Elements Building up for sale after less than a year

By Bennett Hall

Corvallis Gazette-Times

Deanna Carr's dream is up for sale.

The Elements Building - six stories of brick and mortar, glass and steel - stands locked and empty near the south end of Second Street in downtown Corvallis, abandoned less than a year after it was unveiled with a flourish last April.

"The finished project is a model of sustainability, architectural beauty and a commitment to the environment," Carr said in a news release at the time. "I am thrilled to have the opportunity to share this vision with others."

When it opened, the building created instant buzz with its bold design and big city cachet, and downtown boosters predicted it would attract additional investment to the district.

But when the end came, it came quickly. The first stirrings of trouble came in a January e-mail to patrons of 7Stones, the luxury day spa that occupied the first three floors, and Strega, the stylish restaurant on the top two levels.

"As you know, the current economic conditions have made sustaining businesses a financial challenge," the

e-mail said. "We are faced with a difficult decision in whether or not to keep these businesses running."

By Jan. 17, 7Stones was closed. It reopened briefly to allow holders of gift certificates to redeem them for spa treatments or beauty products, then shut down for good. On Feb. 15, the day after Valentine's Day, Strega followed suit.

A review of property records in the Benton County Clerk's Office revealed that the building had been foreclosed by the lender on Dec. 15.

It was a stunning reversal of fortune, made all the more mysterious by Carr's refusal to respond to questions from the newspaper. On Friday, though, she broke her silence in a brief interview.

"It's really very simple. When the stock market started going down in September, business started going down (at the spa)," Carr said. "I just couldn't keep up with the overhead. Something had to give."

About 70 people lost their jobs when Carr's two businesses failed. And although she says she and her spa staff redeemed $86,000 worth of outstanding gift certificates after the initial shutdown, the state Department of Justice still has 10 unresolved complaints on file regarding 7Stones.

Costs

Almost from the beginning, there were questions about the project's costs. Shortly after breaking ground in June 2005, Carr said her budget for the building was $4 million. But as construction dragged out well past the target completion date of fall 2006, the costs climbed steadily higher, with the final price tag in the neighborhood of $20 million.

In part, the added expense came from a spike in the price of construction materials such as concrete and steel. But there were other major cost drivers, as well.

One was Carr's ambitious goal of achieving high-level sustainability certification from the Leadership in Energy and Environmental Design program of the U.S. Green Building Council. To meet LEED requirements, the project incorporated recycled materials, high-efficiency energy systems and a "living roof," with vegetation plantings designed to soak up rainwater.

Add to that the countless custom design elements that went into the project. The list included glass tiles, terrazzo and cork flooring, imported stone countertops, "aged" iron paneling, lots of custom millwork, interior water features and a custom-designed fireplace.

The spa had its own Chinese herbal medicinary and was outfitted with therapeutic bathtubs, multi-head Vichy showers, steam rooms and custom variable-control LED lighting for color therapy.

The two-story restaurant had a wood-fired grill, a high-tech Cruvinet wine-dispensing system and a one-of-a-kind ceiling with thousands of fiber-optic lights that twinkled like stars through artfully placed madrone branches to simulate outdoor dining. Full-length accordion-fold glass doors opened onto expansive balconies that offered some of the most dramatic views in the city.

All things considered, the sum of all these parts was undeniably impressive - and undeniably pricy.

Last August, the Southwest Oregon chapter of the American Institute of Architects toured the Elements Building and heard a presentation on the project from Bill Ryals of Modern Organic Architecture, who designed the building.

Eugene architect Randy Nishimura, the chapter's president, wrote about the tour in a blog post afterward.

"The development is somewhat notorious for its extravagance: with a price tag of $20 million … opulence is expected and it is delivered in spades," Nishimura wrote.

"Bill Ryals commented upon the challenges posed when cost is not an issue," he added. "For owner Deanna Carr, the expectation was perfection: everything right down to the smallest of details of design and execution had to be perfect. For example, MOA prepared multiple, full-sized mockups for the custom-designed furniture in an effort to ensure that everything worked out just right."

Construction

As construction costs for the Elements Building soared, many observers wondered why Carr didn't take steps to rein them in. Part of the explanation seems to be that 7Stones was her dream spa.

In a 2005 interview, Carr told the Gazette-Times that she was a licensed massage therapist who had worked in spas in California and Bend before moving to Corvallis in 2000. She said she wanted to create something special at the Elements Building, something both she and all of Corvallis could be proud of.

On Friday, she repeated that claim.

"It was my dream, for sure," Carr said. "But it was never about me. It was about what we could do for the community. It was about producing something extraordinarily out of the ordinary."

Another reason Carr kept throwing money at the project, however, may simply have been the fact that she could.

Property records on file with the county make it clear that, during construction of the Elements Building, Carr had access to a steady stream of funds from a company called Eagleflight Capital LLC.

On Feb. 1, 2007, Eagleflight Capital granted Carr's company, Ravenscall Capital, a line of credit for up to $15 million, with the Elements Building property as security for the loan.

On July 27, 2007, the line of credit was extended to $19.8 million.

On July 10, 2008, it was extended once again, this time to $27 million.

Funding

Eagleflight Capital is owned by Bill Lanfri, a former operating partner with the Silicon Valley venture capital firm Accel Partners who now lives in the Portland area.

In a telephone interview Friday, he said he decided to bankroll Carr's real estate venture - and keep on bankrolling it as the costs continued to mount - because he believed in the project.

"It was a different time and a different environment," Lanfri said. "It was a terrific thing for the town and a terrific opportunity for there to be a meaningful new building and to bring pieces of Pearl District style into Corvallis."

In the end, however, he decided to pull the plug when Carr was no longer able to keep up the payments on her loan.

"She just couldn't service the debt," Lanfri said.

The business relationship between Lanfri and Carr dates back to at least 2003.

On Sept. 2 of that year, county property records show, Carr bought a house in the Park at Timberhill subdivision for $379,000. One week later, she sold it to Lanfri for a $24,000 profit.

Two months later, Carr paid $225,000 for an old coffee warehouse at 517 S.W. Second St. that would become the site of the Elements building.

Lanfri also backed another real estate venture by Carr, this one under the name of River Myst Concepts LLC. Starting in 2005, that company bought three adjacent houses on Southwest Second Street, a block south of the Elements Building. Eagleflight Capital holds mortgages on two of them for a total of $575,000.

From 2005 to 2007, while the Elements project was under construction, Carr leased space for Ravenscall Capital in a building on Northwest Third Street owned by local architect James Michael Edwards. For at least part of that time, another office in the same building was occupied by Lanfri's Eagleflight Capital.

Edwards said he never met Carr personally, but she always seemed to have plenty of cash.

"She's kind of a mystery woman," Edwards said. "She rented the front space for two years and I never laid eyes on her. My rent was paid for an entire year up front."

The future

Apparently, Carr's cash flow dried up on Dec. 15, when Lanfri called in her note on the Elements Building. The same day, records show, he transferred the title to another company he owns called Bear Track 7 LLC.

Now he's put the property on the market, listing it for sale or lease with the Portland office of Cushman & Wakefield.

Lanfri says he's confident he can find a taker, but some observers think Corvallis may find itself stuck with a $20 million white elephant.

At that price, local commercial broker Gary Pond calculates a buyer would need to charge monthly rents of $3.85 per square foot to net a modest 6 percent return on investment. But that's around twice the going lease rate for the area.

"There is nothing renting near that rate in the downtown, and even the new projects on Ninth Street haven't broken $3," Pond said in an e-mail.

Assuming the building was fully leased at an average monthly rate of $2 per square foot, Pond said, a buyer could make the deal pencil out at a sale price of around $8.5 million.

The county assessor's office puts the property's real market value at $9.5 million, and detractors argue the building's highly specialized design could narrow the field of possible buyers.

Tom Usher, senior director for Cushman & Wakefield in Portland, said the asking price has not yet been determined. But he argued that the Elements Building's green design and custom touches will be big draws - for the right buyer.

"It's a unique building and it's a very attractive building, and it will be an attractive building for somebody," Usher said. "I think it definitely will sell, and I would suspect we will have it sold within the next six months."

For her part, Carr said, she just wants to see her beautiful dream fulfilled - even if it's for somebody else's benefit.

"I really hope someone can come and use the building," Carr said.

"I love it so much. I hate to see it sitting empty."

Bennett Hall can be reached at 758-9529 or bennett.hall

@lee.net.