UD+P News: November 2022

PROPERTY UPDATES

HOTEL GRAND STARK - PORTLAND, OR
Central Eastside

In November, after a year of negotiations, we executed a lease with a reputable, Portland-based Food and Beverage (F&B) operator at Hotel Grand Stark. Since the closure of Grand Stark Deli in March, onsite F&B options have been limited. Bar Chamberlain is currently open four nights a week—Thursday through Sunday. Our new operator will bring a full-service, Italian concept, restaurant and bar to the hotel, with a planned opening in March 2023. For the first 90 days, the restaurant will offer dinner service and the bar will operate on a regular schedule. After 90 days, the restaurant will add breakfast and lunch service. We are excited about this new partnership, and we anticipate that having room service and onsite dining and drinking options available to hotel guests, as well as a full-service restaurant and bar open to the general public, will have a positive impact on the hotel’s performance. We will share additional details about this new venture as soon as our hotel operator, Pali Group, and our new F&B operator are ready to make a public announcement.

CASSI - PORTLAND, OR
Concordia / Northeast Portland

In November, The Oregonian named vegan tacqueria Mis Tacones one of Portland’s Top 25 Best New restaurants of 2022. Mis Tacones has been recognized in local and national publications, such as the New York Times, for creating a culture of inclusion that welcomes people with different gender identities than the sex they were assigned at birth. They offer free meals to trans people of color and their tacos are outstanding!

construction Progress updates

550 SE MLK - PORTLAND, OR
CENTRAL EASTSIDE

AT 550 SE MLK, excavation work is continuing. We anticipate completing underground utility and excavation work and beginning first floor concrete work in Q1 2023.

LUELLA - SACRAMENTO, CA
MIDTOWN

At Luella, our 51-unit multifamily project underway in Sacramento, our general contracting partner, Market One Builders, has been hard at work and making the most of sunny autumn days. In November, we made significant headway on second floor framing, commenced third floor framing, and worked on electrical and plumbing rough-in. In December, we will continue to focus on upper floor framing and rough-in work.

OFFICE LEASING UPDATE

As shown in the table below, UD+P’s office portfolio is 85% leased. Overland Warehouse is listed for lease and for sale through our broker, Apex Real Estate Partners. Our team is working closely with the Old Town Community Association and local business owners to craft creative options around building tenancy. At District Office, office vacancies on the 4th and 5th floors are being marketed for lease through our broker, JLL. While office leasing continues to be a challenge, we are consistently receiving inquiries from prospective tenants interested in District Office—notably from architecture/design and professional services industry firms.

Office leasing summary

RETAIL LEASING UPDATE

UD+P’s retail portfolio is 74% leased. As shown below, we currently have vacancies at Slate, Lyra, District Office and 1201 J Street, which we are actively marketing through brokers and relationships our team has fostered with business associations and other community partners.

RETAIL LEASING SUMMARY

RESIDENTIAL LEASING UPDATE

Historically, residential leasing activity slows down in the fourth quarter as the weather cools down and people’s focus turns to the holidays. In November, we received five rental applications and executed five new leases. As shown in the tables below, lease turnover (LTO) yielded average rent growth of 19.09% ($218) in November, up from 15.02% ($192) in Q3 2022. After a year of accelerated rent growth, rents are beginning to stabilize and rent increases are starting to taper off. Our Operations Team has budgeted for more modest, 3% rent increases in 2023 at all of our properties.

We executed seven lease renewals in November. These renewals yielded average rent growth of 4.88% ($56). This is in line with our general target of 4 to 6% gross rent increases on renewals.

Lease Turnover and Renewal - Average Rent Growth (%)

Lease Turnover and Renewal - Average Rent Growth ($)

The table below shows the percent of units leased at individual properties and portfolio-wide, across all stabilized residential properties, from Q1 2022 through November 2022.

PERCENT OF UNITS LEASED - STABILIZED RESIDENTIAL PROPERTIES

After holding steady at 95% since the start of 2022, the percent units leased across our portfolio dropped two percent in November to an average of 93%. Since summer, we have observed a notable uptick in move-out notices from residents living in studio apartments. At Fairmount and Cassi, properties with a higher proportion of studio units, the percent of units leased dropped to an average of 89% and 85% respectively in November. Based on correspondence with departing residents and market research, we have found that rising rents are driving more renters to move into a larger unit with a roommate or partner to reduce their rent burden and, simultaneously, gain more living space. Additionally, rising interest rates have cooled down the for sale housing market enough to give buyers some breathing room and lease breaks attributed to a new home purchase have increased during the past couple of months. Fairmount is also facing more direct competition from a new apartment community, The Kathryn Ann, that opened up across the street this year. In late November, we adjusted pricing for vacant studios at Fairmount. Additionally, we are offering a $500 gift card to qualified applicants who sign a new lease. We are optimistic that these measures will lead to new leases and lower vacancy in December and beyond.

Since the completion of building repairs earlier this year, The George has maintained 100% occupancy. Slate is another bright spot. After dropping to 88% in Q2, the percent of units leased increased to an average of 95% in Q3 and 96% in October and November. Our Operations Team’s success in enhancing Slate’s marketing campaign, identifying additional parking options for residents, and engaging with a local company that secures housing placements for out-of-area workers in Portland for contract work and short-term assignments, are factors that have contributed to Slate’s improved performance.

We have instituted several changes to leasing and operations protocols to strengthen the financial performance of our properties. Starting in October, we increased our security deposit to $1,000 across the board. We have also increased pet rents to $50/month per pet. As of October 1, the last of the pandemic-related emergency tenant protections and protocols have been lifted. We are now allowed to serve 72-hour eviction notices to renters who do not pay their rent by the required payment deadline. This has proven an effective tool for motivating residents to pay on time, and we have reduced our portfolio-wide accounts receivable to less than $300. Lastly, we have eliminated the option for residents to make a partial rent payment. The rent payment must be made in its entirety unless a resident has an approved payment arrangement with our Operations Teams.

UD+P Service Day

On Veteran’s Day, members of the UD+P team spent the day in service, volunteering for Columbia County Habitat Four Humanity. Our team undertook a variety of outdoor landscaping and yard maintenance tasks, including planting shrubs and clearing overgrown vegetation, to make a newly built home in Scappoose, Oregon ready for its owners.