Could Oregon tax policies drive real estate investment away from Portland, Oregon? David Moore, CEO of Equity Advantage, and Jose Cienfuegos of the Revitalize Portland Coalition, believe decisions at both the state and local levels may be making it harder to invest and conduct business in the city.
Portland says it needs more revenue, occupied buildings, thriving businesses, and people living downtown. Yet David and Jose see policies that may discourage the investors and business owners responsible for producing that activity.
As David describes it, Portland, Multnomah County, and Oregon “can’t get out of our own way.”
When a Federal Tax Incentive Stops at the State Line
Cost segregation offers one example. In plain language, cost segregation allows property owners to separate certain parts of a building for tax purposes. Some deductions that would normally be spread over many years may then be taken sooner.
The federal changes discussed by David and Jose were intended to make those deductions available more quickly. They believe the change could encourage investors to purchase buildings and invest more money in real estate.
The problem, as they understood it, was that Oregon would not provide the same treatment at the state level.
An investor may receive a useful federal benefit while facing a different result on the Oregon return. That may not stop every purchase, but it gives investors another reason to compare Portland with opportunities outside the state.
If another market provides similar investment opportunities with fewer tax disadvantages, Portland could lose more than one transaction. It could also lose the future business activity and property tax revenue connected to that investment.
Oregon Real Estate Investment Depends on Reinvestment
The same concern applies to 1031 Exchanges. A 1031 Exchange allows an investor to sell one investment property and reinvest the proceeds into another qualifying property while deferring taxes when the requirements are followed.
That structure can keep money working in real estate. An investor may sell one Portland property and purchase another rather than removing the proceeds from the market.
David believes Oregon should give property owners every reasonable opportunity to continue investing within the state. The concern is what happens when investors repeatedly encounter policies that make Portland more expensive or difficult.
Those investors still have choices. They may decide to:
- Purchase their next property outside Oregon
- Expand an existing business in another market
- Direct future investment toward a city that appears more welcoming
- Avoid a Portland property that already carries additional risk
No single policy will determine where every investor purchases property. The larger concern is the cumulative effect of taxes, restrictions, vacancies, declining property values, and uncertainty.
At some point, Oregon real estate investment may begin moving toward places where investors believe their capital has a better chance to succeed.
Portland Cannot Grow Revenue by Losing Taxpayers
Jose encountered this contradiction when he went before the Portland City Council to support tax relief for small businesses.
The exemption threshold he described had remained at $50,000 for more than 20 years. A proposal would increase that threshold, first to $75,000 and then to $100,000.
Jose expected to give a short statement supporting the change and thanking the council. Instead, he spent hours listening to council members debate other subjects before being told there was not enough time for him to speak.
He returned the following day and received the same response. When he was finally invited to speak on the third day, he set aside his prepared statement and addressed what he had observed.
His question for the council was direct: “How can we increase revenue in this city without increasing taxes?”
Portland is already dealing with homelessness, drug addiction, downtown vacancies, and concerns about its effective tax burden. Jose’s argument was not that other subjects should never receive attention. He believes city leaders must first focus on rebuilding the revenue needed to address those other problems.
Tax revenue comes from people and businesses that live, own property, and operate in Portland. Continually placing more pressure on those taxpayers becomes difficult if businesses close, residents leave, or investors purchase elsewhere.
Falling Property Values Deepen Portland’s Revenue Problem
The declining value of major downtown buildings shows how quickly a real estate problem can become a city budget problem.
David and Jose cited Big Pink as one example, estimating that its loss in value represented roughly $2 million in lost annual property tax revenue. They also discussed another large Portland property that reportedly sold for approximately 10 cents on the dollar.
Those lower prices may create opportunities for long-term investors. They also affect the property tax revenue Portland can expect to collect.
The pattern can develop quickly:
- Downtown buildings sell for substantially less than their previous values
- Owners challenge tax assessments that no longer reflect the market
- Successful challenges reduce the property tax revenue generated by those buildings
- Portland faces greater budget pressure as more assessments decline
Public reactions to struggling commercial properties do not always account for that financial effect. When a large retailer closes, some people may dismiss the business as outdated and suggest replacing the building with a park.
David sees a major difference between those uses. A functioning commercial property generates revenue, while a public park requires money to operate and maintain. Portland would be replacing “a revenue generator” with a financial obligation.
More Downtown Residents Could Help Rebuild Portland
A recent listening session gave Jose some reason for optimism. Representatives from the public, private, and nonprofit sectors came together to identify Portland’s problems and discuss possible solutions.
When participants were asked what downtown needed most, Jose heard the same answer around the table: more people living downtown.
The Pearl District provides a nearby comparison. Its residential population supports stores, restaurants, and services throughout the day. Downtown Portland does not have the same concentration of residents creating consistent activity.
Adding housing alone will not solve the problem. Portland must also address the livability conditions that influence whether people want to live, work, and invest downtown.
David compared Portland’s recent direction with the redevelopment of the Vancouver waterfront. For him, the change across the river shows what Portland could become if the city made it easier for people to invest and follow through on long-term projects.
Portland still has valuable buildings, established businesses, and investors willing to consider long-term opportunities. Its economic recovery depends on whether state and local policies encourage those investors to remain here or give them another reason to take their money elsewhere.
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.
Frequently Asked Questions
Could Oregon Tax Policies Drive Real Estate Investment Away From Portland?
David and Jose believe differences between federal and state tax treatment, combined with Portland’s broader business environment, may encourage some investors to consider properties outside Oregon.
How Do Falling Commercial Property Values Affect Portland?
When commercial properties lose value, owners may challenge their tax assessments. Lower assessments can reduce the property tax revenue Portland receives from downtown buildings.
Why Does Downtown Portland Need More Residents?
Residents create consistent activity and support nearby stores, restaurants, and services. Attracting them will also require Portland to address the livability problems affecting downtown.
