Opus Shifts Gears in Recession

PORTLAND, OR - Once Opus Northwest adds the finishing touches to its three projects still in development, the firm will take a two-and-a-half-year hiatus from speculative development, according to the company, and instead focus on construction management.

Earlier this year, the development firm's parent company, Minnesota-based Opus Group, announced it would cut 200 jobs, and Opus South, based in Georgia, filed for Chapter 11 bankruptcy protection. Meanwhile, Opus West, based in Texas, saw one of its projects enter bankruptcy.

"Because of the challenges (in the economy), we don't see any speculative development for at least a two-plus-year period," Opus Northwest Vice President Brian Owendoff said. "It's what's best for the firm."

According to the parent company, the nation's credit challenges are the worst the company has seen in its 56-year history. Nonetheless, the firm also stressed that the level of financial distress facing each of its regional headquarters will differ greatly. Opus Northwest has laid off three people since the beginning of the year.

Opus Northwest earned a profit in 2008 and expects the same for 2009, according to Owendoff. But that means putting development on the back burner.

The company will instead perform construction management for third-party developers, and repeat a transition it made in 2001. Opus Northwest's shift in focus means it will directly compete with firms such as Hoffman Construction, Andersen Construction and Turner Construction.

Owendoff said the firm plans to distinguish itself from the competition by providing engineering and architectural services. "Third-party construction companies are wired to extract as much fee as possible from their clients," Owendoff said.

But development of Opus Northwest's remaining Portland-based projects continues to move ahead – for a while, at least. The company is currently developing the Sandy Boulevard Business Park, the Park19 apartments and Ladd Tower.

Opus Northwest has signed 55 leases at Ladd Tower after eight weeks of leasing activity; the 23-story tower contains 220 luxury apartments and will open in July. Additionally, 12 leases have been signed at the smaller Park19 apartment complex in Northwest Portland. It opens next month.

So why has Opus Northwest stayed afloat while its sister corporations have taken on water, despite maintaining a similar corporate structure and development values?

Writing in Portland State University's Center for Real Estate Quarterly, Christopher Longinetti, an acquisitions manager for ScanlanKemperBard, states that Portland has been insulated by the city's slower pace of development.

But the multifamily residential market – which includes two Opus Northwest projects – has nonetheless become oversaturated, investors say.

"The effective rents have dipped, with more competition," said Casey Davidson, director of Holliday Fenoglio Fowler, a commercial real estate investment firm. "In the multifamily market, it's all about demand. And if you don't have that demand then you won't be successful."