Bend approves contract for new water system

            Bend’s expensive and controversial water system upgrade is a step closer to moving ahead as the city council approved a contract with a Minnesota company to manage the project.

            In mid-March the council approved a $387,000 contract with Mortenson Construction of Minneaplis to serve as construction manager/general contractor for the project, which could cost as much as $73 million by initial estimates.

            The upgrade would involve replacing about 10 miles of deteriorating water transmission pipes and construction of a new water treatment system, at an estimated cost of $58 million. It’s also possible the city would build a hydropower sytem at a cost of another $15 million, and in turn sell the power to utilities to defray some costs.

            Mortenson potentially could also be hired to construct the system at fee of 5.45% of project costs.

            Although the water project has support of a city council majority, some council members and business leaders have argued that an upgrade relying on wells drawing groundwater in the Tumalo Creek-Bridge Creek watershed would be less expensive and more environmentally sensitive.
          Even with the city's recent contract decision, there could be more hurdles for the surface water piping system.  An environmental assessment is pending from the US Forest Service and there could be possible pressure for an independent cost analysis of alternatives that could include wells.         
(click below for more background in an earlier post)

             Bend water: where from and how much?

Investors attracted to discounts on distressed subdivsion lots

        It’s an axiom that developer-investors in most situations shy away from bare land that offers little cash flow potential, especially if there is debt to carry and the future potential is highly speculative.

            But the equation will often change when the price is right. And the Bend area’s inventory of bulk land, much of it with infrastructure in place, at deeply discounted prices is attracting patient buyers with views of a more distant market horizon.

            The Bend situation in a way reflects a national trend that emerged before home and land prices began to fall locally. Some large publicly-held national builders started selling land inventory to streamline their balance sheets, while securing options that would enable them to ramp up construction when the market began to recover. (Doesn’t it has to rebound some time?)

            Around Central Oregon many over-extended developers and builders haven’t enjoyed the choices available to better-capitalized national companies. They have been either forced to dispose of lots and land at substantial losses or move aside as lenders took over. In turn, lenders have begun cleaning up their distressed properties in bulk sales, prompting the analogy of flushing out the system.

            Subdivision lots that at one time were selling in the upper $100,000s and into the $200,000s have either sold or been listed in the $20,000 to $40,000 range, with many priced for even less. 

            Among the more visible investors stepping into the Bend market in the recent months was California Republican Congressman Gary Miller and associates.  Starting in 2009 Miller’s Group, acting as Long Term Bend Investors LLC, had assembled 390 lots in Bend and Redmond at a price of about $6 million.

            Another California investor reportedly bought 174 lots in two subdivisions for nearly $3 million.  A good chunk of the properties were sold by the lender, Sterling Bank of Spokane which  has been aggressively selling properties it took over from builders throughout the Bend area.

            A company controlled by the development partner in one of Bend’s most successful west side neighborhoods, Northwest Crossing, purchased a 74 lot subdivision in north Bend for $1.9 million.

In late 2009 a Salem investor purchased an 80-plus lot Sisters subdivision for $2.4 million after the developer had given it back to the lender which had held notes totaling more than $9 million on the property. The bank had initially listed the stalled project, envisioned as a showpiece neighborhood, at $6 million before reducing the price several times.

In January of  2011 there were more than 280 bank-owned lots in four subdivisions listed for sale on the Central Oregon MLS at average prices in each location ranging from under $13,000 to $83,000. Bulk prices the four subdivisions were from $750,000 to $3,258,000. 

However, these are only a sampling of lots, bank-owned or others, that were on the market in early 2011 as owners continued to face pressure from their lenders and the obstacles presented by lax market demand.

Contact me at rleehicks@rleehicks.com for more information on potential investment land ready to build throughout Central Oregon.

NorthWest Crossing: New homes revive a popular neighborhood

            Over on Bend’s west side activity in one master-planned neighborhood  is showing that quality homes priced right in an attractive location may be the formula for stablizing the local real estate market.

A home home under construction in 2010

            Existing home sales in Brooks Resources’ NorthWest Crossing have been strong in 2010 and early 2011. But even more impressive is the number of newly-built homes that are attracting buyers—with many going into sales contracts before they are ready for occupancy.

            From January 2010 through late March 2011 were 42 single family sales, or pending transactions, of homes built in 2010 and 2011 as recorded on the Central Oregon MLS for NorthWest Crossing. The new homes, at a median price of $397,516 for closed sales, acccounted for more than 75% of the 74 sales or pending sales in the same period, at a median of $381,500. The activity in newly-built homes may signal a slow but remarkable turnaround considering that construction had virtually ground to a halt in 2008, leaving some lots with foundations poured but standing dormant.

            The early success of NorthWest Crossing and the signs of a possible recovery there, albeit gradual, could turn in large part on Brooks’ reputation for quality projects achieved through many years.
            Among features contributing to the appeal of NorthWest Crossing is its master-planned concept with a retail village; adjacent commercial center; elementary school and parks; and a west-side location within easy access to hiking and biking trails.


View to retail village

           The company grew out of the former Brooks-Scanlon logging and milling operation on the Deschutes River in Bend. The mill site has evolved into the mixed-use Old Mill District, built by another developer.

            In the 1970s the Brooks real estate group turned former timberland west of Sisters into Black Butte Ranch, one of the region’s first residential and resort communities created around golf courses and other recreation amenities.

Similar to the broader Bend housing market, median prices at NorthWest Crossing had peaked for the full year 2006, at a robust if in retrospect unsustainable $575,000, compared to $352,500 for all sales. By the end of 2010 median prices for the neighborhood were off more than 34% to $377,000 from the 2006 peak, a big drop but less than the 45% decline throughout the Bend area.

Also consistent with the broader market—including Bend and its nearby unincorporated areas—the number of NorthWest Crossing homes sold had peaked a year earlier in 2005 at 84 closings, but dropped by 57% to 38 in 2006 even as median prices continued to rise. The market shift was underway as prices peaked but the number of sales sagged.

Reflecting the overall market NorthWest Crossing hasn’t been immune to foreclosures and short sales, but to a lesser extent.  While distressed property sales in the past three years have comprised more than 55% of the larger single family market, they’ve accounted for only 20% in Northwest Crossing.

Before the notorious mix of economic factors slammed local and national housing markets, bare lots in NorthWest Crossing had been reserved by the developer to give first choice to its approved “builders guild” contractors.

Lot sales have also been indicative of the neighborhood’s challenges in the up and down cycle of the past decade. With its growing popularity over a six-year period buyers readily stepped forward to absorb new homes and there were only two bare lot sales recorded on the Central Oregon MLS during that period.

Then in 2007 Brooks Resources released some of its developer inventory and cash-strapped builders also put lots they had bought on the market. The result was 11 lot sales at a median price of $170,000, a trend that has continued from 2008 through 2010 as another 98 lots sold with the median price declining steadily to $99,000 in 2010.

But the declining ground costs has caught the eye of several builders, who along with their architects have redesigned homes to mirror market demand. Smaller homes, with the median size hovering around 2,000 square feet, have been more common with new construction in 2010 and 2011. But the “craftsman and Prairie-style” for which NorthWest Crossing is well-known continues as the signature design in the neighborhood.



NorthWest Crossing site plan (click to enlage)



New resorts face tough environment: Established ones appear holding their own

            The bankruptcy filing March 11 by the controlling entity of a proposed Central Oregon golf resort highlights the difficult times facing new projects.

            Apart from the adverse economy, there are also growing questions if the area may be reaching a resort saturation point even if the overall business environment improves.

            Thornburgh Resort Co. LLC filed for Chapter 11 bankruptcy in a move its legal representative said was designed to head off a scheduled April 8  foreclosure auction of acreage in the troubled project.

            Altogether the resort planned for more than 1,900 acres around Cline Buttes west of Eagle Crest Resort would include 950 homes and 475 nightly rental units along with a golf course, originally to be designed by Arnold Palmer. The foreclosure auction would have applied to 1,350 acres of the project.

            The bankruptcy filing lists 20 unsecured creditors with claims totaling more than $11 million. In October of 2010 the notice of default triggering the scheduled auction listed $12.1 million owned on a principal loan and related overdue interest and other charges.

      Some observers believe that Thornburgh faced an uphill battle from the start, even in a better economy. Opposing conservation and other groups cited traffic impacts and  the potential to affect private wells due to increased water use.

            Thornburgh was also coming to market soon after several other newer resorts were already open or well on their way. These include Pronghorn Resort east of Hwy 97 between Bend and Redmond; Tetherow on Bend’s west side abutting the Broken Top community, which has a private golf course; Brasada Ranch near Powell Butte in Crook County; and the proposed Remington Ranch, also in Crook County between Redmond and Prineville.

            Remington is also working its way through bankruptcy after completing a clubhouse facility and part of it’s planned golf course.

            In its bankruptcy filing of January, 2010, Remington Ranch LLC listed claims of $12.4 million among its 20 largest creditors, with $5.3 million due a major infrastructure contractor. Remington officials have said they will complete nine holes of a golf course while in bankruptcy. But original plans called for three courses, 400 nightly units and 800 homesites on its nearly 2,100 acres.

            Other resorts proposed in Crook County in the boom years were Hidden Canyon and Crossing Trails, neither of which has gained traction in the entitlement process. In 2008 Crook County repealed its resort map which has allowed the resorts, leaving plans for the projects uncertain. 

New investors for Brasada Ranch, Eagle Crest and Running Y

            Perhaps in the best shape among new generation resorts is Brasada Ranch, which was purchased in late 2010 from the original developer, Jeld-Wen, by the Northfield Group with backing of Oaktree Capital. Jeld-Wen, founded as a door and window manufacturer in Gilchrist, also sold Eagle Crest and Running Y resort near Klamath Falls to Northfield.

      The 640-acre Pronghorn continues to operate its Nicklaus and Fazio courses while sales of developer homesites have slowed to a crawl as foreclosures and short sales accounted for much of the sales activity. The resort is permitted for 450 homes and 280 nightly lodging units.

      Most lot sales at Pronghorn have a deed-restriction requirement for transfers of club memberships at the time of a  lot sale. Pronghorn developers have valued the memberships at $115,000. Some foreclosed lots have been listed for sale below $30,000 with the warning that buyers must do their own due diligence regarding the membership requirement.

      Tetherow has completed its clubhouse and 18-hole links style golf course designed by David McLay Kidd, highly praised for his work at Bandon Dunes on the Oregon Coast.  After initial sales of more than 50 homesites, sales have ground to a halt since mid 2009, with only one sale in 2011 and none in 2010 according to member of the sales team.

      On approximately 700 acres, Tetherow was initially planned to include more than 379 homesites, the golf course and clubhouse and luxury hotel with spa, 56 lodge homes and 210 townhomes. Apart from the finished course and clubhouse plans are on hold as various investors and lenders have juggled ownership. About 66 acres would be designated for the hotel, lodge homes and townhomes.

      As a strategy to spur sales activity beyond bare lots, current Tetherow managing developer Chris Van der Velde and investors have started construction on several homes of varied designs, size and price points. Van der Velde controls 68 home sites while Spring Capital, a Eugene investment group that also owns Salishan on the Oregon coast, has about 200 lots. A St.Louis group, Virtual Realty Enterprises LLC bought the proposed hotel and lodge home site.

            The complex multiple ownership of Tetherow has presented challenges to the county as well as owner-developers and their lenders. The county recently agreed to extend a deadline for construction of the proposed hotel and nightly lodging facilities, after earlier reducing the amount of a required bond to insure construction. The county has also previously loosened the time period for nightly lodging facilities at Pronghorn, citing economic conditions facing resort developers.

            State regulations now require a ratio of 1:2.5 nightly rental units to owner occupied homes in new resorts. But Deschutes County’s resort code is more restrictive at 1:2, mandating one residence for each two homes.

      In an unlikely extreme case the county could take control of bond funds or drawn on a letter of credit posted by a developer who failed to perform by building nightly lodging. That would put the county in the position of moving ahead to build the lodging, something few counties would be willing to undertake.

      In a situation involving Tetherow, the buyer of the lodging component of the resort threatened to sue the county if it began to draw on a letter of credit issued by the original developer.

New law will stiffen resort requirements           

            The problems with new projects have caused some, including county officials, to question if Central Oregon may be overbuilt with larger-scale resorts now in the pipeline joining those with established track records. However, resorts have been mainstays of Central Oregon’s critical tourism economy, not only bringing in visitor dollars but enticing new residents including many who start or bring businesses to the area.

            An emerging factor is a new state law that would prohibit new resorts within 24 miles of an urban growth boundary of cities with a population of more than 100,000, a threshold some estimates say could be reached by Bend in 8-10 years. The US Census estimated Bend’s population at 76,639 in 2010, below the 83,215 number given by the Population Research Center at Portland State University, which is the state-designated demographer.

            The legislation would in effect mean that future resorts would have to be built considerably farther away from population areas. A resort such as Tetherow, which abuts Bend’s southwest city limit, would not be possible at that time.

            Even as new resorts struggle to thrive, or just survive, several of the area’s older, established ones seem to be holding their own and some have expansion plans. Sunriver Resort and Black Butte Ranch are Central Oregon’s “legacy” resorts.

            Sunriver's development group, through Pine Forest Development LLC, have applied to build 925 homes on 617 acres it owns south of Sunriver’s  Caldera Springs project and across from its private Crosswater golf community on the Deschutes River. Sunriver Resort Partnership LLC is  also is the controlling owner of nearby Sunriver Resort, long-identified as the largest “dry side” destination resort in the Northwest appealing to vacation home owners and visitors seeking an escape from rainy areas along the I-5 corridor of Oregon and Washington.

            For the new project, known initially as Pine Forest, the developer has proposed contributing up to $3 million to construction of a waste treatment facility that would serve a larger area of the south county that has been plagued by excessive nitrates from septic systems. The payments would be indexed to sales of new homes and home sites.

            In exchange for the payments, House Bill 3347 in the Oregon legislature would require the county and state to remove deed restrictions requiring nightly lodging at the Sunriver group’s adjacent Caldera Springs project. Although Sunriver has applied to the county to build Pine Forest as a destination resort, the bill would enable the developers to instead build it mostly as a residential planned development with 25 percent of the units “designed to encourage and facilitate” nightly lodging.

            A provison of the legislation that would create a sanitary authority funded in part by developer payments has spurred objections from some residents who would be required to connect to the treatment system.  The developers argue that the nitrate problems in the south county near the Deschutes River could eventually result in sanctions by federal and state authorities.

            Sunriver Resort, 17 miles south of Bend, was developed on 3,300 acres in the late 1960s by John Gray, also developer of Salishan on the Oregon coast and Skamania Lodge along the Columbia River in Washington. It is now managed by Lowe Development’s Destination Hotels and Resorts. The resort has three golf courses, the Sage Springs Spa, Meadows Lodge and a convention-meeting center.

      There are approximately 1,700 permanent residents in Sunriver’s  4,000 homes but in the peak summer season the population can expand to nearly 20,000. The retail village with a grocery, offices, restaurants and an ice rink is now owned by Salem-based Colson family interests and is undergoing extensive renovation.

            Black Butte Ranch, eight miles west of Sisters, also has considerable cachet among established sunny-side Northwest resorts. Developed in the early 1970s by a real estate subsidiary of the Brooks-Scanlon logging company, Black Butte today is essentially “built-out” with approximately 1,250 homes  and only 20 vacant lots. It has a mix of single family homes and condos-townhomes, many available for nightly lodging.

            Eagle Crest built in the 1980s on 1,700 acres is also among the older established Central Oregon resorts, including three golf courses, a convention facility, nightly lodging and retail village. The infusion of capital by the Northfield Group, which also bought Brasada Ranch, will result in improved convention facilities and main lodge areas, the investment group has announced.

            The more than $15 million in taxes paid to Deschutes County by Sunriver in Fiscal 2008-2009 were more than double the combined payments by Black Butte Ranch and Eagle Crest.   

      Inn of the 7th Mountain, adjacent to the Widgi Creek golf community, is another of the Bend area’s older resorts. After undergoing ownership changes and restructuring of the homeowners association, there are substantial improvements underway to condo and nightly lodging facilities. 

      Mt  Bachelor Village, another 1970s era resort and vacation home community within the Bend city limits on Century Drive, also has meeting facilities, condos and townhomes, many of them available for nightly rentals.

     

Related post:

Resorts in spotlight of Deschutes County planning

Resorts in spotlight of Deschutes County planning

            As Deschutes County officials tackle redrafting the county’s 1979 comprehensive plan a critical question will be the definition and location of destination resorts.

            With development of the new “2010” comp plan underway, several recent county planning decisions have highlighted conflicts involving the issue of when a resort is a resort, and when it’s mostly a rural subdivision.

            There have been changes over the years to the 1979 plan but this would be the first major revision.

            Entwined in the discussion is the pivotal role of resorts in Central Oregon’s largely tourism based economy, and how to balance their location with existing agriculture, forest and open space lands.

             Oregon resort land use regulations now follow Goal 8 (Recreation) of the state’s 1970s growth management act. In 1984 new provisions allowed resorts on rural lands without being subject to a “goal exception” review. One provision requires a 160-acre minimum for destination resorts, which in effect means that most are built on land originally zoned for agriculture. Another key standard is no net loss of wildlife.

Counties now must  “map” potential resort locations, and since 2003 are permitted to review their resort maps once every 30 months. The mapping process, although independent of redrafting the county comp plan, nevertheless is intended to ultimately reflect its provisions.

For Deschutes County, it appears that map will be shrinking considerably from more than 112,448 acres to 18,815 acres. The reduction involves removal of acreage including subdivisions that the county acknowledges was “unsuitable” for resorts, but not specifically prohibited at that time by state regulations.

However, a notable exception is the Sisters golf subdivision, Aspen Lakes, that was recently mapped as a potential resort. It was a controversial decision that was appealed to the state’s Land Use Board of Appeal, which upheld it in favor of the Cyrus family of Sisters who want to expand Aspen Lakes as a resort.

Elsewhere in Central Oregon there is another twist to permitting resorts. In Jefferson County 2009 state legislation banned one proposed resort and reduced the size another in the Metolius Basin near Camp Sherman. It was the first time Oregon had designated an Area of Critical State Concern  to block development.

Another bill that would have banned new resorts in Deschutes County failed in that legislative session.

A spate of new resorts were underway in the last decade, along with others on the drawing board. The collapse of the real estate market lead some developers to test county and state requirements that at least 50 nightly rental units be completed before individual homesites could be sold.

The resort regulations also require a ratio of one nightly rental unit for each permanent residence.

County officials and conservation groups have voiced concern over recently proposed legislation that would effectively preempt state and county regulations pertaining to rural subdivisions and resorts.

But the flip side, say some observers, is the situation in the Metolius basin wherein legislation stopped resorts that had met the approval of Jefferson County officials, and therefore trumped the county land use process.

            In one example a proposed bill would apply specifically to 1,500 acres adjacent to the existing Aspen Lakes on which the Cyrus family wants to build a resort.  With LUBA’s favorable decision, the bill would likely be superfluous.

However, another legislative bill would apply to the effort of Sunriver Resort’s ownership group to build a subdivision, known initially as Pine Forest,  on more than 600 acres adjoining their Caldera Springs project. The land was purchased in late 2006 from the Forest Service for $7.25 million. The group also has significant ownership of Sunriver Resort and Crosswater, a private gated golf community on the Deschutes River south of Bend.

In exchange for approval of 925 homesites, with no requirement for nightly lodging, the Sunriver group has offered to contribute $3 million toward a waste treatment facility to mitigate existing nitrate problems from septic systems in the area.

As of early March there were five  “Goal 8” approved resorts in Deschutes County under the 1984 regulations, including Eagle Crest, Pronghorn, Tetherow, Caldera Springs and Thornburgh. Earlier approved resorts in the county are Sunriver, Black Butte Ranch and Inn of the 7^th Mountain, which are controlled by other state regulations.



The most recent Deschutes County map of land eligible for resorts.
(Click on map to expand, or click below link for a PDF version)

           Revised Deschutes County Resort Map

Bend water: where from and how much?

There’s an old saying in the West to the effect that “whisky is for drinking and water for fighting over.”

By the time Bend’s water issues are resolved it’s a good bet that all involved might be ready for a stiff drink.

What would be one of the most expensive public works projects in Bend history is making its way through government channels. City officials say let’s get started. But a few business, civic and conservation leaders believe the plan needs a longer look.

            The majority of Bend city councilors have already gone on record, after several engineering studies, to support rebuilding the city’s aging municipal water pipeline that draws from the Bridge and Tumalo Creeks watershed.

            Altogether the project, which would also involve building a new treatment plant, is estimated to cost $58 million, and perhaps another $15 million if the city pursues development of a hydroelectric facility along with it.

            However, the economic assumptions underlying the city’s preference for surface withdrawals and the opposing push for groundwater-wells are complex. In many instances unpredictable variables could sway the argument either way.

            But a fundamental issue in the process is which solution would provide the most effective long-term results for improving local streams and protecting fish and wildlife that depend on a healthy habitat.

            The city estimates that rebuilding the surface water piping system would save more than $100 to $180  million in 50 years when compared with conversion to an entirely groundwater, well-based system. The estimate by engineering firm, HDR, relies largely on assumptions of a 3.3 percent annual increase in power costs.

            City officials’ decision to move ahead with a new system came under pressure from the  federal  Environmental Protection Agency’s determination that Bend doesn’t  meet standards of the Clean Water Act. The problem, according to the EPA, is the potential for the city’s crumbling pipeline, built in the 1920s and 1950s, and treatment facility to be contaminated by sediments and such bacteria as cryptosporidium.

            Beginning in October of 2012 the EPA would require additional treatment of the Bend Water supply, although extensions of the requirement would be possible.  However, city officials and the council say it makes sense to begin rebuilding the pipeline concurrent with the federal Forest Service’s scheduled reconstruction of Skyliner’s Road into the watershed.     

            Bend officials also maintain that spending now on the surface withdrawal would insure adequate water to meet demand for future growth.

But wait a minute, say several business and conservation leaders, and at least one Bend councilor.  They favor a solution that would rely on groundwater withdrawal, or wells, to meet long range water demands as the city grows. Wells would require less upfront capital outlay and have lower operating costs even with the added energy cost of pumping, they argue.

            Whatever the relative project costs, one critical issue is the impact of either a groundwater or surface withdrawal approach on the city’s valuable historic water rights. An legal memorandum for the city  from a Portland law firm cautions that converting to a groundwater system could potentially endanger water rights.

          Under a current state-mandated “groundwater mitigation” rule for the Deschutes basin anyone withdrawing water from new groundwater wells must offset that use, such as placing a surface right into an instream leasing program. The leasing program would preserve the water right under the “use it or lose it” or "beneficial use" rule that requires a right be used at least once every five years. Theoretically the surface rights could be removed as needed from the leasing program if a well withdrawal for the equal amount of water is terminated.

            In the legal memorandum, the city’s counsel said the instream leasing program could expire, although other legal professionals say that is unlikely.

            One advocate of the groundwater approach, local attorney Bill Buchanan, says the city’s “surface water project is tiny; only the price is big.” To back up his assertion, Buchanan says Bend’s total water use in 2010 was 2 billion gallons.

            “Two municipal wells with 300 horsepower pumps could match that volume,” Buchanan writes in a draft “White Paper.”

            Buchanan estimates an enhanced well-based water system would initially cost $9 million, saving the city $49 million in upfront capital costs compared to the surface withdrawals. By his reasoning, he notes city studies show  the “reliable capacity” of its surface water rights at the summer peak is a range of 7.4 to 7.7 million gallons per day (mgd). He cites Bend’s master plan statistics  that 1 mgd of groundwater delivery costs $1.2 million annually, or by extrapolation, $9 million for summer peak production. 

            The surface withdrawal project would also cost $2.7 million annually in interest on bonds, Buchanan says, a figure he estimates is five times the energy costs of wells.

            However, the city counters that it used 11.2 mgd from Bridge Creek in 2010. If there is no surface withdrawal the city says it would need to develop a “reliable source” of 13.6 mgd and another well to increase capacity to 15.1 mgd well to address possible equipment problems. It would also require a $22 million piping system and $8.5 million for new storage capacity, according to the city.

            Buchanan also notes that reducing surface withdrawals will improve conditions in Tumalo Creek and farther downstream in the Middle Deschutes where summer demand from irrigation and other sources dramatically reduces stream flows.

            Conservation groups such as Central Oregon Land Watch have initially said they favor wells over the surface water project.

With steelhead, salmon and bull trout protection gaining regional attention, legal action to challenge surface withdrawals could potentially loom on the horizon especially when stream flows reach extremely low levels. And Bend’s water rights are “junior” to those of  the Tumalo Irrigation District, which would have priority for diversions in drought years.

Is that bouquet coming from the glass or the cow pasture?

            A debate is fermenting in Deschutes County—and elsewhere in Oregon—over the emergence of vineyards and wineries on land regulated under the state’s highly-restrictive exclusive farm use (EFU) zoning .

            The issue has evolved with the increasingly difficult economics of ranching and farming and the burgeoning popular thirst among consumers for the bottled fruit of the vine.

            In early March a Deschutes County hearing officer began a review of an  application for the Faith, Hope and Charity (original names of the Three Sisters peaks) winery on EFU land in the county.

            The Grossmann family in the Lower Bridge area of northern Deschutes County are proposing to make wine from grapes grown on a 15-acre section of their 164 acre EFU zoned property.

            The Deschutes County application comes at a time that several issues related to wineries on EFU land have gained prominence in the Oregon legislature. Although the characteristics of highly fertile farm land in Western Oregon differ substantially from those across the Cascades Crest, some of the issues are common to both regions.

            In particular, sections of state law related to special events held at wineries on EFU land and the type of food service permitted have come to the forefront in the discussion. Several bills addressing the issues are circulating through the halls in Salem.

            The Deschutes County Planning Commission’s staff report before the hearing officer on the Faith Hope and Charity application focused on several key points in state law, ORS 215.452 (later amended by Senate Bill 1055).

            The staff questioned whether by planting grapes on 15 acres of their property the Grossmann’s had met a requirement of the state law that a winery “…Owns an on-site vineyard of at least 15 acres…” if production will be less than 50,000 gallons annually.

            The issue as interpreted by the staff in its findings was not whether the vineyard existed but that “there is no history of grape production at this vineyard.”

            But at the March 8 hearing, the Crossmanns’ attorney maintained that many wineries across Oregon have sourced their grapes in early years from off-site locations until their estate vineyards are established.

            In public comments, Kerry Damon, ranch and vineyard manager at Ranch at the Canyons in Terrebonne, argued that building the winery was necessary for the “operational infrastructure” needed to process grapes before the first harvest.

            In the case of Faith, Hope and Charity some grapes would be acquired on a contract from Monkey Face Vineyards, the private vineyard of Ranch at the Canyons, an “agriculture preserve” residential community on the Crooked River across from Smith Rock State Park.

            Apart from the grape production issue, the staff report said the hearing officer should consider if  the application met the state law’s requirement regarding a “limited service restaurant”; whether retail sales would be “directly related” to promotion and sale of wine produced at the winery; and the location and screening of any above ground utilities.

            Although not addressed by the planning staff, the issue of special events at the winery was raised by several speakers at the hearing who said they were neighboring landowners.

            One adjacent neighbor complained of traffic into the winery for previously held weddings and another said noise and excessive drinking were a concern.

             A nearby rancher questioned if allowing wineries would effectively be “going down a slippery slope” by subverting the original intent of the 1970s legislation establishing EFU zoning.

            But, he also offered support for someone venturing to plant a vineyard in Central Oregon. 

            “I’m on both sides of the fence,” the rancher observed. “I hope it works out for them, and if it does I’ll plant bananas.”

            The Deschutes County planning staff report

             

           

           

Scenic forest between Bend & Sisters spurs conservation effort

       Anyone driving along Highway 20 midway from Bend to Sisters on a typically clear day experiences remarkable southwest views of the area's signature peaks—from Broken Top to the Three Sisters. As the highway straightens for several miles west of the Innes Market Road intersection heavily forested land, punctuated by buttes, slopes upward in ridges toward the rugged mountains.   
    To most casual observers the immediate, and perhaps logical, assumption is that most of this is public land—maybe part of the Deschutes National Forest. However, some 33,000 acres or more than 50 square miles of the scenic property is in private hands.
    But this large tract of private land between Bend and Sisters continues to be in the spotlight of negotiations involving the legislature in Salem, a major timberland holding company and a number of conservation groups.

    Fidelity National Timberland Co, an affiliate of Fidelity National Title Company led by chairman Bill Foley, in 2006 purchased the property from creditors of bankrupt Crown-Pacific timber company. Fidelity initially proposed developing several thousand acres of the tract into estate-size lots, a private golf course and other amenities.
    The proposal ignited opposition from traditional environmental organizations and many individuals to preserve what is now being called Skyline Forest. Fidelity attempted to mollify the opposition by opening a dialogue with the Deschutes Basin Land Trust to protect most of the acreage from development in exchange for reserving a portion for homes concentrated in one section on larger lots.
    The Land Trust has suggested an agreement with Fidelity, operating as Cascade Timberlands on the Skyline projecty, may be the best alternative to preserving much of the 33,000 acres and guiding sensitive development on the remaining acreage. Partition of the forest-zoned property is now restricted to a minimum parcel size of 240 acres under “conditional use” standards of the Deschutes County land use regulations, which in effect would mean fewer than 140 homes could be built.
    A bill passed in the 2009 Oregon legislature gave Fidelity the right to develop 282 homes on 1,200 contiguous acres in exchange for selling the remaining 31,800 acres for conservation through the Land Trust. But in 2011 Fidelity, citing the unfavorable economy, has returned to the legislature with a attempt to increase the number of homes, although it has not publicly revealed how many it seeks.
    The Land Trust is now facing deadlines for fundraising to match grants totaling about $4 million which could be applied for the conservation purchase. Uncertainty over the development plans has complicated the effort, Land Trust officials acknowledge.
    In provisions of the 2009 legislation Fidelity and the Land Trust have until 2014 complete a purchase agreement. Land Trust executive director Brad Chalfant said in early March that reports of an “impasse” in the negotiations, after Fidelity went back to the legislature, were misleading.
    “There’s never been any expectation that we would wake up one day and the whole property would be subdivided,” Chalfant says. The question, he says, will be what development scenario will work for Fidelity and how to reconcile the company’s financial objectives with the conservation effort.
    “My gut feeling tells me the parties are going to come to terms,” Chalfant adds.
    A critical player in the negotiation milieu is Central Oregon Land Watch, which has been involved in the effort to prevent or minimize development on the property since former owner Crown Pacific went into receivership. A Land Watch attorney has expressed opposition to revising the number of homes that would be allowed in Skyline.
    Altogether Fidelity acquired more than 250,000 acres once owned by Crown Pacific in Deschutes and Klamath counties. The company and the State of Oregon were near an agreement for the state to purchase 68,000 acres spanning the county lines for a state forest. Along with $15 million from the legislature to purchase 43,000 acres, The Conservation Fund, a Virginia group, was to purchase the other 25,000 acres and sell it back to the state over five years.
    Fidelity chairman Foley has already established a precedent for a conservation-oriented development with the 80,000 acre Rock Creek Cattle Co., part of an historic ranch enclave with a private 18-hole golf course near Deer Lodge, Montana.
    At Rock Creek, Foley has planned 200 exclusive homes while donating much of the sprawling ranch for open space and continued ranch operations. Foley reportedly has 40 investors in the Rock Creek project while maintaining 60 percent control.
    Foley has also become a significant factor in the western United States wine industry by acquiring through his Foley Wine Group more than a dozen producing vineyards and associated wineries in California, the Pacific Northwest and New Zealand. Among these are the well-known Firestone and Sebastiani labels.

Stocks or real estate? It depends...

            We’ve all heard and probably participated in  the discussion—at cocktail parties, family gatherings, college reunions and any number of other venues. Stocks or real estate?

            Most times when the subject arises there’s little more than anectodal or second hand information offered to present a case for either one.
            Perhaps the best answer is not “either or,” but some of both, although the question of how much to allocate to which, and when, remains a point of debate.

            In looking at both asset categories each has its inherent strengths and weaknesses.

Stocks are certainly more liquid, but suffer from greater volatility. Lose 20% of your portfolio in a day and you can either liquidate all or part of it, or maybe hang on in hopes of a rebound.

Real estate, specifically a home in this example, isn’t as liquid but usually provides insulation against rapid and dramatic losses. In the case of owner-occupied real estate there’s also the benefit of having enjoyment and use of a tangible asset, albeit with the expenses of taxes, maintenance and debt. But some of that is deductible, of course, and the sale of a primary home offers a shelter from a portion of capital gains that is not available with stocks.

There is no one size fits all solution. It depends on many variables—individual objectives, risk tolerance, time horizon and others.

Looking back over the past decade performance of the widely followed S&P 500 index provides one broad measure of how stocks peformed.

On January 3, 2001 – the first full day of trading for the year-- the S&P 500 Index closed at 1,283.2698.  On January 3, 2111 the Index finished the day at 1,271.8900.

If an investor had bought the broad S&P 500 Index with the intention of limiting individual stock risk the result after 10 years would have been a loss of 0.8867816%.  Not especially appealing to be standing still for a decade.

The more narrow Dow Jones Industrial Average index of 30 large capitalized stocks fared considerably better, gaining 9.621% over the 10 years since January of 2001.

By contrast—using Bend single family homes as the measure--the median price of a residence in Bend at the end of 2000 (or the start of 2001 to compare with stocks) was $168,950 and $191,000 at the end of 2010, or a 13.05% gain over the 10 years. Not bad if you’d found the “perfect” median priced home at an ideal time and not let go.
However, if you bought a median priced Bend home in 2006 by the end of 2010 you'd theoretically be able to sell it for about 45% of what you paid for it.
But no purchase, stocks or bonds, makes an ideal model. In the end it’s mostly matter of  timing and the an individual’s  investment window.

With the financial meltdown in late 2008 the S&P 500 dropped to a low of 735.0898 on February 29, 2009, more than 42% below its early 2001 level. But the index had climbed by a dramatic 96.93% to 1,332.32 by February 14, 2011. So if you’d jumped into stocks after the recent market collapse you’d be a big winner. But if you’d bought the index 10 years ago you’d be about where you began back  in early 2011, and even less so considering inflation.

So in the past few years an investment in a typical median priced Bend home would not be such a good choice when weighed against the stock market. But for the past 10 years it wouldn’t look so bad.

Looking at national perceptions, a survey by Fannie Mae, the federal housing agency, in mid 2010 indicated that 66% of consumers homes were a safe investment and only 16% felt that way about stocks. In 2003 a similar suirvey showed that 83% felt a home was a safe investment.