The art of the deal

The Merry-Go-Round thought of asking The Donald – Trump, not Perata –  for his opinion about the three-way deal among the City, the School District, and the Housing Authority now sailing through an expedited approval process, but he was getting his hair coiffed, so we’ll have to provide our own take.

The terms of the deal are set forth in what’s called a “Settlement Agreement,” but that label simply reflects the Russo/Gilmore administration’s proclivity for pitching a proposal to the public as a litigation-avoidance mechanism.  (Remember how the City just had to give the public safety unions a new contract costing $2.6 million so the firefighters wouldn’t pursue a “grievance” that the Deputy City Manager had deemed meritless?)  Brush away the camouflage and focus on the helpful chart staff prepared for Council showing who gets what:

AUSD Swap Exh 1

The way we see it, the three-way deal achieves four main results:

  • It enables the Housing Authority to build low-income housing on the 0.83-acre parcel at the corner of Eagle Ave. and Everett St. that formerly was home to Island High School.
  • It provides funds for the School District to fix up the swimming pool at Encinal High School.
  • It makes it possible for the City to offer unencumbered acreage at Alameda Point to “campus” users and other commercial enterprises.
  • It gives the City the opportunity to enhance the value to a developer of property located along the northern waterfront.

Since the deal thus has something for everybody, you can expect the politicians to describe it – and they already have – as a “win-win-win” situation.  Maybe they’re right, but a transaction with so many different facets deserves a closer look.  (Before we begin, a word of thanks to Action Alameda, which posted many of the relevant background documents even though none of the government agencies saw fit to do so).

First, low-income housing.  This aspect of the transaction is pretty simple to understand.  Under the three-way deal, the Housing Authority gets “access” to $4.6 million in “Low and Moderate Income Housing Funds” it now holds as trustee for AUSD.  (If you can find this account in the financial statements of either the Housing Authority or the School District, please let us know.  We asked AUSD’s chief business officer, but he ignored us).  It will spend $1.2 million of these funds to buy the Island High site from AUSD.

According to the staff report, the Housing Authority “intends to use the Island High School site for future development of affordable housing.”  The report does not say what the Authority plans to build on the parcel or when, but The Alamedan quoted Housing Authority executive director Michael Pucci as saying he’d like to put a building featuring two-bedroom apartments for low-income tenants there.  We suspect that the neighbors who spoke at the School Board meeting when the plan was announced will be very eager to find out exactly what’s up.

In any event, it is hard to deny that this feature of the three-way deal furthers a declared public policy. To quote the draft 2014-22 Housing Element, the need for “affordable” housing in the City of Alameda is “great” and “especially acute among extremely low-income renters.”  It is the mission of the Housing Authority to address this need.

At present, the Housing Authority owns or manages 572 units of low-income housing.  Last year, it opened on the site of the old Islander Motel a project called “Park Alameda,” which contains 61 rental units for one- and two-person households with incomes up to 50% of the area median.  The Authority also is developing an 18-unit complex on Lincoln Avenue known as “Jack Capon Villa” that will be rented to households with incomes in the range of 30-to-50% of the area median.  Acquiring the old Island High site for low-income housing is a logical next step.

Second, the swimming pool.  Again, pretty easy to grasp.  According to the staff report to AUSD, a consultant hired by the School District, Aquatic Design Pool, Inc., estimated that it would cost $1.9 million to renovate the pool at Encinal High.  Under the three-way deal, the District will receive $1.95 million – the extra $50,000 is for lawyers’ fees, God bless ‘em – by selling the former Island High site to the Housing Authority for $1.2 million and getting $750,000 in cash from the City.

The staff report prepared for Council describes the Encinal High swimming pool as being “in poor condition and in need of serious renovation.”  We haven’t heard anyone suggest otherwise.  Nor have we seen any quibbling with the cost estimate to fix the pool.  We don’t know what alternatives, if any, the School District explored for raising the necessary funds.  Likewise, although the staff report to the Housing Authority states that the Island High site was appraised at $1,190,000 in January 2014, we don’t know what assumptions the appraiser was told to use.  (As golf war veterans know, that can make a difference).  On the whole, however, renovating the swimming pool at Encinal High seems like a valid public purpose.

Third, the Alameda Point exchange.  Back in 2000, the City and AUSD entered into an agreement by which the City promised, among other things, to convey to AUSD a 12-acre parcel at the former Naval Air Station once the City had obtained title to the property from the federal government.  The conveyance last year from the Navy to the City included all but one acre of this parcel as well as a 20-acre parcel located near the Big Whites in the “adaptive reuse” zone at the Point.  Under the three-way deal, the parties will swap the latter parcel for the former one.

From the perspective of Alameda Point development, the swap makes sense.  The 12-acre parcel is located smack dab in the middle of what is now the “enterprise” zone, which the City intends to market for “employment uses,” including “office, research and development, bio-technology and high tech manufacturing and sales, light and heavy industrial, maritime, community serving and destination retail.”

Plunking down a school in this area wouldn’t seem to go over well with potential commercial users, not to mention school parents and students.  (This parcel was included in the land package presented to the Lawrence Berkeley National Lab, but its inclusion never was cited as a reason they didn’t choose Alameda).  With the obligation to convey the 12 acres to AUSD gone, it should be easier for the City to put together a parcel in the enterprise zone that is attractive to “campus” users.

We do wonder, however, about how and why the City selected the 20-acre parcel near the Big Whites as the property to swap.  The staff report doesn’t say, so we asked Alameda Point Chief Operating Officer Jennifer Ott.  She replied: “”The City evaluated numerous factors in selecting the 20-acre site for AUSD, including proximity to existing and proposed residential uses, environmental condition of the property, ownership of the property, and appropriateness for both school facilities and private development.”  Mr. Russo couldn’t have said it more diplomatically himself.

Finally, the Tidelands Trust parcels.  Of all the pieces in the three-way deal, this is the most mysterious.  The parcels involved comprise 6.37 acres of land located south of the Encinal Terminals and north of the DelMonte warehouse on the northern waterfront.  These parcels are called “Tidelands Trust” property because they are owned in trust for the people of California.  This does not mean that all commercial development is banned.  Rather, according to an expert we consulted, the expansive definition of “marine-related” uses permitted on Tidelands Trust property embraces many types of commercial enterprises.  Indeed, even a waterfront promenade with restaurants and shops might pass muster with the State Lands Commission.

In the same agreement by which the City promised to give AUSD the 12-acre parcel at Alameda Point, it also agreed to “convey the City’s interest” in the Tidelands Trust parcels to AUSD.  Under the three-swap, this obligation is rescinded, and the City gets to keep the property.

This part of the deal raises a number of questions.  Why didn’t the City convey its interest in the Tidelands Trust parcels to AUSD back in 2000 as it was supposed to? Why didn’t AUSD do anything for 14 years to enforce that obligation?  The staff reports don’t answer these questions, but we’ll bet they came up in the closed-session meetings that, according to The Alamedan, have been taking place between the City and the School District.

But the most important question looks to the future, not to the past:  Why does the City want the Tidelands Trust parcels now?  Well, take a look at the map.

alameda-encinal-terminals-2

Suppose you were a developer who owned the Encinal Terminals property to the north.  Or a developer who owned the DelMonte warehouse to the south.  Wouldn’t it be nice if your residential development was right next to 6.37 acres that the City would be willing – at your expense, of course – to turn into some kind of aquatic playground?  Prospective home buyers might like that prospect so much they’d be willing to pay extra for the housing units you’re marketing.

As it happens, there is a developer who owns the Encinal Terminals and who owns the DelMonte warehouse – and it’s the same outfit: Tim Lewis Communities out of Roseville.  You may have heard of them: they’re the guys who’ve signed an agreement to buy the “surplus” federal land at Crab Cove and put 48 houses on the site.  And they’re the guys who successfully urged the City to re-zone that parcel for residential use.

The Merry-Go-Round tries to stick to facts, and we know of no evidence that the City wants to acquire the Tidelands Trust parcels so that it can bestow a benefit on Tim Lewis.  But we also distrust coincidences.  According to the staff report prepared for Council, getting title to these parcels “will also help facilitate better planning for potential future development in that area.”  Somehow, we suspect that the City had something a little more specific in mind.

We’ll even go one step further.  Tim Lewis’s deal for the Crab Cove property hasn’t closed, and, thanks to the efforts of the Friends of Crown Beach, the transaction isn’t likely ever to come to pass.  We don’t know how much Tim Lewis has spent on his plans to develop the Crab Cove site or whether his contract with the GSA excludes consequential damages like lost profits.  But Tim Lewis surely is out something.  If the City can “compensate” him by creating amenities on the Tidelands Trust parcels, maybe he would be willing to walk away from the stalled Crab Cove purchase.  And if he does, the City can graciously agree to re-zone the property to open space, and the pending lawsuit against the City by the East Bay Regional Park District – and the ballot initiative submitted by park supporters — would go away.

The foregoing, of course, is sheer speculation.  But if it happens, you can be sure the P.R. wizards at City Hall will hit the “win–win-win” button once again.

Were The Donald available, we’re certain he’d want to anoint winners and losers in the three-way deal, and since a lot of people apparently have been placing bets, we’ll weigh in, too.

If “winning” means getting more than you give up, the clear winner is the Housing Authority:  It gets land and $3.4 million (the $4.6 million in the housing fund less the $1.2 paid for Island High) for low-income housing –- and gives up nothing.  The City comes off pretty well, too.  As a result of the Alameda Point property swap, it ends up with a more marketable enterprise zone at Alameda Point.  In addition, it gets the Tidelands Trust parcels – and gives up only $750,000 in cash.

What’s more, not a dime of that money is coming from the General Fund.  According to the staff report prepared for Council, the City is tapping four other governmental funds for the dough.  Undoubtedly, finding these sources of funds was a mission entrusted to Assistant City Manager Liz Warmerdam and City Finance Director Fred Marsh, who during the last budget cycle demonstrated their knack for locating cash in obscure places.  (Think they’d be willing to come by our house during spring cleaning?)

Which leaves the School District.  Its benefits from the deal are real enough: $1.9 million for the swimming pool and a “better” site for a new school at the Point.  The other side of the equation is more problematic.  At the School Board meeting at which the deal was first presented, staff argued that the District was getting “fair market value” for the Island High site and the rest of the consideration it was providing didn’t amount to anything:  the Tidelands Trust parcels were worthless, and the District had no use for the $4.6 million being held in trust for its benefit by the Housing Authority.

These assurances were good enough for everyone on the School Board except Trish Spencer.  She wanted to see appraisals for the real estate – the Tidelands Trust and Alameda Point parcels as well as Island High.  She also wanted details about the restrictions affecting use of the $4.6 million.  And she wanted to know how getting rid of the Island High site fit into master facilities plan that the Board had just commissioned.

To us – and, admittedly, we don’t watch School Board meetings very often – these all seemed to be legitimate questions.  We thus were shocked to listen to how School Superintendent Kirsten Vital responded – and how the chair pro tem, Margie Sherratt, let her get away with it.  Anyone else want the information Member Spencer is asking for? Ms. Vital would ask.  No?  Well, then, we will not provide it.  Not since Doug deHaan left Council have we seen an elected official treated so dismissively by a public employee  — or a chair so willing to tolerate such impertinence.

In any event, the staff report prepared for the School Board sheds little light on the issues raised by Ms. Spencer.  Indeed, it is the least informative of any of the staff work done for the three governmental bodies.  The attitude seems to be, Hurrah! We’ve finally got the money to fix the swimming pool.  Nothing else matters.

Maybe that’s the way the School Board conducts its affairs.  But if we were paying taxes to support AUSD – oh, I guess we are – we would have liked to know whether the price the District is paying to get the money needed for the pool fix is excessive.  We also would have liked to know whether the assets the District is getting rid of could have fetched more in some other kind of transaction.

But we fear that the public already has gotten as much information about the three-way deal as we’re going to get.  The politicians and staff already cut and consumed the victory cake last Monday – literally — at a special meeting of the joint Council/School Board subcommittee.  Requiring them to disgorge more data might cause acid reflux, and we wouldn’t want that, would we?

Sources:

“Settlement Agreement”: 2014-03-18 Ex. 3 to staff report (Settlement Agreement)

Staff reports:

City: 2014-03-18 staff report to CC

AUSD: 2014-03-11 staff report to AUSD board

AHA: 2014-03-11 staff report to HA

Prior agreements:

CIC/AUSD (1991): 1991-cic-ausd-agreement 

City/AUSD (2000): City-School-Dist-Agreement

Housing Authority 2012-13 performance report: HA caper_final_2012-2013

Draft 2014-22 Housing Element: 2014-03-10 staff report to PB — Ex. 1 – Draft Housing Element

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in Alameda Point, City Council, Development, Firefighters, Housing and tagged , , , , , , , , , , , , , , , , , , , . Bookmark the permalink.

One Response to The art of the deal

  1. Gretchen Lipow says:

    At today’s Friends of Crown Beach Petition kickoff many figured out the Lewis – Tidelands Trust
    connection as well as the irresponsibility of the school board members refusal to go for appraisals of the lands in question. And this is the same board that wants the public to support a multi-million
    dollar bond this fall? Go figure
    The rush is on to deliver the goods, make Lewis happy so he walks away from Crab Cove.
    Let’s keep in mind that the Sherratt and MacMahon positions will be coming up in the fall.

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