Questions are swirling around a hinky land deal in La Habra in which the city council swooped in under questionable circumstances to purchase a redevelopment agency property out from under the highest bidder — after the public bidding had closed – prompting questions about self-dealing and bid-rigging.
What’s more, when that company upped it’s bid by more than 35%, the city council ignored that offer and plowed ahead with its plans to buy the property for twice it’s appraised value – but $20,000 less than the winning bidder was willing to pay.
Confused? Bear with us.
The property in question is a 2.8 acre parcel that comprises part of the La Habra Marketplace shopping center’s parking lot. The city’s former redevelopment agency purchased the parcel for $2.5 million in June 1990 when it was re-developed as the La Habra Marketplace. It is the city’s last remaining redevelopment property.
According to public documents, La Habra’s redevelopment agency bought the parcel “to provide public assistance to the said developer” while agreeing to a grant deed restriction limiting the parcel’s use to “a surface level public parking lot.”
After the state dissolved local redevelopment agencies in 2012, municipalities formed “successor agencies” to oversee to disposal of their redevelopment properties.
For years, the Orange County Oversight Board (OCOB) hounded La Habra to sell the parcel. Earlier this year, after having its desire to buy the parcel rebuffed by the county oversight board on legal grounds, the city finally got around to conducting a “good faith” solicitation of bids last summer. As part of that process, the city commissioned an appraisal, which said that the 2.8 parcel that the city purchased 32 years earlier for $2.5 million was worth only $30,000 due to the grant deed restriction to which the city had agreed at the time.
In other words, back in 1990 those savvy La Habra redevelopment officials radically devalued the 2.8 acre parcel even as they paid the developer $2.5 million for it. It’s difficult to see that 1990 transaction as anything but a thinly-veiled direct taxpayer subsidy for the shopping center developer.
Be that as it may, the city owned 2.8 acres for which it paid $2.5 million dollars.
- $27,500 from Goldenwheat Properties LLC
- $25,000 from LH Borrower, LLC
- $25,000 from Southwest Group Properties
Goldenwheat wants to turn the parcel into a Tesla charging station, which would seem to be more or less consistent with the deed restriction.
The second place bidder, LH Borrower LLC, appears to be a shell company for shopping center owner DJM Capital. According to the firm’s Statement of Information filed with the Secretary of State, LH Borrower LLC and DJM Capital have the same address in San Jose.
After bidders were asked to submit a best and final offer (BAFO), Goldenwheat Properties LLC was still the top bidder , more than doubling its offer to $56,500. LH Borrower LLC – a front for the shopping center owner – bumped its bid slightly to $27,500 while Southwest Group Properties stuck with $25,000.
So Goldenwheat wins fair and square, right?
On November 20, four days after receiving the BAFO bids, the Successor Agency of the City of La Habra met in closed session to consider the offers and then “requested staff to contact the City of La Habra (City) to determine if the City had any interest in purchasing the property,” according to the December 18 staff report.
Bear in mind that the Successor Agency Board of Directors is comprised of the La Habra City Council members, and the Successor Agency’s executive director is La Habra City Manager Jim Sadro. It’s the saem decision makers wearing different hats. In other words, the city council directed itself to ask itself if it wanted to buy the 2.8 acres.
The city council replied to itself in a closed session meeting on December 4, and Successor Agency Executive Director Jim Sadro sent a letter to himself offering to buy the parcel for $57,500 – just a thousand more than Goldenwheat’s bid.
Unsurprisingly, the bid was accepted.
The city’s bid was fast-tracked to the Planning Commission, which approved it with no discussion on December 10, and the offer was agendized for the December 18 city council meeting.
Naturally, Bob Wheatley, president of Goldenwheat Properties and clearly the highest bidder in the bid solicitation, was unhappy with the city council’s decision to hijack the process.
“I must express my deep concern about the integrity if the bidding process,” Wheatley told the council, noting that the success agency is legally obligated to conduct “process in good faith to solicit proposals from interested parties.”
“The question to you was the solicitation conducted in good faith?” Wheatley asked, saying the councilmembers closed session meetings on November 20 and December 4 “raise concerns.”
“A bid was offered by the city for $1,000 higher than the Goldenwheat bid after the bidding was closed,” noted Wheatley, asking “what is the public purpose for the city to own” part of a shopping mall parking lot.
“The sequence of events raises serious questions about bid rigging and self-dealing,” said Wheatley.
Still, Wheatley decided to light a candle rather than curse the darkness, and offered to increase his company’s bid by 32%.
“You have an offer before you from my company to increase our bid to $75,000, making us the highest bidder again,” Wheatley told the councilmembers.
After all, if the city council can make a bid after the bidding is closed, why can’t Goldenwheat Properties?
La Habra City School District Board of Education member Dr. Susan Pritchard also raised concerns about the city council’s conduct, especially since a large percentage of the proceeds from the sale of such residual redevelopment properties goes to local school districts.
She noted that in June 2022, La Habra reported to the county oversight board that the value of the property was $2.5 million.
“Why is it now being undersold, per the city’s own evaluation of little more than a year ago, by more than $2.4 million less?” she asked.
“More importantly, if the land value a little more than a year ago was $2.5 million, how much more would [La Habra City, Lowell Joint and Fullerton Joint Union] school districts receive from the sale?” Pritchard asked the council.
Councilmembers had little to say in response to these valid and serious concerns beyond soliciting pro forma reassurances from staff.
“In your opinion do you feel that we have done everything under the legal guidelines expected by the La Habra City Council and the…successor agency?” Councilman James Gomez asked City Attorney Dick Jones.
“The answer is ‘yes’,” Jones responded, before immediately qualifying his answer: “Let me indicate to you that I’m not – our firm is not handling this particular matter. It’s being handled by outside counsel who has assured mine they are following all the legal requirements.”
Mayor Darren Nigsarian brought up the question of the parcel’s value in a question to City Manager Jim Sadro: “There’s this erroneous figure – something of a couple of million dollars in terms of the value of this parking lot. What was the actual., official appraised value of that land, Jim?”
“The value of the land with the parking restrictions that are on the deed restrictions, was appraised by an outside appraiser for $30,000,” said Sadro.
“That’s a little bit different than two-and-a-half million, isn’t it?” said Nigsarian – while failing to address why he supported paying twice the appraised value for a parcel for which the city has little real use.
With that, Gomez moved to approve the purchase, and the council unanimously approved it.
Let’s set aside for now the notion that this 2.8 acre piece of real estate is worth less than a nice used car. Is paying TWICE the supposedly-appraised value of the property a good use of tax dollars? Especially considering the staff report said the only remotely “public use” is as a staging area for an annual 5K charity run?
Was it ethical for the council to shoulder out the highest bidder in the public solicitation process? The council’s decision to short-circuit the process by jumping in with a slightly higher bid after the bidding had closed is the opposite of “good faith.” What bidder would trust such a process in La Habra in the future if the city council can just big foot its way in after bidding is closed.
Was it responsible to spurn the opportunity to refuse an additional $20,000? A Tesla charging station serves an economic purpose and generates at least some tax revenue – not mention drawing people who can afford a Tesla to the shopping center.
A major unanswered question: why didn’t the entity with the most at stake – DJM Capital, the owners of the La Habra Marketplace – make more of an effort to purchase the 2.8 acres? Surely, they have more at stake than the City of La Habra?
The irregular and arbitrary behavior of the City of La Habra in this matter raises serious. Mr. Wheatley’s concerns about bid-rigging and self-dealing by the city council are not idle – indeed, they would occur to any reasonable person after being acquainted with the facts of the matter.
The dismissive attitude of Mayor Darren Nigsarian and Councilman James Gomez, combined with the refusal of councilmembers to explain to the public their reasons for hijacking the public bidding process and paying twice the appraised value for a piece of parking lot while turning down tens of thousands of dollars in free money – while, it doesn’t look good, to say the least.
It is not a done deal. The matter now goes to the Orange County Oversight Board on January 16 for final approval. Given the past disagreements between La Habra and the oversight board regarding this very parcel, it is by no means assured the La Habra City Council will get away with essentially rigging the game in order to cheat the highest bidder in a public bidding process. Indeed, the interests of good government, transparency and responsible stewardship of tax dollars would be best served if the county oversight board rejects this ham-fisted attempt by La Habra officials to pay a premium for 2.8 acres of asphalt for which the city has no real need.