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A proposed transit village with a food and wine center in Santa Rosa's Railroad Square may again be in jeopardy.

The plan is complicated by the combination of public land and a private developer, who says the project can't be financed unless he is allowed to buy the property now rather than when he is cleared to begin construction.

Mike Dieden nearly backed out of the deal last spring, also citing concerns about financing the $150 million development, a hub on the proposed North Bay commuter rail line.

Now, he says he can't get financing while he only has an option to buy the 5?-acre site, which is owned by the Sonoma Marin Area Rail Transit agency, the public group planning the rail line.

"In this real estate environment, it's close to impossible to attract private equity on a project that is totally unsecured," said Dieden, a Los Angeles-based developer. "If we are unable to secure the investors' investment with real property, they are totally at risk."

SMART directors, however, are reluctant to sell, saying they are afraid they would lose control of what happens with the property if they relinquish title before financing and a construction contract are in place.

"We are very leery about transferring title to the property early on and not covering our bases in our ability to get the project we want and a project in a timely fashion," said Bob Jehn, a Cloverdale councilman and SMART board member.

Dieden said he believes deed restrictions could be written into a sales agreement to protect SMART.

Dieden's latest proposal also includes combining efforts with the John Stewart Co. of San Francisco, which wants to convert an adjacent warehouse into live-work space.

To lose Dieden now would be a setback for both SMART and Santa Rosa, said Jeff Kolin, Santa Rosa city manager.

"We have been at this process for a number of years; the site is tremendously important not only for the city but for regional rail," Kolin said. "We would really like to have a showcase project that says 'transit-oriented development, it is possible and it is successful.' "

Dieden was selected by SMART to build the food and wine center, a rail station and condominiums on acreage owned by the rail agency.

The development, estimated to cost $150 million, is to be patterned after the Ferry Building on San Francisco's Embarcadero, and offer 40,000 square feet of retail space, 118 units of market-rate housing and 40 units of affordable housing.

It initially would have been the site of Santa Rosa Junior College's culinary institute, but the college is opting to build near the main campus because of uncertainty about the Railroad Square project.

Other developers say ownership of the property could be an issue in financing a project but it isn't the only one for a residential development in the current economy.

Not owning the property is a real obstacle, but even so, there is little financing available for condominium projects, said Rick Derringer, the developer of the De Turk Winery housing project that has been approved for Railroad Square.

"Owning the property is almost critical in this day and age," Derringer said. "I have not found a lot of lenders who get excited about options."

Dieden is proposing merging his New Railroad Square LLC with the Stewart Co., which is developing The Canners, a $50 million, 80-unit, live-work housing project in a former brick warehouse adjacent to Railroad Square.

Dieden, who said he already has spent $1 million on the project, made the proposal after losing his New York investor.

Stewart said the merger makes sense, because the success of his project depends on the completion of the Dieden project.

He said his motivation to complete the project is the $5 million he already has invested and the $18,000 a month carrying costs.

Stewart also said he believes that getting title to the land now is crucial.

"We feel that site control is very important to us," Stewart said. "We did not want to start down the slippery slope of spending money . . . without knowing we had a deal."

Lillian Hames, SMART's general manager, in a written response to Dieden and Stewart said the agency is willing to discuss the proposal, but reiterated the need to protect the public's interest in the property.

The issue will be before the SMART real estate committee at 10 a.m. Wednesday at the San Rafael City Council chambers.

"What was proposed, the board was not willing to go along with, but that doesn't mean we will not be able to work something out," said John Nemeth, SMART's rail planning manager.

Under the existing agreement between Dieden and SMART, Dieden would get title to the property only after the project is fully funded, has received city building permits, any environmental remediation work has been done and a construction agreement is executed, Nemeth said.

For the land, SMART is to receive $250,000 during the first phase of construction, $2.5 million during the second and a fee each time the condominiums turn over, which is estimated to be worth between $1 million and $2.5 million over 20 years, Nemeth said.

"The agreement we structured with Dieden, I thought, was very favorable to him," said Mike Kerns, a Sonoma County supervisor and SMART director. "We bent over backwards to make this work, with most of the revenue on the back end of the deal. We are not going to give this property away."

Dieden and Stewart both said they believe an agreement could be reached to protect SMART by restricting development on the property no matter what happens.

"We are sensitive to SMART's position that they have to act in the public interest, and we want to protect that interest," Dieden said. "We are confident that their counsel and our counsel can work out language."

You can reach Staff Writer Bob Norberg at 521-5206 or bob.norberg@pressdemocrat.com