$5 million Wapato sale called a 'steal'

County votes to sell the never-used North Portland jail to developer who once bid twice the amount.

In a deal that one real estate developer calls a "steal," the Multnomah County Commission voted last Thursday to sell the never-used Wapato jail to developer Marty Kehoe for $5 million. Only Commissioner Loretta Smith voted no, arguing the price was too low and Wapato should be used to help the homeless.

The commission had previously voted to sell Wapato to Kehoe for $10.8 million last November. At the time, his offer was highest of any received for the property by the CBRE Portland real estate services firm retained by the county to sell its surplus property.

But Kehoe withdrew his original bid on March 23 and offered just $5 million instead. The commission voted 4-to-1 to accept the reduced offer on April 12, despite developer Homer Williams offering $7 million for the property by letter on April 2. Williams repeated the offer in person during Thursday's hearing, saying he wanted to use Wapato as a homeless shelter and service center.

Williams is the founder of Oregon Harbor of Hope, a nonprofit homeless organization. The Monday before the hearing, he hosted a press conference to announce funding for a $1.5 million homeless service center in the Pearl District.

Another developer familiar with the Wapato property says Kehoe got a steal, even if he has to tear down the jail to redevelop it. The jail sits on 18 acres of industrial property in North Portland. It is appraised at $8.5 million, which is $3.5 million more than Kehoe's most recent offer.

The developer, who asked not to be identified because he does business with the county, estimates the cost of demolishing the jail at $1.5 million — meaning Kehoe might end up paying just $6.5 million for 18 acres of vacant industrial land.

In comparison, Lithia Motors paid far more money for less industrial land when it bought Terminal 1 from Portland in 2017.

The Southern Oregon-based car dealership network purchased the 14.5-acre parcel in Northwest Portland for $11.1 million, more than twice what Kehoe last offered for the larger Wapato site. The six other bids, which the city released, were all in the $10 million range. The property is currently appraised at just a little over what Lithia Motors paid for it.

"Kehoe is getting 18 acres of industrial property for a steal," the developer says.

The commission set the closing date for the sale at 5 p.m. Friday, April 20, and voted to keep $200,000 Kehoe has deposited in an escrow account if he does not buy it.

County Chair Deborah Kafoury, who has been trying to sell Wapato for years, said accepting the lower offer was the right decision. The county did not have the money to operate the jail when it was completed, and does not now, Kafoury said. Commissioner Jessica Vega Pederson agreed.

"Building Wapato was a mistake but holding onto it any longer would also be a mistake," Vega Pederson said.

Smith disagreed and questioned why the bidding process wasn't reopened, especially because at least one of the original bids is rumored to have been more than $5 million. The county declined a request from the Portland Tribune to release all the original bids, saying they are confidential and in the possession of the brokerage firm.

"My colleagues seem to set the dangerous precedent that any bidder at any time can successfully be awarded a winning bid based not on their original proposal, but rather on a secondary offer presented at the eleventh hour," Smith said after the vote.

Architect Stuart Emmons questioned whether Kehoe had planned to reduce his offer from the start.

"It is certainly plausible, that this was his plan all along, to come in with an inflated number, tie up the property for months, get rid of other competitors, while people froze on our streets, and then change his offer to less than half of the original offer five months later," testified Emmons, who supports using Wapato for the homeless and is running for the City Council.

Kafoury and a majority of the commission have consistently opposed the idea, however, arguing Wapato is too far away from existing homeless services, not well served by transit, and not properly zoned for such a use.

Wapato was built as a 525-bed medium-security jail and substance abuse treatment center in the Rivergate Industrial Park. County voters approved a bond to fund the jail's construction in 1996. But county officials say that years later, the statewide passage of caps on property taxes meant that the county never had the funds to operate it. Completed in 2004, it cost $58 million to build, and the county says it costs about $300,000 yearly to maintain. An analysis by the Portland Tribune last year showed the total cost to date is more than $90 million, including interest and maintenance payments.