to the Providence medical facility," Marasco said. "In terms of offices, there's an east-of-the-river office corridor starting to develop and it seems to be gaining strength. A number of office tenants that we actually talk to for our project Heartline in the Pearl have relocated into that neighborhood."
SP is also developing the downtown Press Blocks and one in the Pearl — Heartline — coming online next January, which both include mixed uses with office space. Heartline includes a 218-unit high rise apartment building together with a five-story brick and steel commercial building with 15,000 square feet of commercial space on the ground floor and 60,000 square feet of office space above. The Press Blocks — a joint acquisition between SP and Urban Renaissance Group — is slated to break ground in the first quarter of 2018, and will have approximately 340 apartments and a 140,000-square foot office building with ground-floor retail.
"I wouldn't say we have a plan, we've been focused really on getting through a due-diligence on the acquisition of the property itself, and getting it closed, which as you saw just happened last week," Marasco said. "For now, the next steps for us are to put together a comprehensive plan for the development of the site — at five acres, it provides lots of opportunities, especially in that new commercial mixed zone about to be put in place by the city."
There's no projected budget for the project, yet.
"We see development there happening in phases: One of the things we want to do is basically reestablish the old street grid that was there before Pepsi turned it into a distribution facility," Marasco said. "To break that site down into smaller sort of chunks — not just buildings, but private streets and open space and a variety of uses."
Security Properties has already identified partner firms it's interested in, and is in the process of interviewing.
"We don't have a design team, we are interviewing as we speak," Marasco said. "We need to do more research and we need to get out and actively start meeting with the neighbors there so we can better understand their thoughts for future developments as well as what they would like to see in that neighborhood that they don't currently have."
Marasco said there could be space for 1,200 units of new housing, too.
"Realistically, we would start having some preliminary planning and meeting and that sort of thing probably toward the end of the first quarter of next year," Marasco said. "With a goal to have a plan in place, say, by this time next year."
Michael Nanney, senior director of multifamily development with SP, said SP expects the five developments to create nearly 80 construction jobs on-site, each.
"It's interesting because the property, looking at it on a map, it actually breaks itself really nicely into five development parcels," Nanney said. "Although all of us are collectively talking about it as the Pepsi project, one way to talk about it is as five different projects over time."
The construction start date is governed by the Pepsi move-out, which SP is helping with. Meanwhile, PepsiCo will lease-back its office and industrial space from SP as it identifies a new location for its offices and distribution facilities.
"We're not exactly sure how long that's going to take," Marasco said of finding a new distribution center for Pepsi. "We're just starting that with them."
The companies plan to redevelop the five-acre urban property under the City of Portland's "Large Site Master Plan" designation, offering market-rate and affordable housing, commercial-office, retail and other product types over the next several years.
"Our plan is we're going to start working on the overall site plan immediately, as soon as we select a team," Marasco said. "The City of Portland is actively in the middle of enacting this new zoning, so we need that to happen so we can utilize the large lot master plan process for this site."
Since 1962, the PepsiCo facility has stood as an example of mid-century modern architecture among the car dealerships and auto shops that have historically characterized the Sandy Boulevard commercial corridor. More recently, the area has become an increasingly attractive place to live and work.
"I think the actual sale of the property actually happening on this very compressed time frame was just as much a surprise to them as it was to us that we were able to make it happen," Marasco said. "Now, they're going to be digging in on what is the right location for them to move to: the site at five acres just isn't big enough for them. Their typical facility today is more like 10-12 acres. As a result, that neighborhood's changing."
The massive urban property constitutes a "superblock" encompassing over four city blocks that have generally been used for industrial or office space, while the surrounding sites are zoned for mixed-use development.
"My guess is, once this development is completed there's going to be significantly more employment on that site than currently," Marasco said. "The other thing is, that's assuming we're going to be bringing additional retail use (and) additional commercial use including some office tenancy."
The acquisition and eventual redevelopment of the PepsiCo building follows in the footsteps of several other smaller new construction and renovation projects along the Sandy corridor.
"The CMD zoning coming on-site does allow for a variety of uses. We're excited about the opportunity to do housing over ground retail, but don't be surprised if we come up with something else that's interesting to do with part of the overall master plan," Nanney said. "We'll see how that plays out over the next couple of years."
By Jules Rogers
Reporter, The Business Tribune
Follow Jules on Twitter
Visit the Business Tribune on Facebook and Instagram
Subscribe to our E-News