Should taxpayers have concerns about handing over the failed Cherry Street Project and another $300,000 to Bayside Housing? So far taxpayers are out about $2.33 million dollars on what is now widely recognized as a boondoggle and symbol of government incompetence and waste. Taxpayers got burned with the first group entrusted with the project and public largesse. That group, Homeward Bound Community Land Trust, was incompetent and not altogether honest, and defaulted on its commitments.
In September 2020 City Council directed the City Manager to negotiate a handover of the project to another local non-profit, Bayside Housing and Services. The latest Cherry Street giveaway was going to hit taxpayers harder. Taxpayers would eat all the indebtedness on the project and deliver it debt-free. Bayside would get more than $300,000 in cash unspent by Homeward Bound. Bayside would only be required to complete renovation and build-out of 8 apartments in the 70-year old building barged here form Victoria, B.C. in May 2017. After that, they could do whatever they wanted with the rest of valuable 1.5 acres on a hillside above the golf course.
The City Manager disregarded a $1 million cash offer for the property because he had been instructed to only negotiate with Bayside.
I reported in October 2020 that, despite headlines trumpeting the turnover, this was still “not a done deal.” We have since learned that Bayside and the City have been engaged in negotiations. Bayside has retained legal counsel to assist in the transaction and has been searching for partners to join on the project.
In that report I raised questions about whether, like Homeward Bound, Bayside lacked the resources and qualifications to get the job done. Would taxpayers again be left holding the bag? Bayside had never built anything. It owns no real estate. It had been unable to obtain financing, though its public reports show skyrocketing revenue and assets.
Bayside earned a lot of respect in the community under its first managing director, Aislinn Palmer (now using her married name, Diamante). She grew the fledgling organization from nothing into one of the most highly regarded non-profits in Jefferson County. But Diamante resigned abruptly in July 2019. Bayside made no mention of her departure–not a single public farewell or well wishes for her next venture. Diamante is now running operations at Fort Worden. She won’t tell us why she left. “I can’t talk about that,” she said.
Takeover and Conflicts of Interest
I had suspicions she may have left because things at Bayside were getting out of her control, and not in a good way. In October 2020 I asked Gary J. Keister why she left. Keister has been serving since Diamante’s departure as “acting” managing director. He’s been acting in that capacity for going on two years. Keister also manages the Old Alcohol Plant. This hotel/restaurant business is owned by Inn Properties, LLC. Keister is majority owner along with two other men who are also trustees of Bayside Housing. One has been president. The other is secretary/treasurer. Keister’s wife is also a Bayside trustee.
The Old Alcohol Plant rents rooms to Bayside. Kiester oversees billings to Bayside. He also oversees payments from Bayside to the Old Alcohol Plant. He’s on both sides of what are clearly not arms-length transactions. His business partner in the Old Alcohol Plant who is Bayside’s treasurer and the other trustees with ownership interests in the Old Alcohol Plant are also on both sides of these transactions.
We asked Keister if Palmer/Diamante resigned because of ethical concerns, and whether she had been unsuccessful in getting the trustees to address those concerns. Keister has not responded to our emailed questions.
“Our Wonderful Founders”
Keister is now effectively in control of Bayside Housing. A video released by Bayside in December 2020 is promoted as “Hear from our wonderful founders…” The “founders” in the video are Gary and Susan Keister. The video rewrites history. The Keisters were not the founders. Bayside was incorporated September 10, 2014 by individuals associated with the Society of St. Vincent de Paul of Eastern Jefferson County. Keister’s group of real estate investors were going to be Bayside’s landlord after it had purchased and renovated the Old Alcohol Plant. Bayside’s founders at one point mothballed the organization because Keister had been unable to rent them space when needed. In 2016 Kiester told The Leader he was not in control of the Bayside project.
Bayside’s original founders and trustees are gone, just like Palmer/Diamante. Inn Properties and Bayside have also seen resignations by accounting personnel.
Dodgy Finances, Corporate Shell Games, Money Laundering and Bank Fraud
Port Townsend Free Press has obtained what appears to be a whistleblower complaint against Keister and the way he is directing the finances of Bayside Housing. From the allegations in the complaint (I repeat, allegations) it would appear that the whistleblower has detailed, first-hand knowledge. The Washington Attorney General’s office has acknowledged receiving a complaint. The complaint obtained by PTFP alleges a plethora of conflicts of interest, possible abuse of Bayside’s non-profit status to cover cash flow needs of the Old Alcohol Plant, and specific allegations of fraud in how rooms supposedly for homeless persons are being charged to Bayside when in fact they are being rented to Old Alcohol Plant hotel customers. I will return to the whistleblower complaint in the next article. (You can read that article, published March 8, 2020 at this link.)
Keister has not responded to any of our recent questions, though he did confirm by email in January that a huge pledge receivable (upwards of $700,000, according to the whistleblower), has never been collected though it is years later still being reported as an asset. “It remains fully committed,” wrote Keister. The whistleblower alleges that pledge is illusory because it comes from Inn Properties, the corporation behind the Old Alcohol Plant controlled by Keister. The whistleblower says they doubt Inn Properties has that kind of money and that Inn Properties itself is heavily in debt.
What looks to be questionable reporting of assets–booking pledges never received as income and carrying them as assets–may be a red flag. It makes the organization look like it is doing much better than it really is. This could help in getting loans or attracting donations. It deserves a closer look. Playing fast and loose with financial information and sophisticated manipulation of inter-related corporations is what in 1992 landed Gary J. Keister in federal prison for money laundering and bank fraud.
Apparently while still in prison, Keister began assembling a new network of corporations. I have identified almost 30 corporations with Seattle and later Port Townsend and Port Hadlock addresses for which Keister was a governor or registered agent, or one of the corporations he controlled was a governor or registered agent of another corporation.
1239 Water Street, “Suite” A, Port Townsend
The addresses of the corporations in this network eventually became 1239 Water Street, Suite A, Port Townsend. This address is a nondescript door between the dumpster and drive-up window at the U.S. Bank. According to a bank employee, this space has not been rented for years. Keister now runs his corporate networks from his Old Alcohol Plant offices.
Who Is Gary Keister?
One of Kiester’s autobiographical profiles, from his personal blog.
Biographical profiles published by Keister on various websites claim he was the head of several corporations, such as “Hudson Bay Group,” an investment company called Veribus, Inc. and a corporation with fish processing plants around the world. He also claimed that Wescom Capital, operating out of the space by the dumpster behind U.S. Bank, “regularly handles transactions ranging between $5 to $50 million.” He did not respond to questions asking for verification of these claims, nor have I found any information to corroborate those claims. The only information I located on the fish processing company, John Cabot Company, was an expired trademark coming back to an Everett, WA address and mention of the ruins of a fish processing facility in Seldovia, Alaska.
In another autobiographical profile he says that he worked in the Middle East as an advisor to AID contractors, “and upon returning to the US took a position as president for an international food processing company” (which he does not identify).
None of the biographies published by Mr. Keister mention running Augustine Unlimited, a construction-hardware wholesale business in Tukwila, when he was committing bank fraud and money laundering crimes.
In October 2019, after Aislinn Palmer Diamante’s departure, articles of incorporation of a for-profit corporation called Bayside Housing LLC were filed with the Washington Secretary of State. The Governor of this for-profit Bayside Housing was identified as Wescom Capital. The Governor of Wescom Capital is Gary Keister. The stated business purpose of this for-profit Bayside Housing: real estate.
One of the corporations with which Keister got involved after prison was St. Joseph’s Housing Group of Seattle. The purpose of this non-profit corporation, like the non-profit Bayside Housing, was to provide housing and transitional services. It started in 1992. It never filed an IRS 990, an annual report required of nonprofits with annual income exceeding $50,000. In one annual state corporation report, its income was reported as less than $4,000. Keister appeared suddenly in 2005 as Vice-President and Chair. The non-profit began to shed directors. In 2007 it was just Keister as President and Chair and a secretary. On February 2, 2009 the Secretary of State dissolved St. Joseph’s Housing Group for failure to file a list of officers within the time required by law.
Keister, in an interview with The Leader, has claimed he was “associated” with the project in Seattle “where homes owned by Housing and Urban Development were sold at the height of the housing market and used to build 50 units called Monica’s Place.” There is a Monica’s Village Place in Seattle. It is a 53-unit apartment building built in 2011 by Catholic Community Services of Western Washington.
UNITED STATES OF AMERICA v. GARY KEISTER
Everybody deserves a second chance. But conviction for multiple counts of bank fraud and money laundering in a sophisticated scheme to bilk $1.2 million dollars out of bank is worth taking into consideration when weighing whether valuable public resources should be entrusted to such a person. Former Bayside Housing and Inn Properties employees who have spoken on condition of confidentiality say they wanted to give Gary Keister the benefit of the doubt, but, to paraphrase one former key employee, began to wonder whether “a leopard could change its spots.”
Keister was the owner of Augustine Unlimited, a Tukwila construction/hardware wholesaler, which he ran from 1986 until 1988 when he sought Chapter 11 bankruptcy. He was accused and convicted of making false statements to First Interstate Bank to obtain loans of $1.2 million. Much of the money was eventually repaid, but the bank still lost between $200,000 and $400,000.
Keister was convicted of one count of conspiracy, four counts of money laundering and 35 counts of bank fraud. He was denied bail upon conviction and sentenced to 41 months in prison. His sentence was “enhanced” by the U.S. District Court judge due to his leadership role and the sophistication of the scheme he orchestrated.
In its 1994 decision upholding Keister’s conviction and sentence, the U.S. Court of Appeals for the Ninth Circuit described Keister’s scheme:
As reported by The Seattle Times, “Rather than invest the money in Augustine Unlimited as intended by the bank, Keister spent the loans on personal debts, homes and other businesses.”
Keister was convicted on or about July 10, 1992. He was sentenced to 41 months. His conviction was upheld January 3, 1994. He began rebuilding his corporate network on May 5, 1995 when he filed articles of incorporation for Wescom Capital, that “regularly” handled “transactions ranging from $5 to $50 million.” One of Keister’s autobiographical profiles says Wescom started business in 1994, when he would still have been in prison.
NEXT: The Whistleblower Complaint and More Red Flags (You can read that article, published March 8, 2020 by clicking here).
Jim Scarantino was the editor and founder of Port Townsend Free Press. He is happy in his new role as just a contributor writing on topics of concern to him. He spent the first 25 years of his professional life as a trial attorney, then launched an online investigative news website that broke several national stories. He is also the author of three crime novels. He resides in Jefferson County. See our “About” page for more information.
Well done article Jim. Without the Port Townsend Free Press, we the taxpayers, would never hear about this mismanagement of our money. Do you think the MissLeader would cover anything to do with government malfeasance especially to this depth? Without facts we remain in the dark and the light of facts can’t be cherry picked or interpreted according to a desired conclusion. Facts stand alone and should be reported as such.
Dear Mr. Scarantino, please visit Bayside housing and ask to see what they have done and how they are doing it. Then, please, find someone, or more than one, who has been helped, and interview them. Thank you. Aretta McClure
Who would you trust–Bayside Housing or Habitat for Humanity?
Who has the experience, skills, and most importantly, the morality to provide solutions for low income housing?
One would not expect the Cherry Street project to be a good fit for Habitat.
But one wonders how Habitat can be as successful as it is while the Cherry Street project is such an abject failure.
According to recent published articles, Habitat for Humanity currently builds about four houses a year in and around Port Townsend. The target market are people in this community who cannot afford market rate housing.
It recently acquired one and a half acres of land and expects to eventually build about 20 houses on it.
They expect to spend about $1 million on the newly acquired property even before houses can be built.
while the County awarded Habitat a $27,000 grant from its Affordable Housing Fund, Habitat has on its own raised $630,000 towards the goal through individual donations and other grants.
Additionally, through their commitment to tithing, Habitat’s local efforts increase access to housing and sanitation in three countries – Lesotho, Nepal and Ethiopia.
Will our local governments continue to trust dodgy operators and throw good money after bad on the Cherry Street project?
Only extremely dodgy or naïve operators would touch the Cherry Street project. I have yet to meet anyone knowledgeable about building restoration who believed the project was feasible even at multi-millions of dollars. It would be a real challenge to bring that building up to code for a rental housing even if it were on a flat piece of land instead of a more challenging hillside location.
In 2017 I thought about sharing my concerns based on my building renovation experience but didn’t believe anyone in local government or the Leader would be interested. If the Port Townsend Free Press had been around then, the problems would have been made public and the Cherry Street debacle might have been prevented.
The city has attempted to give the project to Habitat. They turned it down four years ago and are not likely to touch it now.
The inner workings, monetarily and otherwise, of Habitat for Humanity, will surprise anyone who goes beyond the surface. Look at what’s donated (new), what’s written off, what the new homeowners assume as liability once they start down that road, etc….we need more good information about LOTS of folks who “do good”. And when we find a true gem, we need to support it to the fullest.