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November 9, 2020

In the real estate industry, concern about Portland’s new initiatives

TIM GREENWAY / PETER VAN ALLEN Real estate investors, from left, Brit Vitalius, Tom Watson and Ron Gan.

New measures approved by voters in Portland were designed to create additional affordable housing, give renters more protections and offer a range of workers greater compensation.

But at least two of the referendums that passed last week could have the opposite effect, putting the brakes on development and potentially driving developers to surrounding markets, several local real estate investors told Mainebiz. 

The referendums, introduced by People First Portland and approved by voters, could have a broad impact. In a letter to the city, shared with Mainebiz, the nonprofit urged the city to inform affected city departments immediately. (See sidebar.)

Two areas that come out of the Green New Deal referendum might have the greatest effect on real estate developers — and, by extension, future development.

The new regulations call for an increase in affordable housing allotments. Up to now, a multi-family building with 100 units needed to offer 10 units as affordable housing. Under the Green New Deal, that same unit will need to provide 25 affordable housing units. 

The provision also requires the use of union labor, which could further drive up skyrocketing construction costs, real estate investors say. 

“We couldn't have created a more difficult situation. It basically guarantees no new housing will be built,” said Brit Vitalius, principal at Portland-based Vitalius Real Estate Group. “It ensures there will be no new housing … The best operators will leave the city. They’ll just go somewhere else.”

Tom Watson, whose Port Property Management has 1,300 rental units in Portland, is developing a 171-unit apartment building at 52 Hanover St. and is redeveloping a Marginal Way apartment building with 200 units. 

Portland has about 13,000 rental units. Watson estimates that Portland needs at least 1,000 market-rate apartments and 2,000 units at affordable or low-income designations, but says new restrictions will make that nearly impossible. 

“It will not be possible to build,” Watson said. “It’s striking that this group that wants to build housing has essentially stopped that from happening. I say that with sadness because now basically every project is not doable, financially.”  

Watson has other apartments in South Portland and Biddeford and is looking at potential development elsewhere in southern Maine, as well as southern cities like Wilmington, N.C.; Savannah, Ga.; and Charleston, S.C. 

One landlord says the new regulations could backfire.

“I see this blowing up in renters’ faces. I think you’ll see more conversions [of apartment buildings to condos] now,” said Ron Gan, who owns a 6-unit apartment building and ran unsuccessfully for Portland City Council as an at-large candidate. “A lot of people are going to move to Westbrook, Biddeford and Brunswick.”

Gan said landlords could also move away from the standard 1-year lease and go to renter agreements of two, five or even 10 years. 

Most of Portland’s multi-family development relies on a mix of private financing and public incentives of some kind — such as Tax Increment Financing, historic preservation credits or grants. Adding more affordable housing to new developments would change the numbers. 

“It’s hard enough to develop a residential building as it is,” Gan says. “Right now it costs about $200,000 per unit — that’s for a 350-square foot unit. You’re already at $1,400 rent [per unit]. Unless you can find cheaper land or some kind of subsidy” it’s hard to make the numbers work.

The requirement for union labor on larger residential construction projects will likely mean getting workers from higher priced markets, a factor that will drive up overall project costs. 

“You’ll have to get union workers from Boston,” Vitalius said.

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Paul Tracy
November 9, 2020

That should ruin Portland. Let them enjoy the fruits of their wishes.

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