Less than a week after the San Manuel Band of Mission Indians was able to pull off a land swap with the City of San Bernardino for more than 115 acres in the foothills just north of the city limits in which that property was valued at the rock bottom price of 19.5 cents per square foot, the tribe announced on Monday its plans to improve and expand its casino space and build a 16-story hotel, a project that is expected to generate an additional billion dollars in revenue over the next 30 years as part of the the tribe’s already highly lucrative  gaming operation in Highland.
While it does not appear that the casino expansion will directly involve the property obtained from the City of San Bernardino last week, the 115.2-acre acquisition will play an indirect part in allowing the enlargement of the casino operation. The tribal property where the expansion will occur is proximate to land being held by the tribe in anticipation of it becoming residential property for the band’s members. Now that the tribe has obtained the hillside property near the northeast tip of San Bernardino adjacent to the existing tribal reservation above the northwestern corner of Highland to accommodate residences for its members, the property surrounding the existing casino has been freed up to be converted to a hotel and to increase the footprint of the casino itself.
“As a leading tourism destination in the region, we’re often asked, ‘Why doesn’t San Manuel have a hotel?’” said Jerry Paresa, chief executive officer of the tribe in a media release. “A hotel and other improvements will allow us to meet the growing needs of our guests, and bring additional economic benefits to the community.”
The proposed expansion project will take place within or immediately around the existing casino, and the tribe has said the improvements will intensify and enhance the experiences of the tribe’s guests and the casino’s patrons. Those improvements will include a sixteen-floor resort-style hotel with somewhere in the neighborhood of 500 rooms; an expanded casino space with state-of-the-art amenities; a 4,000-seat performance venue; additional meeting and event space; additions, including a spa, high-quality restaurants and retail shops; a 2,200-vehicle parking structure; and power utility infrastructure.
The tribe was not able to provide a hard budget for the project at this point, and its officials indicated the designs had only progressed to the preliminary stage, though some conceptual drawings and renderings were offered as an illustration of what the general intent of the expansion project is. An environmental report for the project will be undertaken, though the tribe, as an independent sovereign entity, is not required to abide by the California Environmental Quality Act on its land. State restrictions, however, will apply to those impacts that move off-site and onto non-tribal land.
The grandiosity of the planned project and the tribe’s ability to apply its rapidly accumulating wealth to accomplish it raises questions about the terms under which the tribe was able to acquire the 115.2 acres from the City of San Bernardino last week.
On November 1, the San Bernardino City Council approved the exchange of the 115.2 acres of vacant land in the foothills at the city’s extreme northeast end for 2.48 acres at the center of the city on which the now shuttered JC Penney department store stands. The city came by what is now referred to as the “Foothill property” when it was deeded to the city from the U.S. Forest Service for water purposes in 1974. In March 2016, the board of water commissioners determined that the parcel was excess property and no longer needed for water purposes. In April 2016, the city and the board exchanged the Foothill property for a city owned property located at 1350 South E Street. In 2008, the San Manuel Band of Indians purchased the old JC Penney building for $9 million, five years after the JC Penney closed as the last major tenant at the Carousel Mall.
The city has since acquired the entirety of the Carousel Mall, with the exception of the adjoining Harris Building. The city has entered into an agreement with the AECOM/Fransen Company along with KB Homes to redevelop/rejuvenate the 43-acre Carousel Mall and Theater Square site and build town home type residences in the adjoining downtown area. City officials believe, however, that effort has been stymied by the city not having complete control of the Carousel Mall property. The city is in negotiations with El Corte Ingles, a department store retailer based in Spain, which owns the Harris Building, to obtain that property.
Last week, when the city entered into the arrangement to exchange the Foothill property for the JC Penney building and the 2.48 acre site upon which it is located, San Bernardino Community Development Director Mark Persico explained the rationale for doing so by saying, “Over the past several months, city staff has been exploring options with the San Manuel Band of Mission Indians such that the city gains control of the JC Penney site, giving the city full site control. City staff believes the best option available is a land exchange between the city and the San Manuel Band of Mission Indians. San Manuel tribal lands are located in the foothills of the San Bernardino Mountains north and east of the Foothill Property. The tribe is reaching capacity within its current boundaries and wishes to expand. An exchange of land between the city and the tribe allows both parties to achieve their goals.”
To justify the exchange, the city hired the real estate appraisal firm Mason & Mason to size up the value of the “115.20 acres of unapproved land east of North Sterling Avenue, North of Foothill Drive.” Mason & Mason offered a conclusion that the “fair market value conclusion of the subject property (land only), as of January 25, 2016, based upon the highest and best use analysis developed herein, is nine hundred seventy-nine thousand dollars ($979,000).” The tribe sought an appraisal of the JC Penney property from a firm, Waronzof Associates. Waronzof offered an opinion that the JC Penney property was worth $1.8 million. That is $7.2 million less than the tribe paid to obtain the land and the building.
There were suggestions by observers, inside and outside the real estate profession, that the Foothill Property was substantially undervalued to meet appearances of propriety in the exchange.
Observers noted that the advancement of the tribe’s plans for the expansion of the casino to the point that renderings and conceptual drawings of the project had been prepared demonstrated that the reliance on the Mason & Mason appraisal of $979,000 was questionable.
Indeed, the valuation of the property at less than $8,500 per acre in this day and age, when property is fetching in excess of $1 million per acre in other parts of San Bernardino County, has raised suspicion, or at least suggestions that San Bernardino’s politicians, nearly all of whom have been supported in their electioneering efforts by San Manuel, have been too accommodating of the tribe.
San Bernardino Councilman Fred Shorett said in this case that was too cynical of an interpretation which did not take into consideration the full range of factors that went into the land swap.
An argument could be made, he said, that the tribe got the better part of the deal by giving up 2.48 developed acres for 115 undeveloped acres “if you are comparing apples to apples, but from the city’s standpoint it had more to do with the value we are getting from the control of the mall. So I am not overly concerned, actually, on whether we got an exactly even exchange dollar for dollar or penny for penny, when we met other priorities more important to the city than hanging onto some property in the foothills we don’t really have the wherewithal to do anything with at this time.” Shorett said, “Everyone is condemning us about this, but something that got conflated or somehow mixed is that the tribe is going to be making its expansion on its existing property and this roughly 100 acres of land we traded to them is not a part of that.”
The tribe is moving faster than the city in making improvements, Shorett said, but when the city moves ahead, people will recognize that something good for the city’s residents will have resulted from the land trade.
“We got value because we get control of mall,” Shorett said. “We are waiting on that other piece [the Harris Building] and once we have that, it will be more valuable. I don’t think it had to be an exact exchange because both sides got something valuable to them in place of what was of lesser value to them. At least that’s my understanding. I know that everyone is upset about the tribe now getting so much control of that land in the foothills and the development that will occur there, but go look at the foothills in LA. LA’s foothills are very developed and overbuilt, if you ask me. We are not approaching that. Actually, what the tribe is going to do will serve as a [fire hazard] buffer for the property that is down below it.”
-Mark Gutglueck