News Scrapbook 1980-1981

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April 29-May 6, 1981 Collins and the Housing Commission: plugged in all over BY LARRY REMER

A'} John Thelan, Housing Commission attorney

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when you're doing business with the city, does 1t help to have friends in high places? It certainly seems to, espe- cially if you're a developer seeking to develop condomin- iums and apartments on a piece of city-owned land with public sub 1dies. Take the case of Harry Collins, a major La Jolla developer. Last year, the Collins Development Co . was granted the exclusive right to build a 400-unit condominium apartment complex on city-owned land adjacent to the University of San Diego (USD). There was no competitive bidding for this award which was made by the city Housing Commission . Now, it turns out that Collins himself. the Collins Develop- ment Co •. and Collins' past and present attorneys have intimate business and personal relationships with three present Housing Commissioners, one former Housing Com- n11ss1oner who voteo for the agreement between the c1tv and Collins, and the pres nt Housing Comm1ss1on attorney. All of these relationships have been publicly disclosed at one time or another during the tortuous series of hearings the Housing Commission has held over the project. Under existing conflict-of-interest legislation, only a direct finan- cial interest 1n given project requires disqualification by a principal. In other words, the Housinq Commissioners or the commission's attorney would have to have a piece of the spec1f1c action (an equity interest) in the Collins entity involved 1n the development or be directly employed by it to have the law dem nd they refuse to participate in deci- sions 1nvolv1ng the Collms project. Even so, th existence of these intricate business and financial tics between Collins and the Housing Commission has given steam to the oft-repeated criticism that the Housing Commission has been parceling development sites to those local builders who are connected to the San Diego "old boys' network" of builders. In summary, the ties between Collins and the Housing Commission involve : - Former Housing Commissioner Ed Malone, who pushed for and voted for Collins Development as the developer of the site 1n question, 1s in a partnership with Collins in a Palm Springs condominium ; - Housing Commissioner Norm Hedenberg, who took Malone's place after Malone resigned his post to run for ,___......,_ City Counc I has Collins' firm under contract to construct a commercial project for Hedenberg in Oceanside. Heden- berg sat on the commissio'I subcommittee that worked out the particulars of the deal and voted for it. - Housing Commissioner Mac Strobl is employed by the Economic Development Corp., an entity to which Collins belongs and of which Collins' present attorney. Miles Harvey of the Luce, Foward, Hamilton & Scripps firm, is on the board. Thus, Harvey is Strobl's direct boss. And Strobl voted for the development deal with Collins. - Housing Commissioner Pat Kruer employed Collins' firm to manage some apartments Kruer owns in El Cajon Kruer voted for the original deal and sat on the subcomm1t· tee that worked out the details. In February of this year, when Kruer learned that the Collins Management he employed in El Cajon was, in fact, owned by the same Harry Collins as was involved in this deal with the city, he ab· stained from voting . Collins' former attorney was Paul Peterson, whose firm µresently i1dv1ses the Housing Commission as that entity's attorney , In fact, John The Ian from that firm sat in on the negot1at1ng sessions between the city and Collins. The deal The detail of the Collins deal involve an agreement to build 280 condominiums and 120 subsidized rental u-nits (for low income families) on 78 acres of city-owned land near Tait and Kelly Streets on the outskirts of Linda Vista. Collins ,s required to put up approximately 10% of the ini- tial investment - about $147,000 - in cash. The city 1s putting up the land, worth approximately $1.47 million . In return. Collins will receive 55% of the profits from the sale of the condominiums as a joint venture with the city, who will get the remaining 45%. Of the 120 rental units, the city will retain ownership of the land they sit on, but Collins will own and operate those units. To guarantee the construction financing, Collins' operating costs and profits, the residents of those units will have their rent payments subsidized by the Development of Housing and Urban Development (HUD). Moreover, Collins will reap lucrative depreciation tax deductions from his ownership of those units. If the conditions of the deal require some time down the road that the city retain ownership of the rental units at the s,te, Collins will then get a development fee from the city estimated at about $600,000. The mathematics of the deal work out to give Collins a rather hefty profit. If each of the 280 market price condo- miniums gP.nerate a profit of $10,000, Collins will net a hehy $1 .5 million on that portion of the deal alone. Added to the projected profits (not counting tax breaks) from the construction of the rental units, the gross revenues to Collins from the whole package could top $2 million. Not bad for a $147,000 investment.

attorney

LA JOLLA LIGHT

contract

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commercial construction contract

former Housing Commissioner

Housing Commissioner

Founders Gallery Theater costumes by designer Robert Morgan will be on display at the USD gallery through May 7. -

-the objections of the community to the potential damage the development could cause to nearby Tecolote Canyon. The USO alternative Wi lldan Associates concluded that the most feasible method for developing the property would be to cut a road through USD's adjacent property. This finding was similar to the proposal made by Coll ins in their original response to the city's request for proposals on the site in 1979. The Willdan report's recommendations, which were debated by the commission last March, were to proceed with development along those lines. The commission staff then put forth three options to proceed: -to ask for new proposals; -to develop the property in conjunction with a not-for- profit entity like Housing Opportunities; -to grant Collins Development the exclusive right to develop the property under the theory that Collins had a proprietary interest in the idea. To buttress Collins' case, the firm's vice-president, John Bogert, told the commission that Collins planned to work closely with USD in preparing the adjacent property for development. Bogert produced a letter from USD to the city, included in the original package when Collins first proposed developing the site, which stated support for the Collins development plan . "It is the present intent of the University to develop its property through grading and site lmprovements in antici- pation of future academic, recreational or housing expan- sion," said the letter which was dated November 26, 1979 and bore the signature of J.D. Boyce, USD vice-president for financial affairs. "The development concept proposed by Collins appears to serve as a sound basis toward achieving our objectives and therefore we support early consideration of the Collins proposal." Moreover, in his presentation Bogert referred repeatedly to "coordination with USD," accordmg to the tape of the proceedings. But J.D. Boyce, contacted last month by NEWSLINE, says that the university's support to the Collins proposal was very conditional. "Our plans were 'if'," said Boyce. "We have no written agreement." Boyce said that he wasn't even aware that the city had selected Collins to develop the site and that the university's adjacent development would have to be approved by its board of trustees. 'We have not heard from Collins," said Boyce. Confronted after a recent hearing, Collins' vice-president Bogert insisted that "negotiations with the university were proceeding." USO plan pushes Collins in Whatever the actual status of the Coll ins-USO negotiations, the idea that Collins had "an in" with USD was ·critical in getting the commission to select Collins as the developer last March. 'We're involved with USD," said Bogert. "There's all kinds of opportunities here which require close negotiations. Specifically. the idea of slope rights between the two prop- erties, joint grading operations, common utilities, common access, perhaps some form of land exchange because the city parcel that would be left is a very thin sliver. We feel that we can, obviously, meet those needs ." As the discussion evolvea, 1t was Commissioner Ed Malone who proposed the idea of a joint venture between Collins (continued on page 7)

Malone pushes the deal What's most curious about the Housing Commission's approval of this deal is the stance taken by the Commission's self-styled critic, Ed Malone. A builder himself, Malone resigned the commission and set out to run against City Councilor Bill Mitchell largely because of what Malone per- ceived as the commission's inability to get low income housing built. Malone also told friends he objected to the commission's interference in the free market by subsidizing private developers. But, in the Collins case. Malone was the prime mover in getting the Housing Commission to award the project to Collins even though the commission staff had recommended that the matter be let out for bid. The bureaucratic maze Site 18, as this parcel is called, reached the Housing Commission agenda on March 10, 1980. Originally, that site had been considered by the city itself before the Housing Commission was established as a potential parcel for devel- opment. The council's Public Services and Safety Committee held a hearing on the site in November of 1978 and, at that time, criticized the staff process which had solicited devel- opment proposals on the grounds that the city should consider leasing public land rather than selling it and that the process wherein proposals were solicited were ambiguous. The Tait and Kelly site was only one of several sites involved in that hearing, but one of the three proposals received for development of Tait and Kelly had come from Collins Development. When the Housing Commission was established in January of 1979, as one of its first orders of business it began to set goals for the development of several city-owned sites - including Site 18 - that fell into its jurisdiction. An outside consultant was hired, Philip S. Stukin of Urban Projects Inc., and it was recommended that the commission readver- tise for new development proposals for Site 18 because the original requests for proposals "were relatively vague on such issues as development objectives, land value basis, and the city's willingness to sell rather than lease." On February 23, 1979, the commission decided "to accept the recom- mendations of the consultant and readvertise for proposals," In May of 1979, the Housing Commission hired its execu- tive director and again a review of the possible uses of city• owned sites was initiated. Moreover, over the summer a couple of builders - Ray Huffman and a non-profit building industry linked outfit called Housing Opportunities - entered into discussions with the commission over the feasibility of building housing at the site on a .not-for-profit basis. The commission director, Ben Montijo, after meeting with interested parties, agreed to commission a land development study for the site and Willdan Associates was contracted with to perform the study. The Willdan study dealt seriously with several key devel- opment problems posed by the parcel: -a tremendous problem with access posed by the parcel's location vis a vis existing roads and services; --an ancillary problem that demanded, if the access ques- tion could not be solved, that the area be graded rather extensively at great cost and with the potential of causing extensive environmental damage; -the need, if access from Tait and Kelly were to be util- ized, for the city to condemn three existing homes at great cost to guarantee access; according to the minutes of that meeting. But that decision was never implemented . subs1d1es are not proJected to generate enough monies to pay off the mortgage on the units (even with the city of To make up for the projected shortfall of more than $3 million, last week the Housing Commission decided to seek the possibility of utilizing other funds like a portion of the Commissioner Herb Hedenberg stated in rather stark terms that this situation might make it impossible for any low income housing to be built on the site at all - even though the city had specifically mandated this site be so developed several years ago. Hedenberg said this prospect "doesn't bother me" and suggested that the commission would then authorize Collins to develop the entire project for market rate condominiums and that the city could then use its share of the profits to build low income housing A large part of the agenda was also taken up with discussion of how to prevent this commission decision from going to the full City Council where there might be objections. It was decided by chairman Herb Solomon, to inform each councilor and the mayor by note of the new turn of events instead of putting the item on the council docket. So, you see how it all works. Collins makes his profit. The city makes its profit (and will probably use the proceeds to pay off the convention center bonds when those go into default). And no low income housing gets built. It's the old bol(s • network at work . elsewhere. San Diego donating the land). city's CDBG block grant allocation.

BLADE TRIBUNE R38

TIMES-ADVOCATE

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APR 3 0 1981

~~LLERY An exhibit of 25 cos- America's best iernporary theater by one of Morgan will sh~ nown designers, Robert are 10 a' rn to 4 w thru May 7.. Gallery hours tended ho~rs urft·1·1rn9.' weekdays, with ex- p. rn. on Wed., USO.

LA JOLLA LIGHT Annual holocaust seminar next week The fourth annual Symposium, "Holo- Bureau of Jewish Education.

r.ollimand the Housing Commission (continued from page 5) . . . . · .

a_nd the city as a mechanism for guaranteeing Collins'

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f1~~nc1ng.

Principal speakers will be: Dr. F. Burton Nelson; Professor of Theology and Ethics at th!'! North Park Theological Seminary in Chicago; Alex Grob- man, Director of the Simon Weisenthal Center for Holocaust Studies, Los Angeles; and Rabbi Abraham Cooper, Assistant to the Dean at the Weisenthal Center. Grobman will speak on "Jewish Response to Nazi Persecution," and Nelson's topic will be "While Six Million Died: Reflections On the Deafening Silence," Rabbi Cooper will speak on "Raoul Wallenberg: Hero of the Holocaust." The symposium will also feature two films, "Warsaw Ghetto" and "Avenue of the Just," audience dialogues, response panels, and a commemoration service honoring Denmark, the only European nation to protect Jews from the Holocaust.

caust: Resistance and Rescue," will be held at the University of San Diego, May 6 and 7 in De Sales Hall. The symposium will run from 6 to 10 p.m. May 6, and from 8:30 a.m. to 4 p.m. May 7. Pre-registration is requested. Fees for both days are: general public $15, students $5; for May 6 only: general public $5, students $2.50. To register, call 232-6113. The symposium is sponsored by the National Conference of Christians and Jews, and co-sponsored by USD's Office of Con- tinuing Education, The San Diego County Ecumenical Conference, and the Community Relations Committee of the United Jewish Federation; in cooperation with the American Jewish Committee, the Jewisli Community Center, the New Life Club, and the Anti-Defamation League of the B'nai Brith's

If you had the exclusive right to negotiate for this property and we'd put up the land, which is a tremendous ?n:iount of equ,ty, would _you be willing to enter into a ~oint venture with the Housing Commission?" asked Malone. 'We wo_uld build (together) what 7 ver proportion of market rate units and l~w income subs1d1zed units we'd jointly decide on and split equitably whatever profits there were." On_ the spot, Bogert responded, "Yes, we would." Th_1s ~ropo_s~I by Malone became the basis for the com- m1ss1on s_dec1s10~ that day to enter into a 90-day negotiating period with Collins as the exclusive developer of the prop· erty. Recently. Malo~e told NEWSUNE he supported this route because Collins proposal to gain access through USO the development problems and because a joint venture arrangement provided enough profit incentive for both parties to protect the city's interest. Low income portion in jeopardy Malone has since resigned the commission to pursue polit· ical office, but the Collins proposal has had to come back repeatedly for modifications. Just last week, the commis- sion wrestled with the question of how to provide adequate financing for the project. It seems that today's money markets are not sufficient to provide the financing for the entire project. In particular jeopardy are the 120 rental units because the federal rent solved

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