PDC Mishandles Centennial Mills, Conflict of Interest Emerges

PDC’s handling of Centennial Mills has been marked by a lack of transparency, erratic behavior, and unrealistic expectations. And at the heart of this mess may be a good old-fashioned conflict of interest story.

The much-publicized Centennial Mills redevelopment project is in the midst of a new, controversial chapter. Since June, the relationship between the Portland Development Commission (PDC), which owns Centennial Mills, and LAB Holding, the California-based firm chosen to develop the site, has slid into disarray and finger-pointing. Moreover, PDC’s handling of the situation has been marked by a lack of transparency, erratic behavior, and unrealistic expectations. And at the heart of this mess may be a good old-fashioned conflict of interest story.

Key to the kerfuffle is Scott Andrews, chair of the PDC’s board of commissioners. Andrews also serves as president of Melvin Mark Properties, part of Melvin Mark Companies, whose food market and office development project gained momentum at the same time that developer LAB Holding’s culinary-themed Centennial Mills project was derailed.

June 30 marked the expiration of the memorandum of understanding (MOU) between PDC and LAB Holding, which was picked in 2008 to redevelop the historic, 4.75 acre property that sits on the west side of the Willamette River. LAB’s plan for the space included restaurants, market space, and educational facilities geared towards celebrating the area’s agricultural and culinary heritage.

In the months following the collapse of the redevelopment project, the relationship between PDC and LAB Holding has disintegrated to the point that LAB has considered suing.

LAB took umbrage at PDC’s April request to set aside 50 percent of the site for companies in targeted industry clusters outside the project’s culinary-themed scope.

PDC countered that LAB had not lined up sufficient financing and tenants to make the project economically feasible. Since the June 30 expiration of the MOU, the relationship between the two sides has fizzled, and PDC has solicited interest from investors looking to redevelop the site in line with the requests that PDC made to LAB in April.
 

PDC’s Handling of Situation Atypical

PDC’s handling of the situation has drawn ire not only from LAB leadership, which has stressed that financing and tenanting had not become problematic, but also from local public figures familiar with land use issues. “It was done completely without public input,” says Pat Lydon, who serves on the board of the Pearl District Neighborhood Association.

Lydon feels that the lack of public process was inappropriate considering PDC used public funds to acquire the site. “What they’re now doing is taking a publicly owned asset that was acquired with our money, taxpayer money, and they’re going to hand it over to private developers to make an office space out of it,” he says. “The only people that benefit from that project are the tenants. How is that a good use of public funds?”

In addition to the issue of transparency are concerns about PDC’s reasoning behind requesting large-scale changes from LAB with less than two months remaining until the MOU expiration date. In the weeks after the agreement fell apart, PDC leadership claimed that the deadline, which had been extended multiple times before, was not extended this time because LAB had not lined up sufficient financing and tenants for the development, which would have included artisan markets, restaurants and classroom space.

LAB CEO Shaheen Sadeghi rejects PDC’s claims outright, arguing that the only thing preventing signatures from multiple tenants and financing sources was the lack of a disposition and development agreement (DDA). “Financing was not an issue for this project,” he says. “We were 90 percent there. We were just waiting for the last pieces to come in.”

Sadeghi says that PDC was involved with LAB every step of the way and went so far as to recommend some specific financing sources to the developer. “[PDC was] copied on every correspondence we had with these folks, so they knew, and they were very interested,” he says. “And all [the potential tenants] were waiting for was what the schedule looked like and they were waiting for the DDA.”

Throughout the process, Sadeghi has stressed that PDC’s April directive, which came in the form of letter by newly instated executive director Patrick Quinton, would have forced LAB to change its plan to be 50 percent office space, something that LAB has no experience building. “[Quinton] came in … and basically ruined what could have been a world-class project here,” Sadeghi says. “I don’t really understand why, because there [are] plenty of other empty spaces and empty buildings [where] he could go do the four or five clusters. That’s why I’m very suspicious of the impracticality of this decision.”

These events have raised eyebrows around the city, particularly from those with experience with PDC. Oliver Norville, a lawyer and former PDC general counsel, says that large-scale deals often take time and that land owning groups must be patient. “I think in any negotiation with a developer, you give them as much time as you think is possible to accomplish your objective,” he says. “You shouldn’t just arbitrarily withdraw… Your purpose is to carry out the program, and you shouldn’t have unreasonable expectations. You should realize that they have to make it work out economically for them.”

Former PDC chair Bob Ames says the use of unrealistic demands as a way of making a project go away is not a typical PDC strategy. When asked if he had ever encountered a case similar to that of Centennial Mills, he responded, “Not in my day. That was never a tactic we employed. I think when you negotiate with people in good faith, you need to stay consistent.”

Ames’ opinion is echoed by prominent land use lawyer Ed Sullivan. “If [the plan] focused solely on the culinary issue,” he says, “then I think it would be hard to change that to software or something else.”
 

Conflict of Interest Emerges

The situation is complicated by the fact that another similar development project is being run by a firm in which the top PDC official serves as president.

In May, Multnomah County commissioners voted to approve the sale of a three-block parcel of land near the Morrison Bridge to Melvin Mark Development Co. The sale was a key step in the company’s quest to build the James Beard public market, a project that would include a farmers’ market on the ground floor, making fresh local food the most visible and unique element of the project.

Out of this project has emerged a potential conflict of interest: The president of the Melvin Mark Properties, Scott Andrews, also serves as chair of the PDC board of commissioners, a volunteer body that reports to mayor Sam Adams. After requiring that the Centennial Mills project—initially centered on food and restaurants—reassign 50 percent of the site to office space, another firm, presided over by the PDC’s chairman of the board, has initiated a food-focused development that would have to compete with Centennial Mills—if, that is, the office space requirement was not imposed and LAB had not been driven out by PDC.

The situation troubles LAB CEO Shaheen Sadeghi. “I found the coincidence disturbing,” he says of Andrews’ involvement. Scott Andrews could not be reached for comment.

“It’s hard for me, obviously, to try to speculate, but I think we’re very much disturbed and alarmed by the fact that this is a project that had a tremendous amount of clarity and visibility in terms of its product, culture and what we were looking to do,” Sadeghi says of LAB’s proposed development. “It went through a very careful public process and we had ... years of meetings with the community and stakeholders.”

When asked whether there was a correlation between the end of LAB’s involvement with PDC and the increased momentum of the James Beard public market plan, which is very much in line with what PDC requested from LAB in the spring, PDC spokesman Shawn Uhlman responded that he could say, “with absolute certainty, that those two things are in no way related.”

Uhlman says that commissioners are required to declare any potential conflicts of interest and must excuse themselves from any votes on matters that may present a conflict. “In this instance, we didn’t get to that point,” Uhlman says, referencing the failed negotiations.

While the full extent of Andrews’ involvement with the failed project is unknown, Sadeghi still takes issue with PDC’s handling of the matter. He believes that Patrick Quinton, who was named PDC‘s executive director in February, was the driving force behind the large-scale changes requested of LAB. “[Quinton] came to us with a hammer and said, ‘I want this project to be about these clusters.’ There is a very clear sense that he does not believe in the food distribution [industry],” Sadeghi says.

Sadeghi adds that he heard Quinton refer to the food distribution industry as a “veneer industry.”

“Those were his words,” he says. “I was flabbergasted when I heard that after all of this work, and after all of these cultural studies we did showing Portland as a food capital.”

Quinton’s comment could not be verified.

As the PDC and LAB have parted ways, Sadeghi feels it is important to set the record straight regarding his firm’s involvement in the failed negotiations. “This was not a situation where financing didn’t exist and we pulled out. I mean, that is [just] absolute misleading, false information,” he says. “And if anybody says that to you...they’re either misinformed, or they’re being manipulative. PDC has copies, they knew who we were talking to, they were involved with the financing process, so it isn’t like they were in the dark and just showed up one day.”