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Using interesting timing, the City of San Bernardino has entered into a land swap with the San Manuel Band of Mission Indians simultaneously with the tribe providing a $4.2 million grant to the San Bernardino Police Department.
Wednesday night the city council assented to the exchange of 115 acres of vacant land in the foothills of the San Bernardino Mountains at the city’s extreme northeast end for the 2.48 acres at the center of the city on which the now shuttered JC Penney department store stands.
The JC Penney was opened in 1972 with the advent of what was to become the Carousel Mall, which had as its anchor tenants JC Penney, and Montgomery Ward, in addition to the Harris Department Store. The Mall was built adjacent to the Harris Department Store, which first opened at that location in 1927 and had been operated by the Harris family, which first established a major retail operation in San Bernardino in 1905. The Harris building was and is considered by many to be one of the grandest pieces of architecture in the city.
The Carousel Mall was for a time a resplendent shopping location, temporarily besting its major rival in town, the Inland Center, which opened in 1966. At its peak in the mid-1980s it boasted more than 100 tenants. In the late 1980s it was renovated, and a carousel was installed in the bottom floor, at which point it was rechristened the Carousel Mall. But its fortunes waned with those of the rest of San Bernardino, hastened by the closure of Norton Air Force Base in 1994. The first major blow came when Gottschalks, which had bought out Harris, elected to close at that location in 1998 and move to the Inland Center. Three years later, in 2001, Montgomery Ward went out of business. At that point, J.C. Penney was the sole anchor. In 2003, J.C. Penney closed. The mall was sold in 2006. Two years later, in 2008, Lynwood-based developer Placo San Bernardino LLC, purchased a major portion of the mall for $23.5 million, with serious designs on reinvigorating it and obtaining short term financing to undertake improvements, signaling it was on a crash schedule to do just that. But that same year, CinemaStar shuttered its theater on the mall’s grounds. In May 2010, with its plan stalled, Placo was failing to make its payments to Center Bank. The City of San Bernardino’s economic development agency swooped in and bought the property’s note and trust deed from Center Bank for slightly over $13.1 million. At that point, the city, based on backroom discussions with county officials, had visions of filling large portions of the mall with county offices.
A move in that direction and a possible revitalization of the mall was underway, as the County of San Bernardino’s Children and Family Services Division was already leasing 28,892 square feet of office space there. In 2011, there were 33 shops in the mall and hope of drawing more county offices into it. But in April 2014, the county withdrew the Children and Family Services office from the mall and the 33 shops had dwindled to 17. Confounded, the city was on the brink of having the entirety of its holdings at the Carousel Mall razed.
In November 2015, AECOM/the Fransen Company gallantly intervened, promising to redevelop the Carousel Mall commercially and simultaneously intensify the adjacent Theater Square, and cap off the effort with town homes/condominiums built by KB Homes in the adjoining downtown area. While AECOM/Fransen remains committed to the project, progress has been slower than was anticipated, perhaps in part because the city and AECOM/Fransen did not have complete autonomy over the Carousel Mall site. The Harris Building is owned by El Corte Ingles, a department store retailer based in Spain, which has made no process whatsoever toward tenantizing the building with a viable retailer. The JC Penney Building was purchased by the San Manuel Tribe in 2008.
Meanwhile the San Manuel Tribe, which has generated tremendous wealth for itself over the years since starting an Indian bingo parlor in 1986 and evolving that into a casino, has a need to acquire more land in addition to its current reservation property in the Highland/San Bernardino area. An accommodation relating to a trade of the JC Penney property for land the city had acquired in the foothills adjacent to the reservation was worked out over the last two years.
According to a City of San Bernardino staff report drafted earlier but dated November 1, 2017, and credited as having been written by San Bernardino Community Development Director Mark Persico and forwarded to the city council as a “request for council action” at the November 1 city council meeting, “On August 15, 2016, the city council approved a master development agreement with a joint venture development partner, AECOM/Fransen Company to redevelop the Theater Square site. Related to that project is the eventual redevelopment of the 43-acre Carousel Mall. All property within mall site is city owned except the former JC Penney building. The JC Penney store closed in 2003 and the building was subsequently purchased by Pine Mountain Development, LLC (which is an entity wholly owned by the San Manuel Band of Mission Indians) in June 2008. To effectively redevelop the mall site, the city needs to effectively control the entire site.”
Persico’s report continues, “The JC Penney property consists of two separate buildings located in the north portion of the mall. Together the properties total 2.48 acres and contain approximately 226,981 square feet of building area. 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 PC 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. The city owns 115 acres of vacant property at the north end of Sterling Avenue, northeast of Foothill Drive (the Foothill Property). The Foothill Property 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. 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.”
According to Persico, appraisals of the properties were completed. He said the land being given over to the city by the tribe is more valuable than the land the city is giving up to the tribe.
A letter signed by Kim Pasquariello and Bradford Thomspon of the real estate appraisal firm Mason & Mason dated January 25, 2016 to an attorney, Gerald Eagans of the law firm Redwine and Sherrill, who was apparently representing the City of San Bernardino at that time, references “115.20 acres of unapproved land east of North Sterling Avenue, North of Foothill Drive.” The letter states, “At your request, an investigation and analysis of the above referenced acreage has been conducted for the purpose of estimating the fair market value of the fee simple interest. It is our understanding the City of San Bernardino and the San Bernardino Municipal Water District intend to exchange the subject property for other acreage within the city limits. Please be advised that an appraisal report has been completed and the report is submitted herewith in compliance of the uniform Standards of Professional Appraisal Practice, Standards Rule SR 2-2(a) and the California Code of Civil Procedure. The client and users of this report are advised that this is an appraisal report. As such, it presents only summary discussions of the data, reasoning, and analysis that were used in the appraisal process to develop our opinion of value. Supporting documentation concerning the data, reasoning and analysis is retained in the Mason and Mason file. 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). Your attention is directed to the attached report which describes the property appraised, the assumptions on which the value opinion is premised, and the factual data and other considerations which support the conclusion of value.”
A separate appraisal by Waronzof Associates valued the JC Penney property at $1.8 million.
Individuals involved in the real estate industry have suggested that the “Foothill Property,” as the city refers to it, was substantially undervalued to meet appearances of propriety in the exchange.
Property elsewhere in the county has fetched much higher prices than the $8,498.27 per acre value specified in the Mason & Mason appraisal.
In Upland, for example, available property is going for $1.1 million to $1.2 million per acre.
It is difficult to determine if a fast one was pulled in effectuating the exchange, as the attached report referenced in the Mason & Mason letter to Eagans containing the property description was not provided to the council nor the public. One city official told the Sentinel that was because the attached report did not take into consideration the highest and best use of the property, as claimed.
The casino on the San Manuel property is one of the most, if not the most, intensive revenue-producing properties in San Bernardino County. The tribe’s desire to expand would quite likely eventually extend to the casino operations, representing a substantial revenue increase for the tribe overall, a consideration not reflected in Mason & Mason’s finding valuing the 115.2 acres at $979,000 in total, thus appearing to contradict the Mason & Mason document’s statement that the appraisal was “based upon the highest and best use analysis.”
A real estate professional with over 30 years experience in the Inland Empire, including the Central San Bernardino Valley, who boasts an intimate familiarity with commercial properties as well as ones utilized by governmental entities, told the Sentinel the appraisal of the Foothill Property used by the city in justifying the exchange struck him as being woefully below the properties actual and realistic value. “They [the San Manuel Tribe] are getting a hell of a deal if a lot of that land is flat,” he said. “It’s in the foothills, so there are probably hills and ravines, which will probably require some grading and other work to make it developable. How much of the property is developable would be an important consideration, but if we are talking about 115 acres, chances are that at least some of the property could be built on as it is and more of it could be graded. They’re not getting hurt on the deal, that’s for sure.”
The real estate professional offered a comparison. “Dairy land in Chino is going for $350,000 per acre, which is $8 per square foot,” he said. “Here they are saying that land is worth 19.5 cents per square foot. That is a great price unless a lot of that land is undevelopable.”
He said San Bernardino officials are obviously intent on maintaining a positive relationship with the San Manuel Tribe.
“The tribe with its successful casino operation is the big money pot in San Bernardino that the city can go to whenever they are in financial need, and the tribe will probably come through for them,” he said. “No one wants to take a bite out of the tribe, since it has done so much for all the different charities in the area.”
Thus, the tribe’s donation of $4.2 million to the San Bernardino Police Department appears to have been well timed.
Between now and December 31, the tribe will dole out $600,000 to the department to fund two daily overtime shifts in the northeastern quadrant of the city closest to the San Manuel reservation. The tribe’s largesse will also cover the purchase of patrol vehicles, video surveillance equipment and ten license plate readers, along with the deployment of community service officers and parking control officers. Thereafter, the department will get $1.2 million annually in calendar 2018, 2019 and 2020 for the same purposes.
Persico gave a presentation laying out the proposed land exchange to the city council before the matter was voted on by the council, but the forum Wednesday night did not provide the public with an opportunity to comment on the item and it did not allow for any questions relating to the matter to be raised by anyone other than members of the city council. After his presentation, Persico retreated to the side and behind the council dais, making approaching him inadvisable given the police presence in the council meeting room.
To some extent, the $4.2 million can be seen as offsetting any discrepancy in the value of the property trade-off, the officially submitted and accepted appraisals showing the JC Penney Property as more valuable than the Foothill Property notwithstanding.
Another consideration of mitigation in favor of the land swap is that the Waronzof appraisal of $1.8 million does not reflect the $9 million the tribe actually paid to acquire the JC Penney property in 2008.
-Mark Gutglueck

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