Modesto takes step toward $3.1 million land deal; mayor says it's a mistake.

Modesto now has 120 days to decide whether to pay $3.1 million for an entire city block, which proponents say could be an opportunity for the city to help in the revitalization of downtown, though the mayor says the city is making a mistake and one it cannot afford.

The City Council voted Tuesday to enter into a purchase agreement for the approximately 2.75-acre block, which is bordered by Ninth and 10th streets and E and F streets. The property has nine tenants, including the El Sol restaurant.

Mayor Ted Brandvold cast the only “no” vote. “This is not a prudent use of our taxpayers’ money,” he said.

The purchase agreement for the downtown block — which is owned by Victor and Iris L. Martinez, trustees of the Martinez Trust — is not final. The agreement gives Modesto 120 days to conduct its due diligence on the property, and it can back out of the purchase for any reason or no reason during that time period.

The vote came after the council held a workshop to discuss what to do with the city’s three golf courses, which require an annual $750,000 subsidy, according to the city. The possibilities include closing two courses, but no decisions were made, except to seek proposals on what to do with the courses. But the workshop highlighted the city's financial challenges with golf.

Council members who voted for the purchase agreement said Modesto essentially is getting a free look at the property while deciding whether to go forward with the deal.

A city report says Modesto’s only cost during due diligence will be for staff’s time to inspect the property and its buildings and roughly $10,500 for an environmental report and an appraisal. The city may negotiate a new purchase price if the appraisal comes in lower than $3.1 million.

The report and proponents say the property is in a prime location and is near such downtown attractions as the Gallo Center for the Arts and the proposed Altamont Corridor Express commuter train station.

Modesto has no firm ideas on how to redevelop the city block, how to pay for that, and no timeline for when redevelopment would occur. But some of the ideas being talked about include building a public safety campus, high-density housing, public-private partnerships and businesses.

Craig Lewis — who has been in the real estate business for 38 years in Modesto and now as owner, operator of Lewis Capital Advisors — said Modesto must come up with an in-depth plan for redeveloping the property during its due diligence period.

“I would certainly hope they would have a bona fide business plan,” he said. “No maybes, no hopes.”

Councilman Mani Grewal said he wants Modesto to get input from downtown stakeholders about how the property could be redeveloped. Lewis said he could not determine whether this is a good deal for Modesto without knowing more about the property.

Modesto has no immediate plans to remove the property’s tenants and would become their landlord. Still several people associated with Stonehenge Indoor Climbing Gym, one of the property tenants, expressed dismay over the possibility of having to move one day.

The gym’s previous owner said tenants cannot afford to pay more rent, and the city faces a couple of million dollars in costs to bring the property up to code. The property consists of older warehouses that have been converted for other uses.

Mayor Brandvold raised several concerns about the deal in an interview and at the council meeting.

Modesto would borrow $3 million of the purchase price from its fleet operating fund reserves and pay back the loan over 20 years from the rent it receives from tenants, though a city report says the city could repay the loan through money it borrows when it redevelops the site.

The reserves have roughly $7 million in it, in large part because city departments paid a surcharge into the fund from 1998 to 2008 for a new fleet maintenance facility. The facility has not been built and the money has been sitting in the fund for years.

Half of the roughly $7 million came from the general fund. That’s important because the council could return the money to the general fund and spend it on any government purpose, including projects to deal with homelessness, crime prevention and other concerns.

City officials said during the May budget workshop the council would have a future discussion about what to do with the reserves and the proposed fleet maintenance facility. That has not yet taken place.

“So to make this purchase, we are considering giving ourselves a loan from a fund that is scheduled to be used for improvements to our fleet maintenance facility,” Brandvold said. “We are considering this without determining that these funds are not needed for this use, or (for) other priorities we may have in the city.”

Brandvold said Modesto has other problems it needs to tackle, has no plan to redevelop the property, and no expertise as a landlord.

The city report said the tenants’ rent is sufficient to make the loan payments but acknowledged that does not “account for unforeseen maintenance costs and potential vacancies” and the city could have to use its general fund to make loan payments.

Councilwoman Kristi Ah You also expressed reservations. She said while she supports taking a look at the property, she may not support buying it, adding she wants Modesto to spend money on pressing problems, including the homeless.

But other council members said this was an opportunity for Modesto to take a hard look at whether it made sense to buy a property that could improve the quality of life for its residents through redeveloping it.

“As the council member who represents downtown, I'm very excited about what we could do with this parcel of land,” Councilman Tony Madrigal said.

This story was originally published September 6, 2017 at 5:09 PM with the headline "Modesto takes step toward $3.1 million land deal; mayor says it's a mistake.."