The deal to buy up one block of downtown Modesto for a new courthouse ended up with the city’s taxpayers subsidizing California’s court system and two private landowners receiving significantly more than their land was worth, just-released property records show.
Last month’s controversial $5.45 million land purchase involved a complex double-sided escrow.
The city of Modesto first bought all the private land between G and H streets and Ninth and 10th streets. The city immediately resold those properties – along with city-owned land – to the state.
Modesto ultimately received less than $286,000 for that city land, which was valued at $1 million.
By contrast, one private landowner collected about $124,000 more than the appraised value for his property, and another landowner was paid $31,000 above value.
City leaders insist it was a good deal that will bolster economic development along the now-blighted 10th Street.
But critics question the deal’s wisdom and blast city and state officials for shutting the public out of the decision-making process.
Longtime Modesto restaurateur Gary Gervasoni, meanwhile, defends his part of the deal. He convinced the city to pay about $544,000 for his land, which had an appraised value of $420,000.
“I think I should have gotten another $100,000, but that’s the way it is,” said Gervasoni, whose quarter-acre of land and 50-year-old building is on Ninth Street.
City leaders called Gervasoni a shrewd negotiator who forced them to pay $124,000 more than the appraisal or risk losing the courthouse location they coveted.
“I just looked out for myself,” Gervasoni explained. He knows that because he received more, the city had to accept less for its property. “That’s how the game was played. I don’t think the city should even have been involved.”
The state court system, however, refused to pay Gervasoni or any other landowner more than their land was worth.
“It’s in our bylaws. We are not allowed to pay above appraised value,” explained Keby Boyer, spokeswoman for the Judicial Council of California.
To get around that law – and to meet the state’s other objectives – city leaders agreed to play middleman in the transaction.
That allowed the city to shift proceeds from the sale of three-quarters of an acre of city property to Gervasoni and to a group of Los Gatos investors, Gina and Michael Rugani and Sandra Ann Heffernan, who owned 713 10th St.
Plans secretly changed
“There was no transparency to most of what they did,” said Ray Simon, a former longtime member of the Stanislaus County Board of Supervisors.
Simon was among a group of prominent Modesto residents, including Marie Gallo, who fought to keep the courthouse on I Street. They wanted it built at 13th and I, where The Modesto Bee currently leases office space.
“We were treated almost rudely” by both city and state officials, said Simon, who objected to the way details of the land deal were kept secret from the public.
The city did allow public input last April when it approved a series of resolutions stating how much it planned to pay for each of the private parcels.
Sometime after that public meeting, however, council members decided behind closed doors to pay Gervasoni more than what had been publicly approved.
Last April’s resolution said the city would pay a “total compensation not to exceed $492,000” for Gervasoni’s property, but he ended up with about $544,000.
“We had to revisit that,” explained Brent Sinclair, Modesto’s community and economic development director. He said the decision was made by the council during closed session, which he said is allowed during real estate negotiations.
“That was what we had to do to meet the needs of the landowners,” said Sinclair, who would not comment specifically about the Gervasoni deal.
Sinclair has been the city’s courthouse project point man for more than four years. He said it’s “pretty common” for the city of Modesto to pay landowners more than appraised value for their property.
It’s also common for the state to “ask cities to provide the land up front” for state buildings, according to Sinclair.
The Bee has asked Boyer, the Judicial Council’s spokeswoman, to confirm that, but she said the answer had to be “vetted,” and it was not available as of Friday afternoon.
Insurance, fees add costs
The city also paid assorted other costs.
For example: The city was required to pay $183,621 for “pollution liability insurance” to cover the state in case it turns out any part of that downtown block is contaminated.
Despite repeated requests by The Bee over the last two years, the state has yet to make public the environmental studies done for that land.
Modesto city workers and contractors also are expected to remove all the utilities – including water, sewer, gas, electricity and cables – from the formerly city-owned alley that runs through that block.
The state has agreed to pay the city a maximum $367,000 for that job, which Sinclair expects will be enough.
The city also had to pay all the escrow and title insurance fees required to buy the block’s private properties. And for at least the next year, the city is required to manage those now state-owned properties. That will include dealing with the block’s remaining tenants.
Those tenants may end up costing the city more money. Sinclair said the city will announce next month how much it expects to spend relocating tenants.
“As we move through this time of transition, we will be assessing further needs and obligations we (the city) need to address with each of the tenants,” Sinclair explained. “We know relocation is a great inconvenience to all the tenants, and to that end we will do what we can to assist in meeting their needs.”
That’s going to be expensive, warned Niniv Tamimi, managing partner for the investment group that owns the 13th and I Street property.
If the city hadn’t agreed to subsidize the 10th and H Street land deal for the state, Tamimi said the new courthouse would have been built on his block at no cost to the city. The appraised value for his land also was $5.45 million.
“The city is going to end up with zero for $1 million worth of the city’s property,” Tamimi predicted.
‘Moves the heart of the city’
Modesto City Councilman John Gunderson remains convinced the city did the right thing “for the economic development and the health of downtown.”
“We’re getting rejuvenation in a part of the city that needs it,” Gunderson said. “It kind of moves the heart of the city toward the river.”
Construction of the $262.5 million courthouse is supposed to start in July 2017, according to Boyer. Completion is expected in February 2020, although that date has been pushed back several times in recent years.
Councilman Dave Lopez also believes the city was right to do what was needed to get the courthouse on 10th Street.
“As city leaders, we got actively involved in the way we wanted the city to grow,” Lopez said. “Ultimately, I think we were getting the best deal we could.”
Councilman Dave Cogdill agreed putting the courthouse on 10th street “fit into the long-range plan for downtown.”
“That’s why we got involved,” Cogdill said. “The city did end up having to spend some money to make it happen … but the reward is far greater than the shortfall. It was a business decision.”
COURTHOUSE DOCUMENTS LINKS
Bee staff writer J.N. Sbranti can be reached at firstname.lastname@example.org or (209) 578-2196.