An article in the Contra Costa (and West County) times on October 19 raised provocative questions about the ongoing rehabilitation of the Ford assembly Plant. The article appears to be based largely on a letter sent by a member of the City Council to Malcolm Hunter last week citing concerns about the risk to the City inherent in proceeding with the current developer, Assembly Plant Partners.

A little history of this project would be instructive. It was damaged in the 1989 Loma Prieta earthquake, and the City immediately sought funding from FEMA to repair it. FEMA offered to repair the earthquake damage, but the City wanted more. Based on recommendations from Redevelopment Agency staff, the City spent nearly ten years and millions of dollars trying to convince FEMA that it had to pay for not only the earthquake damage repair but also the $80 million cost of completely rehabilitating the 60-year old building – complete with new multilevel parking garage.

Well, the City lost that battle, along with additional hundreds of thousands of dollars in vandalism as scavengers stripped the building of its copper flashings and other valuable components while Richmond fiddled.

Finally resigned that FEMA was going to provide only earthquake damage money, the City went looking for developers. What later became Assembly Plant Partners (APP) headed by Ethan Silva stepped forward, but it wasn’t establishment enough. Instead the city staff recommended, and the City Council accepted, Forest City, a large east coast real estate conglomerate listed on the New York Stock Exchange. Two and a half years later, in 2001, Forest City bailed, and the City had little to show for it but a lot of bills from lawyers and consultants.

Once again, an RFP went out for developers and three organizations responded, including APP. This time, APP assembled  a star-studded team of designers, engineers and builders and proposed a project that would help put Richmond on the map with a collection of industrial and commercial artists serving the entertainment industry. The City Council agreed, accepted a $1 million non-refundable deposit (an oversight in its previous arrangement with Forest City) and partnered up with APP.

Here we are now, less than year after APP was chosen, and the project is fully entitled and under construction --- also under budget, something that giant Forest City couldn’t pull off in 2 ½ years.

There is only on problem – APP is behind schedule in providing verification of the $11 million it needs in equity financing to complete the project when Federal funding runs out next year. Actually, at least half the $11 million is confirmed, and the rest is trickling in. This is far from a crisis, but it is a legitimate concern, and it is being addressed. 

Now comes the Contra Costa Times, declaring that the project is “doomed,” or is it just the sky falling? The article that follows is replete with inaccuracies and inappropriate conclusions, and I feel obligated to respond. See my comments in caps.

Redeveloper of Ford plant misses Richmond deadline
The city might have to repay federal funds if financing doesn't appear
By Rebecca Rosen Lum
CONTRA COSTA TIMES

Posted on Sat, Oct. 19, 2002

RICHMOND - A $55 million deal to create a design complex at the former Ford Assembly Plant appears doomed. THIS IS A RATHER PESSIMISTIC OPINION NOT SHARED BY THE MAJORITY OF THE CITY COUNCIL. IT SEEMS INAPPROPRIATE IN A NEWS STORY – PERHAPS IT SHOULD HAVE BEEN ON THE EDITORIAL PAGE.

Critics say if the city does not pull the plug on the project now it could bankrupt the Redevelopment Agency. THIS ASSUMES THAT THE PROJECT WOULD HAVE NO VALUE AFTER THE FEDERAL MONEY IS SPENT, THAT NO DEVELOPER WOULD BE INTERESTED IN ACQUIRING IT, THAT THE CITY WOULD BE COMPELLED TO COMPLETE IT, AND THAT WHEN COMPLETED IT WOULD HAVE NO VALUE. THIS IS NOT A RATIONAL POTENTIAL OUTCOME.

The Richmond City Council discussed backing out of its agreement with Assembly Plant Partners LLC in two closed sessions this month after the group failed to amass a required $16 million in secured loans and $11 million in collateral by a Sept. 30 deadline. THE $16 MILLION IN DEBT FINANCING (“SECURED LOANS”) WAS NEVER REQUIRED TO BE IN PLACE BY SEPTEMBER 30, ONLY EVIDENCE OF THE EQUITY FINANCING (“COLLATERAL”). IN FACT, THERE IS SUBSTANTIAL VERIFICATION EVEN OF THE EQUITY.  $1 MILLION IS ALREADY ON DEPOSIT AND APPROXIMATELY $500,000 IS ALREADY SPENT BY APP LEAVING ONLY $10.5 MILLION REMAINING. STAFF’S ESTIMATE OF SHMAVONIAN’S (THE ORIGINAL FINANCIAL BACKER FOR APP) REMAINING ASSETS BASED ON INCOMPLETE INFORMATION RANGED FROM $4.8 MILLION TO $10.8 MILLION. WORST CASE SCENARIO LEAVES AP ONLY $5 MILLION SHORT – NOT THAT MUCH MONEY. MORE RECENT INFORMATION INDICATES THAT THIS ESTIMATE IS STILL LOW. THE REVISED DDA BEING NEGOTIATED PROVIDES ADDITIONAL TIME FOR VERIFICATION OF EQUITY FROM BOTH SHMAVONIAN AND OTHERS.

City staffers recommended dumping the project after repeated requests for information went unanswered, records show. STAFF MEMBERS, WHEN MAKING THIS RECOMMENDATION, HAD BEEN ON THE JOB ONLY A MONTH OR SO AND WERE NOT FULLY KNOWLEDGEABLE OF THE COMPLEX 13-YEAR HISTORY OF THIS PROJECT.

At issue is a March 31 spending deadline set by the federal government. The city could have to repay $29 million in federal funds if it fails to meet the deadline, critics charge. THIS IS ABSOLUTELY NOT TRUE. ONLY THE FEMA FUNDS OF $15 MILLION ARE AT RISK IF NOT SPENT PRIOR TO MARCH 31. THE BIGGEST RISK IS STOPPING THE PROJECT AND LOSING THE FEMA FUNDS. CURRENT SCHEDULES CALL FOR THE FEMA FUNDS TO BE SPENT PRIOR TO THE DEADLINE, AND RECENT MEETINGS WITH FEMA INDICATE THAT THEY MAY BE EASING HE DEADLINE.

At its most recent session, council supporters requested an extension while Assembly Plant Partners pursues investors.

"If we continue the current work schedule according to this new extension deadline of Dec. 31, the city could spend nearly $20 million ... and we will still have no guarantee that the developer will have the $16 million to complete the project," Councilwoman Maria Viramontes says in a letter to City Attorney Malcolm Hunter. THE CITY WOULD NOT SPEND ANY MONEY. ALL THE MONEY WOULD BE FROM FEDERAL GRANTS.

Many of the sought-after Assembly Plant Partners papers finally arrived Friday at economic and community development director Steve Durand's office.

"It's even more than what we asked for," he said, adding that he had not yet read the documents.

But critics say it may be too late to salvage a project with limited potential for returns to the city.

Assembly Plant Partners won a bidding war a year ago to revamp the 500,000-square-foot, historic waterfront building, trumping two more conventional mixed-use projects.

The complex would house workshops for 18 set designers, computer graphics, music producers and others who work in the entertainment industry, said Ethan Silva, one of four Assembly Partners.

"Today ... Richmond does not have the money to fund this great program as proposed by Assembly Plant Partners without private investment," Viramontes says in her letter. The group "does not have the financial capacity to provide that private investment for their proposed program." DOCUMENTED VERIFICATION OF THE REQUIRED PRIVATE INVESTMENT HAS BEEN SLOW TO COME, BUT IT IS NOT TOTALLY LACKING. SEE REMARKS AT THIRD PARAGRAPH, ABOVE.

If the group of designers fails, the city would have to repay $16 million in loans and $13 million in Federal Emergency Management Agency grants. THIS IS NOT TRUE. THIS ASSUMES THE ABSOLUTELY WORST CASE SCENARIO IN WHICH THE PROJECT WOULD NEVER BE COMPLETED OR PURCHASED BY ANYONE, AN IRRATIONAL CONCLUSION.

That could bankrupt the Redevelopment Agency, which has only $5 million available. The loan and grant money is being used to clean up and prepare the site.

"That's not going to happen," Durand said. "The worst-case scenario, if the project went down in flames, we'd have a working warehouse, and we would pick up another developer to carry on."

But that would mean a new developer would have to be chosen, start and complete the job by March 31, unless the federal government stretched its deadline.

"The federal government is in the business of helping cities, not harming cities," Durand said. "They'll work with us."

Silva acknowledged that financing is not in place.

The city balked when his primary investor, Gerald Shmavonian of Fresno, did not produce financial records on schedule. Shmavonian claimed assets totaling $31 million and no liabilities, but a subsequent investigation showed numerous liabilities, including liens, and assets ranging from $2.2 million to $11 million. THE INVESTIGATION SHOWED NO SUBSTANTIAL LIABILITIES, BUT SUPPORTING DOCUMENTS FOR ASSETS HAVE BEEN SLOW TO COME AND ARE STILL TRICKLING IN.

The project's supporters say the city tried to scuttle it from the start, hiring a private investigator to do a personal background check of Shmavonian to sully his reputation.

It yielded reports of a 1998 arrest for shoplifting from a food store, a 1999 DUI arrest and a breach of contract suit, Silva said.

"It got to be so sick and so silly," Silva said. "I decided to augment Gerald's funding with more traditional real estate investors just to get past all this."

He said Assembly Partners is talking with several investors, but declined to name them for fear of jeopardizing negotiations. He brought one to a recent closed council session.

Councilman Tom Butt continues to spearhead support for the warehouse project. "Everyone knows Gerald (Shmavonian) is a wealthy guy," he said. "He's worth millions."

He added that APP's bids have come in $3 million less than budgeted.

Staffers, including City Manager Isiah Turner, say they believed at the outset the city should have gone with a project less risky than an artists' warehouse. THE PROJECT IS NOT DEPENDENT ON SILVA’S FIRST CHOICE OF TENANTS – COMMERCIAL AND INDUSTRIAL ARTISTS SUPPORTING THE ENTERTAINMENT INDUSTRY. IT WAS THIS PROSPECT THAT MADE SILVA’S PROPOSAL UNIQUE AND PROVIDED A POTENTIAL DRAW FOR THE SITE THAT WOULD CONTRIBUTE POSITIVELY TO RICHMOND’S MAGE. HOWEVER, ONCE REHABILITATED, THE BUILDING COULD BE USED FOR ANY OF THE WIDE RANGE OF USES PROPOSED BY COMPETING DEVELOPERS. THERE IS NO RISK ASSOCIATED WITH THE CURRENT PROJECT THAN WOULD BE DIFFERENT FROM THOSE PROJECTS PROPOSED BY OTHERS. ANOTHER UNIQUE FEATURE OF SILVA’S PROPOSAL WAS A STRUCTURAL UPGRADE DESIGN BY WORLD RENOWNED ENGINEER ERIC ELSESSER THAT WAS SUBSTANTIALLY LESS EXPENSIVE THAN THAT OF COMPETING DEVELOPERS, THUS MAKING THE PROJECT LESS FINANCIALLY RISKY AND MORE ECONOMICAL.

The glut of office space in the Bay Area, and a location too remote to support retail, caused the Cleveland-based development giant Forest Cities to give up on a mixed-use development in 2001 after three years.

Word has gone out that the city may be backing out of its contract. THE CITY COUNCIL MAJORITY STANDS FIRMLY COMMITTED TO APP. THERE IS NO EVIDENCE TO SUGGEST THAT THE CITY IS BACKING OUT OF ITS CONTRACT.

• In recent days, Davis and Associates of San Jose has contacted the city and individual council members with an alternative plan.

• Eddie Orton, whose Orton Development bid on the original contract and is rumored to be interested, declined to comment.

The federally funded environmental mop-up and seismic retrofit is the first leg of the project. Both friends and foes agree that work is ahead of schedule.

Silva said crews are clearing asbestos and have cleaned out the sewer lines. Bids are in for reroofing and window replacement.

"Our project is adding value to the Redevelopment Agency every day," Silva said. "The fact that other developers are circling overhead is a testimony to its value." THIS IS ABSOLUTELY CORRECT. THE FACT THAT SILVA HAS MOVED THE PROJECT PAST THE CONCEPTUAL STAGE AND INTO CONSTRUCTION, UNDER BUDGET, WITH APPROVALS. ENTITLEMENTS AND PERMITS IN PLACE FROM DOZENS OF FEDERAL, STATE AND LOCAL AGENCIES IS EVIDENCE THAT THE HEAVY LIFTING HAS BEEN COMPLETED. IT’S NO WONDER THAT IT IS GETTING ATTENTION FROM THE DEVELOPMENT COMMUNITY.

But the city is paying that work, and some say even supporters are beginning to get nervous. THE CITY IS NOT PAYING FOR THE WORK. IT IS BEING PAID FOR WITH GRANTS FROM THE FEDERAL GOVERNMENT.

"Look: There are two ways to lose federal funding," said Councilman Gary Bell, who is also a mortgage banker. "Not to spend the money by March 31, and not to spend the money appropriately. BELL MAKES A POINT THAT HAS BEEN MISSED BY THE PROJECT’S DETRACTORS.

Bell said the rash of criticism is politically motivated.

"Is this riskier than the average project? You bet," he said. "But there is no information I've seen today that would make me give up on the project."

Reach Rebecca Rosen Lum at rrosenlum@cctimes.com.