Richmond sued for $20M over Point Molate

SunCal and Winehaven Legacy LLC sued Richmond for $20 M claiming Richmond breached their contract by denying the funding mechanism, a Communities Facilities District (CFD), also known as Mello Roos bonds, to build infrastructure for Point Molate.  They have demanded a jury trial.

Meanwhile, Upstream and the Guidiville Band of Pomo Indians (Guidiville Rancheria of California) informed Richmond they will exercise their option to buy the land rights to Point Molate for $400.

SunCal and Winehaven Legacy LLC’s purchase price of $45 M was to have been split 50/50 between Richmond and Upstream/Guidiville.  The 50/50 split was the result of a settlement when the Ninth Circuit Court of Appeals found plausible evidence that then Mayor Gayle McLaughlin violated the implied covenant of good faith and fair dealing.

SunCal/Winehaven is asking for an injunction that would prevent the city from selling the land to another party before its claims are resolved and is seeking an order (6th paragraph of SFBT article) compelling the city to allow it to purchase the land at Point Molate.  The developer accused the City of breach of contract and breach of the covenant of good faith and fair dealing, arguing Richmond violated the terms of existing agreements and acted unfairly or arbitrarily in voting not to establish the CFD.

With the denial of the CFD, Richmond taxpayers/residents:

• Lost $22.5 M (50/50 split of purchase price) in revenue this year.

• Relinquished the land rights to Point Molate to Upstream/Guidiville for $400.

• Are being sued by SunCal to recover in excess of $20 M in costs.

• Are now responsible for close to $1 M in legal fees the City incurred to successfully defeat the CEQA lawsuit brought by North Coast Rivers Alliance (Point Molate Alliance). Costs will go up as North Coast Rivers Alliance filed an appeal on April 7, 2022. SunCal was to reimburse these costs on closing.

• Are now responsible for at least, and likely over, $1M to defend SPRAWLDEF’s Brown Act challenge and appeal over the past 4 years. The Ninth Circuit Court of Appeals affirmed the lower court’s dismissal of the lawsuit on May 12, 2022, agreeing the legislative body (Richmond City Council) cured or corrected any alleged violation. Again, SunCal was to reimburse these costs on closing.

• Are now responsible for an estimated $1-2 M over 2-3 years to defend the new SunCal lawsuit.

• Are responsible for up to $5 M for the upkeep and security of Point Molate ($1 M/Yr). The land will transfer to Upstream/Guidiville for $400, and they have 5 years to resell the land.

• Lost jobs and revenue from real estate transfer taxes, property taxes, business taxes, and sales tax.

Voting no to deny the CFD on the premise it affected the General Fund:  Councilmembers Gayle McLaughlin, Eduardo Martinez (currently running for Mayor), Claudia Jimenez, and Melvin Willis.  Mayor Tom Butt had internet problems preventing him from voting.  Councilmembers Nat Bates and Demnlus Johnson were absent.

Voting yes on the Resolution declining to waive certain financial conditions (for SunCal/Winehaven’s closing):  Councilmembers Gayle McLaughlin, Eduardo Martinez (currently running for Mayor), Claudia Jimenez, Melvin Willis, and Demnlus Johnson.  Mayor Tom Butt and Councilmember Nat Bates voted No.

After denial of the CFD, SunCal/Winehaven was asked in mid-March, two months before closing, to find alternative funding for the $292 M CFD.  Mr. Aleshire suggested that although the city denied the CFD (the funding mechanism in the agreement) SunCal/Winehaven had the opportunity to arrange alternative financing; so he believes SunCal/Winehaven is the party at fault and suggested Richmond would prevail.

SunCal/Winehaven chose not to seek alternative funding sources but rather asked Richmond to cure its breach by creating the CFD or they would pursue “alternate pathways,” including “initiating a lawsuit.”  We are headed back, to quote Interim City Attorney, David Aleshire, to “extensive litigation.”

Let’s look at how the project came to affect the General Fund and SunCal/Winehaven’s response.

• SunCal and Winehaven Legacy LLC planned a 7-year buildout.

• Over a number of public meetings, the City Council asked for an expanded 15- and then 30-year buildout scenario.

It should be noted that a 15-year buildout is a conservative position, and a 30-year buildout is a very conservative position (see pg 26-27 in the February 24 Agenda Documents, which are pg 4-5 of the 30 Yr Fiscal Impact Projections for Point Molate by NHA Advisors).

• The City Council next asked the financial consultants to use a $571,000 sales price (housing) in their financial analysis. The $571,000 sales price came from Strategic Economics, the financial consultant commissioned by Point Molate Alliance. Click here (pg 3) to see the different home values and note that Integra (with the highest home values) was the ONLY registered appraiser used.

• It wasn’t until the 30-year buildout and adjusted sales price of $571,000 was used that it affected the General Fund. (March 18 Agenda Report, pg 5, paragraph 5)

• To cover any possible costs that might affect the General Fund using the 30-year buildout and lower housing value of $571,000 (in addition to costs associated for the police and fire station until a threshold of 600 units built was reached), SunCal/Winehaven proposed taxing undeveloped property (whether owned by SunCal/Winehaven or another developer). The amount of the tax was to be determined by a City-appointed fiscal consultant, using the actual sales prices and the 2020 BAE (City peer reviewed) model. The tax will be limited to $6.3 M per year maximum (which covers the cost of police and fire at $5.3 M). There will be an annual inflator in maximum tax equal to no less than 2% per year, or the CPI subject to a 6% per year cap.

• This is the "SunCal Concession." See the last page in this report. It states, “The Special Tax B for services levy on undeveloped property over a 30-year buildout fully covers the interim negative fiscal impact.” SunCal offered to take an additional $48 M hit to their bottom line to cover any possible negative fiscal impact.

Discussing SunCal and their threat to sue, David Aleshire, Interim City Attorney, said at the May 24, 2022, City Council meeting, “My job at this point, given the council action, is to defend the council and make the arguments on behalf of the council so that the city does not bear all of the damages and consequences; and I understand the political argument but the political argument ended at a point and from that point on, my job is to defend the City.”  (Discussion about Suncal begins about 4:20, and the City Attorney’s comments occur about 4:30.)

When Mayor Tom Butt continues to question the City Attorney to list the losses to the General Fund, Mr. Aleshire states he can’t name them because he doesn’t “have the info in front of him and says it depends on the buildout.”  To recant, there are no General Fund losses in the 7- or 15-year buildout and no General Fund losses in the 30-year scenario with the SunCal Concession.

As Mayor Tom Butt continued pressing the City Attorney, Councilmember Gayle McLaughlin made a motion to cut off debate.  Councilmember Eduardo Martinez (running for Mayor in 2022) seconded the motion.  Councilmember Claudia Jimenez voted Yes to end debate alongside Councilmembers Gayle McLaughlin and Eduardo Martinez.  Mayor Tom Butt and Councilmembers Nat Bates, Demnlus Johnson, and Melvin Willis voted no to cutting off debate.

Point Molate Alliance is claiming the project will cost the City $200-$400 M.  It seems (as they have not specified where the losses are coming from) they are referring to the funding of the CFD ($292 M).  Mark Northcross, NHA Advisors, made it clear the City is not responsible to pay off any CFD bonds.  The City may be required to handle bankruptcy proceedings, but those costs are fully reimbursable if a bankruptcy occurred.

It appears the Richmond City Council majority has twice now scuttled development plans for Point Molate, not allowing the prospect of a $45 M sales price and a (City consultant’s peer reviewed) projected surplus of $7.8 M per year stop them from pursuing their dream of making Point Molate a park (approx 56 min. in) and here.  Missing video described here go to April 6 letter, pg 7, Item 1 (and the paragraph above Item 1).

With both Upstream/Guidiville and Suncal/Winehaven, the Council put Richmond at risk of huge damages and ignored the federal mandate, that Point Molate must be an engine of economic growth for Richmond, issued when the Navy sold Point Molate to Richmond for $1.

For a detailed history since the 2012 lawsuit began along with more information on the denial of the CFD, click here (go to March 18, 2022, and read through the May 17, 2022, update).  The history also details how the (majority) City Council asked Teresa Stricker (then City Attorney) to stop defending lawsuits against Richmond and even asked her to join in a lawsuit against Richmond.  She later resigned.