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Riverside Swamp

Developers
George Sakkestad

Up a Creek: San Jose Developers Cliff Wininger and Murlin Vellequette stand by their property near the Guadalupe River which they've been trying to develop for more than a decade.

Ninety small-time investors in downtown real estate say the Redevelopment Agency has sold them down Guadalupe River

By Richard Sine

FOR THE NEARLY $3 million sunk into two acres of property adjacent to the popular Henry's Hi-Life restaurant, there's not much of a view: a few decrepit or boarded-up houses, junked furniture and gravelly lots. You certainly can't see evidence of the $15,000 Jim and Sharron Cannon invested more than a decade ago, hoping that the returns from that money would pay for their children's college education. You can't see the $20,000 Thurman and Chlorine Chappell invested, hoping that it would finance their retirement. By now the Chappells have retired, and their money is still in that lot.

The Chappells and Cannons are two of more than 90 investors who pooled their savings to purchase the property in hopes that, within a few years, a high-rise riverfront hotel or office building would spring up on the site. But since that time, the city has declared the property and most of the land that surrounds it to be part of Guadalupe River Park, a three-mile-long park which may be completed as soon as 1998.

The 155-acre, $138 million swath of paths, meadows and picnic grounds promises to be a pleasing addition to the heart of the city. But investors feel the city has sold them down the river. They say that the Redevelopment Agency of San Jose decided to put their lot into the park's master plan without consulting all the property owners involved, effectively dashing any development possibilities. Last year they lost a suit against the Redevelopment Agency to force the city to buy the property. Now they're appealing the suit and appealing to the city to give them some indication of what they can do with their land.

City attorneys say the investors are trying to make the taxpayers pay for their bad investment. They argue that the developers were foiled not by the city's park plan but by their own overambitious ideas and a bad building market. They point out that in over a decade, the group never formally submitted a solid development proposal.

In the case of the Vellequette property, as it is known, the downtown development tango--usually an indoor affair--has hardened into a nasty public standoff. Observers say the case gives insight into how much of downtown development depends on quiet negotiations and tacit official approval.

The investors started buying properties near Henry's Hi-Life back in 1984, when the construction market was heating up and the ambitious River Park Towers project was in the works. The initial plan, spearheaded by Murlin Vellequette and Cliff Wininger, was to assemble 14 small lots containing houses and small businesses and sell them to a developer. One developer who showed interest was Jim Mair of South Bay Construction, who has developed large apartment complexes, hotels and office parks and was looking at downtown sites.

As is typical of developers who want to work downtown, Mair met with the city's Redevelopment Agency to get a sense of what kind of developments the city would approve or subsidize. During one of those meetings, in 1987, while the site was still zoned for commercial development, agency director Frank Taylor reportedly told Mair that despite the designation, the Vellequette property was slated to be part of the park. Mair subsequently told Vellequette that he was no longer interested in the site. The investors claim that Taylor essentially killed any deal they could have had with Mair.

In 1989, the city and county made Taylor's remark official by endorsing a park master plan that included the Vellequette property. The master plan indicates that the general plan will eventually be changed to zone the area as a park, but the Vellequette property is still zoned for commercial development.

Possibly realizing that he wouldn't like a major development in the middle of the park, Taylor sent a memo to the investors in 1991 announcing his agency's intention to buy their property. The Santa Clara Valley Water District offered to loan the agency money for the two agencies to buy the properties together. But the agency later pulled out of the deal.

During these years, the water district started buying up parts of the Vellequette property for the Guadalupe River flood control project which is still in the works. In 1991, however, the water district demanded one-third of the land--so much that the investors claimed it would gut any project that would provide them with reasonable returns. The water district later sued to condemn the property it wanted, in a suit that is still pending. The investors, convinced that the city and water agency had rendered the land useless, then sued both the agency and the water district to force them to buy the entire property.

IN THE TRIAL that followed in June 1995, the city tried to prove that the investors would have failed regardless of the undisclosed park plan. Testifying for the city, a hotel consultant opined the property was too far away from the airport and downtown to succeed as the site of a major hotel. An appraiser also testified that a large office building would not succeed west of Highway 87--outside the core of downtown--and that the office building market was poor in the late 1980s anyway.

The investors put an appraiser on the stand who testified that the city's designation of the site as future parkland slashed its value by almost two-thirds. And an independent planning consultant, Sanford Getreu, testified that for the investors to submit a development proposal to the city now would be "foolhardy." The investors, Getreu said, might "spin your wheels and spend a fortune going nowhere."

Developer Jim Mair's testimony nearly backfired on the investors. In a deposition before the trial, Mair said agency director Taylor told him "it would be a difficult site probably to develop at this time because of the city's future plans" for a park. But at trial, Mair said he couldn't remember whether he was still even considering the site when Taylor spoke to him. (Mair declined to talk to Metro directly, instead referring to his testimony.)

Judge Robert Baines ruled for the city, though he disapproved of some of the city's actions. The judge found that the city had raised the investors' hopes by announcing its intention to buy the property, and showed "unreasonable delay" in purchasing it. But he ruled that the city had no obligation to buy the land because its delay had only reduced, not destroyed, the land's value. (In the suit, the investors demanded that the city buy all their land at current market value, not compensate them partially.)

Moreover, Baines concluded that "evidence fell short of showing that, had there been no Guadalupe River Park Plan and had developers explored the site, they would have agreed to purchase or develop it."

But in a post-trial conference four months later, the judge urged the city to end the standoff. "I would think out of fairness to the property owners here, that the agencies, the City and Redevelopment Agency ... would want to give a clear statement of where things now stand. That is, is it such that the Agency clearly never wants to acquire this property; does it want to acquire it but only when funds are available; and also, give a clear statement as to what would happen if the owners came forward with a development project. ... Is that going to be considered or will that be rejected no matter how reaonable or how meritorious the project might be?"

THE RDA and city council will not talk publicly about the property anymore, because the investors have appealed their suit. City attorney Joan Gallo maintains that the city has already answered the judge's concerns. "We have told the owners that there is no plan to purchase this property. If they do submit a development plan, it will be seriously considered. We don't tell property owners what to do with their property."

Gallo adds that the park master plan is constantly changing, as evidenced by a recent decision to set up a historic home district adjacent to the Vellequette property. And the investors' property is still zoned for development. "Whatever long-term dreams the city has in various so-called plans, developers can still develop their properties. Plans are long-term thinking."

The investors, however, say they doubt the city has any intention of approving a two-story or larger development in the middle of their new park. Vellequette says the investors, having waited ten years or more for a return on investment, are reluctant to waste the $100,000 or more needed to present a development proposal doomed to failure. They've hired Dan Orloff, partner in a well-connected public relations firm, to appeal to city officials.

Orloff says the investors are crippled because they aren't part of the small clique of big developers on whom the redevelopment agency has relied on for most of its development downtown. "The downtown won't take off until medium and small investors come in and invest their own money without a city subsidy. Our guys are guilty of being outsiders, being small, and being naive."

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From the August 1-7, 1996 issue of Metro

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