FEATURE: Juniper Ridge

The Bend Ultimatum: Juniper Ridge

by ALLAN BRUCKNER | BEND BUSINESS REVIEW, VOLUME 1 ISSUE 1, JUNE 2007

How Bend's largest land development project led to
public outcry of bait-and-switch tactics
that even insiders say are misguided

s Juniper Ridge Bend’s golden goose or an expensive failure unfolding in slow motion? In either case, Juniper Ridge is Bend’s largest capital development ever undertaken, with implications for all Bend residents. The juniper-laden 1,500-acre plot--more than five times as big as The Old Mill District--on the northeast side of Bend has become a metaphor for what Bend could be: a university, a research campus, a new economic direction for a town that only 25 years ago was struggling to survive.

After closed meetings between the City Council, Bend’s economic development director John Russell and the developer, Juniper Ridge Partners, led by Ray Kuratek, this optimistic vision of Bend’s future has become illusory, at best. Instead of becoming the golden goose, Juniper Ridge could become Bend’s largest public financial bailout because of a flawed process and, what industry experts describe as, an overly generous gift to one developer from the City of Bend.

A Brief History of Juniper Ridge

Juniper Ridge, Phase 1, Request for Qualifications (RFQ)

The City of Bend obtained Juniper Ridge through an intergovernmental agreement with Deschutes County in 1990. The City, needing state approval to annex Juniper Ridge, commissioned studies about the land and came up with a two-phase approach. All research and all reports said that the City would grow its state-mandated reserve of industrial land by annexing a 504-acre parcel as the first phase of development at Juniper Ridge. That 504-acre parcel, was brought into the urban growth boundary under those auspices in 2004. The second phase, not yet annexed, would later bring a mix of residential, commercial, industrial and institutional development. On May 13, 2005, the City issued developers a so-called “Request for Qualifications,” or RFQ, for Phase I of Juniper Ridge. This RFQ “solicited qualifications from development teams to develop approximately 504 acres of land to become the Juniper Ridge Technology and Research Park.” A month later, the Bend City Council received the final Concept Plan presentation “to create a detailed land use and transportation plan to guide the near-term development of the 504-acre Phase 1 area, and a long-term conceptual plan for the remaining 1,000 acres.”

Bait and Switch
But then something strange happened. That fall, after years of studies and planning that consistently regarded the 504 annexed acres as light industrial use, the City Council instead selected a master developer for the entire 1,500-acre project and, with no public input, changed all prior land-use proportions to emphasize residential housing. The selection of the developer, Ray Kuratek (Juniper Ridge Partners), was largely based on the October 29, 2005 “selection report,” of economic director Russell, and City Council discussions that were not open to the public. Kuratek, with Jeff Holzman, formed Juniper Ridge Partners, LLC expressly to bid on this project. For the preceding 12 years Kuratek was the consultant/director of development for the 91-acre Bay Meadows mixed-use development in San Mateo, California. There he was employed by Stockbridge Capital Partners LLC, his presumed original financial backer for Juniper Ridge. For nearly 20 years prior to that, Kuratek owned a full-service development company that specialized in large apartment complexes and steel-framed office buildings, as well as custom housing, and industrial and retail properties throughout California and the West. He has been a Bend resident for six years but has done no development here. John Russell is director of economic development for the City of Bend. In addition to Juniper Ridge, his responsibilities include the Downtown Urban Renewal Agency, the municipal airport, affordable housing and city real estate. He came to Bend in 2003 to run the downtown urban renewal project—construction of the parking garage.

Prior to that he was redevelopment supervisor for the City of Salem where his major project was developing the 50,000-square-foot Salem Conference Center and 300-space parking lot in conjunction with a new hotel in the city center. When Russell’s selection report and the City Council’s subsequent decision to go forward with Kuratek’s proposal became public in October 2005, the chosen vision generated considerable outcry because the new plan looked nothing like the one buttressed by numerous studies. Suddenly the project was not the long-discussed industrial park the state had approved, nor was it the RFQ-designated 504-acre research and technology park. With no public input on Juniper Ridge, Bend’s largest capital development had become a 1,500- acre project dominated by housing and two new town centers. Kuratek did not return phone calls seeking comment. City manager Harold Anderson and Russell said the applicants, in effect, forced the City to change their original direction because they “wanted 1,500 acres and housing for financial reasons.” Kuratek’s initial response on June 24, 2005, however, noted “this RFQ is intended to be for Phase 1.” And the two proposals that were dismissed, from Specht Development and from Trammell Crow/ Costa Pacific, addressed the 504 industrial and research acres spelled out in the RFQ. Specht would not comment for attribution, but its proposal was clearly based on only the 504 acres with limited university-associated housing. In a phone interview, Trammell Crow’s John Stirek was clear that the City’s request was for only the 504-acre industrial park. Other prospective developers who may have wished to respond to a 1,500-acre housing-dominated project, rather than a 504-acre industrial and research park, of course, did not have a chance to propose. For example Kirk Schuler, president of Brooks Resources, said, “We didn’t feel we had expertise in large industrial parks, and we looked at the RFQ as a 500-acre industrial park.” So Brooks Resources made no proposal. Mayor Bruce Abernethy agreed the RFQ was “odd and open-ended” and that led to confusion. Councilor Jim Clinton saw “some defects in the way it happened.” He added that “a large number of uncertainties caused us to head down a certain path (and there is) a risk that we would have been better off doing it another way.” In Russell’s selection report, land for industrial/research and development was cut to less than half its original amount. This came after Anderson had just lamented in his address to City Council that businesses were leaving town because of the lack of affordable industrial land to locate or expand their businesses. “The reason for the 500 acres is industrial land,” he told the Council in October 2005. “The addition of these 500 acres into the inventory of industrial land will help the affordability, as well as realize some of the goals the Council has set.” In the Russell selection report and the Kuratek proposal, the open-space requirement was slashed by two-thirds--to 165 acres from 470 acres--while the housing component nearly quadrupled to 550 acres from the original 150 acres. No economic or market study, and no analysis of the reasons for any of these changes was ever publicly presented to the Council. This new deal also put the City in the awkward position of subsidizing one homebuilder, by providing off-site improvements, such as roads and utilities, which other developers must do at their own cost. Nevertheless, the City Council accepted Kuratek’s and Russell’s changes in land use and the increase to 1,500 acres with no supporting data or study. The Juniper Ridge project had gone from 504 acres for the development of a technology and research park to what the City is now selling to Bend residents as two new town centers, five miles from downtown Bend, offices, retail, a hotel, and extensive single-family housing. All these changes were made behind closed doors by Russell and Kuratek, and a City Council inexperienced in large-scale development.

The Devilish Details
If the process that selected and endorsed today’s Juniper Ridge plans controversial enough, the details of the resulting plan appear to conflict with state law. One of the aspects of Juniper Ridge Partners’ plan for Juniper Ridge is the reduction of the industrial land such that all the remaining industrial land would be absorbed in 15 years, or faster. Erich Schultz of Compass Commercial estimates the present demand for industrial land is 20 acres per year, but believes that as the town continues to grow, the annual rate of demand for industrial land will increase. The State of Oregon requires by law that cities carry a 20-year supply of industrial land at all times. In February 2006, Mark Radabaugh of the State Department of Land Conservation and Development [DLCD] wrote that the City of Bend “needs to demonstrate … [the] industrial land base at Juniper Ridge site does not become secondary to other newly proposed land uses.” (There is no other land designated for industrial development in the Bend area.) In a recent interview, Radabaugh noted that the agreement, or memorandum of understanding (MOU), between the City and Juniper Ridge Partners “does not meet state planning law” and that the Department of Land Conservation and Development would “make sure the city has enough light industrial (not R&D) because that is where the demand is.” If DLCD determined that minimum state standards were not met, corrections would have to be made before the area could be included in the urban growth boundary and the city limits.

Show Me the Numbers
It’s not hard to see why the City was sold on Juniper Ridge Partners’ compelling story. In Russell’s October 2005 selection report, Kuratek proposed some unconventionally aggressive growth figures. The developer promised that all 1,500 acres-worth of development would be completed within 15 years. He further promised Juniper Ridge Partners would create nearly three times as many new jobs (24,000) within the project area, as the City’s just-completed Concept Plan (8,800 jobs). For comparison, the Oregon Department of Employment projects 17,500 new jobs over the next 10 years, for all of Deschutes, Crook and Jefferson counties combined.

Abernethy, Clinton and Russell admitted there was no supporting economic study to justify either Kuratek’s tripling of the land-absorption rate or tripling the job creation numbers. Nor did the City question these figures. According to Jerry Mitchell, development manager for the City of Bend, the basis for tripling the number of new jobs was simply “the developer’s aspiration for higher employment density.” Russell noted in an interview that, “putting controls in place will guarantee more employment per acre.” Russell did not identify the controls, elaborate on how that guarantee would be enforced or indicate if the developer had any responsibility in meeting these new higher numbers. Kuratek did not respond to calls seeking comment.

Money Talks … and Then it Walks
Even if these “aspirations” were merely words blowing in the wind, money brings it down to earth. One of the most significant factors in Russell’s recommendation of Kuratek was his “ready access to capital.” Under its agreement with the City, Juniper Ridge Partners was to put up $30 million against the City’s $40 million and the two entities would split profits in two equal portions, a generous split that left experts in development and finance incredulous. Money talked, but it also walked--twice. Kuratek’s promised financial backer, Stockbridge Capital Partners, withdrew before the original memorandum with the City was actually signed. Stockbridge Capital Partners did not return calls seeking clarification about why they pulled out. Later, the second prospective capital firm behind Kuratek, Pacific Coast Capital Partners, also withdrew. They refused to comment on reasons for their withdrawal. This should leave city councilors with serious questions about the financial viability of the project, and also to question the dubious original premise for selecting Kuratek--ready access to capital. At the time of this writing the developer has no known commitment for the $30 million.

Profit Guarantee and Skin in the Game
The next step in the process stirred more public concern and irritation. In February 2006, Russell presented to the City Council, in executive session, the MOU he negotiated with the developer. In addition to incorporating the major changes in land uses and expansion of the project to 1,500 acres, the terms required the City to put up $40 million and the investor to put up $30 million. Actually the City’s ante--because the value of the City’s 1,500 acres was missing from this equation--was worth many times that amount. Even so, Russell recommended the development proceeds be split 50/50 between Bend taxpayers and Juniper Ridge Partners, as Kuratek had proposed. Public outcry became so pitched that the City Council took the unusual step of assuming direct responsibility for negotiations, and was able to change the terms of the financial split to 65/35 for the first $100 million, a 75/25 split for the next $75 million and a 90/10 split thereafter. In the final MOU, dated September 6, 2006, the developer demanded the City add a provision guaranteeing the investor a 20 percent annual internal rate of return. Ron Schmidt, the director of investments at the Oregon State Treasury, who regularly analyzes private equity investment terms, said that a development project, because of its inherent risk, warranted a return in “the high teens,” but not a guarantee. The state’s own guaranteed return of 8 percent for all members of the Public Employees Retirement System had disastrous financial consequences for them. In 2003, the state itself learned its lesson about guaranteed investment returns when it ended up floating $2 billion in pension obligation bonds to fund the difference between its guarantee and the much lower actual investment returns, an event that ended the 8 percent guarantee for all new state employees, thereafter. Residents of Bend could be facing a similar bailout, subsidizing one developer’s profits with additional taxes. Russell and Anderson acknowledged that if the project fails, as many real estate developments do, the City would be liable for up to $6 million annually to the private investor, plus the City would also have to repay the $40 million urban renewal district bonds they plan to issue. If the project is partially successful, or merely slower to develop than the extremely optimistic projections of the developers, the City and Bend taxpayers could still be on the hook for millions of dollars for many years. Nevertheless, Anderson and Russell believe the 20 percent guarantee is warranted because, Russell said, “this is not a free-market transaction.” Russell was not referring to the selection process which was effectively limited to one bidder, but rather the stipulations of the project such as the requirement for 10 percent open space, an area for a 200-acre university and detailed environmental stipulations in the RFQ. But having received only one bid for the full 1,500- acre project at Juniper Ridge, the City Council and Bend taxpayers will never know if they got a fair deal.

Russell’s recommendation of Kuratek was also influenced by Kuratek’s “commitment to expend higher levels of capital in the initial phases of the project,” according to the selection report. Juniper Ridge partners offered $30 million of up-front investment in the project, approximately double that of the Specht proposal. But Juniper Ridge Partners proposal was for 1,500 acres while the Specht proposal was for 504 acres, so Juniper Ridge Partner’s investment actually came out to less per acre than Specht. But even that smaller per acre investment would essentially vanish under a clause in the MOU that allows Juniper Ridge Partners to pre-sell up to 200 acres of residential land in the first phase of development. Selling land in Phase 1 for residential use appears contrary to state regulations, which granted approval of the expansion of the urban boundary based on industrial uses. Further, the developer’s share of the sale of 200 acres of residential land will immediately recoup their investment. City councilor Chris Telfer voiced concern with both the 20 percent return and the horizon of the investment. Telfer said she is most troubled by “the short time for the investment, since it will be paid back by the early land sale.” She added, “They could get their $30 million back as soon as it’s invested.” Under this scenario, it appears the developer, selected by a private process, with no competing bids, will then control the rest of the City’s land with no net investment. The MOU also leaves some major points un addressed. For example: How does the City make a change if the developer doesn’t perform, or when the developer’s drive for profits conflicts with the City’s design and social engineering goals? Is the developer tied exclusively to this project, or can it take on other nearby competitive projects? Could the developer just sit on the land after selling the 200 acres to cover its required infrastructure costs? There are profit guarantees for the developer, but why are there no corresponding performance guarantees? Dave Almodovar, a Credit Suisse investment manager in Portland who oversees the Oregon Investment Fund, recommends the City get excellent legal council with expertise in major real estate development deals before proceeding.

U. of Juniper Ridge
One idea full of sound and fury for the future of Juniper Ridge has been the inclusion of a four-year university. Those in favor of the university argue that it would be the basis for a strong economic future for Bend and should, therefore, be the cornerstone of Juniper Ridge. The problem is that the MOU gives only a scant six lines of attention to the university concept in a 13- page document. In January 2006, The Bulletin, one of the community’s biggest boosters of the project and the university component, ran a five-part series on significant research parks and new universities. The conclusions showed: there were no major research parks without a university first; none of the research parks had a housing component; all the parks had very little or no city money; and finally developing a research park and a new university simultaneously have never been accomplished. But the actions of the Juniper Ridge project are in direct contrast to these findings. Juniper Ridge’s promise of a light industrial and research park, epicenter for good-paying jobs and a growing education component seem distant and drifting farther away after a secret process effectively brought in only one prospective developer for an area that is more than five times the size of the Old Mill District. Residents of Bend, once considering the plot a vital economic engine, could instead face a financial burden unfolding in slow motion. Leland Smith, a Central Oregon resident and president of the consulting firm Elesco Services, has served on the California Governor’s Advisory Task Force on Economic Development, the Bay Area Economic Forum and the Washington Economic Development Commission. After studying Juniper Ridge he said: “I think this project is being mishandled between the City staff and the selected developer. Juniper Ridge is too important to the future of Bend to allow it to suffer from lack of vision. My recommended course of action would be for the City of Bend to get outside, expert advice … I strongly support canceling the present agreement, or at least putting it on hold, and getting the professional expertise of an Urban Land Institute panel to put the direction back on track.”

Allan Bruckner has been a resident of Bend for more than 30 years. He is a retired businessman who was on the Bend City Council from 1989 to 1992, serving as mayor in 1992.