Wikman building-business-plan
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Wikman building-business-plan Document Transcript

  • 1. Business Plan Proposal to Multnomah County October 2012Coalition Partners:Foster-Area Business AssociationFoster-Powell Neighborhood AssociationMt. Scott-Arleta Neighborhood AssociationROSE Community DevelopmentSoutheast Uplift
  • 2. Executive SummaryThe Wikman-Arleta Coalition Partners – ROSECommunity Development, Southeast Uplift,Foster-Area Business Association, Foster-Powell Neighborhood Association and Mt.Scott-Arleta Neighborhood Association –propose to purchase the Wikman Buildingfrom Multnomah County.The building, which is located at 4420 SE 64thAvenue, would be rehabilitated and reused as abusiness center and event space. These useswere selected because they best combine thepreferences of the community with marketdemand and financial feasibility.Coalition Partners raised $15,000 toward initial feasibility work, consisting of $3,000 inindividual and organizational contributions and a $12,000 Development OpportunityStrategy (DOS) grant from the Portland Development Commission.Extensive research was conducted to determine the market demand for the uses proposedhere. The Wikman-Arleta Building Market Analysis and other information is included inAppendix 2. These documents identify comparable properties in southeast Portland aswell as rents and occupancy rates.In order to obtain financing, the purchase price must be determined by a third partyappraisal. The Coalition Partners believe that the assessed value of $505,340 is high; wepropose to split the cost of a third-party appraisal with the County in order to determinewhether the project is financially feasible for both buyer and seller.The Wikman Building would be owned by a new nonprofit corporation organized for thepurpose of operating the neighborhood center. Because the new nonprofit would nothave the capacity to take on debt, support from the County would be required in oneform or another. This could be in the form of: 1) Assistance in fundraising so that thebuilding could be acquired debt-free; 2) Loan guarantee; or 3) Contract sale. TheCoalition Partners are open to negotiating with Multnomah County to arrive at amutually beneficial solution that creates a positive future for this unique neighborhoodasset. 1
  • 3. Wikman Building VisionThe principal goal of the Coalition Partners is to preserve one of the most historicbuildings in southeast Portland and repurpose it to meet community needs. The ArletaLibrary was built in 1919 as a Carnegie Library thanks to a community fundraising effort.Restoring the building will strengthen the community by providing a place forcommunity activities, programs and events. The building will also strengthen theneighborhood economy by creating an identity and providing office space that can act asa business incubator.Lea Wikman was an immigrant from Finland and chairman of the Multnomah CountyCommunity Action Agency. She was dedicated to empowering and providing assistanceto low income citizens. After her death, the County named the building in her honor andcontinued to provide public services there. This project will be the next chapter for abuilding that has served Foster Road neighborhoods in Multnomah County Districts 3 & 4for almost 100 years, reaching as far out as Gilbert, Bell Rose and Powellhurst.Coalition PartnersROSE Community Development was created by outer southeast residents in 1992 torevitalize our neighborhood. ROSE has developed and operated more than $40 millionworth of affordable housing and organized a variety of other neighborhoodimprovements such as the Lents Homeownership Initiative, a collaboration of more than50 organizations that created 320 new homeowners in five years; construction ofMarysville and Harney Parks; and the Child Care Neighbor Network.Since 1968, the Southeast Uplift Neighborhood Coalition, a 501(c)(3) nonprofitorganization, has provided critical staff and organizational support to thousands ofvolunteers fostering safe, vibrant and diverse neighborhoods within our coalitionboundaries. Southeast Uplift empowers citizens to effectively resolve challenges anduplift communities through a variety of skill-building techniques and resources. Itscommunity programs include fiscal sponsorship for neighborhood association programsand other small nonprofit organizations working in mission-aligned areas, Solarize SE,Neighborhood Small Grants, Graffiti Abatement Community Grants and Land Use andSustainability support. Among its core beliefs are that organized neighbors can shape thefuture of our communities, including envisioning and enacting positive change. Throughcollaboration, we co-create the communities we want to inhabit.Southeast Uplift is headquartered in Inner Southeast, in a multi-tenant building which itowns and manages. It also owns another building, purchased by the community, restored 2
  • 4. and re-purposed to become a nonprofit coffee and neighborhood gathering place with aspecial emphasis on parenting support. It was the fiscal sponsor throughout theremodeling process for the nonprofit now running that program, "Cafe au Play".Foster Area Business Association is dedicated to assisting in the creation of a businessdistrict that provides accessible products and services for the neighbors, business owners,employees and visitors as well as a cohesive group that assists in changing thecommunity’s vision of the Foster Road area through sponsoring community events andsupporting revitalization projects like the Wikman-Arleta building.The Foster-Powell and Mt. Scott-Arleta Neighborhood Associations consist ofneighbors working together to help improve our neighborhoods. They provide a forumwhere people can share their concerns about livability in our neighborhood, learn aboutresources, connect to broader issues that affect our community, and meet theirneighbors. Everyone who lives in the area bounded by Duke Street on the south, PowellBoulevard on the north, 82nd Avenue on the east, and Foster Road on the west is amember of these associations.Community Priorities & UsesOver the past year there has been steady participation from members of the communityvia steering committee meetings, visioning sessions and community benefitorganizations. In two community visioning sessions a vast majority of people voted on acommunity center as the #1 use for the building. 1st choice 2nd choice 3rd choice TOTAL Community Center 17 4 2 61 Credit Union 2 6 4 22 Art & Music Center 2 1 17 Small Business Incubator 0 5 2 12 Multigenerational Center 3 1 0 11 Office Space 0 4 2 10 *A first choice vote is given 3 points, a second choice 2 points, and a third choice 1 pointA credit union was the second most popular use for the building. However, all of thecredit unions serving the Portland area were contacted and none expressed interest inlocating at the Wikman Building. Also, the amount of capital and renovation needed toaccommodate this use may trigger seismic updates that would push the entire projectover budget. The other suggested uses are compatible with typical community centeractivities and would not trigger expensive code requirements such as a seismic retrofit. 3
  • 5. Several community benefit organizations, community centers and local businessesexpressed interest in leasing space in the Wikman Building. The uses that that were ofinterest to these organizations were similar to those identified in visioning sessions.Wikman UsesTHA Architecture was hired to complete a Wikman Building Renovation Plan (Appendix1). To complete the plan, a thorough physical inspection of the building was completedand building codes were considered. In the process, Coalition Partners successfullyinitiated an appeal of occupancy limits to the building that significantly increased thenumber of people legally allowed in the main space of the Wikman Building, from 26occupants up to 107 occupants. This makes the future reuse of the building more flexibleand economically viable. *Red = Office Space (1,879 Sq. Ft.) *Yellow = Meeting Space (1597 Sq. Ft.) 4
  • 6. The architectural plan provides flexible space that could accommodate meetings, eventsoffices and retail. To determine the most promising use, we compared three scenarios: 1)Neighborhood Center; 2) Business Center; and 3) Retail. Both the Neighborhood Centerand Business Center options would have offices for rent in the east rooms and mezzanine,while the main hall and first floor conference room would be rented by the hour.Neighborhood Center offices would be rented for $7.50 per hour to accommodate startupbusinesses and nonprofits. The Business Center offices would be rented toward the highend of the district’s rent range at $9.00 per square foot. The third scenario, retail, wouldactually generate the highest rent at $12.00 per square foot. The chart below compares the options. Neighborhood Characteristics Center Business Center RetailUses Main hall and Same as Retail throughout conference room: Neighborhood building event rental; East Center rooms: officesMain hall rent $50 per hour $50 per hour $12.00 per sq. ft.Conference room $25.00 per hour $25.00 per hour $12.00 per sq. ft.rentEast wing rent $7.50 per sq. ft. $9.00 per sq. ft. $12.00 per sq. ft.Basement rent (all $3.00 per sq. ft. $3.00 per sq. ft. $3.00 per sq. ft.scenarios)Annual rent $46,482 $49,203 $49,893generatedThe Coalition recommends the Business Center scenario because it best combines thecommunity’s desire for flexible use public space with financial feasibility. Lack of off-street parking limits Wikman’s retail potential. The combination of meeting space andoffices are compatible and allow the building to be used daytime, evenings and weekends.This scenario provides an opportunity for community and economic developmentbecause the office spaces can shared along with utility and infrastructure costs to loweroverhead and free up working capital for startups and small business.Possible sources of risk are competition and vacancy rates. Office vacancies in thesoutheast submarket are relatively high. Also, there may be an unstable and low revenuestream because of the short term leases and relatively low lease rates.The main hall will be flexible space suitable for community meetings, workshops,exhibits, meetings and events. This was the most popular use described in visioning 5
  • 7. sessions and could allow for partnerships opportunities with Portland CommunityCollege, Mt. Scott Community Center and Southeast Uplift.All three organizations have expressed interest in utilizing the site to increase theircapacity in Outer Southeast. Portland Community College is interested in the site fortheir Workforce and Economic Development Program, Mt. Scott Community Center isinterested in the space for their child care program (demand currently doubles theircapacity), and Southeast Uplift is interested in a meeting space in Outer Southeast. Anonprofit kindergarten has also expressed interest in utilizing this space for classes.Several artists and musicians believe the Wikman Building would be a great venue forshows and exhibits. The space could also be used for weddings, parties and other events.See Appendix 5 for Letters of interest.Purchasing WikmanThe proposed purchaser of the Wikman building would be a new nonprofit entity.Individually or together the Coalition Partners do not have the capacity to assumeWikman Building debt without putting their missions at risk. Three ways thatMultnomah County could assist the project are described below:1) Assist with fundraisingMultnomah County and the Coalition Partners share the goals of preserving the WikmanBuilding and building community in Southeast Portland. The project’s ability to carrydebt is fixed by the Net Operating Income generated by rents. The County’s potentialprofit from the sale of the building correlates with the amount of non-debt financing thatcan be raised. Support from the County in identifying funders and developing grantswould serve the interests of both the County and the project.2) Loan guaranteeObtaining financing for any commercial real estate is difficult in this economy. This sitepresents special challenges because of the nature of the project, the new ownership entityand the project location in a pre-gentrification neighborhood. A County guarantee wouldimprove financing terms and may be the only way to get private financing.3) Contract saleThe Coalition Partners understand that a contract sale is not the County’s preference. Itmay be the only feasible way to finance the project. We project that all but approximately$170,000 of the $480,000 project cost can be raised toward a down payment, which would 6
  • 8. reduce the amount that the County would have to carry on contract. The sale price to theCounty could increase to the extent that its financing terms were better than that offeredin the market. A contract sale would give the County the most control over the property,as well.Acquisition PriceIn our initial proposal, the Coalition Partners stated that we were willing to pay marketvalue for the property. The question is what is market value? The last independentappraisal – which estimated a value of $750,000 – was done at the top of the market in2006. Lenders typically require that an appraisal be less than six months old. TheCounty’s tax assessed value of $505,340 was not established by an independent thirdparty.To estimate the value of the Wikman building for this analysis, we divided estimated NetOperating Income for the proposed uses by a cap rate of 7.5% to derive a value of about$220,000. We also compared the Wikman Building with two comparable Foster areaproperties. The first, the Bob White Theater, which is one block away from Wikman andsold for $350,000 in January, 2012. The second is the Odd Fellows Hall at 9216 SE Ramonaand is currently listed for sale at $340,000. Property Price Square Ft Price/Sq Ft Wikman – assessed value $505,340 4,877 $103.55 Wikman – cap rate estimate $222,651 4,877 $45.65 Bob White Theater $350,000 9,887 $35.40 Odd Fellows Hall $340,000 9,030 $37.65The project is not financially feasible at an acquisition price of a half million dollars.Before more resources are expended on this project, we propose that the County and theCoalition Partners split the cost of a new appraisal, which would cost about $5,000. Withbetter information about the value of the building, both sides would be in a betterposition to decide how to proceed.FinancialsAccording to estimates, revenues from rented space come very close to matching theoperating cost for running the building but ultimately fall short. In order to keep thebuilding operational, the proforma includes proceeds from fundraising benefits. Theseevents would add both fundraising and community awareness value. 7
  • 9. RevenueThe rental rate for office space was taken from average market rates derived in the marketanalysis in Appendix 4. The revenue from community spaces were estimated bycollecting revenue data from Southeast Uplift, Mt. Scott Community Center and EastPortland Community Center. Revenue projections were estimated based on both perevent and per square foot rental rates at the comparable facilities. This number wasapplied to the amount of event space available in the Wikman Building. The building’srevenue from office and event space were added to generate a total revenue number forWikman.We plan to supplement the rental revenues from Wikman with fundraising from twoannual benefits. The Association of Fundraising Professionals and the book “Fund-Raising: Evaluating and managing the Fund Development Process.” (James Greenfield,1999) agree that on average, it costs fifty cents to raise one dollar from benefits and socialevents. According to this, two events costing $1,000 each can generate $4,000 for thebuilding and create a small surplus above operating costs.Operating CostsOperating costs were generated from actual numbers in 2011 as well as 3 year averages.Additional details can be seen in the operating budget in Appendix 3.Fundraising PlanThe fundraising plan for the Wikman Buildingincludes a loan, urban renewal funds from thePortland Development Commission, foundationgrants, individual contributions and in-kinddonations such as professional services andbuilding materials.The loan amount of $172,787 was determinedbased on the Net Operating Income from thepreferred Business Center scenario. The expectedterms on a conventional bank loan are 6% interestand 25-year term. Interest on contract sales istypically 2-3% higher than a conventional loan.The Wikman Building is located in the LentsTown Center Urban Renewal Area. Projected 8
  • 10. sources from the Portland Development Commission are $150,000 from a NeighborhoodLivability Grant and $12,000 from a Development Opportunity Strategy (DOS) MatchingGrant. The DOS Grant has already been awarded and was used to pay for pre-development expenses. PDC’s website states that typical Livability Grants range from$5,000 to $50,000. The next round of funding will be available in February/March 2013.Foundation grants are budgeted at $100,000. The Oregon Foundation Databook lists 13foundations that provide capital grants in the Portland area. The average grants fromthese sources range from $6,365 to $161,500. The application deadlines are spreadthroughout the year. We believe it is possible to reach the foundation grant goal within ayear of securing the go-ahead from Multnomah County.Cash and in-kind contributions are estimated at $26,825 and $20,000, respectively. Nearly$10,000 has been contributed to date from individuals, organizations and vendors. Theproject has already generated great enthusiasm in the neighborhood. Great potentialexists for a campaign like the famous “buy a brick” campaign that helped build PioneerCourthouse Square in downtown Portland. Contributions will be sought via events, directmail, social media and donation jars at neighborhood businesses.ConclusionThe redevelopment of the Wikman Building is challenging from several perspectives. Thebuilding is nearly 100 years old. Fundraising is tough and financing commercial space iseven more difficult today. Market rents barely cover projected operating costs. Publicservices are being cut at all levels. The Foster Road neighborhoods are coming alive, butcompetition is stiff with other more established eastside commercial districts. TheCoalition Partners are ready to rise to the challenge and are prepared to work withMultnomah County to write the next chapter in this proud building’s history. 9
  • 11. AcknowledgementsMultnomah County:Chair Jeff CogenCommissioners Judy Shiprack, Deborah Kafoury, Diane McKeel and Loretta SmithMike SublettePortland Development CommissionLents Town Center Urban Renewal AreaRepresentative Alyssa Keny-GuyerTHA ArchitectureMEP EngineeringSusan Walker Building InspectionsMt. Scott Community CenterAlison WicksAllison CurtisAnne DufayBeth CraneCarl WikmanChristian SmithEavan MooreErika PalmerJason Barnstead-LongJason KallingalJoe ReedJohn MulveyLiz HutchinsonMary Louise OttMeg McHutchinsonMike MasatNancy ChapinNathan JonesNick SauvieNoelle LabrousseOwen Wise-PierikSarah IannaroneTerah Beth VargasVictoria Oglesbee 10
  • 12. Appendix1. Financial Proforma2. Wikman Building Renovation Plan by THA Architecture3. Wikman-Arleta Building Market Analysis by Alison Wicks4. Rent Comparables5. Letters of Interest 11