A project to revitalize the 700 block of K Street, a long-blighted area in downtown Sacramento, is ready to go after nearly a decade of fits and starts.
Two dynamic young Sacramento developers, Ali Youssefi of CFY Development and Bay Miry of D&S Development, won a competitive bid in July 2010 to take on the 700 block – with the goal of eliminating blight, rehabbing historic buildings, creating affordable housing and reactivating K Street.
The $48 million project got environmental and land-use approvals a year later. The city also signed a development agreement with Youssefi and Miry, making a $3.6 million loan commitment. The developers committed to buy the city-owned property; keep historic facades; add second-floor apartments above retail, restaurants and a music club; and build a six-story apartment building with 137 units, with a majority affordable for low- to moderate-income families.
Unfortunately, the state Department of Finance issued a potentially fatal blow.
Like all California cities, Sacramento is winding down its redevelopment agency – as required by a June 2011 law that ended redevelopment. Cities cannot enter into new contracts or launch new projects. But they do have a duty to continue to pay “enforceable obligations” for projects already underway before the law passed.
Is the $3.6 million loan and property transfer an “enforceable obligation”? Finance says not, because the developers missed a December 2012 deadline to get financing. The city argues that uncertainty after the law passed in June 2011 made getting financing difficult, through no fault of the developers. Further, the seven-member local oversight board – made up of the city, county, special districts, school districts and community college district that get property taxes that had been going to redevelopment projects – approved a one-year extension.
The law says the board may approve amendments if they “would be in the best interests of the taxing entities.” Without the project, the city is left with vacant, deteriorating buildings. With it, the city estimates businesses would generate $300,000 a year in property taxes for the city, county, special districts, schools and community colleges, plus $1.6 million a year in sale taxes for the city.
The city and oversight board should work this out with Finance.
In June, Finance wrote that “no significant progress has been established” with the project, but reserved the right to “review these items again” if conditions changed.
The city says the developers have lined up tax credits, a state bond allocation for affordable housing, housing finance through Citibank and a commercial loan from Farmers and Merchants Bank, with closing scheduled for the end of October. The city stands ready to issue the building permit.
Finance originally rejected payments for Sacramento’s Globe Mills and Broadway Triangle projects – but changed when presented with more information. That is what should happen in this case.
Both sides should get talks underway to settle, rather than waiting months for a court hearing. Finance should insist that December is the end of the line, no excuses. But if the developers do have financing lined up, the state should honor the loan and property transfer as “enforceable obligations.”
Don’t let the 700 K Street area go another decade as a dead block.