North Star thrives in upscale rental market

Wendy Culverwell
Business Journal staff writer - Portland Business Journal

A Lake Oswego firm is making a splash by turning unsold luxury homes into executive rentals.

The practice is gaining acceptance as owners and tenants see value in waiting for the market to settle before they buy or sell homes.

Brothers Quinn and John Nieland, whose mother Erin is a long-time residential agent working in Lake Oswego, formed North Star Property Management in 2009 to manage and lease upscale homes in Portland's toniest neighborhoods.

To date, it has signed up about 100 homes in Lake Oswego, Dunthorpe, the Pearl District and Portland West Hills, with a collective market value of more than $90 million. All have leased quickly to tenants either reluctant to commit to buying a house in an iffy market or waiting for their former homes to sell elsewhere.

Quinn Nieland said the five-member firm, which includes John's wife Kim, will process nearly $2.3 million in rental payments this year, two-and-a-half times its 2010 volume.

North Star earns revenue by charging one half of the first month's rent to secure a tenant and then collects a management fee equal to 8 percent of the income on the property.

The fundamentals are simple. Homes in the $1 million and up price range move slowly, if at all. Just four of 33 Lake Oswego homes that sold in October cost more than $1 million; none cost more than $2 million, according to the Regional Multiple Listing Service.

For owners - executives transferred to another office or professional athletes traded to another team - it leaves an unsavory choice. They can leave the house empty or slash the price until it sells.

"The good Realtors will give their owners an option other than hacking their price down," Quinn Nieland said.

North Star wins Realtor acceptance by guaranteeing they'll get the listing back when the lease expires.

Randy Sebastian, a prominent Portland home builder and client, said it can make sense to hold onto a property that isn't generating buyer interest.

"It makes sense to lease or rent until the market comes back so people don't have to sell at such a tremendous discount," said Sebastian, president of Lake Oswego-based Renaissance Custom Homes.

That was the choice faced by North Star's newest client, the widowed owner of a 7,284-square-foot dream home on Palisades Terrace Drive, on Lake Oswego's southern shore.

She moved to Palm Springs after her husband's sudden death and put the property up for sale. It didn't sell even after multiple reductions trimmed the price to $5.25 million from more than $7 million.

North Star is offering the trophy home for $9,750 a month. The lease covers a house with five bedrooms and four-plus bathrooms, a boathouse, guest house, six-car garage and a long list of luxury touches.

It's at the top end of the market, but North Star typically has little difficulty finding appropriate tenants for its properties, said Kim Nieland.

"They all get leased. We can't hold on to our inventory," she said.

For owners, the decision to rent out what may have a been a dream home can be difficult.

About 85 percent of homes in the company's rental pool are former residences. The rest were bought at bottom-of-market prices by speculators who are renting them out with plans to turn a profit when the market revives.

As rentals, luxury homes don't generally pencil out. The Nielands said rents don't cover the full cost to own such homes, but the arrangements offer owners some cash flow and the security of having a well-screened tenant keeping an eye on the property.

At $9.750 a month, the Palisades house will generate an income of 2 percent on the house, based on its theoretical $5.25 million worth. That's roughly equivalent to the interest rate on a five-year certificate of deposit and well below the typical 6 to 7 percent rate expected from traditional commercial real estate.

Quinn Nieland said the same forces that drive owners to rent also compel tenants to lease rather than buy homes.

The Nieland brothers grew up on Lake Oswego, learning real estate from their mother and home repair from their father.

After graduating from college, the Nielands came home and began buying the best homes they could afford in upmarket locations. They stopped buying in 2004 when home prices soared on the combination of low interest rates and easy credit. Instead, they turned their attention to building the upscale leasing business.

Using their own inventory as a lab, they built relationships with head hunters, relocation firms and the human resource departments for some of Portland's leading employers, including Nike Inc., Portland State University and Oregon Health & Sciences University.