Portland's plan to revive a dozen city blocks in the Pearl District hinges on moving the main post office to a sprawling field near the airport - and paying double what that property is worth.

The land, 5 1/2 miles from the Pearl, has an estimated value of $17 million to $20 million. But the city has agreed to pay way more: $34.7 million.

City leaders could save taxpayers millions of dollars by condemning the property and paying fair market value. But officials say condemnation - essentially seizing the property - is politically impractical. Instead, they have agreed to pay a massive premium to secure the rare 47-acre parcel of undeveloped industrial land.

If the deal moves forward, a Texas-based development company stands to make a huge profit. Trammell Crow bought the industrial site in 2014. The parcel was once part of the former Colwood National Golf Course but had been rezoned to allow for business development.

The purchase price: $6 million.

Details of the complicated land swap, and Trammell Crow's windfall, haven't been made public until now. They offer new insight into the fine print of what may become Portland's most expensive urban renewal project in city history.

"Nobody should be making a six-fold profit in a matter of years," said Bob Sallinger, conservation director for the Audubon Society of Portland, which reluctantly supported the now-significant zoning change that protected the rest of the golf course from development.

But shifting the post office from one location to another, without adding new industrial jobs, amounts to a bait and switch to benefit Pearl District redevelopment, Sallinger said. "It's the environment that pays the price, it's the developers that walk away with a big pile of cash and it's the public that gets screwed."

City leaders defend the deal. They say it needs to be reviewed in full context.

To pull off the land swap, Portland will pay the U.S. Postal Service $88 million for its Pearl District campus. In turn, the federal agency will contribute an additional $69 million to buy the airport land and build a new facility. That adds up to a total of $157 million.

The post office's $157 million project includes the cost of upgrading the property, building new facilities and installing new equipment. Land expenses of $34.7 million represent less than a quarter of the total project cost.

And moving the post office to a fallback location in Troutdale would cost just as much, according to city estimates. Meanwhile, other potential but undisclosed locations weren't ideal for the post office, said Patrick Quinton, executive director of the Portland Development Commission.

In the end, Portland officials will get the prime property they've wanted for decades - 13.4 acres in the Pearl District, which later will be resold to developers who will build apartments and offices. Officials expect to recoup their $88 million investment when the land is sold.

"This is one of those historic moves that really makes sense for us as a city," Portland Mayor Charlie Hales said. "It also has to work as a real estate deal. And it does."

Searching for a unicorn

City officials have long salivated over the post office campus and began working to acquire the site in 2008. But negotiations stalled, and it wasn't until last April that on-again, off-again efforts jumped back to life.

Convincing the post office to move would require more than simply writing a check, however. City officials also needed to find a replacement site.

"The deal's only happening if we do all the work," Quinton said. "It's our job to find the property and negotiate."

Portland had an incentive to find cheap land. The lower the project cost, the lower Portland's price. But finding a viable option was like searching for a "unicorn," Quinton said.

Eventually, city officials turned to Trammell Crow. Company representatives declined to be interviewed for this story.

Although Trammell Crow purchased its property near the airport in October 2014, the company had been hoping to develop it for much longer.

Trammell Crow identified the Colwood golf course as "one of our highest priority projects since 2011," Steve Wells, a senior managing director for the Portland office, said in an email to The Oregonian/OregonLive.

In 2013, Wells urged the City Council to change zoning on part of the golf course to allow for industrial construction, part of a deal orchestrated by the Trust for Public Land. The city of Portland bought the remaining 85 acres from the private course owner for $5 million to protect as open space.

Rather than saying the project was a top priority for Trammell Crow, Wells said the company had been watching it "from the background," according to minutes from a 2013 City Council meeting.

"It's very difficult to find large industrial parcels that are so important to our overall economy," Wells told the City Council, which voted unanimously to rezone the property.

Trammell Crow closed on the land in October 2014, and it's now an undeveloped muddy field. The company has "made major investments far beyond our cost to acquire the land," Wells said in his email, including two road and utility projects, site preparation work and wetland mitigation.

Throughout the zoning-change process, city officials never seriously considered the site for the post office and didn't try to buy it because such a move would have been completely speculative, Quinton said.

"It looks really obvious in hindsight," he said. "But there wasn't a practical path."

It wasn't until about nine months ago, after postal officials agreed to jumpstart negotiations, that Portland targeted Trammell Crow's property, Quinton said.

Company representatives weren't eager to sell.

"We had to start the process by convincing them to at least negotiate with us," he said.

Worth their while

When negotiations began, Trammell Crow wanted $40 million, according to a development commission spokesman.

Quinton said the land's fair market value is in the "$17 to $20 million range."

How could both sides be so far apart? For Trammell Crow, it's not about what the property is worth today - it's about what it could be worth tomorrow.

Patrick Quinton, outgoing director of the Portland Development Commission.

Trammell Crow is working on a project with New York-based Clarion Partners, which buys and manages real estate for institutional investors, reporting $40 billion in assets. Trammell Crow has been marketing the site with hopes of building up to 1 million square feet of space to lease to distribution or manufacturing companies.

Institutional investors are interested in realizing long-term returns, even if there's an upfront risk associated with developing the property, Quinton said.

"Taking their risk away, for them, is not a great outcome," Quinton said. "That's why we had to make the purchase price something that was kind of worth their while."

In other words, Portland had to pay Trammell Crow for its lost investment opportunity.

But details of the purchase price weren't publicly disclosed in January when the development commission's appointed board approved an overarching deal to buy the Pearl District campus. Instead, commission staff briefed board members individually and in private meetings, as allowed under public meetings law for real estate deals.

But documents obtained by The Oregonian/OregonLive, through the state's public records law, confirm that the deal includes a previously undisclosed "developer markup" for Trammell Crow's property.

Precisely how much of a premium is unclear.

The postal service completed an appraisal but city officials haven't reviewed it, said Shawn Uhlman, a development commission spokesman. A spokeswoman for the postal service said the appraisal is propriety and declined to share it.

Portland policy requires an appraisal when buying or selling property. Having an accurate estimate of a property's value is "in the public's interest and a prudent business practice," the policy reads.

Although Portland has already signed off on the purchase price, officials now plan to order an appraisal. It won't focus on the property's fair market value but instead will estimate the investment value, or long-term profit that Trammell Crow could have yielded from developing the property as the company originally planned.

Asked why the city is appraising the property now, Quinton said: "We're paying a premium on it. But we want to be able to quantify, for everybody involved, here's what the premium is and here's our basis for it."

Threat of condemnation?

City officials could save taxpayers millions of dollars by condemning the property for fair market value, which would not include the higher investment value. Officials could also threaten condemnation as leverage to help negotiate a lower price.

Condemnation would not be without controversy, however, and the city could end up facing delays or footing Trammell Crow's legal expenses.

Portland Mayor Charlie Hales said the post office deal makes sense. (The Oregonian)

Yet in January, city officials did warn Trammell Crow that they might consider condemnation. The threat wasn't made to negotiate a better price, however, and instead was leverage to limit the amount of public money at risk for non-refundable deposits.

On Feb. 10, the development commission's appointed board voted unanimously to revise terms of their deal with the postal service. Among other things, the city agreed to ink a deal with Trammell Crow to pay the inflated price - $34.7 million - if Portland decides to proceed with condemnation, eliminating any leverage on the purchase price.

Quinton said Trammell Crow was willing to go "all in" fighting condemnation if terms of the deal weren't acceptable. Under the agreement, Trammell Crow won't challenge condemnation and won't seek additional money.

"We do not want to go down the condemnation path," Quinton said. "It has a lot of consequences and risks we don't believe the agency should be taking."

Hales said paying less is obviously better but the city's goal isn't to cut a shrewd real estate deal. Condemnation for a road or sewer is one thing, he said, while this project is another.

"This would be condemnation to get a better price, and that's a little harder to pass the straight-face test," Hales said.

No agreement has been finalized, according to the development commission. Officials won't sign any of the complicated arrangements until all are ready for approval.

Hales said he looks forward to acquiring the post office's Pearl District campus and "building the Portland that we say we want," complete with dense development in the center of the city.

"Now we get to seize this opportunity," he said. "If we don't, it's anyone's guess as to whether, or when, this will ever happen."

-- Brad Schmidt

503-294-7628

@cityhallwatch