Bayside Housing wants $1.8 million from Jefferson County to complete and expand the Cherry Street Project. $1.6 million more than has already been spent would go into finishing the 70-year old Carmel Building, which has been sitting vacant and open to the elements for over four years. The total final cost of that building alone would exceed $3 million. In addition, Bayside wants $300,000 from the City of Port Townsend, and $500,000 from an unspecified block grant.

Bayside proposes to contribute $200,000 of its own money, for a total cost of $2.8 million for its new vision for the 1.5 acre property. Bayside’s proposal was submitted with supporting documents to the BOCC for its 6/21/21 meeting, and may be read at pages 457-462 of the correspondence file. Here is the cover letter:

The Carmel House would provide 12 bedrooms through 4 two bedroom units and four small one bedroom units. The total square footage of the building, as reported by the Port Townsend and Jefferson County Leader, is about 5,000 square feet. The Port Townsend Free Press previously reported that this “affordable” housing project was already one of the most expensive developments on the Quimper Peninsula. Under Bayside’s proposal, the cost would exceed $600 per square foot.

Bayside’s estimate of what it would take to rehab the Carmel House is $600,000 higher than the estimate provided by Homeward Bound Community Land Trust to the Port Townsend City Council in November 2019, when it said at least another $1 million was needed. Homeward Bound had been given the land and building in 2017 and a generous loan from the city. It defaulted in July 2020 and the city reclaimed the project. City taxpayers remain on the hook for the more than $1.4 million in principal and interest on the bond the city floated to raise the funds. Public records show that the loan to Homeward Bound contained a hidden interest subsidy of more than $400,000. Because Homeward Bound never paid a cent of its debt, taxpayers have been paying down the full indebtedness since 2018.

The project would be transferred free of any debt to Bayside. With the additional $1.6 million of county money going into the building plus the $1.4 million city-absorbed indebtedness factored in, the total cost of rehabbing the old building would come to more than $3 million. The city has already sunk over $500,000 in the building to bring it here from Victoria, B.C. and to put it on a foundation. That amount would be included in the $3 million final cost for the Carmel Building.

These figures do not include the cost of the land, valued in 2017 at $600,000, or other miscellaneous expenditures by the city for utility and project management work. In an October 2, 2020, report we calculated the cost of the project as of that date at $2,329,961. That was still $1 million short of the Homeward Bound’s estimated cost to complete, and is $1.6 million short of Bayside’s latest estimate of cost to completion. Our figure included the $600,000 value of land given by the city to Homeward Bound, which would again be donated, this time to Bayside Housing.

In addition to rehabbing the Carmel House, Bayside proposes to build two six room “boarding houses” on the property, at a combined cost of $850,000. That is the same number of rooms, newly constructed, as would be available in the old Carmel House, but for $2.15 million less. 

Bayside is not proposing a contract, under which it would be responsible for completion of the building by a date certain and built to plans and standards approved by the county. It is simply asking for millions of dollars with the promise that it will provide “affordable” housing. Its contractor estimates that if the money is provided promptly the proposed project would be completed within the first half of 2022. Bayside’s letter does not identify the contractor or reveal whether it has gone through any sort of competitive bidding process.

Bayside submitted letters of support from Dove House, Jefferson Community Foundation and Oxford House, an international program of sober living communities.  The organizations did not commit to any financial support.

At present, the land and the building are owned by the City of Port Townsend. City Council directed the City Manager in September 2020 to negotiate a handover to Bayside Housing of the Cherry Street Project. The City Manager ignored a $1 million cash offer from Keith and Jean Marzan of Port Townsend to bail the city out of the failed project, with the pledge that they would construct affordable housing at their own expense on the site. The City Manager told them he had been directed to deal exclusively with Bayside.

The original estimated cost of rehabbing the Carmel House with the addition of the four basement apartments was under $400,000, with a projected completion date in September or October 2017. That estimate and schedule were known to have been “bogus” by Homeward Bound’s leadership and city officials. See also, “Multimillion Dollar Fraud on Taxpayers: The Cherry Street Project Unmasked,” PTFP, 7/27/20.

In a May 28, 2018 article we identified a 36 bedroom Port Townsend apartment building, built in the 1990s, on the market for $1.5 million. That now looks like an even better bargain. But instead of securing that property, or pursuing less costly approaches, such as manufactured housing, the city kept sinking more money into the old Carmel Building structure.

The COVID Funds: The County’s, Not the City’s

Bayside is seeking $1.8 million of the county’s “COVID funds.” The county received $6.3 million under the American Rescue Plan Act. These funds are restricted to being spent on five categories of projects: (1) public health, including COVID-19 mitigation efforts, behavioral health care, and public health and safety staff; (2) negative economic impacts caused by the pandemic to groups including workers, households, industries and the public sector; (3) to replace public sector revenue lost to the pandemic; (4) premium pay to support essential workers whose health is at risk from exposure in critical infrastructure areas; and (5) investment in infrastructure such as water, sewer, wastewater, storm water facilities, and broadband access and infrastructure.

The City of Port Townsend has not offered to spend any of its $2.744 million in ARPA funds on its Cherry Street Project. The City Manager has indicated that at least half the funds will be used to make up for lost municipal revenue. Bayside’s proposal does not seek any of the City’s “COVID Funds.”

The $1.8 million requested by Bayside would be close to a third of the county’s ARPA funds. Jefferson County would be bailing the city out of its troubled Cherry Street Project, after the city had already rejected a $1 million cash offer to do the same.

Red Flags

There are certainly legal questions about whether the county can simply give $1.8 million to a private entity for a construction project on land it does not own. Where are the legally binding guarantees, the enforcement mechanisms, the claw-back provisions, the security for county taxpayers? If Bayside fails to perform, what recourse is there? How is the county assured it is getting the lowest price from a qualified contractor without a request for proposal and a competitive bidding process?

Bayside’s executive director, Gary Keister, is a convicted felon, who served time in federal prison for a complex scheme involving bank fraud, conspiracy and money laundering. After release from prison he was involved with an illegal slot machine business that drew raids and enforcement action from Texas authorities and the Security and Exchange Commission. Port Townsend Free Press was contacted by two former Bayside employees who raised ethical concerns about Bayside’s operations. One former employee has filed a complaint with the State Attorney General about Bayside’s business practices and its conflict of interest with another business owned and managed by Kiester. We wrote about those issues here, here and here.

After those articles were published, we received from a man identifying himself as a former business associate of Keister a list of more than 60 lawsuits brought by or against Keister personally, or by or against corporations he owned or managed or in which he was an officer or director. The list was the product of a search of records of nineteen Washington county court systems conducted in 2013. Mr. Keister and/or those corporations were a defendant or third-party defendant in 36 of the listed cases, plaintiff in four. In the remainder of the listed cases he or his controlled or affiliated corporations were identified as a subject of judgment, garnishment, abstract of judgment or tax foreclosure.

Preliminary Talks, Conflict of Interest

Bayside’s letter refers to previous discussions with Kate Dean, Chair of the Board of County Commissioners. Dean has been a member of the Board of Directors of Homeward Bound since 2017, during the time that organization was the owner and developer of the Cherry Street Project. She was a Homeward Bound director when it defaulted on the city’s loan and remains a director to this day. Details of the discussions between Bayside and Dean were not disclosed. In a previous Port Townsend Free Press article, Keister was quoted as saying that Bayside was being pressured by Homeward Bound to get involved in the failed Cherry Street Project.

At the same time that Bayside is seeking nearly a third of the county’s ARPA money, other nonprofits and critical needs are competing for the same funds. Dean will be one of three commissioners deciding how to allocate those significant, but nonetheless limited resources.