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John Brown and Mark Meek both use the same word to describe the price the Oregon Liquor and Cannabis Commission paid for the Canby property where the agency will build its new headquarters.
That word is “egregious.”
Earlier this year, the OLCC closed on a 33.75-acre parcel, paying $40.78 million for the raw land.
As recently as 2019, the agency told lawmakers that the project—including land and construction of the headquarters and a liquor warehouse—would cost $62.5 million. Today, that cost is estimated at $145.8 million.
Of course, steel, lumber and labor costs have jumped in the past three years, but OLCC officials acknowledge that much of the big increase resulted from the soaring cost of the land.
The final price for the dirt that the OLCC purchased was nearly triple what it expected to pay. And that makes Brown, chairman of the state’s Public Lands Advisory Committee, furious.
He thinks the state panicked and overpaid for the land, nearly doubling what he says was an already generous appraisal that valued the property at $22.1 million. The appraisal was made only after the state had already agreed to the higher purchase price.
Brown joined the PLAC, which advises the state on real estate transactions valued at more than $100,000, over a decade ago. He and Meek, a Democratic state representative from Milwaukie who also sits on the committee, reacted strongly when the transaction came in front of them earlier this year.
Brown, a commercial real estate broker and former appraiser with three decades of experience, says the OLCC deal is by far the worst he’s seen the state make—and it’s the only time he’s voted no on a transaction.
“This deal was an anomaly, but that doesn’t make it right,” Brown says. “How many kids sleeping under bridges could have had a home if we didn’t piss away that money?”
The OLCC generates the third-most revenue for state government after income taxes and the Oregon Lottery. Nearly every bottle of hard liquor sold in the state goes through the agency’s Milwaukie warehouse or a satellite warehouse nearby.
Chris Mayton, the OLCC’s distilled spirits director, says that soon after he joined the agency in 2018, it became clear to him that its ancient, 230,000-square-foot warehouse, with its rickety, Rube Goldberg-like agglomeration of conveyor belts, was too small.
“I started raising red flags right away,” he recalls, “because I started forecasting out five years, and I said, ‘Hey, we’re going to be in trouble.’”
That trouble: Oregon’s growing population and thirst for liquor would overtake the agency’s capacity. (The OLCC ships about 327,000 cases of liquor per month and turns over its inventory seven times a year.) Inadequate warehouse space would undercut the agency’s ability to maximize revenue.
The agency hired the consulting firm Deloitte to test Mayton’s perception. In a 2020 study, the firm agreed that the OLCC needed a new, larger warehouse somewhere along Interstate 5 and close to the metro area, where most sales occur.
Originally, the plan was to buy a ready-made facility. But Mayton says that when the agency sought permission from Gov. Kate Brown and the Oregon Department of Administrative Services to move forward, it was instructed to break the proposition in two: buy the land first and build the headquarters and warehouse afterward.
The rationale, Mayton says: “equity and inclusion.” If the state controlled the construction contract, it could control who got the work.
Brown spokesman Charles Boyle says the governor’s office wasn’t involved and directed questions to DAS.
Department spokeswoman Bryanna Duke confirms the agency moved the OLCC away from a purpose-built project, which DAS thought “had too many legal complications and risks.”
“The decision was made to address these risks by purchasing the property instead,” Duke says. “Not only did this approach reduce the legal risks, but it also aligned better with the state’s procurement policies and goals. One of those goals is to support inclusion of Oregon’s minority- and women-owned businesses in state projects.”
The change delayed the process and provided prospective sellers with useful information: They knew what the state wanted and that it was very keen to buy.
Meek, who works in residential real estate, says the state telegraphed desperation to sellers, one of whom, national real estate developer Trammell Crow, had already been in talks with the state about constructing a purpose-built headquarters in Canby.
The state began looking at properties in 2021. Initially, it identified four that met the state’s criteria. Two sold (at undisclosed prices), one proved unsuitable. The fourth was a Trammell Crow property the state had identified earlier as a possible site for the project.
The state tentatively agreed to Trammell Crow’s price in March 2022. It then obtained the appraisal in May that valued the land much lower than the agreed purchase price. A month later, state agencies presented PLAC with some disturbing numbers as they sought the oversight panel’s approval.
Just two years before, Trammell Crow had purchased the land it would sell to the OLCC, for less than $6 a square foot. After making modest improvements, it would sell that same property to the state for the equivalent of $27 a square foot, vastly more than any comparable sale nearby.
“We became hostage to the market and that location,” Meek says. “We were the only buyer who would pay that price for it.”
At the June 2 PLAC meeting, Brown and Meek, joined by another member, took the unusual step of asking the state to seek a significant reduction in Trammell Crow’s price.
“It’s absolutely the worst deal the state has done since I’ve been on the committee,” Meek says. “There was no urgency to make that decision to buy now. We are not losing money now.”
The state asked Trammell Crow for a better price. The result was unsurprising. “They said pack sand,” Brown says. The deal closed in July.
OLCC officials acknowledge the price for the Canby property was far more than they had hoped to pay.
But Mayton says the opportunity cost of remaining in a warehouse that’s too small is far more than the premium the state paid.
“If you are just looking at the 33 acres and saying, ‘You spent that much money?’ I’d say it was crazy, too,” Mayton says. “But looking at the land vacancy rate, the total project, and what it means to the state of Oregon, it was absolutely a good business decision.”
The OLCC is currently preparing the bidding process to hire a construction manager and hopes to turn the first shovel of dirt in February 2024.