Open letter to Mayor Steve Tate,
On April 30, 2015, an article appeared in the Morgan Hill Times reciting “a lengthy April 28 e-mail blast” outlining various aspects surrounding City Ventures’ approaching acquisition of an existing “Purchase Option” related to 95 East Third Street or, as you all coin it, “The BookSmart Site.”
Essentially your remarks provide a diversion from the issues germane, while attempting to do a great job of confusing a general reader. The fact is, the City of Morgan Hill RDA acquired the Purchase Option on the Book Smart Site for $1.7 million and has agreed to sell it to City Ventures (with additional covenants) for $100,000. That’s a $1.6 million dollar loss!
Many local residents are very familiar with what they perceive as the past squandering of RDA money (with seemingly no oversight).
What is necessary to define upon reflection is: Why the City Council is now willing to throw away $1.6 million of taxpayer money. I really do not believe this is what Governor Brown had in mind when dismantling the RDA statewide.
Your email also noted the city “is committed to assisting the impacted businesses” but has “absolutely no obligation” to do so. The $1 million relocation package you describe is funded by leftover RDA cash. Why don’t you let the community know that the “leftover RDA cash” is TAXPAYER MONEY? The City Council seems to treat it as if it is MONOPOLY money!
Under the existing agreement, City Ventures will be handed for $2.1 million (option sale price of the site plus the purchase cost of the property) what was once, according to various newspaper accounts and City Council commentary, an asset worth about $3.7 Million.
Did anyone—the City Council, staff, or whoever was representing the City of Morgan Hill in this “transaction”—attempt to encourage City Ventures to pay a portion of its net profit from sales proceeds (it is indicated that they will be building “condominiums and townhouses”) up to the $1.7 million original option price? In the Asset Management industry, when we sell a property at a below-market price and/or a “deep discount,” we generally require a percentage of proceeds as a “kicker” in nearly all circumstances.
For the Morgan Hill City Council to GIFT City Ventures a $1.6 million dollar equity stake in this property at taxpayer expense is a blatant slap in the face of every taxpaying resident. Add to that an additional $1 MILLION of relocation expense (although you claim it includes tenants of Granada and Downtown Mall as well), the cost for another boondoggle in the downtown now escalates to $2.6 million! And, add to that the proposed repair of Fourth Street, and the rework of Third Street—who knows the total cost.
It is the City Council’s fiduciary responsibility that the sale of the Book Smart option to City Ventures be placed in abeyance, or cancelled outright, unless and until the total amount of $1.7 million which the city expended for the purchase option is recoverable under ANY option sale.
If the property is appropriate for the planned improvements and the financial feasibility of the project is acceptable to them, then guess what: City Ventures will go along with a participatory agreement.
Regardless, the City Council of Morgan Hill must, and I believe is required to safeguard and judiciously protect taxpayer assets.
Richard Khan
Morgan Hill
Khan is a banking, mortgage and finance professional who has served in various capacities in commercial finance, commercial real estate lending, asset management and consumer finance.
