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The four to midnight shift

Submitted by on 1, October 21, 2009 – 6:00 am26 Comments

So much has happened on the SunCal/Alameda Point front over the last eight hours, it’s hard to know where to begin. It’s kind of like being in one of those TV episodes that starts at the end, when the protagonist finds himself or herself on the sudden, unflinching precipice of doom. Will (s)he be able to figure a way out of it in their penultimate moments on the screen? And how did we end up in this mess exactly?

Okay. Let’s start at the beginning, then.

As I reported Monday, SunCal’s Alameda Point person, Pat Keliher, sent a letter to Interim City Manager Ann Marie Gallant on Tuesday promising to ink a series of agreements that he hopes will resolve concerns about the development initiative that is headed to the ballot. (He also sent a separate 12-pager outlining SunCal’s concerns about a city report detailing potential issues with the initiative. I’ll get to that in a moment.)

Keliher said in an earlier letter that the company has been negotiating weekly with city officials to resolve the issues, and he said the new agreements would be legally binding. But at last night’s City Council meeting, City Attorney Teresa Highsmith said … well …

“What’s being negotiated is not the terms of the initiative. The initiative is going forward. There’s nothing the city can do to change what is in that initiative,” Highsmith told the council. “We are not negotiating the terms of the development agreement (in the initiative). What’s being negotiated are the terms of a disposition and development agreement that is a separate legal document.”

When asked by a reporter for more information, Highsmith said it’s still not clear whether any new agreements would trump conflicting items in the ballot measure if it is approved by voters.

Meanwhile, Mayor Beverly Johnson – who announced last week that she’s now got some misgivings about the ballot initiative – asked the council to schedule a special public hearing to lay out a city staff-generated analysis detailing what’s on the ballot and the measure’s possible impacts, including concerns about its potential fiscal impacts on the city.

If members of the council get their way, we may also get some details on the project’s financials. The folks from SunCal may also be asked to take part, at the very least to explain their concerns with city staff’s analysis of their ballot measure.

In a 12-page letter to Gallant (referenced earlier), Keliher accused the city of ignoring a wealth of information that supports SunCal’s initiative in writing the report, and of failing to include in it the consequences of not developing the base using SunCal’s plan.

He said the reports authors ignored cost analyses, business plans and other financial documents in putting together the report, which listed a host of concerns about the initiative’s potential fiscal impacts. SunCal had shared the documents with city officials but has insisted they be kept out of the public eye.

“In the absence of this context, the Report, although purporting to be objective, merely raises questions for which the City has answers but felt compelled not to disclose,” Keliher wrote.

And he said a number of issues city leaders have listed as concerns – including the project’s potential fiscal impact, project phasing and affordable housing – won’t be decided by voters, but by SunCal and the city’s redevelopment arm as they negotiate that development and disposition agreement. (Oh, and the picture on the city’s web page for the report is out of date.)

Shortly after midnight, the council decided to let SunCal spend upwards of $2 million of its money for an environmental impact report that would assess environmental, traffic, noise and other impacts that could be caused by the development spelled out by the ballot measure and would list plans for blunting the impacts.

A draft of the report could be available by August, which could be after voters decide on the initiative. City Clerk Lara Weisiger said the council will be asked to put the measure on a ballot at its next meeting. She said available dates are in February, April, June and November 2010.

So would now be a bad time for me to tell you that the state’s proposed taking of millions in redevelopment money could make it really, really hard for the city’s redevelopment agency to bond for the tens of millions of dollars the city and SunCal expect they’ll need to make this development happen?

And that brings us back to where we started. That precipice I talked about. Will our hero fall in? Or will they save the day?

Unfortunately, this one’s a cliffhanger. So you’ll have to stay tuned.


  • AD says:

    Thanks for the informative reporting, once again. The two things to be taken away:

    1. "Highsmith said it’s still not clear whether any new agreements would trump the ballot measure if it is approved by voters."

    2. "Mayor Beverly Johnson – who announced last week that she’s now got some misgivings about the ballot initiative -" That's the initiative she has misgivings about, the one that can't change.

    We were continuously assured (by some advisory group) that it is safe to vote for the initiative because many of the problems with be addressed in subsequent agreements. All of a sudden, it's not safe to vote for the initiative until those agreements are actually in place. Which one is is, and why should I vote on anything that is constantly shifting under my feet and even those claiming to be closest to it don't really get?

  • E T says:

    There has been a number of people saying (in the blogs and in the press) that the initiative could be "nuanced" to address the misgivings the public has had. Now FINALLY, someone from City Hall has said DEFINITIVELY that this cannot be done. Why wasn't this said months ago, in chambers and in the press, so that the public knew that the initiative could not be altered. Many of the local public have been stating the obvious and begging the question (can the initiative be altered), but none of the principals (from SunCal or City Hall) ever said that until now. They just let everyone spin their wheels.

    That's transparency for you.

  • Donald Mitchell says:

    SunCal announced last week in a press release that they had bankruptcy court approval to spend $500,000 to clean up the mess they left behind at Oak Knoll in Oakland- even though it will take approximately $15 million to do so. Meanwhile they confirm today, after pushing them, that they MAY only have a VERBAL on the money- which means nothing in legal speak. Looks as if SunCal jumped the gun at a minimum and probably deliberately issued false press releases in an effort to mislead elected officials at both Oakland and Alameda. Take a minute and go visit Oak Knoll and look at the mess that SunCal Oak Knoll LLC left behind at Oak Knoll when the money ran out and it was convenient for them to just abandon Oak Knoll. A neighborhood group has filed claims for $115 million and the city of Oakland filed their own claim for $7 million- and a legal order to abate the property which SunCal Oak Knoll, LLC continues to ignore to this date. You'd best wake up, Alameda. When SunCal's sole financial partner at Alameda Point, Shaw (last I checked they were a HEDGE FUND- real stability there), runs out of money then you'll be left holding a real nasty mess dumped on you by a bunch of greedy developers.

    Go visit Oak Knoll and see what was left for Oakland to deal with- it's on Mountain Boulevard half-way between Keller and Golf Links. Gate's open during business hours. Just go drive around and have a look.

    Donald Mitchell

    Sequoyah Hills/Oak Knoll Neighborhood Association

  • DJM says:

    A couple other points…SunCal's only financial backer at Alameda Point is D.E. Shaw- a marginally stable, at best, hedge fund. (Have we not learned anything yet in the past year or so when it comes to hedge funds?) Even in the best of times a single financial backer is a disaster waiting to happen- especially a project of this size. Shaw sold 20 percent of the company a couple years back to, guess who?…LEHMAN! That's right- Lehman who abandoned Oak Knoll and arrogantly refuses to comply with the city of Oakland's lawful order to abate Oak Knoll even though they sit on $6 BILLION in cash for just such purposes. While Lehman slogs through Bankruptcy Court you can worry about what will happen to their 20 percent of the ownership behind Alameda Point. And Lehman and SunCal absolutely hate each other over their failed dozen-odd development deals throughout California. They're embroiled in lawsuits against each other and want nothing other than to see each other fail. Another story on this web-site has your Deputy City manager, Lisa Goldman, refusing to provide any details re Alameda Point claiming that the negotiations between SunCal and Alameda are "confidential." Are you kidding me? Who's city is this? Does Alameda belong to secret negotiations between SunCal and a deputy city manager or does it belong to the citizens of Alameda? You'd better wake up now.

    • DJM –

      When you say Shaw is "marginally stable, at best" – do you have some info on them that supports this?

      I looked at Shaw some months back and what I was able to find – and granted that was limited, because much of their information is private – was that their holdings had indeed dropped substantially, but that some of their funds were in fact still turning a profit. Here's a link to the post, which itself has links to some outside sources of information on them:

  • Jon Spangler says:

    While it's quite true that the initiative cannot be altered once submitted, the initiative is not the only legally binding contract, agreement, or authority in the long an multi-staged development process.

    The "nuancing" can be done quite legally–within certain boundaries–as long as the City and the developer agree and as long as the City gets as much or more than it does under the terms of the initiative (if the initiative passes).

    For example:

    1) SunCal can probably offer the City MORE than $200 million for the "public benefits" in the initiative by adding an inflation or cost of living rider to that amount in the Disposition and Development Agreement.

    2) Required mitigations under CEQA (California Environmental Quality Act) EIRs come out of the developer's pocket, and required mitigations at AP could include spending on transportation strategies or facilities over and above those discussed as part of the initiative's $200 million "public benefit" strategies. And state law (CEQA) usually trumps local ordinances or initiatives…

    This is not simple, but it is not without precedent, according to some land use and development authorities. With a multiplicity of steps, agreements, contracts, applicable laws, and other "authorities" in the mix, there is always a process of reconciling opposing or contradictory statutes, goals, objectives, and, of course, changes in economic, fiscal, and physical conditions. And the initiative is only one of many pertinent and necessary steps to redeveloping Alameda Point.

    RE: "transparency: it is becoming clear that SunCal has always been direct and consistent in its dealings with the City. What seems to have changed the most (at least as I see it) has been the City's attitude(s) and policy(ies) towards negotiating with the developer, which seemed quite ambiguous at best during Tuesday's Council meeting.

  • Barbara Thomas says:

    Once again, when has an EIR under CEQA or NEPA required “legally binding mitigations?” Under CEQA, impacts must be identified, mitigations proposed, then the agency decides what to do which includes going forward with the project without adopting any mitigations.

    If the City decides to require mitigation of the impact of derogation in air quality due to increased traffic, (such as an additional crossing somehow over the estuary with a link to 880), is SUNCAL going to be able to pay for this?

  • DJM says:

    Bernie Madoff was at one time considered to be a stellar hedge fund owner/manager- people were clamoring to get in on his deals, too. What I do know is that hedge funds, investing in what is considered to be extremely risky derivatives and the like- WITH LITTLE IF ANY TRANSPARENCY REQUIRED BY LAW- are not something that Alameda should be interested in. And even worse, if SunCal somehow is successful in using Shaw just to get their foot in the door at The Point only to then foist all the risk off onto Point and Alameda residents in the form of tax bonds is utterly crazy- they reap all the profit up front and leave you holding the bag. Go ahead, though, and vote for this deal if you like. You'd think that the financial melt-down of the past year or so, based largely on crazy and near-illegal derivitive and other risky investments, would be enough to convince you otherwise.

    • What I think, DJM, is that I'd like to make sure that we are relying on the facts at hand to make our decisions and not broad generalizations that may or may not be applicable to our situation. If you have specific information about Shaw, please share. If you are just looking to stir the pot because you are angry about your own situation in Oakland – which is completely understandable but, when you get down to it, a product of very different circumstances – perhaps you should focus your energies closer to home.

  • Miriam says:

    "If you have specific information about Shaw, please share. If you are just looking to stir the pot because you are angry about your own situation in Oakland – which is completely understandable but, when you get down to it, a product of very different circumstances – perhaps you should focus your energies closer to home."

    Dear Michele,

    This is the same SunCal that has left a trail of tears. Nothing has changed except that they have a new sugar daddy. Why do you think that SunCal's circumstances in Alameda are very different than the circumstances in Oakland or in the many other communities that SunCal abandoned?



  • DJM says:

    Michele, being a professional, responsible journalist called me immediately this evening to discuss this matter at length. (We are scheduled to meet and tour Oak Knoll the week after next.) In fairness, and after she jogged my memory, she did in fact phone me several weeks ago when matters at Oak Knoll initially became rather heated. I failed to get back to her- my error. My only concern, as relayed to Michele this evening, is that I don't want to see Alameda hurt, as has been Oakland, when dealing with SunCal- regardless of SunCal's financial backer this go-around at the Point. I have no horse in this race. I'm currently dealing with Oak Knoll having been, and it bears noting, criminally and illegally abandoned by a SunCal/Lehman partnership and want to save Alameda the same grief. Alameda deserves a transparent process, which I don't see as currently being the case, and by no means should Alameda feel pressured to go with just "anybody" in order to get the process underway at the Point.

    Don Mitchell

  • Miriam says:

    Hey back,

    Your article doesn't mention Shaw. The connection between Alameda and Oak Knoll is SunCal, not Shaw. Everyone loved Lehman until everyone hated Lehman. Shaw is just as much a high roller as Lehman. The dynamics are the same, just the source of the money has changed. The City of Oakland is just as upset as Don Mitchell, if not more so. http://www.insidebayarea.com/oaklandtribune/local

    Okay, let me say it. DJM is probably rubbing some people the wrong way, but that doesn't mean that his argument doesn't have merit.



  • DJM says:

    Michele- sorry for the delay in getting back to you. I have been busy in Oakland trying to get SunCal Oak Knoll LLC to clean up the mess they illegally left behind at Oak Knoll.

    Regarding SHAW: they are a hedge fund. Hedge funds are allowed to operate outside of the most routine regulations designed to protect their investors. They typically deal in short selling and dirivatives- highly speculative and risky transactions. Is there any reason why development at The Point needs to be funded in this way? Afterall we’re talking about simple development and home building.

    Not too many years ago SHAW had engaged in completely reckless investments in Russia, using their investors’ money, when Russia was obviously in complete turmoil and their financial markets ultimately collapsed. Maybe you remember this. SHAW talked BofA into a $2 billion line of credit- using BofA stock holders’ money- and ultimately BofA lost nearly $400 million dollars as a result of SHAW’s foolish investments in Russia. BofA’s CEO lost his job over this because he lied, or didn’t know, that his bank had lent money to risky hedge funds.

    Fast forward to today…SHAW, still operating in hedge-fund fashion, refused just 10 months ago to release money to its investors after Bernie Madoff, operating another famous HEDGE FUND, swindled HIS investors out of billions of dollars. Even after Madoff pulled his swindle SHAW was resisting demands that their investors be afforded a neutral, third-party administrator in order to ensure that SHAW’s investors had at leaset some paltry amount of oversight.

    Further, SHAW sold 20-percent of their business to Lehman 2 years ago. What happened to that, or will happen to it, as a result of Lehman’s bankruptcy? Will it end up sitting at the bottom of the hazardous waste/trash heap like Oak Knoll in Oakland.

    Would you invest your entire life savings and retirement funds in a secretive hedge fund, with not a very good track record, like SHAW? If not, would you invest the future of Alameda Point with the same hedge fund? We’re talking about building homes, here. Why does it take a secretive, marginally successful hedge fund to finance a simple undertaking? If the deal at Alameda Point is so sound then why not transparent, routine financing?

    • Hey DJM –

      So here’s what I know based on what you said.

      Shaw did, in fact, raise a gate on two of its funds back in December in an effort to prevent their collapse, if I understand what I read on the financial press on this correctly (link to a Bloomberg story here). Interestingly, both funds were performing beyond the market at large (one was earning 10 percent while the other lost four percent, against the market’s average decline of 16.4 percent).

      As far as the auditors go, I think you’re right that Shaw may have resisted, but they did ultimately asset to hiring a third party to look over the books (link here).

      I’d love to see a link on the Russian deals and BofA, I hadn’t seen that.

  • Lauren Do says:

    DLM: I assume you have read the same Wikipedia article on DE Shaw that the rest of us have read. So you’ll know that the Bank of America/Russia incident happened 11 years ago. But I suppose if 11 years is “not too many years ago” I guess that would be accurate.

    Also, according to a recently (Sept 1) released ranking of hedge funds, DE Shaw ranked in at 4th with $26.7 billion in assets. I’m not quite clear how that would be considered “marginally stable.”

  • DJM says:

    I’ll send you the link (a quick search on “d e shaw russian losses” will find it) but in the interim why would SunCal rely upon financing from a single-source on such a large job- risky at best (ala Oak Knoll)? And why would Alameda’s mayor and council persons even consider the deal when it’s a HEDGE FUND providing the financing? Bernie Madoff was, by all outward appearances, a terrifically successful HEDGE FUND manager. And even he had the S.E.C. look into his dealings when very respectable individuals complained about his returns on investment- about the same as SHAW’s claimed returns on investment. But more importantly, why is Alameda willing to take this risk when, if the deal pencils out as only minimally risky (which it certainly should as its just routine development of homes and minor commercial) and rely on other than sound, transparent investors?

    • You know, I'm thinking now would be a good time to point something out, and it's this: Technically, SunCal is not relying on DE Shaw alone, or at all at this point, to develop the base. Their agreement with Shaw only extends as far as the exclusive negotiating agreement we have with SunCal, and that terminates in July (barring extensions).

      Also – and this is important – even if they did ink an agreement, SunCal would not be relying on Shaw alone to finance the development. They would be seeking public money in the form of redevelopment bonds and also through an increase in the tax rate for property owners at the Point. And that item – the redevelopment bonds – is potentially a bigger question mark, because the city's redevelopment arm (if I've got this right) may have a tougher time going out for bonds if the state takes away the millions of dollars it plans to use to balance its own budget, because the redevelopment folks then wouldn't have that cash to bond against.

      And thanks for the promise of the link, I will check that out.

  • David Howard says:

    I had my tour of Oak Knoll with DJM a couple of weeks ago. (click my name.)

    DJM – and his fellow residents – is/are legit and sincere in getting Oak Knoll resolved, and preventing Alameda from getting led down the same garden path.

  • E T says:

    It just occurs to me: private, secretive hedgefund working with a public piece of property. Seems to me like the very crux of this matter are the huge unknowns. The public has a right to know what is happening with public land, particularly if the public will be paying for what happens on that land.

    Shaw needs to be an open book with not only the city of Alameda, but its public. There cannot be classified information on a matter going before the voters.

  • DJM says:

    I have given you nothing but the “facts at hand.” If you’re comfortable working with a risky HEDGE FUND to finance Alameda Point and your city’s future then go ahead. SunCal, whom you apparently are comfortable in working with, recently issued press releases stating that they have $500,000 to “clean up” Oak Knoll. (This press release conveniently coincided with SunCal taking heat over Oak Knoll and its apparent affect on their efforts toward developing Alameda Point; and Alameda’s mayor has since reversed her position supporting SunCal’s proposal at The Point.) $500,000 is nothing as cleaning up Oak Knoll in order to comply with the city of Oakland’s lawful order to abate the property will take at least $7 million. And they continue to thumb their nose at Oakland and ignore the lawful order to abate the blighted property- for which they can be arrested.

    When I challenged SunCal’s P.R. person (Joe Aguirre) two days ago re the press release, as I found nothing at all in the bankruptcy court’s docket regarding this matter, meaning SunCal’s press release was misleading at the very least, he advised that they had a “verbal” that the money would be “released”. He and I, and anybody familiar with bankruptcy court procedings, know that their press release means absolutely nothing. I’ve demanded a public retraction or clarification surrounding their press release but I’m sure it won’t happen. Again, if you’re comfortable working with SunCal then go ahead.

    I have an internal document (recently obtained from U.S. Bankruptcy Court) from SunCal’s attorney to Lehman, from a year ago when bankruptcy was imminent, advising that they would both be abandoning Oak Knoll littered with hazardous waste in violation of the law. All the while Lehman has $6 Billion in funds sitting in a checking account, the purpose of which is to do things such as clean up Oak Knoll. But if you’re comfortable working with SunCal then go ahead.

    We all know that these anonymous postings don’t mean much. So I’ll put my money where my mouth is- if you’re at least as equally interested in the future of Alameda. Call me on my cell phone and I’ll give you a tour of Oak Knoll and show you an example of how somebody like SunCal (and their financial backer Lehman) is comfortable leaving Oak Knoll and Oakland…before they shuffle on down the road to Alameda Point.
    Donald Mitchell
    Sequoyah Hills/Oak Knoll Neighborhood Association

    • Um, I called you for the tour a few weeks ago, Don. You didn't call me back. I can call again, though.

      I have not stated any position here, Don, except that I want this discussion to be based on facts that are applicable to us and our situation, not a bunch of bogus generalizations. There are plenty of issues for us to discuss regarding SunCal and their efforts here in Alameda and frankly, I feel like my community would be much better served if our attention is not drawn from those. That is my position.

      And by the way, thank you for signing your name to your comment. I am a huge fan of accountability.

  • Jack B. says:

    The primary thing to understand about hedge funds is… the nature of leverage. These guys are geared to the max, and Shaw is not immune. If I'm not mistaken they had a huge bond fund suddenly blow up in the late 90's. It doesn't mean they are evil, it's just the nature of risk when highly levered. I think this is the point that we all need to understand.

  • AD says:

    Jon Spangler: "The “nuancing” can be done quite legally–within certain boundaries–as long as the City and the developer agree and as long as the City gets as much or more than it does under the terms of the initiative (if the initiative passes)."

    Well yeah. What happens if they disagree, Jon? Not now, but later on?


    Thanks for the perspective, DJM!

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