By Mark Gutglueck
Seemingly out of nowhere, the southeast Los Angeles County municipality of Commerce has inserted itself into the sweepstakes to commandeer Tres Hermanos Ranch and pursue the likely agenda of using the property to host a massive solar farm.
The move came last month, ending a lull in the activity with regard to the 2,445-acre property, which a significant number of Chino Hills residents want to see kept as open space but which is coveted by multiple entities in both the private and public sector for its development potential.
Long the rustic play ground of oil baron Tom Scott, former Los Angeles Times Publisher Harry Chandler and the heirs of California pioneer John Rowland, the property was acquired in 1978 by the City of Industry in 1978 for $12.1 million. That city had taken possession of it with what was then a somewhat vague intention of utilizing it as the grounds for a massive reservoir to ensure that the City of Industry, which as its name implies is largely dedicated to the proliferation of manufacturing concerns, would have access to water that would be adequate to keep in operation the more than one thousand light, medium and heavy factories, foundries, manufacturing and assembly concerns that permeate the city, which lies across the Los Angeles County boundary from Chino Hills some 16 miles distant. To facilitate that aim, the City of Industry banked the property within the Industry Urban Development Agency, which served as its redevelopment agency, but never brought the reservoir project to fruition. In 2011, the State of California closed out all redevelopment agencies statewide pursuant to legislation sponsored by Governor Jerry Brown and passed by the legislature. That legislation transferred ownership of redevelopment agency assets to entities known as successor agencies, which are generally ruled by a set of directors who were or are indistinguishable from the redevelopment agency board members that previously oversaw each redevelopment agency – usually city council members or county supervisors. That successor agency is charged with liquidating, i.e. selling, the defunct redevelopment agency’s assets and having the proceeds distributed to other tax receiving entities in that particular jurisdiction such as school or water districts as well as local public safety agencies such as a fire department or police department. This liquidation is supposed to take place under the direct scrutiny of a so-called local oversight board and the more distant watchful eye of the California Department of Finance.
While a handful of real estate development concerns including GH America Inc. and South Coast Communities of Irvine had expressed interest in acquiring the 2,445 acres at Tres Hermanos Ranch for the purpose of developing it both residentially and commercially, the City of Industry had not forsaken its designs on the land. In August 2017, it boldly took action to acquire the property, tendering a $41.65 million offer on the property. In very short order, at its August 24, 2017 meeting, the oversight board to the successor agency to the Industry Urban Development Agency directed the successor agency to sell the property to Industry for $41.65 million. That action was accompanied by a shrouded indication that the ranch would be in large measure converted into a solar power generating field utilizing photovoltaic panels to generate 450 megawatts of electricity while leaving some of the property dedicated as “open space” for public use. In nearly equally short order, the cities of Chino Hills and Diamond Bar raised objections with the California Department of Finance. After the California Department of Finance allowed the processing of the sale to proceed, Chino Hills and Diamond Bar then lodged legal challenges of the City of Industry’s ploy. In those suits, Chino Hills and Diamond Bar named both the oversight board and successor agency to the Industry Urban Development Agency, the board members of the successor agency, the California Department of Finance and California Department of Finance Director Michael Cohen as defendants and named as real parties in interest the City of Industry and its city council.
Noting that Diamond Bar and Chino Hills are among the “taxing entities” that are entitled to receive portions of the real property taxes assessed upon the sale of the property along with portions of the proceeds from the sale of Tres Hermanos by the successor agency to the City of Industry Redevelopment Agency, both Diamond Bar and Chino Hills in a lawsuit first filed in Los Angeles Superior Court and then amended and refiled in Sacramento Superior Court and now being heard by Judge Michael Kenney, Diamond Bar and Chino Hills alleged that in effectuating the purchase of Tres Hermanos Ranch the City of Industry “was, of course, negotiating with itself to acquire the property because the successor agency is governed by a board of directors (the ‘successor agency board’) comprised of the five members of the Industry City Council.” According to the suit, some 11 months prior to the sale “In September 2016, the successor agency tried to sell Tres Hermanos to Industry for only $41.65 million, notwithstanding the $85-122 million estimated value in the long range property management plan previously prepared for the land and that the Successor Agency had received a detailed and credible offer of $101 million from a residential developer. The $41.65 million purchase price was based on a deeply flawed appraisal, which determined that the value of Tres Hermanos was $41.65 million, which in turn was based on a ‘hypothetical condition’ that the use of the property would be restricted to open space. On September 8, 2016, both the city council and the successor agency board approved a purchase agreement with the $41.65 million purchase price. However, on September 29, 2016, the oversight board of the successor agency, which oversees the successor agency, rejected the successor agency board’s approval of the $41.65 million purchase agreement and requested that the successor agency obtain a new appraisal based on the highest and best use of Tres Hermanos, consistent with the current land use and zoning designations for the property.”
Subsequently, according to the suit, the successor agency obtained a second appraisal that determined the fair market value of Tres Hermanos was $100 million, based on the highest and best use of limited residential development.
Nevertheless, according to the Chino Hills suit, “The successor agency board’s approval of the $100 million purchase agreement was scheduled for review and approval by the oversight board at its August 24, 2017 meeting. However, the oversight board never took action on that agreement. Instead, Mr. Philips [Paul Philips, who was then Industry’s city manager], who is also a member of the oversight board, made a motion, following public testimony, to approve a purchase and sale agreement with a $41.65 million purchase price, subject to the oversight board’s imposition of a restrictive covenant that limited the use of Tres Hermanos to ‘open space, public use or preservation.’ The oversight board narrowly approved the motion by a 4-3 vote. The oversight board did not provide any opportunity to the public to comment on this sudden turn of events.”
Thus, according to Chino Hills and Diamond Bar, the City of Industry was seeking to have it both ways by obtaining the property at an artificially low price by committing to keep the property as open space and then seeking to develop it in violation of the terms under which the property had been obtained. The Chino Hills lawsuit states, “This was little more than a shell game by Industry, the successor agency and the oversight board. The $41.65 million appraisal assumed that Tres Hermanos would remain open space in perpetuity. The restrictive covenant, however, also allows ‘public uses.’ Therefore, the $41.65 million appraisal does not support a sale that allows public uses.”
Publicly revealed, both as a result of the lawsuits and other efforts outside the forum of litigation, was that the City of Industry had since 2015 been working covertly with a La Jolla-based entity, San Gabriel Valley Water and Power LLC, and its principal, William Barkett, to lay the procedural, legal and engineering groundwork for a 450-megawatt photovoltaic solar power project at Tres Hermanos Ranch and adjacent properties also owned by the City of Industry. In May 2016, the City of Industry had concluded a backroom deal giving San Gabriel Valley Water and Power a ground lease for Tres Hemanos Ranch, even though at that time the City of Industry did not have legal possession of the property. The arrangement between the City of Industry and San Gabriel Water and Power was to allow San Gabriel Valley Water and Power to produce electricity and sell it at a profit while cutting the City of Industry in on a portion of the proceeds.
According to the City of Chino Hills’ second amended lawsuit filed in Sacramento Superior Court in January 2018, “neither the master ground lease nor any of the four lease amendments thereto (collectively, the “master lease”) were approved by the city council in open session at a public meeting. The master lease requires Industry to reimburse San Gabriel Valley Water and Power for up to $20 million in expenses relating to the development of the solar project.”
Subsequent to the filing of the lawsuits, a falling out between the City of Industry and San Gabriel Valley Water and Power occurred, as San Gabriel Valley Water and Power burned through the $20 million alluded to in the lawsuit by making what it claimed were legal and engineering preparations for the project, with no actual equipment and material being acquired and no physical work at the site of the power plant taking place. When San Gabriel Valley Water and Power continued to bill the City of Industry for work related to the project which Barkett claimed was being done, the City of Industry, concerned that the money it was putting up was being consumed into a black hole with very little prospect that there would ever be a return on the money, balked at making further reimbursements to San Gabriel Valley Water and Power until that company opened its books and allowed the city’s auditors to satisfy themselves that actual progress on the project was being made. San Gabriel Valley Water and Power refused to do so and the solar project, to all public appearances, fell dormant.
Unbeknownst to the public or the City of Industry, however, Barkett was maneuvering behind the scenes with what would have seemed to have been an unlikely ally – former state legislator and current lobbyist Frank Hill, who had served as a consultant to the City of Industry in its earlier development efforts with regard to Tres Hermanos Ranch, including the construction of a water reservoir there as well as those related to the solar project proposal. Both through Hill as an intermediary and then directly with City of Commerce through that’s city’s mayor, Hugo Argumedo, its city administrator, Edgar Cisneros, and its city attorney, Noel Tapia, discussions began with regard to the City of Commerce picking up at Tres Hermanos where the City of Industry had left off. Barkett intimated that the City of Industry had already paid for nearly all of the crucial advance planning and engineering work to allow San Gabriel Valley Water and Power to break ground, do some grading and begin erecting solar arrays on the ranch, which for more than a century has been used for nothing more than farming and cattle grazing. Commerce officials were thus led to believe they could see a substantial return on the purchase of the Tres Hermanos property within a relatively short period. That discussion was taking place very quietly, however. Word leaked out when the City of Commerce signaled that it wanted to put a proposal before the Industry Urban Development Agency successor agency’s oversight board that its purchase of the Tres Hermanos property be substituted for the stalled City of Industry acquisition. Through an apparent misunderstanding, just such an item was placed on the agenda for the November 26 meeting of the Industry Urban Development Agency successor agency’s oversight board. Though that meeting was canceled, the cat was out of the bag.
Instantaneously, the City of Industry, which had been at significant odds with both the City of Chino Hills and the City of Diamond Bar, had a major interest in common with both of its adversaries, namely stymieing the effort by the City of Commerce to interlope at Tres Hermanos Ranch.
On November 20, 2018, Elizabeth M. Calciano, Chino Hill’s assistant city attorney, dashed off a letter to the mayor and city council members in Commerce. In that letter, Calciano stated that with regard to Tres Hermanos ranch, the City of Chino Hills considers “open space as a priority.”
Calciano asserted that Commerce seeking the Industry oversight board’s approval of the land sale to Commerce is premature.
“This effort to have the oversight board approve the sale before Industry’s successor agency has approved it puts the proverbial cart before the horse,” wrote Calciano. “Unless and until the Industry successor agency approves the sale of Tres Hermanos to Commerce, oversight board action would be premature. The oversight board does not own Tres Hermanos, so it cannot itself consummate the sale of Tres Hermanos.”
Moreover, according to Calciano, the proposed purchase of Tres Hermanos by the City of Commerce at a bargain basement rate would be a violation of the oversight board’s fiduciary duties.
“The appraisal upon which Commerce relies in offering to purchase Tres Hermanos is artificially low, in that it does not value Tres Hermanos based upon its current zoning and general plan designation,” Calciano wrote. “Moreover, it does not appraise Tres Hermanos based on its use as a massive solar facility which, if its proponents are to be believed, will generate millions of dollars of annual revenue each year.”
Calciano said the City of Commerce’s effort to assume the authority to move into place and own or run the yet-to-be-built solar facility is invalid.
“Based on our review of the proposed purchase agreement, including the assignment and assumption of leases, it appears that Commerce believes that Industry’s successor agency can assign to Commerce the master ground lease previously entered into by Industry, as landlord, and San Gabriel Valley Water and Power, LLC as tenant. If so, Commerce is laboring under a misconception. The successor agency cannot assign a lease to which it is not a party. The successor agency has no legal standing to assign the master lease to Commerce.”
Calciano told the Commerce City Council that the proposed purchase violates the California Environmental Quality Act in that the act “requires that Commerce conduct an environmental analysis of a project prior to committing itself to a definite course of action in regard to that project. The California Environmental Quality Act requires that this analysis occur before Commerce purchases Tres Hermanos or leases it to San Gabriel Water and Power or anyone else, to develop the solar facility. No California Environmental Quality Act review has to date been conducted.”
According to Calciano, “Commerce may only buy property outside its jurisdiction for a valid municipal purpose. If the contemplated purpose of acquiring Tres Hermanos is to lease it to a private entity to construct a massive solar facility to generate general fund revenues, that is not a valid municipal purpose.”
In addition, Calciano wrote, “Commerce must submit its proposed use for a general plan-conformance finding by both Diamond Bar and Chino Hills prior to acquiring Tres Hermanos.” Citing Government Code Section 65402(b), Calciano said that “Commerce is required to submit information to each city’s planning commission and obtain a report from each, prior to acquiring Tres Hermanos. However, it has not done so.”
Chino Hills City Manager Konradt Bartlam commented on the spectacle of Chino Hills and Diamond Bar now finding themselves in the same foxhole with the City of Industry in seeking to ward off the City of Commerce’s designs on Tres Hermanos Ranch.
“In my view,” Bartlam said, “the devil I have come to know is better than the devil I do not know.”
Commerce is treading where it is neither welcome nor entitled, Bartlam said, suddenly sounding as if the City of Chino Hills and the City of Industry are allies.
“The City of Industry still wants to acquire the property,” he said. “It is clear that the City of Industry has a valid contract with the successor agency and has every intention of acquiring the property. The City of Industry has a right to pursue ownership of that property until that contract is expired. Commerce is in contravention of that, which is a litigatible offense.”
All the same, Bartlam said, the City of Chino Hills and the City of Industry are not exactly intertwined in a lovefest.
“We have litigation pending against them,” Bartlam said. “We have had some very constructive discussions about the property [Tres Hermanos Ranch]. If Industry does not intend to pursue a massive solar farm with San Gabriel Water and Power, there is still the burning question of what their intent is with that property. That discussion has not been forthcoming and they have not resolved any of those questions as of yet. The City of Industry is still not the most transparent of organizations. They have made some strides, but they are still not as open as we would like them to be.”
Bartlam continued, “It took us nearly two years, but we eventually shook out what their ultimate intention is. Now they tell us, ‘We have dumped our development partner.’ I believe them. I know that is the case. Now Commerce is in bed with these guys [San Gabriel Water and Power]. They are the worst of the bunch. They want to build a solar farm and blanket 2,500 acres in my city with solar panels. I can’t stand for that. Commerce is trying to come in the back door unannounced and uninvited. Commerce has no association with Tres Hermanos Ranch. It is 29 miles away from us on the other side of the county line, in another area code.”
Asked to look past the immediate concern of the Commerce proposal to the preexisting and more realistic prospect that the City of Industry will be driving the development agenda at Tres Hermanaos Ranch, Bartlam acknowledged that the City of Industry is clearly working at cross purposes to the interests of Chino Hills and its residents.
“When they said they were looking toward preserving Tres Hermanos as open space and were this benevolent entity that was being respectful of the region and there was nothing but an altruistic desire on the part of their city council, we knew they were trying to pull the wool over our eyes,” Bartlam said. “That they spent $41.6 million to acquire that property and said they were doing it so they could keep it as open space provoked laughter. It seems far fetched that they would spend $41.6 million to buy that property and leave it as open space. Is that realistic, that someone would buy property in some other city and just leave it? We would buy it and keep it as open space, because it is in our city. We have acquired 3,000 acres in open space already. Tres Hermanos Ranch is not part of the fabric of the City of Industry.”
Bartlam said the possibility yet remains that Tres Hermanos Ranch will be aggressively developed.
“The worst case scenario is that the City of Industry would continue with their plan to buy property and they will prevail in court so that they would have full land use authority,” Bartlam said. “That would then place the decision over the ultimate use of the property with five people residing in the City of Industry rather than five elected officials in Chino Hills. That may be a stretch, but who’s to say what a court will rule on this case, in which there is no real precedent? It could come down to the luck of the draw as to what judge we get.”
Bartlam said that if all of that comes about, the City of Industry could seek to put far more than the 657 houses on the 1,700-acre of that portion of Tres Hermanos Ranch that lies within Chino Hills permitted under the current Chino Hills General Plan.
“The state has clearly made affordable housing a matter of priority and public policy and it is pursuing legislation that promotes affordable housing for a public purpose,” Bartlam said. “In the worst case scenario the City of Industry could say ‘All we’re doing is trying to further a state goal,’ in which case you might see them blow our general plan to smithereens. In that circumstance, seeing thousands upon thousands of housing units on that 2,500 acres is not that big of a stretch. I have some confidence that won’t come about, but there are no guarantees.”
Bartlam said Chino Hills will not take what is being thrust upon it lying down. “We don’t have the bankroll that the City of Industry has but we have fortitude,” he said, indicating Chino Hills will use the court system as a tool to protect itself. “We have told them, ‘We will be deposing everyone and your brother and we will be looking at every document in your bank vault.’ They have spent a lot of money on some very questionable things. If they want that public airing of their business, then let’s schedule the court date. We have threatened to put them though a process they haven’t been put through before. It may be for that very reason they have now been willing to sit down and begin to talk about what their intentions are.”
Bartlam said the city cannot prevent the development of Tres Hermanos ranch outright by simply rezoning the property as open space.
“The property has a general plan designation and if we downsize it, that would reasonably be construed as the taking of a property right, regardless of who owns it,” he said. “It would subject us to a lawsuit to recover damages.”
By Mark Gutglueck