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:
When Keister acquired Augustine in late 1986, he obtained a line of credit from First Interstate Bank of Washington (FIWA). Under the terms of the line of credit agreement, Augustine would submit receivables data daily to FIWA and FIWA would extend credit to Augustine on the basis of Augustine’s receivables. The agreement provided that Augustine was to refrain from engaging in any business not reasonably related to its normal business. The crux of the allegations against Keister were that: (1) he falsified receivables data to increase the availability of funds under Augustine’s line of credit; (2) he funneled money advanced under Augustine’s line of credit through other business entities under his control and then redirected the funds into Augustine as injections of new capital, which the terms of the line of credit agreement required him to make; (3) he used Augustine’s line of credit to provide credit to other business entities under his control in violation of the line-of-credit agreement.
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).
Fort Worden is in big trouble. The public development authority that runs the commercial operations at the state park is teetering on the brink of financial collapse. This should not have come as a surprise to the people charged with the fiduciary duty of overseeing Fort Worden’s operations.
Back in 2017 the State Auditor issued findings of deficiencies in internal financial controls of the Fort Worden Public Development Authority (FWPDA). That is the entity that runs all of Fort Worden except for the camping areas and trails, which remain under the control of the State Parks Department. The deficiencies identified by the State Auditor undermined the ability of the FWPDA to produce reliable and accurate financial statements, or to account accurately for how it was spending money. As reported by the Port Townsend Leader:
After receiving the audit, which was published March 9, the FWPDA board designated its executive committee – chair Norm Tonina, vice chair Gee Heckscher, treasurer Jeff Jackson and secretary Jane Kilburn – as the audit committee. CEO Dave Robison and CFO Diane Moody are also in place to support the committee. The executive committee meets monthly, with any audit-related topics to be scheduled for these meetings.
Despite that enhanced oversight and the monthly meetings, the State Auditor in a report released this year again found material failures in FWPDA’s financial statements for a two-year period, including 2017, when the enhanced oversight was supposed to be detecting, correcting and preventing deficiencies in internal controls and reporting. As reported by the Peninsula Daily News, “Diane Moody, the PDA’s chief financial officer, and Executive Director Dave Robison issued a memo to the board last week that said the PDA is forming a finance and audit committee as a result.”
The question arises: what happened to the executive committee that was supposed to have been meeting since March 2017 to scrutinize financial affairs?
Now the State Auditor is taking an even more critical look in the wake of revelations that FWPDA’s financial condition is a “house of cards” ready to topple in weeks and facing long term shortfalls in the millions of dollars. The Leader’s front-page story quotes acting CEO David Timmons at length about numerous discoveries of malfeasance, irresponsibility and recklessness.
Timmons stepped in after Dave Robison, CEO for 9 years, retired in September. Timmons has discovered that the FWPDA had been using 19 credit cards, and run up a balance of $60,000 on one card. With millions of dollars in lines of credit, the FWPDA was using credit cards with 29% interest rates to make purchases and cover expenses. Loan proceeds designated for capital projects were being used to cover operating costs. Like the Cherry Street Project, costs were vastly underestimated and funds are not available to pay contractors and finish construction projects.
The numbers are so huge, the shortfalls so staggering, FWPDA may collapse early next year when its multi-million dollar lines of credit expire and other major loans come due.
How could this have happened?
I submit this is another manifestation of the Cherry Street Project Disease. This affliction plagues local ambitious public undertakings and is caused by a political insularity and monoculture that admits no dissension or critical thinking. The afflicted project develops symptoms of irresponsible grandiosity and detachment from hard realities.
Just as the Cherry Street Project got no hard look from a City Council that shamed dissent and critical thinking, the FWPDA has succumbed to the same malady. It was created out of the same closed circles that comprise the city’s elite. Early questioning and criticism from those outside the circles of Mayor-for-Life Michelle Sandoval were brushed aside, ridiculed and ignored. Group think prevailed. The self-serving dream of large, generous infusions of taxpayer money, to be delivered by political allies, made it possible to suppress doubts and obviate the necessity for just a little healthy skepticism and vigilance.
Former FWPDA CEO Robison worked in City Hall from 1990 to 1996. When it was discovered he had misrepresented his qualifications to get his job, he seamlessly landed on his feet at the Northwest Maritime Center. After that, he became CEO of the FWPDA in 2010.
Unlike the amateurish group behind the failed $2.3 million-and-counting Cherry Street Project, the FWPDA Board should have known better. Its Board members are highly experienced people with backgrounds in business and finance. Norm Tonina, its co-chair and a founder, is a Director of First Federal Savings & Loan. He was supposed to be a member of the enhanced oversight group created in March 2017, but needing resurrection this year. Treasurer Jeffrey Jackson is managing director of a venture capital firm, and for 13 years was chief financial officer of a $3 billion corporation.
The FWPDA Board says it is stunned by what Timmons has discovered.
The consequences of a collapse of the FWPDA will be a lot more devastating for Port Townsend than the demise of the Cherry Street Project. It is past time for the elites and decision-makers to welcome to the table a few people from outside their circles who are unafraid to ask hard questions, and push courageously for uncomfortable answers. Steel sharpens steel. Diversity makes us stronger. What we have now is like a family seeing the consequences of generations of inbreeding. New blood from other gene pools is desperately needed.
A man with more than $100 million in commercial and residential development experience wants to help the city fix the Cherry Street Project mess and get affordable housing built.
“It is clear that what is occurring now is a financial disaster,” says Bert Loomis of Port Ludlow, where he built the Port Ludlow Town Center and a number of town homes. “I’ve got 50 years of experience and a team of architects and contractors that can solve most of their problems. My team can get it done with their eyes closed.”
Loomis’ offer to help so far has been rebuffed by the city. On September 28, 2020, Port Townsend City Council directed the City Manager to negotiate a handover of the failed project to Bayside Housing, a non-profit that provides transitional housing in rooms rented from the Old Alcohol Plant in Port Hadlock. As we reported yesterday, it is very uncertain whether Bayside Housing will formally commit to taking over the project and whether it can amass the more than $1`million needed to finish renovation of the 75 year old building on the Cherry Street property. That building, known as the Carmel House (shown above in its current condition), was barged to Port Townsend in May 2017 and has remained unoccupied and uninhabitable since then.
The building has to go, says Loomis, if anyone hopes to complete a “financially responsible and time sensitive” housing project. “It is a losing proposition to continue to throw good money after bad.”
Loomis believes that “stick built” construction on the site can provide a range of affordable housing. New construction offers the advantage of being adapted to the needs of older users and those with disability issues and will fit in with the surrounding neighborhood. He maintains he can build such housing at far less cost and faster than any local non-profit organizations.
“I am willing to work with the city and donate a lot of time and effort to get this done,” he says. He predicts that if the city continues on the course it has been following, banking its hopes on a local non-profit with no experience and inadequate financial and professional qualifications, “they’ll still be having this conversation five years from now.” He does not appear interested in working with any “NGO,” as he calls non-profit organizations. He did express interest in talking with Keith and Jean Marzan, whose $1 million offer for the project has been rejected by the city, but which may be resubmitted in another form.
Loomis-built townhomes, Port Ludlow
Loomis’ initial offer to talk with the City Manager was rebuffed on October 2. After reading our report about the uncertainty of Bayside accepting and being able to complete the project, Loomis reached out again to the City Manager. He has not yet received a response.
Loomis’ career in development and construction is indeed extensive and impressive. He is the developer of 13 properties in Port Ludlow. His resume of projects, which he provided to Port Townsend Free Press, backs up his claim to more than $100 million in construction, ranging from large commercial properties to sizable condominium projects, mostly in California. A rough calculation shows that the total square footage of his building projects approaches half a million square feet. Loomis has received numerous awards for his developments.
“Me and my team can get it done. We can help the city make this happen,” says Loomis. “But we can’t have politics dragging this out for twenty years. I would think that someone who is serious about getting affordable housing built would be eager to talk to someone with my kind of experience and knowledge.”
Bayside Housing has not yet committed to taking on the failed Cherry Street Project.
“First, let me tell you this is not a done deal,” says Gary Keister. He is serving as the acting managing director of Bayside Housing. It has been without a permanent managing director since last year.
“We were being pressured into this by Homeward Bound,” Keister told Port Townsend Free Press.
Keister is the man behind the Old Alcohol Plant. His group of investors bought the building out of foreclosure in December 2014 and renovated a hotel that had been vacant since 2011. Beginning in 2016 the tower at the Port Hadlock property has been rented to Bayside Housing, a non-profit that provides transitional housing. The Old Alcohol Plant itself operates as a for-profit hotel and restaurant and bar business.
On Wednesday September 30, both the Port Townsend Leader and the Peninsula Daily News reported that Bayside Housing was going to take over the Cherry Street “affordable” housing project following the default by Homeward Bound Community Land Trust. Homeward Bound had been resurrected by the City of Port Townsend to take on turning a 70-year old four-unit apartment building barged from Victoria, B.C. in May 2017 into affordable rentals.
As readers of this site know, the Cherry Street Project has been a debacle from the start and keeps getting worse. When Homeward Bound could not find its own financing, the City shouldered a $1.3 million principal-and-interest bond obligation to lend the group the money to cover its cost estimate. Homeward Bound never got beyond putting the building on a foundation when it came back to the city saying it would need at least another $1 million. They did not get more money and defaulted on their loan in July 2020. They still hold title to the property, though the terms of their loan require that it revert to the city upon default.
The city and Homeward Bound prematurely announced that Bayside Housing would accept the project. Even on the fantastically generous terms offered by the city Bayside Housing does not appear to have the resources to take it on. At this preliminary stage, it has already faced financial setbacks.
It failed to secure a $700,000 bank loan. Its request for a separate $100,000 from the county was denied because an analysis of the project’s financial details showed it could not be a viable low income housing project. (See reporting by Patrick Sullivan at the Jefferson County Washington Facebook page).
And there’s this: Bayside Housing has never built or renovated anything. The group rents rooms from the Old Alcohol Plant and provides social services to its clients. It is not a building contractor. It does not own any real estate. According to its most recent IRS 990, it had only 4 employees, and that was before it lost is managing director.
The Port Townsend City Council on September 28 authorized the City Manager to negotiate a takeover of the project by Bayside Housing.
We asked Keister if Bayside Housing had the resources to see the project through and whether it was, in fact, going to assume responsibility for the Cherry Street Project.
In an email from Keister he told the Port Townsend Free Press,
First, as you know the council only voted to allow city management to negotiate a Purchase & Sales Agreement with Bayside. First, the City is not in a position to do that since ownership still rests in the name of Homeward Bound. The Bayside board is considering this matter at its next meeting. No decision has been made. I am not a board member nor an officer of Bayside. My role is to seek housing for the unsheltered. I have tendered my report to the board regarding Cherry Street, and brought to their attention the offer tendered to the city, as you related, for the purchase of the property by Keith Marzan. When and if Bayside makes a decision I will advise you.
The offer to which Keister refers was a $1 million offer from Keith and Jean Marzan to acquire the Cherry Street Project and build affordable housing, on the condition that the old building be removed and the land certified as asbestos free. Port Townsend Free Press had reported discovering in the city’s files an inspection conducted on the building before it was barged to Port Townsend. The inspection found asbestos in kitchen flooring. It also found lead paint on all the walls.
Port Townsend Free Press has also learned that asbestos was found in old pipes during excavation for the foundation.
The City Manager rejected the Marzans’ offer late last week. The Marzans may resubmit the offer with slightly different terms. They remain committed to building affordable housing and hope to work with the city to that end. Keith Marzan has a long career in banking and finance and has built nine homes in Port Townsend. Keith Marzan says he has already lined up an experienced and qualified project manager.
Bayside Housing does not apparently have on hand the more than $1 million estimated by Homeward Bound needed to complete work on the old building. An additional, unknown investment will also be required to compete civil engineering and landscaping outside the building, a sum which Homeward Bound said was not included the final project cost estimate.
In its most recent publicly available filing with the IRS, Bayside reported 2018 net assets of $670,000, after contributions and grants of just over $1 million. But of that sum, $802,000 reported as income was actually pledges and grants receivables. Because the 2019 IRS Form 990 is not yet publicly available, we cannot report whether those pledges were received and what Bayside’s balance sheet showed at the end of 2019.
In April 2020 Bayside disclosed it was facing financial pressures. At the same time that it rents rooms from the Old Alcohol Plant, it also depends on the Old Alcohol Plant and its restaurant for financial support. Because of the Governor’s lock down order, those commercial enterprises, like all Washington hotels, bars and restaurants, saw their revenue almost completely dry up. Jefferson County is only in Phase 2 of the Governor’s reopening scheme, which places severe restrictions on bar and restaurant operations. Washington’s hotel industry has shrunk by about 25% and across the nation nearly 50% of hotel rooms have been vacant.
Under the terms floated by the City to have Bayside assume responsibility for the project, city taxpayers will take a hit of about $2.33 million. This and other details uncovered in two years of investigative reporting can be found by starting with our last report, “Latest Cherry Street Giveaway Hits Taxpayers Harder.”
$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.
The Carmel House as it appeared in May 2018. It remained on blocks until June 2019.
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.
