Thursday, August 16, 2007

More setbacks on the 700/800 Block

K Street land deal hits legal setback
Sacramento is unlikely to succeed in bid to force developer to swap property, judge finds.
By Terri Hardy - Bee Staff Writer

A judge's ruling Wednesday dealt a major blow to development of two critical blocks on the K Street mall in downtown Sacramento, setting the stage for a potentially lengthy legal battle or an eminent domain fight.

Sacramento Superior Court Judge Loren McMaster found that the city wasn't likely to prevail in a lawsuit to force a development team headed by property owner Moe Mohanna to go through with an agreed-upon land swap.

The city wanted the exchange so that a development team fronted by Joe Zeiden, owner of the Z Gallerie furniture retail chain, could revamp the historic buildings in the 700 block of K Street and install them with well-known retailers.

The exchange would have paved the way for Mohanna's team to transform the street's 800 block with condos and retail.

But McMaster found that a fire and demolition of buildings in the 800 block lowered the property value and wouldn't have resulted in a fair exchange.

The city's lawsuit still is pending, but the ruling will trigger discussions on the next steps, said James Gilpin, the private attorney representing the city. Options include the city using its powers of eminent domain, he said.

"We're at a fork in the road," Gilpin said. "We have to decide which way to go to get K Street redeveloped."

Gilpin said it was possible to go forward with the lawsuit, and noted that not all evidence had gone to McMasters before he made his ruling.

Mayor Heather Fargo, through a spokeswoman, said she hadn't been briefed on the ruling and could not comment.

The attorney representing the Mohanna team called the lawsuit "frivolous" and said the victory Wednesday all but kills the land swap. And, they said they are preparing for a fight.

"If they try it (eminent domain) we'll be ready for that, said Myron Moskovitz, attorney for Mohanna and his team.

"My clients want to see the redevelopment of K Street. They have the ability to redevelop the 700 block themselves, and they'd still like to do that."

If the case goes forward, it would likely take a year to go to trial, Moskovitz said.

City officials have said the land swap is crucial to make redevelopment possible in the area. The city already has spent more than $24 million to speed up the process by buying property in the area from other owners and relocating merchants.

"At this point we're left with scattered parcels of ownership," said Leslie Fritzche, the city's downtown development manager. "We're left to explore our options. Do we fold our tent, lick our wounds and go home? I don't know."

Wednesday's setback could also mean developer Zeiden pulls out of the project. Fritzche said Zeiden has so far remained committed, but they would have to look now at whether he wants to go forward if land can't be consolidated.

Zeiden's spokeswoman, Wendy Hoyt, did not return a call for comment.

Redeveloping the 700 and 800 blocks, among downtown's most blighted blocks, is crucial and the main concern for the Downtown Sacramento Partnership, said executive director Michael Ault.

"Whatever the ruling, progress has got to be the priority," Ault said. "Further legal wrangling impacts our ability to move forward."

Movement has been slow in coming. In January 2005, the city took a get-tough approach.

It gave property owners of the run-down businesses and empty lots a tight deadline to produce viable redevelopment plans or face the possibility that the city would appropriate the property under the power known as eminent domain.

In court Wednesday, the Mohanna team's attorney complained to the judge about the tactics, and said his clients didn't like the land swap deal.

"(The city) said 'you're not good enough, we're going to take it away from you and if you don't like it we'll use eminent domain,' " Moskovitz said. "They were under pressure, under threats."

After a fire in November and subsequent demolition, Mohanna has said banks have been unwilling to transfer $4 million in loans he has on property in the 700 block to the 800 block. Mohanna went to the city to ask for more financial help but that was rejected, he said.

"My client was left with rubble," Moskovitz said.

At issue in Wednesday's hearing was a legal document the city filed against the properties that were to be part of the exchange. The "lis pendens" warn the land is tied up in litigation and make it difficult for properties to be sold or for money to be borrowed on the land.

The judge ruled that the lis pendens be removed.

Mohanna also has filed a countersuit against the city, seeking to recover damages. His attorney said he's losing $40,000 in monthly rent from tenants the city evicted.

And Mohanna is suing Zeiden, claiming the developer was negligent in his oversight of his buildings, leading to the fire.

Despite these complaints, Mohanna's team hasn't said officially it won't accept the land swap.

"We're not claiming the agreement is terminated," Moskovitz told the judge. "Maybe we will, and maybe we won't."


Daniel said...

This whole thing is ridiculous. Everyone wants so close to the same thing, but we still can't make it happen. I have a great view of the 700 block from my office window, and I'm getting pretty sick of it. Seriously, it almost makes me want to leave Sacramento and go to a real city.

Okay, I didn't really mean that, but this is ri-dic-u-lous!

(and we had to lose Morellias - so it could sit vacant for years?!?)

Anonymous said...

Whether he is evil or just plain unlucky, Mohanna is the problem and needs to go. It is simply this guy's jerking around that is preventing the whole thing from happening. There is development on every street around here EXCEPT the 700-800 block of K. There is a player - Zeiden - who has shown patience, appears to want to do the right thing, and has a history of successes. And the city has stepped in.

Mohanna needs to leave town. Torches anyone?

LivingInUrbanSac said...

The only thing Mohanna wants and is waiting for is the city to buy his property from him. There is not a chance in hell that he will ever do anything to improve his slum, ever.

The city a couple months ago set aside about 23M dollars of redevelopment money (11M that was supposed to go to The Tower originally, 5M from The Docks and 8M in future funds) to acquire property in downtown, I have to imagine his property is very high on that list.

I just don't know if Zeiden is going to stick this out.

Moab said...

The city screwed the pooch again. This is going from a problem to a big problem. Mohanna is far from a saint, but the city did itself in by acting stupidly. The city started taking action on Mohanna's properties as if it had taken Mohanna's land with eminant domain. But it hadn't taken it yet. That's not the way the law works.
Mohanna wins another round. The city again gets knocked down and the TKO. And the city ends up having to pay him again and again and again.

LivingInUrbanSac said...

While I don't think the city has done itself any favors in the past when it comes to K Street, this time I can't blame them as much.

Mohanna signed a land swapping agreement with the city and Zieden that was negotiated through a third party mediator and agreed upon by everyones involved.

The basic run down of it was that said the city would acquire specific parcels on the 700 and 800 block and would then trade them with Mohanna and Zieden so that Mohanna had all of the 800 block and Zieden had the 700 block. Then city then went and spent 20M+ on parcels to complete this agreement.

Only when that building on the 800 block "mysteriously" got burned down did it throw a wrench into everything since Mohanna is calming the stuff he is swapping out is no longer a fair trade now that the building got torched. So now he does not want to go through with the swap he agreed and signed on for.

Zwahlen Images said...

I would say Moe is in his legal right not to swap land now that he's not getting what he originally agreed to. This deal is like trading cars with someone that has a car nearly identical to yours and then hours before the car swap, your car get gets totaled. It's still a car, but certainly not what you agreed to.

Believe me; I have no love for Mo. But with out any proof that Mo had something to do with the fire, this seems pretty cut and dry. With out any buildings on the 800 block to swap with, Mo would have no way to collect rent like he'd be able to do if he keeps his 700 block… and that’s not a fair trade.

cole said...

1. Second hand, that the major Owner or CEO of the Company owning K Street Mall fed up with City of Sacramento and their "Planners" and walked out of a meeting telling the City that, "Life was too short to deal with little minded country bumpkins and that he had more important projects in New Zealand and Singapore where the urban planning was more sophisticated..."

2. J Crew moved out of downtown, which HAD the most sophisticated storefront and design in Sacramento...moved to Arden?...yikes...

3. Was a GLORIOUS experience to walk through K Street at Christmas and go into the other exquisite design at Banana Republic and then eat at River City Brew Pub...or even during the summer when the misters were one has a rather dumpy Hard Rock Cafe...

4. The same "genius'" that gave you public financing of private highrises for wealthy condos and the Magoof Arena Fiasco (see Grand Jury Report) is going to "redesign K Street"?...that's a good one