Historic brickwork, century-old beams and custom-crafted wood windows help attract creative firms and well-heeled tourists to century-old Portland buildings converted to hip office spaces, luxury hotels or high-end apartments.

But preservation isn't free. To persuade property owners and developers to rehabilitate irreplaceable historic buildings, the state offers generous property tax breaks that can cut an owner's property tax bills by as much as 98 percent for 10 years or more.

Joy Sears, state restoration officer, said those incentives helped endow Portland with charming breweries, shops, condos and offices that draw people downtown and maintain a distinct sense of place.

The tradeoff is fewer teachers and millions in city and county services that have to be withheld.

Statewide, the biggest historic tax break goes to the developers and owners of The Nines hotel and condos atop the former downtown Meier & Frank department store. Valued by the county assessor at $135 million, the premiere property would normally owe $1.5 million a year to the city, Multnomah County and Portland Public Schools. But its actual bill is $67,000 -- 4 percent of full freight. That annual savings, first awarded in 2006, will continue until 2021.

Other entities saving hundreds of thousands of dollars on their yearly tax bills include international wind conglomerate Vestas, Canada's largest hotel chain, Portland's Naito family and the University of Oregon Foundation. They all agreed to preserve the historic look and feel of the former warehouses, shops, factories and office buildings they now occupy.

In all, at least 127 commercial properties, nearly all of them in Portland, collectively will receive more than $8 million off their local property tax bills this year. Nearly $6 million of that savings goes to the owners of just 20 properties.

Next week, property tax bills come due for all metro-area homeowners and business property owners. Almost none of them will get the same degree of discount as the historic properties enjoy.

Developers and historic preservationists say their big breaks are justified. It's often more expensive to return a historic building to its former glory than to tear down and start over, they say. It also carries more financial risk, as conditions hidden inside and under old walls, foundations and systems are typically unknown until the work is under way.

Bringing a decades-old building up to current earthquake safety standards is far more expensive than starting new with a steel frame. Historic wooden windows add charm, but they are costly to reproduce and require more upkeep than metal windows, developers say. Old buildings weren't designed to maximize square footage allowed under current city code, and the buildings' internal layouts don't always match modern usage needs.

To help developers overcome those hurdles and prevent erasure of historic sites, the Oregon Legislature decided in 1975 to establish a program to maintain a "visual and intellectual record of our irreplaceable cultural heritage." It uses the property tax breaks, tied to a property's market value before undergoing renovations, to entice owners to take part.

As a result, local governments go without some share of taxes for a decade or more. This year, without more in their coffers, the city of Portland left crumbling roads in poor condition; the county and city grappled with how to better respond to homelessness; and Portland Public Schools was forced to eliminate teaching positions.

The Oregonian/OregonLive spoke with 14 Portland-based developers, historic preservationists and government officials about the state's historic preservation tax program. Almost all said it made it possible to save historic buildings that would have made more financial sense to tear down. But some acknowledged that there are likely properties that got an Oregon tax break that would have preserved historic character and materials anyway.

Nearly all developers that restore historic commercial buildings in Oregon receive federal tax credits equal to 20 percent of their rehabilitation costs. The state tax breaks come on top of that.

"On the margins, it does actually change the behavior," said Jerry Johnson, a consultant who has advised the city on preservation projects. "With any of these programs," he added, "you're going to run into a situation where occasionally you're going to give away more than what is necessary."

The tax break for commercial historic properties used to last 15 years, with the possibility of an extension. But in 2010, the Legislature dialed back the benefit, limiting it to 10 years. Plenty of developers still were willing to meet preservation requirements to get the break.

HISTORY OF THE PROGRAM

After Congress passed the Federal Historic Preservation Act of 1966, which created the National Register of Historic Places and set federal policy for preserving historic buildings, Oregon decided to set up one of its own.

Preserving Portland's historic buildings is important, to retain architecture and places of significant ethnic and social history, said Brandon Spencer-Hartle, a project manager at Portland's planning bureau who specializes in historic preservation.

"Every historic place has a different story," Spencer-Hartle said. "As we grow, those places that are special ... ground us in our past."

To qualify, a property owner must submit a preservation plan that commits the owner to spend at least 10 percent of the property's market value to revitalize the property in the first five years.

The plan must include the estimated cost of renovation and focus on the exterior of the building, especially features visible from public streets and sidewalks.

Owners must also establish that the building is associated with significant historical events, people, architecture or information. Stately buildings dating to the 1800s can qualify; so can generic-looking concrete warehouses.

Each application goes through three stages of review. An official in the State Historic Preservation Office checks it. Then a state advisory commission, composed of experts in history, archeology and architecture, weighs in. Finally, the National Parks Service determines whether to add the property to the National Register of Historic Places.

In the past 12 years, applications for five properties were withdrawn before being ruled on, Sears said. The preservation office and commission did not reject a single application.

That's because most who apply hire consultants familiar with the requirements, Sears said.

If a property meets the requirements, the state freezes its assessed value for 10 years.

That means a newly restored hotel, office building or apartment complex is taxed for that period as if it had remained rundown or unusable. Owners of historic commercial properties pay, on average, about 36 percent of what they would otherwise owe.

"It's an investment in the community in both a financial level and also providing jobs for community members," Sears said.

The tax breaks are extremely large in some instances. Twenty-three properties pay 10 percent or less than of what they would otherwise owe.

The former Meier & Frank department store qualifies for two tax breaks because it has two owners -- one for The Nines, which occupies the top six floors, and another for the five floors of department store below it. The store property, owned by Macy's until November 2016, paid just $50,000 in property taxes that year. Because the property, is worth more than $54 million, the tax bill would otherwise be $650,000.

Owners of wind energy company Vestas' gleaming North American headquarters on Northwest Everett Street and 14th Avenue, for example, paid less than $22,000 in property taxes in 2016 even though the assessor's office estimates the full-block building is worth $66 million. Without the tax break, Vestas would owe 35 times as much tax -- $745,000.

THE COST OF PRESERVING

When Vestas looked to build its North American headquarters in Portland in 2010, Portland developer Mark Edlen's company, Gerding Edlen Development, took the lead.

Gerding Edlen identified the long-vacant Meier & Frank warehouse on Northwest Everett as prime for a historic makeover and transformed the 182,000-square foot masonry building into a stately edifice with coveted office space. Originally valued at just $1.2 million, the assessor's office now estimates it is worth $66 million.

The tax break given to the Vestas building cost Portland, Multnomah and the school district $723,000 in lost taxes in 2016 alone. Over the 10-year life of the exemption, that could amount to more than $7 million.

That kind of incentive is necessary, Edlen said. Historic renovations pose "a great deal of risk in that you don't really know what you're getting into," he said. That risk can mean unforeseen costs, he said.

One reason preservation makes financial and environmental sense is the reuse of materials such as historic bricks, floors and foundations, developers said. That minimizes the time, costs and environmental impact of buying and shipping new materials.

Developers of historic properties also can benefit from tenants' willingness to pay more to rent historic spaces than blander quarters, said Craig Kelly, president of Venerable Properties.

His Portland-based development firm renovated the White Stag block, turning an Old Town candy factory into classrooms and an event center for The University of Oregon Foundation. The foundation pays yearly property taxes of just $7,000 -- a whopping $378,000 break -- through 2022.

Kelly said the incentive program was "critical" in making the White Stag renovation happen. He claims the rehabilitation costs were higher than what the building ended up being worth in the end. But he declined to provide detailed financials on the work.

Developers who do take on such projects do so in part for sentimental reasons,

Kelly said, and completed restorations have an enduring appeal.

"There is a different feeling or soul that is—particularly in the creative industry—very sought after," he said. "These historic buildings have a different feel. There's this attraction to them. They are unique."

--Jessica Floum

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