Adelanto Leaves Millions On Table In Sale Of Key Industrial Property

ADELANTO—A pallor has descended over Adelanto City Hall in the aftermath of a closed-session vote by the city council at its December 9 meeting in which the city sold 47 acres of land in the city’s industrial park that was in the possession of the successor to its former redevelopment agency to an Orange County investor at the bargain basement price of $375,000.
Coupled with recent action by the city to allow large scale marijuana cultivation operations to operate out of the same industrial park, reports are afoot that illegal inducements in the form of bribes and kickbacks have been or are soon to be provided to city officials in return for their having signed off on the land transaction in which the cash-strapped city sold the property for some $9 million to $12 million less than what some market analysts say it is worth.
But city officials have retorted that there are extenuating circumstances that grew out of mistakes made by their city council and staff managerial predecessors more than two decades ago that resulted in the State of California imposing limitations on the sale and disposition of redevelopment agency property that hamstrung the current city council with regard to the property in question.
“It is a very complicated situation,” councilman Charley Glasper said.
At issue are two recent votes by the city council, one in public and one behind closed doors, as well as a longstanding restrictions placed on the city by the state over illegal action perpetrated by city officials long ago that continues to haunt the community.
In the early and mid-1990s, the cities of Adelanto and Victorville had competing proposals for the civilian conversion of George Air Force Base, which was shuttered by the Department of Defense in 1992. The City of Victorville was contesting Adelanto’s claim to the air base property and there were considerable legal fees involved. Adelanto illicitly tapped into redevelopment money to pay its legal fees. When the State of California learned of this, Adelanto was sanctioned, as redevelopment money consisting of both dedicated property tax revenue as well as the proceeds from bonds sold to investors was specifically designated for efforts to construct infrastructure and eliminate blight. Federal security law requires that bond proceeds in particular be utilized for the purposes listed on the bond documents. The State of California accordingly moved to ensure that certain of the city’s redevelopment agency assets be subject to restrictions that would ensure that upon the sale of those assets, the sale proceeds would be utilized to pay the bondholders. Among the city’s redevelopment agency assets was acreage lying within the City of Adelanto’s industrial park. In 2011, when redevelopment agencies statewide were shuttered, a successor agency to each city’s redevelopment agency was formed and redevelopment agency funds could only be used by the successor agency to pay legally recognized redevelopment debts, with any remaining money in redevelopment accounts to be remitted by the successor agency to the county auditor-controller, so they could in turn be distributed to the local agencies that shared territory with the former redevelopment agency. In Adelanto’s case, it was yet subject to oversight by the California State Department of Finance with regard to the misuse of its redevelopment money in the 1990s. The state had encouraged the city to formulate a long range property management plan to continue to make whole the bond investors harmed by the city’s previous action. As part of its Department of Finance-approved long range property management plan, Adelanto proposed to sell three properties within its industrial park with a combined size of 47.04 acres.
Last month, the City of Adelanto – which is severely cash strapped, having declared a fiscal emergency two years ago and is yet teetering on the brink of bankruptcy – passed an ordinance allowing for the operation of medical marijuana cultivation facilities within, and only within, its industrial park. There was a stampede of proposals to obtain the permits for such operations, which put the properties in the industrial park in high demand. Last week, the city council in a closed session sold the 47.04 acres of property in its industrial zone that was formerly owned by its redevelopment agency for the price of $375,000 – i.e., $7,972 per acre – to Newport Beach-based Kojima Development, Inc. This astounded the community, as that was less than the $1,023,041 the city had paid for the property and it was apparent to everyone that the ordinance passed last month had escalated the value of the city’s industrial park property to a level likely well above that for industrial park property in the region. There were immediate suggestions that Kojima had paid off members of the city council, city management and even the newly appointed city attorney, Julia Sylva. It did not help matters that the availability of the property for sale had not been widely publicized and that the vote to ratify the sale took place outside the view of the public, behind closed doors. After Sylva announced the sale, the city was inundated with “late” offers on the 47.04 acres that dwarfed the $375,000 figure.
In response, members of the city council maintain that they were not at liberty to do anything other with the property than what they did. They say they could not have held onto the property and leased it, an option which might have generated considerable revenue for the city and provided money to pay the bondholders stiffed back in the 1990s when the city misused the redevelopment money. City officials maintain they were under mandate from the state and the Department of Finance to sell the property. Moreover, they claim, they were unable to sell the property to the highest bidder but were mandated to sell the property at a price of $375,000, a figure that matched an appraisal carried out previously plus fees. That appraisal was carried out before the marijuana cultivation ordinance was passed and went into effect.
Among those registering the highest level of outrage over the city’s action was Marc O’Hara, the director of the Patient Care Alliance, which is among the entities having applied for a cultivation operation license. He subsequently told the city council he and his financiers would have been prepared to pay far in excess of the $375,000 for the 47.04 acres, stating that real estate professionals estimated the actual value of the property as being in the $300,000 per acre range.
At once, a cacophony of competing offers for the purchase of the property – ranging from $7 million to $12 million to $14 million – was heard.
As if to add insult to injury, reports floated in and then Kojima’s legal representative, attorney Mary Lynn K. Coffee of the Nossaman Law Firm, confirmed that Kojima was negotiating with prospective marijuana cultivation operation owners over leasing of the property. Word that yearly leases for facilities at the industrial park with square footage of one acre under roof would run to over $150,000 per year raised even greater hackles. It appeared that Kojima, not the city, would be the beneficiary of the city’s controversial move to be the first city in the state to permit marijuana to be commercially grown within its city limits. The $7,000 permit application fees the city would charge to would-be growers was a comparative pittance to the million dollars per year or more that Kojima stood to rake in annually by simply leasing property to those growers. Why, critics and suspicious residents asked, had the city not held onto the property and simply leased it out itself? A siege mentality descended over City Hall. In response to questions about what was going on, city officials referred citizens and the press to city attorney Julia Sylva. Sylva met those questions with stony silence.
The Sentinel managed to reach two council members, Charley Glasper and John Woodard, both of whom consented to try to allay the mounting concern over the matter.
Woodard insisted the city’s sale of the property was a good thing rather than a bad thing.
“Our mayor went to Sacramento to get the power that will allow us to sell that land so our city can develop it,” Woodard said. “It behooves us to do what we can to sell that land to developers so we can get point of sale [i.e., sales tax], restaurants and stores. We made a deal with Kojima and now others are begging us to wait while they go find the money to beat their offer. People like Marc O’Hara want us to back up and sell it to them for $14 million. If we say we’ll wait to see if he has the millions of dollars more and he doesn’t come through, we waste another month.”
Glasper said those criticizing the council and city management over the sale were doing so out of ignorance.
“A long time ago, in 1992 or 1993 or 1994, the city’s redevelopment authority had already been taken away,” Glasper said. “It had something to do with misusing redevelopment money for legal fees. More than twenty years later we had redevelopment land left over. We had to get permission from the state to sell it. It was evaluated at $375,000. That is the price we had to sell it for. The city gets nothing for the sale. We were under a mandate from the State of California. We could only sell at that price. We are not a redevelopment type city. That was something done in the 1990s. We borrowed illegally. We did not have the privilege of investing redevelopment money unless we got the permission from the state, which we did. The best we could do is offer that land to the buyer at current market value. It was appraised at $325,000 or $350,000 or $375,000, I’m not quite sure, but it was below $400,000. The person or company who applied to buy that was under a 24 hour time frame to submit its bid to the city manager. If we had our full redevelopment authority and were not under punishment by the state to only do what they directed us to do, which was to sell it, I am not saying we could have not gotten more for the 47 acres. That is what we had to sell it for. We are not getting anything for selling it. The person who buys it can now get it appraised for four million dollars or $14 million and sell it accordingly. That is what is happening. People might not understand, but at this point I don’t care if they understand or not. We are getting punished for using that redevelopment authority to borrow illegally to use it as legal fees to get George Air Force Base. That happened way before I came onto the council in 2004. So that is the story in a nutshell as best as I can tell you. These people who are saying something different are just plain wrong. The land was there to be sold. The land was released to us and we did just that, under the guidance of the state. I’m not saying had it been a circumstance where we were free and clear we could not have gotten millions of dollars for that. But even if we had gotten millions for it we would’ve needed to turn it over to the state. It is very complicated. We are being punished for something that happened way back, for the sins of the past committed by a previous city council, people who are dead and gone now. The people who purchased that land from the city can go out and get it reappraised and sell it at the price they can get. But we were just following instructions. Now people are saying we’re a bunch of hicks and we could have gotten millions for that land. We probably could have, but we didn’t have the authority to do that, as much as I wish we did.”
Woodard, a real estate broker, likewise said the city was restricted in what it could do. He said the city had contemplated exploiting its control of the property in the context of the recently passed marijuana cultivation operation ordinance, but had ultimately rejected that option for a host of reasons. “We looked at what we could do if the city bought the property and flipped it for a profit. We sat down with our city treasurer to find out we don’t have that much money to gamble with. We have just enough money to pay our employees and keep our trucks running and keep the lights on at City Hall. We don’t have the discretionary money to do that. And then there is the ethical question as to whether we should do that.”
Woodard acknowledged that with regard to industrially zoned land “the property prices have increased in the last 12 months. They have not just doubled. They have tripled.” The escalation in property values, Woodard said, “may continue, may flatten out. What is today won’t be the same tomorrow and it won’t be the same in three weeks.”
Woodard resisted the suggestion that the city should have insisted on a much higher price than what it accepted from Kojima. He said the primary factor in closing the deal was that Kojima was willing to pay the price the land appraised for and the company is primed, ready and capable of not only purchasing the property but developing it.
“The same moron who offered one million dollars for it said it was worth 14 million, but he said he wanted us to wait while he chases the money,” Woodard said. “He doesn’t see that these people have a bona fide purchase agreement and a bona fide plan. We looked into their history as a company. We looked into them to make sure they can perform as they say they can. They are from Orange County and have done some pretty big projects. When they build, we will get points of sale [i.e. sales tax revenue], construction jobs, different types of buildings, not to mention the employment that will bring after they are done. They are ready to move.”
Woodard rejected suggestions there was some level of venality involving the city or that illegal inducements were offered by Kojima to the council or that the company was provided with any favors or undue advantages. “People don’t know what they are talking about,” Woodard said. “It was out there for the public to see. Nothing was done behind closed doors. Kojima came with the full price for what the city was asking.”
He said those complaining now were people who “didn’t do their due diligence. They were caught napping. Just because they weren’t looking and someone else did, that is not Kojima’s fault. Kojima earned this.”
Despite city officials’ insistence that Adelanto had to sell the property at the $375,000 price and did not have the option of seeking higher offers from others, state officials said that was not true.
H.D. Palmer, the official spokesman for the California Department of Finance, told the Sentinel, “The long range property management plan stated the properties had a combined purchase price of $1,023,041, and stated the current estimated value at $319,590 per an April 2, 2015 broker’s opinion of value. The broker’s opinion of value was arranged by Adelanto. The state had no role in valuing the properties. Adelanto was at liberty to sell the property for the maximum value possible. Adelanto was not required by Department of Finance or by state law to sell the property for the broker’s opinion of value of $319,500. Adelanto is incorrect if they state otherwise.”
Joseph Brady is the president of the Bradco Companies, the longest standing commercial, industrial, office, retail and land brokerage firm in the High Desert region.
Noting that “there have been many proposed uses” for Adelanto’s industrial park properties over the last ten years and that a 288 acre industrial park was developed in the City of Adelanto, Brady said, “There have been proposed prisons discussed and other industrial projects that never came to pass, many times due to the major fluctuations in the economy.” He said those include “other properties within the industrial park that I believe had some prior developer disposition agreement associated with them and the developer did not perform.” Brady said there were properties, “most” of which “had no utilities to them (i.e. water, sewer, gas, electricity, or curb and gutter)… that are near and or adjacent (within 6± miles) range [to the industrial park property sold to Kojima] which range in price per square foot from $0.06± to $1.21± per square foot.” Brady said evaluations of property in the Adelanto area “that we felt comparable [to the property purchased by Kojioma] indicated that the highest value that we could get was $0.91± per square foot. “ With regard to industrial properties in the Adelanto area his firm was representing, Brady said his firm had put such properties on the market recently “at $1.50 per square foot to give some type of negotiating room for potential clients.”
Shortly after the city council passed the marijuana cultivation ordinance, Brady said, “Mr. Ed Dunagan, who is the owner of the Adelanto Industrial Park, had subdivided a 5± acre (gross property) into seven parcels, one of 34,000± square feet with estimated floor space of 12,000± square feet; a second of 20,000± square feet with estimated floor space of 13,000± square feet; a third of 18,000± square feet with estimated floor space of 11,000± square feet; a fourth of 31,320± square feet with estimated floor space of 10,000± square feet; a fifth of 18,980± square feet with estimated floor space of 11,000± square feet; a sixth of 20,380± square feet with estimated floor space of 13,000± square feet; and a seventh of 33,000± square feet with estimated floor space of 12,000± square feet. These properties sold somewhere between $12± per square feet and $14± per square feet. I’ve never seen anything like this.”
Brady continued, “I am not in any position either personally or professionally to question why the Adelanto City Council, or senior staff, through its former redevelopment agency plan and the State of California, would elect to sell Industrial Park 4 for such an inexpensive amount of money. That’s obviously a subject that the taxpayers and residents of the City of Adelanto will have to have with the City Council of the City of Adelanto as we have now seen in a very short period of time some ‘crazy’ sales occur due to the new ordinance allowing for the cultivation of marijuana.”
The Sentinel obtained this statement from a press representative for Kojima: “The Nossaman Law Firm represents only the developer, and no one else. To determine the availability of the property the developer actively monitored and relied on publicly available information on the city’s website. Based on that publicly available information, the developer, and anyone else monitoring the city’s website, learned that on November 23, the City had the second reading of Ordinance 539 [pertaining to permitting marijuana cultivation facilities], meaning that the ordinance was formally adopted [and] on November 24, the [Adelanto redevelopment bond] oversight board submitted a revised long range management plan to the State Department of Finance, meaning that the state would soon issue the approvals necessary for sale of the property. “
According to the spokesman, “In response to that public information, the developer submitted a binding offer and executed purchase and sale agreement to the city for consideration. Anyone else could have done the same thing had they been monitoring the city’s website Under Section 2.1 of the Purchase and Sale Agreement, which is a public document, the developer is required to pay the higher of $375,000 or the fair market value of the property as determined by an independent appraisal. The developer did not receive a bargain price. The city has no risk under the agreement of selling the property for less than fair market value.”
Furthermore, the spokesman, who asked not to be publicly identified, said, “The statements and allegations being made against the developer regarding the sale, and inducements to the city or its representatives in exchange for sale of the property, are patently untrue.”
The purchase and sale agreement does contain a provision that yet leaves open the possibility that the city might receive from Kojima more than $375,000 for the 47.04 acres.
Under Section 2 of the agreement, which bears the subheading Purchase Price And Payment; Seller Financing, it states in subsection 2.1, “Purchaser shall be required to obtain and submit to seller prior to the end of the inspection period an independent, written appraisal of the property. In the event the new appraisal indicates a value equal to or less than the current purchase price, there shall be no change to the purchase price. In the event the new appraisal indicates a value of more than the current purchase price, the purchase price shall be increased to reflect the property value specified in the new appraisal.”
Woodard told the Sentinel. “While this is still in escrow an appraiser will reassess its value. As of our agreement in effect now, it is to sell for $375,000. But before escrow closes it could actually sell for today’s market value. Kojima is going to get a little sticker shock when they find out how much it will be.”
Asked what the final price will be, Woodard said, “It’s hard for me to say. I’m a real estate broker. I’m not an appraiser.” When pressed, he said, “My guess is it is going to be over $2 million.”

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