San Bernardino Buys Out Consortium’s Carousel Mall Redevelopment Contract

At a cost of $100,000, the City of San Bernardino has bailed on its contractual arrangement with Huntington Station, New York-based Renaissance Downtowns USA and Los Angeles-based ICO Real Estate Group for the redevelopment of the Carousel Mall.
That action comes not quite two months after the California Department of Housing and Community Development took public issue with the criteria by which the city arrived at a determination to give the joint Renaissance Downtowns/ICO venture the exclusive development rights to revitalize the downtown site, which has been in decline for more than two decades and which has been largely fallow for nearly ten years.
The mall, a portion of which includes the Harris’ building first established in 1927 and which has existed in the form of a modern shopping venue since 1972, is proximate to San Bernardino City Hall, which has itself been shuttered for seismic considerations since 2017.
In 1972, the two-floor Central City Mall opened with 52 stores and in 1973 an addition directly linked the mall to the Harris Company. Improvements to the mall were made, including a 36-foot colorful carousel near one of the entrances at the bottom floor, artistic façades and trendy interior decorations. At one point the number of stores and shops it contained grew to 117. By the late 1970s, the mall was facing the challenge of local gangs having settled upon it as a hangout, particularly during the peak shopping hours of Friday night until Sunday. Management of the mall twice changed hands over the next decade. Despite efforts by city officials, the mall’s owners, developers and outside investors that began in the late 1980s to maintain it as a major regional shopping draw, it was dealt what was ultimately a death blow in 1994 when the U.S. Department of Defense closed Norton Air Force Base, which severely hampered San Bernardino economically.In 1981, Spanish retailer El Corte Inglés, S.A. acquired the Harris Company and its nine stores, including the stately but old-fashioned Harris’ Department Store in San Bernardino. In 1997, the Harris Company undertook a $27 million effort to update its nine-store chain. The City of San Bernardino, yet committed to keeping its downtown core alive, put up some money toward that renovation effort. Those chainwide improvements completed, the Harris Company merged with Gottschalks in 1998, and the stores were initially renamed Harris-Gottschalks. Most of the original Harris’ stores eventually dropped the name Harris’, and the original Harris’ in downtown San Bernardino, which was in direct competition with the Gottschalks at the Inland Center Mall, was closed on January 31, 1999.
After the closure, ownership of the downtown San Bernardino Harris’ building remained with El Corte Inglés, S.A. In 2001, Montgomery Ward went out of business, entailing the closure of its Carousel Mall store. JC Penney, the sole anchor at the Carousel Mall, closed in 2003. On March 29, 2005 the San Bernardino County Board of Supervisors approved a ten-year lease agreement with two five-year options for 28,892 square feet of office space at the Carousel Mall for use by its children and family services division. The original term of the lease was from September 1, 2005 through August 31, 2015. Other portions of the mall’s cavernous interior were filled with San Bernardino City School District offices.
LNR Property Corp. purchased the property in February 2006, declaring an intention to convert the existing structure into a high density residential and commercial project through tenant improvements. That effort stalled out, and in January 2008, LNR Corp sold all of the Carousel Mall property, minus the Harris Company building which remained in the possession of El Corte Inglés, S.A. and the JC Penney’s building which was owned by the San Manuel Band of Mission Indians, to Lynwood-based developer Placo San Bernardino LLC, for $23.5 million. Placo expressed serious designs on reinvigorating the mall 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. Placo, with a $16.5 million loan from Center Bank, pressed ahead but in May 2010 failed to make its payments to Center Bank. The plan stalled. The City of San Bernardino’s economic development agency swooped in and bought the property’s note and deed of trust from Center Bank for slightly over $13.1 million. The city, based on backroom discussions with county officials, had visions of filling large portions of the mall with county offices.
Relations between Placo and the city had entirely broken down by that point. Placo, which claimed it was still intent on making a go of revitalizing the mall, said it was being undercut by the city, which was militating to tenantize it with county government offices. The city pressed Placo to pay it the $5 million difference between the amount it had paid for the mall and the amount of money loaned it by Center Bank with interest.
In 2011, there were 33 shops in the mall. In April 2014, San Bernardino County signaled that it would not renew its lease on the space within the mall, and its children and family services division would leave the premises when its ten-year lease expired the following year. Its bridges burned with Placo, the city in November 2014 began to look for another operator of the mall. Then-San Bernardino Mayor Carey Davis and then-San Bernardino City Manager Allen Parker sent letters to more than 80 “development concerns” soliciting return letters of interest to the city relating to the mall. Those letters provoked 14 responses, and then-Deputy City Manager Bill Manis concluded that three of those, AECOM/Fransen, Tishman Construction Corporation and Hunt Development Group were serious enough for him and then-Community Development Director Mark Persico to engage with in substantial dialogue.
By January 2015, there were 17 businesses remaining at the Carousel Mall, including four restaurants. City officials, convinced that entering into a public/private partnership was the last viable way to salvage the mall property, pursued that angle. In November 2015, the City of San Bernardino, in a move sanctioned by its city council, entered into an exclusive negotiation agreement with AECOM, the Fransen Company and KB Homes to redevelop the Carousel Mall commercially, simultaneously intensifying the adjacent Theater Square and capping the effort with town homes/condominiums to be intersticed with the shopping opportunities. The aggressive step toward rejuvenation of the county seat appeared to be moving ahead rapidly. The following month, December 2015, the city council as it was then composed signed off on AECOM, the Fransen Company and KB Homes pushing full steam ahead with bringing in restaurant and third party developers and establishing town square street lights, utilities, signage and the extension of Third Street as a paseo, i.e. a walkway, by 2017, constructing 60 units of apartments that would “wrap” the existing mall building and be placed in front of the existing garage by 2018, begin filling tenant-improved spaces at the mall with neighborhood retail stores by 2019 and adding 35,000 square feet of retail operations, 275 townhomes and a charter school by 2020. According to Vaughan Davies, a principal in AECOM, the existing parking structure at the mall would remain intact. Those elements of the undertaking were to be completed by 2020 and the cultural draw of the adjacent Regal Cinemas and California Theatre in the downtown area, along with further development of the mall property would take on a life of its own and continue over the next decade until the area would a thriving example of a postmodern urban landscape, Davies prognosticated.
To facilitate the redevelopment plans for the mall, in November 2017 city officials arranged for, and the city council assented to, the exchange of 115 acres of vacant land it owned in the foothills of the San Bernardino Mountains at the city’s extreme northeast end for the 2.48-acres JC Penney site on the mall property owned by the San Manuel Indian Tribe.
San Bernardino’s overwhelming problems with homelessness and economic stagnation, not to mention issues relating to graft and overtures pertaining to kickback requests, convinced AECOM, the Fransen Company and KB Homes to abandon the effort.
Under Mayor John Valdivia, who defeated Carey Davis in 2018, efforts to transform the mall property and the district around it into a postmodern cityscape continued.
Under Valdivia’s watch and that of City Manager Teri LeDoux and then City Manager Robert Field, the city again solicited proposals. Eleven separate entities competed to be selected as the master developer/redeveloper of the mall property.
Some city officials, however, said they came to recognize what they referred to as “favoritism” on Valdivia’s part toward one of those competing entities, Shanghai Construction Group, known by its acronym SCG, during closed door meetings at City Hall. It would be subsequently revealed that a multitude of shell companies or middlemen linked to Chinese-owned companies, including SCG America and Jia Yuan USA Co., were passing money to southern California politicians, including Valdivia and Los Angeles City Councilman Jose Huizar, while those companies were pursuing development projects in the cities those politicians represented. On at least two occasions in 2019, Valdivia made use of the Luxe City Center Hotel and other Intercontinental Hotel Group locations for meetings or fundraising activity, with his campaign paying what looked to be drastically reduced rates – $904.45 total – for accommodations. On at least five occasions, Valdivia was provided with accommodations at Luxe City Center Hotel, DKN Hotels or other Intercontinental Hotel Group hotels for meetings and fundraising events, all for prices well below what would normally have been charged to a member of the public or a company for using those facilities. Further documentation obtained by the Sentinel shows that DKN Hotels on December 29, 2020 defrayed for Valdivia the $3,000 cost of holding a pre-New Year’s Eve 2020/21 fundraiser gala at one of its hotels. At that liquor-lubricated event, Valdivia brought in tens of thousands of dollars to finance his future campaigns. DKN Hotels and Intercontinental Hotel Group, through a multitude of cutouts, are linked to SCG America.
This apparent effort by SCG America to launder money to Valdivia through his campaign was ongoing while he was seeking to manipulate the city council to approve giving SCG America go-ahead to redevelop the Carousel Mall property.
Among the companies competing with SCG America for the mall replacement project were Los Angeles-based BLVD Communities, Calabasas-based Alliant Strategic Development, Renaissance Downtowns USA and ICO Real Estate Group. Along the way, Renaissance Downtowns USA and ICO Real Estate Group, which had initially entered competing bids but which had cooperated on projects previously, elected to combine their efforts.
As the competition proceeded in earnest, Valdivia, in a ham-handed way, put pressure on Field and other city staff to award the contract to SCG. Eight of the others involved in the selection process were shunted aside by the city, leaving Renaissance Downtowns USA/ICO Real Estate Group to go toe-to-toe with the Chinese-based conglomerate, Shanghai Construction Group, i.e., SCG.
After it was learned that SCG was filtering money to Valdivia and his electioneering fund through various SCG corporate affiliates and subgroups and that Field was militating with the mayor to get an internal city staff recommendation to proceed with SCG’s redevelopment plan, there was a firestorm of controversy centered around charges that Valdivia was on the take and that he was corrupting Field and the city’s top-ranking employees. Council Members Ben Reynoso and Kimberly Calvin took a lead in questioning what Valdivia was up to, and citizen outrage at Valdivia’s action escalated. In that atmosphere, it became impossible for Field to return a recommendation in favor of SCG.
City staff provided a recommendation that the city council reject both bids to redevelop the Carousel Mall property and rather include the mall property into a yet-to-be-determined downtown revitalization effort.
On March 3, 2021, a majority of the San Bernardino City Council consisting of Councilman Theodore Sanchez, Councilwoman Sandra Ibarra, Councilman Fred Shorett, Councilman Ben Reynoso, Councilwoman Kimberly Calvin and Councilman Damon Alexander voted in favor of accepting the proposal by Renaissance Downtowns USA and ICO Real Estate Group, and allowing both to serve as the mall’s combined master redeveloper. Councilman Juan Figueroa, Valdivia’s most steadfast ally on the council and who himself had been spotted cavorting with SCG principals and corporate officers and had taken money from them, voted in opposition to selecting Renaissance Downtowns USA and ICO Real Estate Group.
On March 16, 2023, David Zisser, the assistant deputy director for the California Department of Housing and Community Development’s accountability unit, stated in a publicly-released letter that the City of San Bernardino had violated four state laws or policies with its March 3, 2021 action in approving the arrangement with Renaissance Downtowns USA and ICO Real Estate Group and its subsequent facilitating of that deal.
According to Zisser, he was giving the city “Notice of [a] violation of the Surplus Land Act regarding the City of San Bernardino’s surplus land disposition for the property at 295 Carousel Mall,” i.e., the entire mall property.
Zisser recounted that on August 5, 2021, the California Department of Housing and Community Development received documentation from the city upon which his agency was to process the disposition of the mall property in accordance with the California Government Code and that his department issued a letter to the city on September 2, 2021 approving the disposition based on the information and documentation provided by the city. “The California Department of Housing and Community Development recently received information that the disposition documentation submitted to it by the city was incomplete and, in places, inaccurate,” Zisser wrote in his March 16 letter.
Consequently, the California Department of Housing and Community Development rescinded its approval and referred the matter to California Attorney General Rob Bonta for possible criminal or civil action against the city and its officials.
In August 2021, according to Zisser, San Bernardino city officials dissembled by representing that the city had been provided with no qualified notices of interest in developing/redeveloping the Carousel Mall property by low-income housing developers. In actuality, Zisser said, two entities, BLVD Communities and Alliant Strategic Development – both of which have divisions concentrating on building affordable residential units – responded to the city’s notice of availability.
The city was obligated to enter into a round of “good faith” negotiations with BLVD and Alliant for a period of no less than 90 days, said Zisser, “even if these negotiations did not bear fruit. The city, at a minimum, was obligated to notify the California Department of Housing and Community Development that the city received the notices of interest.”
In recent years, the California Department of Housing and Community Development has been stressing the need for local governmental jurisdictions, both cities and counties, to develop affordable housing in response to what is widely considered a housing crisis in the Golden State.
“At the very least, the city should have responded ‘yes’ to [a question about whether] any entity express[ed] interest in purchase or lease of the land and provided a detailed explanation as to why it chose not to proceed with good faith negotiations,” Zisser’s letter states.
San Bernardino ran afoul of California law that requires cities declare land “surplus” or “exempt surplus” before taking any action to dispose of it before seeking to unload it when it negotiated with a potential buyer to do just that, Zisser claimed in the letter. The city officially declared the mall property to be surplus land on May 19, 2021, 77 days after the vote to enter into the agreement with Renaissance Downtowns USA/ICO Real Estate Group, followed by the notice of availability being issued on May 20, 2021, 78 days after the vote to enter into the agreement with Renaissance Downtowns USA/ICO Real Estate Group.
Moreover, according to Zisser, the city issued a preliminary exclusive negotiating agreement with Renaissance Downtowns USA/ICO Real Estate Group on May 26, 2021, less than a week after the notice of availability was issued and during the subsequent 60-day notice period.
“Based on publicly available documents on the city’s website, it is evident that the city negotiated with at least one prospective developer before the city declared the property surplus or issued a notice of availability,” according to Zisser.
Since the city did not negotiate with BLVD Communities or Alliant Strategic Development while negotiating with Renaissance Downtowns USA/ICO Real Estate Group, which did not respond to the notice of availability, the city further violated California law in that it “failed to properly prioritize affordable housing,” according to Zisser.
The city had until May 15 to cure the violations.
This week, on May 3, the last time the city council is scheduled to hold a regular meeting before its upcoming one on May 17, a five-sevenths majority of the city council voted to abrogate its agreement with the Renaissance Downtowns USA and ICO Real Estate Group consortium. To head off any legal action that Rennaissance/ICO might pursue for having been crossed up after spending two years preparing to make good on its proposal, the city council voted to pay the partnership, which is functioning under the umbrella of a limited liability company known as the San Bernardino Development Company, $100,000 for its trouble. The vote officially terminated the city’s exclusive negotiating agreement with the two entities.
Sanchez, Ibarra, Figueroa, Shorett and Reynoso prevailed in the vote, with Calvin and Alexander dissenting. Officials said they would coordinate with the California Department of Housing and Community Development to comply with the Surplus Land Act going forward. That means the city will at some indefinite point, most likely sooner rather than later, declare the 43 acres surplus land and provide notice to any parties interested in acquiring and redeveloping it into affordable housing, and engage in the statutorily required 90-day minimum of “good faith” negotiations with those who respond within 60 days. At issue in those negotiations would be the interested party’s bid on the purchase of the property. If some accommodation on the sale price and terms cannot be reached, then the city would be at liberty to deal with other entities interested in acquiring the property.
-Mark Gutglueck

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