$2,329,961 to remodel and finish 8 modest, low rent apartments in an old building. So far.

At least another $1 million will be required before the first tenant moves into the Cherry Street Project that’s been sitting empty and decaying on a Port Townsend hillside since May 2017.

That’s more than $3.3 million for 5,000 square feet of living space, or $666 per square foot. And it is just a remodel upstairs and building out of small basement apartments. New construction costs half as much. Manufactured housing is far cheaper still.

This is City Council’s idea of “affordable” housing. I will explain these numbers in a bit. First a brief history lesson.

The original plan three years ago was to create a nonprofit organization to finish and lease the building.  The new group was called Homeward Bound Community Land Trust. They got a $250,000 short term loan to purchase and bring the building from Victoria, B.C. They got an acre and a half of city owned land for $1. They couldn’t repay that loan, so the city gave them more money and more time.

On May 7, 2018, their existing indebtedness was rolled into a new $834,000 loan to be repaid over 40 years. The city floated a general obligation bond to raise the cash, and made the proceeds available to Homeward Bound. Their total debt, with interest included, came to $925,000. The city included a hidden subsidy. Taxpayers would have to repay the bond in 20 years, and would eat $451,115 in interest, for a total bond obligation of $1,367,355 to be split by Homeward Bound and taxpayers.

And Homeward Bound would get two years off the bat with no obligation to pay anything.

Homeward Bound, and particularly County Commissioner Kate Dean who has been on the Homeward Bound board from the beginning of this misadventure, knew that the estimate used to justify the amount of the loan from the city was “completely bogus.” They would have to come back for more money. They also did not disclose to the city an inspection report showing the building contained asbestos and that its walls had been painted with lead paint.

In November 2019, after nothing more had happened than getting the building off blocks onto a foundation, Homeward Bound told City Council they needed at least another million bucks.

Homeward Bound never made a payment on its loan from taxpayers and was never going to make a payment. We wrote 2.5 years ago that their default was foreseeable and inevitable.

Our reports starting in 2018 explaining why this scheme was bound to fail, and bound to burn taxpayers without producing anything, are linked below. The articles provide links to city records and other supporting documentation. The reports detail massive incompetence and misfeasance, starting with City Council’s decision to approve acquisition of the building without having it first inspected.

At its September 28 Special Business Meeting, City Council faced the fact that its Homeward Bound dream was a bust. It was going to have to take the project back. Now, what to do with a decaying building that is blighting the neighborhood and had already attracted at least one homeless camp? The city’s pretty much broke. It doesn’t have money to fix its streets, let alone come up with another $1 million to fix a building that needs asbestos and lead removal. It’s also a political headache for city leaders who know taxpayers are fuming.

Tearing it down will be a huge embarrassment and admission of failure. So would selling it for whatever price it could bring and using the proceeds to pay down the bond debt. City Council needed a white knight to get them out of this mess.

Enter Bayside Housing & Services, a nonprofit that has been renting one of the buildings of the Old Alcohol Plant in Port Hadlock to provide transitional housing for people who might otherwise be homeless.

City Council in a 6-to-1 vote rejected the idea of selling the property and cutting its losses. It authorized the City Manager to negotiate a transfer to Bayside of the entire Cherry Street project. That includes the old Carmel House and approximately 1.5 acres of land with utilities mostly in place. Gary J. Keister, who has been representing Bayside in the preliminary negotiations, insisted upon the property being transferred clear of debt, and it looks like City Council will give him what he wants. Taxpayers, who were to be repaid by Homeward Bound for $925,000 of the debt, will now shoulder the entire $1,367.355 million expense.

Plus, City Council wants to give Bayside $307,606 cash as an additional incentive and boost to getting the project restarted. That is the amount of the bond proceeds that have not been spent by Homeward Bound. Instead of paying that back to lenders, taxpayers will have to come up with another $307,606 to replace the funds given to Bayside.

All Bayside will be required to do is to complete the remodel of the Carmel House building, add 4 small one bedroom apartments on the ground floor, and rent them as affordable housing units.

Once that it is done, they are free to use the rest of the 1.5 acres however they want, including developing it for market rate housing and turning a profit on those units.

You can watch the September 28 City Council meeting by clicking this link.

Not everyone jumped at this idea. City Councilor Monica MickHagar, the lone “no” vote, had some questions.

She wanted to know how much the city might make by selling the land instead of giving it away a second time. The proceeds could be used to pay down the bond, which requires an annual payment of $65,000 for 20 years. The funds saved could be used for public services.

The City Manager would not tell her how much the land could be sold for. In so doing, he was also withholding this information from taxpayers. Only in executive session would he disclose that information.

We have previously reported that, according to documents in city files, the land was valued at $600,000 at the time it was sold in April 2017 to Homeward Bound for one dollar. Mayor Michelle Sandoval, a real estate broker, has described this land as “valuable” land.

Now that we have a value for the land we can calculate what the cost is to taxpayers of the proposed transfer to Bayside Housing:

Bond debt: $1,367,355

Land:               600,000

Cash:               307,606

Subtotal:     $2,274,961

In addition, the city gave Homeward Bound a $30,000 “organizational grant, $25,000 in project management services, free utility work (replacing and laying water lines), payments to PUD to lower and raise power lines as the building was moved through the city, and waiver of permit fees. In all the public records I have reviewed, I have not been able to ascertain the dollar value of the last three items. But, just with the $55,000 in miscellaneous costs we can determine, the total expense to be incurred by taxpayers in the proposed transfer to Bayside Housing would amount to at least $2,329,961.

Bayside will get all this for maybe $1.00.

Council member MickHagar had some questions about Bayside and their ability to get this job done. Those were questions deserving answers. After all, a lot more money was going to be required. Did Bayside have the resources to get the job done? Would this project again come back to the city as it had with Homeward Bound?

Her questions were blocked by other members of City Council. Such information was “confidential,” she was told.

In our next installment, we will attempt to answer those questions.

Related Articles

These reports, based on documentation from city files, provide a compete behind-the-scenes picture of this debacle.

Cherry Street “Affordable” Housing to Cost More than $2 million, May 28, 2018

The Tragedy of the Cherry Street Project, December 12, 2018

What’s Happening with the Cherry Street Project?  October 29, 2019

“Completely Bogus” Numbers–More Problems and Delays for Cherry Street Project,

Cherry Street Project Welcomes First Tenants, February 28, 2020

Default the Cherry Street Project Now, April 22, 2020

Multi-Million Dollar Fraud on Taxpayers: The Cherry Street Project Unmasked, June 27, 2020