MODESTO — The Modesto City Council wants investor/developer Paul Draper to negotiate its complicated land deal for the proposed downtown courthouse project, and it's agreed to pay his company a 3 percent sales commission.
But Draper does not have a California real estate license.
City officials contend that doesn't matter because a member of Draper's Centerra Capital staff does have a real estate broker's license.
The Centerra contract the council approved Tuesday, however, requires Draper to do "100 percent" of the work on the courthouse land deal. So questions are being raised about whether Draper legally can represent Modesto in its real estate negotiations.
A big commission and the $278 million courthouse project are at stake.
In a split vote Tuesday, the council agreed to hire Modesto's Centerra Capital to provide "real estate services for the acquisition" of all the privately owned property between Ninth and 10th streets and G and H streets. That's where the new courthouse is slated to be built. (Click this link to see a map of the properties.)
After buying those six parcels, the city plans to resell them along with the five parcels it owns on that block to the state.
The state has approved paying as much as $6.86 million to acquire that land. If a 3 percent commission on that amount is paid, that would total $205,800.
Whether Centerra's licensed real estate broker, Shannon Bates, would get a cut of that commission is not known. She was not mentioned anywhere in the contract approved by the council specifying that Paul Draper perform "100 percent" of the services required to do the land deal.
"We're wanting Draper to do it," Brent Sinclair told The Bee. Sinclair is Modesto's community and economic director, and he is the staff member overseeing the courthouse land deal. "Draper is the only one who is knowledgeable in this field," he said.
Late Thursday afternoon, Draper sent an email to The Bee responding to questions about the contract.
"As broker of record, Shannon Bates oversees and reviews any real estate transactions at Centerra Capital," Draper explained. "She will be involved to the extent necessary, as well as to assure that Centerra Capital complies with all (Bureau of Real Estate) and other legal requirements relative to this assignment."
Draper would not reveal how much Bates will be paid for her services, calling that information proprietary. He agreed that Bates needs to be included in the city contract.
"The language in the city agreement does need clarification, and Centerra Capital will be requesting a modification," Draper said. "Upon reading the agreement, I suggested that they add Shannon's name as broker of record to the signature block but did not catch the omission."
Draper is Centerra's founder, president and chief executive officer. The company's website says he "started Centerra Capital in 1998 and since then has managed a number of corporate finance and real estate investment and advisory transactions."
Sinclair said he does not consider it a problem that Draper does not have a real estate license. "He disclosed that to us up front," Sinclair said.
At Tuesday's City Council meeting, Sinclair said that about three years ago, he asked Draper to partner with him on putting together the city's application for the courthouse site.
Sinclair told the council he wanted to work with Draper because of Draper's experience with the so-called Team Modesto project. That proposed mixed-use, multistory project at 10th and H streets never materialized, falling victim to the recent recession and real estate crash.
An area of expertise
Sinclair said that while working on that deal, Draper developed relationships with the private landowners on the block where the courthouse now is planned.
According to Sinclair, Draper has put in hundreds of hours on the courthouse land deal, but Centerra will get paid only if the state ultimately buys that block.
Despite working together for three years, the city's arrangement with Draper did not become public until Tuesday's council meeting. No other licensed real estate brokers or companies were given an opportunity to bid on that city contract.
The Centerra deal initially was put on the council's agenda as a "consent" item. Such items typically get approved without discussion, but questions about the deal convinced the council to open the proposal to comment.
Councilman John Gunderson ended up voting against the deal, but it won support from five council members: Mayor Garrad Marsh, Stephanie Burnside, David Geer, Dave Lopez and Dave Cogdill.
Councilman Joe Muratore abstained from the vote because he has a conflict of interest. According to Muratore, he worked for Centerra Capital from 2005 until December 2008. Muratore took office in 2009.
Muratore has had a real estate broker's license since 2006, and the state Bureau of Real Estate's website lists Muratore as being Centerra Capital's "designated officer" through Sept. 19, 2011.
"I am not sure why I was still listed as an officer until 2011. That change should have occurred when I left or very shortly thereafter," Muratore said Wednesday. "If any transactions or licensed work was done after December of 2008, it was done without my involvement or knowledge and I was not compensated."
The Bureau of Real Estate website says Shannon Bates did not acquire her broker's license until May 10, 2010. She currently is listed as Centerra Capital's "designated officer."
The state website does not list any other licensed real estate broker as having been a "designated officer" at Centerra Capital.
Russ Heimerich, a deputy director for California's Department of Consumer Affairs, which includes the Bureau of Real Estate, said state law requires those who represent other people in real estate transactions to have a real estate license.
"Mr. Draper cannot do any act that requires a real estate license," Heimerich said. He said an example of what requires a license is "offering up any paperwork on behalf of a client with expectation of a fee."
According to the contract approved Tuesday by the City Council, Centerra Capital is going to "present offers to acquire the private parcels, assist city in negotiating for acceptance of such offers, to provide reports on the status of such offers and negotiations and facilitate the escrow process."
The first version of that contract required Draper to do "100 percent" of that work.
'Far more than "brokering" a deal'
"This potential transaction requires far more than 'brokering' a deal," Draper explained in his email. "We have been hired to lend our real estate and analytical experience to this complex transaction."
Draper described Centerra Capital as a corporate finance and real estate investment/advisory firm.
"We hold a broker's license to accommodate our clients' needs," Draper said. "We have engaged other true brokerage companies in the community to represent the properties that we own/manage."
Draper said the percentage of the work Bates ends up doing on the deal "depends on the length and degree of difficulty of the assignment."
Heimerich said the Bureau of Real Estate investigates all complaints regarding whether people involved in real estate transactions are properly licensed.
Regarding whether the city can use Draper in its property negotiations for the courthouse project, Heimerich said: "It sounds like at least a matter for the real estate department to look into."
Muratore noted that Draper "has the ability to sell or buy his own real estate just as a homeowner can sell their own home" without having a real estate license.
Draper, for example, negotiated with Modesto's Redevelopment Agency and EAH Housing Inc. in 2007, 2008 and 2009 to sell property he partly owned on Carver Road. That land is where the Archway Commons apartments for low-income families are being built.
One of Draper's companies, 4701 Stoddard LLC, and his Turlock partner Sylvia E. Cox, bought that land in 2007 for $2.82 million. The city and EAH ended up paying Draper and Cox a total of $3.96 million for the property in 2009.
Bee staff writer J.N. Sbranti can be reached at firstname.lastname@example.org or (209) 578-2196.