PORTLAND, Ore. (AP) - A year ago, Tyler Treharne fell for Portland's South Waterfront district - billed as the biggest economic development effort in city history.
     
The 26-year-old pharmacy student liked the futuristic John Ross tower and streetcar link to downtown. But even Treharne, an optimist on South Waterfront, recognizes the neighborhood's challenges.
     
The riverfront park is half-built. The stores and pubs have been slow to arrive. Treharne's floor is dead quiet as some neighboring condos sit unsold in the housing downturn.
     
"It's going to take some time for it to develop and for people to catch up," he said.
     
Five years after South Waterfront launched, people are beginning to ask: Can the $1.9 billion neighborhood live up to its lofty promises?
     
South Waterfront's housing - buoyed by a once-booming market - is ahead of schedule. But the housing downturn, slower than expected job growth and ballooning infrastructure costs signal potential trouble ahead.
     
For the next 20 years, the district will burn through every dollar City Hall can spare, any tax and fee it can create and any grant it can pry loose from state and federal coffers just to pay for its basic needs.
     
The Portland Development Commission, the city's urban renewal agency, and developers have locked up $195 million in funding for South Waterfront's roads, streetcars and affordable housing through 2011. About two-thirds will come from local, state or federal taxpayers and the rest from property owners and developers.
     
Beyond 2011, South Waterfront will require at least $230 million more just for essential transportation and parks projects, according to review of city estimates by The Oregonian. Only a small fraction of those costs are funded.
     
That figure doesn't include planned low-income housing; the Oregon University System's request for $125 million in lottery bonds for a new South Waterfront campus; or the district's share of a new light-rail line that will include a $235 million Willamette River bridge.
     
The transportation costs alone have risen so high even a city transportation official said he underestimated the costs by "an order of magnitude."
     
Portlanders remain divided about whether South Waterfront's millions of dollars in taxpayers' support benefit the city as a whole.
     
Critics wonder why taxpayers pour more money into affluent downtown neighborhoods while working-class Portlanders still drive over gravel streets.
     
But supporters say South Waterfront will prevent sprawl and eventually attract jobs that will help power the region's economy. South Waterfront's lead developer, Williams & Dame Development, says taxpayers' investments have already attracted about $1 billion in private development and helped entice Oregon Health & Science University to expand in the city, not the suburbs.
     
"Despite a difficult housing market and slowing economy, South Waterfront is a success in progress," Dike Dame, Williams & Dame's president, said in an e-mailed statement. "I would give it an 'A' grade in terms of vision, execution and potential."
     
In the Pearl District, the city's 10-year urban renewal effort paid off with rising property tax payments used to build new parks and roads. The Pearl is Portland's biggest success story, turning a worn-out industrial district into a neighborhood of glitzy shops.
     
South Waterfront's build-out won't be as quick and will test the limits of the city's urban renewal strategy.
     
When South Waterfront started five years ago, skeptics wondered whether Portland had enough people interested in the condo life to support a batch of 300-foot tall towers.
     
At first, Williams & Dame Development and its partner, Gerding Edlen Development, found plenty of willing buyers.
     
Their first project, the Meriwether, averaged about 20 sales a month and sold out in 2006 - twice as fast as developers expected. Some buyers found South Waterfront provided a quick payoff: one turned a 34 percent profit, $308,000, in just over a year.
     
Buyers buzzed for the second tower, the John Ross. About 225 people put money down to reserve a condo in 2005, spurring developers to speed up plans for their third and fourth towers.
     
Then the condo market deflated.
     
Seventy-seven people asked to get out of their John Ross purchase. Since last fall, the developers have added just 12 new sales for a total of 182, still below the 2005 rush of pre-sales.
     
"It started out like a house on fire," said Irving Levin, who runs a Beaverton finance company and invested in South Waterfront land holdings controlled by Williams & Dame's principals. "Then the curtain came down in the condo market in general. Like a lot of developers, they were stuck with a lot of inventory."
    
Since last June, 11 of South Waterfront's 481 buyers - or about 2 percent - have defaulted on their mortgages, the first step in a foreclosure. By comparison, about .9 percent of all Oregonians had a mortgage in foreclosure in the first quarter of 2008.

Jeremy Stoddart's story exposes the realities of the condo crash.
     
Stoddart, who owned mortgage company Source One Financial, paid $1 million for a 2,300-square-foot Meriwether condo in May 2006. Stoddart, who did not return calls for comment, put his condo on the market last August as the mortgage market went haywire nationwide. He asked for $1.2 million, then lowered it to $925,000, 13 percent less than he paid two years ago.
     
In January, Stoddart defaulted on his condo.
     
Even with the sales slowdown, the city is pleased with its South Waterfront tax collections.
     
The city estimated South Waterfront projects would generate a combined $1.6 million in property taxes in the 2007 and 2008 budget years.
     
But the condos rose faster than expected, and the actual tax payments are nearly three times higher at $4.4 million.
     
That's still not enough to pay off the city's South Waterfront credit line, a short-term loan it used to pay  line by issuing long-term bonds with a lower interest rate. But it needs more South Waterfront development and higher tax revenues to cover the bond's debt payments.
     
Developers face a June 2011 city deadline to build an additional $278 million in new developments to produce enough city tax revenue for the bonds.
     
The Portland Development Commission's financial forecasts show the developers - along with projects built by other South Waterfront builders - will meet the deadline.
     
South Waterfront, hemmed in by Interstate 5 and the Willamette River without an existing street grid, is an expensive place to develop under any circumstances.
     
Still, the costs for parks and transportation, especially in South Waterfront's third phase after 2011, have far exceeded anyone's expectations.
     
What happened?
     
Costs rose as the engineers' work grew more detailed. Land costs rocketed. Construction material costs spiked, and oil reached record heights.
     
In 2003, the city forecast $87 million in public and private spending for parks, roads and other infrastructure projects in South Waterfront's first phase.
     
In 2006, the addition of a second phase and the aerial tram's ballooning budget raised the costs to $157 million.
     
The city and OHSU are now working on plans to extend South Waterfront development north of the Ross Island Bridge.
     
That third phase will require at least $230 million more for parks and transportation projects alone over the next 20 years or so. The figure is based on the city's working estimates and accounts for inflation to the expected construction date.
     
The project list includes roughly $83 million estimated for a 1.2-mile riverfront greenway and a park under the Ross Island Bridge.
     
There's $80 million more estimated for just two interchanges. The city says it will have to rebuild South Waterfront's southern entrance at Macadam Avenue and Bancroft Street and the northern entrance at Sheridan Street.
     
"I don't think people ever thought the cost would be in that ballpark. I didn't," Cheryl Twete, who brokered the original South Waterfront deal as a Portland Development Commission executive, said of the transportation projects.
     
Greg Jones, a city transportation manager, acknowledged that everyone, including himself, misjudged costs. "I missed it by an order of magnitude."
     
No one knows yet how to cover those rising costs.
     
The city isn't sure how much property taxes South Waterfront's third phase - which includes OHSU's nonprofit campus - will generate. But it's clear the city will need to find cash elsewhere, too. Some projects may drop off the list. Others may get delayed.
     
For now, city officials study new fees on South Waterfront developers and its lobbyists work lawmakers in Salem and Washington, D.C., for help.
     
At a South Waterfront election forum earlier this year, someone asked then mayoral candidate Sam Adams whether Portland had enough money to live up to its South Waterfront promises.
     
Adams' response: "The short answer is no."
     
(Copyright 2008 by The Associated Press.  All Rights Reserved.)