Hercules blames construction financing fiasco
on faulty info
By Tom Lochner
Contra Costa Times
11/25/2010
"Long said the Hercules Redevelopment Agency will need to invest about $21.5 million just to keep construction going, including an additional permanent subsidy of $10 million to $15 million, up from an initial, informal estimate of an $8.5 million subsidy. The rest would be made up by bank financing."
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Hercules City Council members, urging residents not to lay blame, said Tuesday they were misled about the financing of the Sycamore North development, recently found to be running out of construction funds less than halfway to completion.
Interim City Manager Charlie Long, who has been on the job just over a month, announced the dire situation in his weekly report, posted on the Hercules website Friday.
The mixed-use Sycamore North is supposed to consist of 96 mostly affordable homes on top of stores in two buildings in the city's western section. With the project about 45 percent complete, Long discovered a funding gap of more than $42 million. That gap consists of $29.3 million of anticipated bank financing that was written into the project's budget but never secured, augmented by a more than $12 million underestimate of development costs. Originally budgeted at about $56 million and revised to $56.7 million, Sycamore North will cost about $69.9 million to build, Long said.
"We were led to believe that all the necessary funding was either in place, or it was in progress to be in place," said Councilman Don Kuehne, referring back to a June 9, 2009 council meeting when the council unanimously approved a $55.98 million construction budget for Sycamore North on the consent calendar, without discussion. Councilman Ed Balico, too, said the council had been assured that the funding was in place.
"We moved forward on information that we had. Now we're getting newer information," said Councilwoman Joanne Ward. [THIS IS THE PROBLEM WITH THESE PHONEY TYPES OF DEVELOPMENT BEING PUSHED BY STATE AND FEDERAL GOVT. OFFICIALS - SAVEELSOBRANTE.COM]
"We thought we were in the black," said Mayor Kris Valstad.
Councilman Joe Eddy McDonald did not speak on the issue.
None of the council members specifically named anyone as the source of the faulty information that they said led them astray, although Balico said he would welcome a "coordinated effort with Mr. (Nelson) Oliva" to address the issue. But, "the gentleman got sick," Balico noted. Oliva, the city manager, is on indefinite medical leave.
Balico endorsed a call made earlier in the meeting from resident Dan Romero to summon Oliva to come before the council to explain "how we got into this predicament."
The staff report for the June 2009 construction budget resolution was submitted by the city's Affordable Housing Department, run under contract by NEO Consulting Inc. D.B.A. Affordable Housing Solutions Group. During a break in Tuesday's meeting, NEO/AHSG's general manager and new owner, Walter McKinney, said, "I'm just managing the construction piece."
Earlier in the day, in an e-mail, McKinney wrote: "The $56 million figure is a construction budget. It doesn't include all the pre-development work like architects, engineering, infrastructure expenses, etc."
Long said the Hercules Redevelopment Agency will need to invest about $21.5 million just to keep construction going, including an additional permanent subsidy of $10 million to $15 million, up from an initial, informal estimate of an $8.5 million subsidy. The rest would be made up by bank financing.
With a view to increasing the value of the project and the amount of bank financing it could command, Long proposed augmenting the number of market-rate residential units by more than 40 and reducing the affordable units by a corresponding number.
He said he would schedule a public workshop soon to devise a more detailed plan.
Ward and Valstad urged the community to pull together and not lay blame.
"We're no different than any other community on this planet that has gone through problems," Valstad said.
But Jeff Wisniewski, who runs the Hercules-based website Waterfront Watch at www.waterfrontwatch.org, said it is not a matter of casting blame, but rather, demanding accountability. He said a failure to ask questions got the council into the current mess, and that other Hercules projects will be adversely impacted as a result.
Contact Tom Lochner at 510-262-2760 or tlochner@bayareanewsgroup.com