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Escalating construction prices and uncertain economy force cost cuts; lenders sought to complete project.

COURTESY PHOTO - The North Anchor development is slated to have a hotel, restaurant, retail and housing.

A project to build a new hotel and mixed-use development in the heart of Lake Oswego is not immune to supply chain and inflationary challenges that have hampered the broader economy.

According to Urban Development + Partners representative Sarah Zahn, who spoke during a Lake Oswego City Council meeting Tuesday, July 19, the team has had to reduce the costs of the North Anchor project and is still in need of resources from the investment community to complete it.

The future development, at the stretch of B Avenue between State Street and the alley between 1st and 2nd streets, is slated to include a hotel with 83 suites, 67 residential units, a restaurant and 6,000 square feet of retail space. The city's Lake Oswego Redevelopment Agency sold the property to the development firm for close to $5 million in late 2021.

This is the latest in a series of efforts to redevelop the city-owned properties, dating all the way back to 2004. The Urban Development + Partners project was approved after a prior proposal fell through in 2019.

During the meeting July 19, Zahn said that they're seeing cost increases and interest rate pressures in basically every project they're working on. This has led them to alter designs, including reducing the number of parking spaces by eight as well as altering the main entrance location and changing the courtyard to make it more private. Zahn said that the project will still meet minimum parking standards, but the reduction in parking means there will be less opportunity for food and beverage retail space.

Financially, Zahn said the company is seeking lenders to bring the project to fruition, adding that the investment community is operating more cautiously due to the macroeconomic environment.

Still, Zahn said the plan is for financing to be completed by the end of the year and for the project to break ground in 2023 — with the goal of the development being completed in late 2024.

"It's a strange moment," Zahn said. "Residential and hotels continue to represent good investments. But uncertainty in the markets means people are hesitating. This has caused us to slow down a little bit."

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