Sale of Sonoma County hospital complex to politically active developer nears completion

Sonoma County is on the cusp of approving its largest real estate deal in recent history, a closely watched effort to transform 82 acres of public land into a master-planned community that would introduce hundreds of new rental units into the region's increasingly tight housing market.

The vision for the land off Chanate Road, the site of the old county hospital complex, could produce one of the largest housing developments built in Santa Rosa in a generation. Bill Gallaher, the Santa Rosa-based developer, could pay as much as $11.5 million in cash for the property, where he's proposed up to 800 mixed-income rentals and an additional 50 to 60 units for formerly homeless veterans.

The project, which ultimately will go before the city of Santa Rosa for approval, also seeks a mix of commercial and recreational uses for the site. Construction won't be finished for years, but it has already attracted an intense amount of community interest and political wrangling, as officials try to balance hopes for much-needed housing against residents' concerns about neighborhood impacts, traffic congestion, development of open lands and the influence of campaign donations.

The project has overcome one major controversy. Neighbors won a concession to save a 10-acre parcel encompassing a meadow that was long considered to be part of an official open space preserve. Despite initial resistance by the county, the oak-shaded meadow will be protected by a conservation easement after neighbors campaigned to exclude the parcel from the deal.

Another group of neighbors is now pushing for building a buffer zone on a different meadow behind their homes. In addition to concerns raised by neighbors, a group of medical professionals is deeply worried about losing the health care facilities on a site that was the epicenter of such services in the county for decades.

The Sonoma County Board of Supervisors on Tuesday is set to hold its first of two votes on a sale agreement, although the formal purchase won't close unless the project is also approved by Santa Rosa, a process the county estimates could take up to 1½ years to complete.

In the end, the deal is a high-stakes measure of both local governments' ability to make a large investment in the housing supply at a time when rental vacancy rates are just above zero and the lack of affordable homes is widely considered a crisis.

Caroline Judy, the county's general services director, said the county's high housing costs had effectively locked too many people - particularly younger residents - out of the market.

“That's not a good place to be,” Judy said. “It's not good for us economically and, certainly for the county and the obligation that we have to provide safety-net services, we're not able to stabilize our clients without housing. ... We're fulfilling our mission as part of this property sale.”

Gallaher is one of the most prominent developers in Sonoma County, with a resume of projects that includes hundreds of homes in the Oakmont retirement community, the senior living facilities Fountaingrove Lodge and Varenna at Fountaingrove and the Oliver's Markets shopping complex in Windsor. He is also founder and board chairman of First Community Bank, a key early lender to Sonoma Clean Power, the county's public power supplier.

He has been an active contributor to local political campaigns over the years, including those of Sonoma County supervisors.

A Press Democrat review of county campaign finance records indicates Gallaher, his family members, employees and their family members contributed at least $134,969 to benefit supervisors' campaigns over the past nine years. The spending has been called out by neighbors in interviews and in published comments from other community members who have looked critically at the deal.

Gallaher's representative on the Chanate Road project noted that the development team went through a public bidding process that attracted one other development group, headed by a former Petaluma planning commissioner.

“Our plan was far more complete and included what the county wanted to pursue and see. I think it's important to remember this is a really, really good plan,” said Komron Shahhosseini, Gallaher's project manager and an employee of his development firm, Oakmont Senior Living. “We've worked very, very, very hard to make sure that this project is equitable and that it adds to the surrounding community.”

The political spending did not give Gallaher's team a leg up in securing the deal, Shahhosseini said.

Attempts to reach Gallaher for comment, including through his attorney's office and Shahhosseini, were not successful.

Gallaher and his son-in-law are suing The Press Democrat for libel, alleging they were defamed in stories last year about record campaign spending in the Santa Rosa City Council election. Their lawsuit alleges the stories falsely suggested Gallaher provided money donated by his son-in-law.

A major housing project

The county's sale of the Chanate Road site has been more than a decade in the making, dating to 2004, when Sutter Health, which operated the former Community Hospital, disclosed plans to leave the aging complex.

After Sutter Health finally left the Chanate campus in late 2014 - moving to a new hospital built near the Luther Burbank Center for the Arts - the county began actively evaluating the site to determine its future, eventually deciding to move forward with a possible sale or lease.

The county released a request for development projects in February 2016, and Gallaher's team was one of two that submitted a proposal.

An evaluation committee - which included representatives from various county departments and Santa Rosa - ranked the proposal from Gallaher team's the highest. Supervisors directed county staff in September to set up an exclusive negotiations agreement, which the board approved in February.

Of the up to 800 rental units called for by Gallaher's team, 20 percent would be affordable to residents with very low incomes, a designation that equates to an annual salary of $41,300 for a four-member family, according to the county.

The affordable units would be interspersed among the units rented to those with higher incomes, and between 100 and 250 of the total would be set aside for seniors.

Separately, Gallaher's project includes another 50 to 60 single-occupancy units for formerly homeless veterans, which would be developed in partnership with nonprofits, including Santa Rosa-based Burbank Housing. The plans envision numerous other amenities, including a grocery store, an amphitheater, a dog park, a recreation center and dozens of acres of open space.

The number of housing units is a critical component of the deal, both politically and financially. Under the proposed sale agreement with the county, Gallaher's team would pay $6 million in cash for the land, planning to build at least 400 units on the site. The price would rise by $13,800 for each rental unit built beyond 400 - excluding the veterans' units - resulting in a maximum expected sales price of $11.5 million. Figures included in an appraisal requested by the county valued the land at about $13.3 million, according to Judy.

Yet the county says the deal is a good one for taxpayers. When considering the maintenance and demolition costs the county will avoid by selling the land, as well as the value of the affordable housing Gallaher wants to build, among other factors, the deal's total value is between $42.4 million and $71.9 million, according to county officials.

Most of the higher valuations come from the project's affordable housing. Those units typically cost between $300,000 and $400,000 to develop, according to the county. Judy said those numbers are important to consider in the deal because affordable housing is a public benefit.

“Providing affordable housing in a community where the median price of a home is $600,000 and completely out of range for most of the constituents of county services is the reason why this board is so solidly behind selling the property,” Judy said.

In the past, before the state dissolved special agencies that allowed cities and counties to redirect tax dollars into redevelopment, the county would have paid Gallaher's team to construct affordable housing, Judy said. Even though those agencies have disappeared, the county's commitment to affordable housing projects remains, she said.

Burbank Housing CEO Larry Florin said the county's estimates of affordable housing development costs are “right on,” noting that his organization typically underwrites at $350,000 per unit. He called Gallaher's proposal a “great project” and described himself as a “big fan.”

“The biggest problem, when you have projects of this size, is someone gets in and doesn't have what it takes to pull (it) off,” Florin said. “I think the county ... is very lucky that someone who is of this community, that has the experience that team has - they were very fortunate to get them.”

Lingering skepticism

Despite the county's best efforts to tout the value of the deal, and particularly the affordable housing component, some remain skeptical. Stephen Harper, a longtime local affordable housing advocate, said the Chanate Road development should reserve even more housing for low-income residents.

“There's not a lot of big pieces left, and you have to take advantage of using those for the people who are coming to live here,” Harper said.

After county approval of the real estate deal, the Chanate Road project will go through Santa Rosa's planning process because it lies within city limits.

If the city does not agree to at least 650 residential units and 50 veterans' units, the proposed sale agreement contains a provision that would allow the county and the developer to consider alternative ways of securing permit and planning approvals for the project, including through a process led by the county.

Judy called the provision a “worst-case scenario” that was necessary because the financial benefit to the county rests heavily on the number of units allowed on the site.

“The county needed to have some security that there is another option if, for some reason, the city was not able to permit (at least) 650 units,” Judy said. “The compromise there was basically to have the county be willing to sit down with the developer - and, frankly, it would be with the city as well - and discuss how we could possibly move forward.”

Political spending

Santa Rosa resident Craig Olson lives on Beverly Way south of the Chanate Road site, and he was one of numerous neighbors who campaigned earlier this year to ensure the prized open meadow at the end of the street was not paved over as a result of the land sale.

As Olson discussed the issue with his neighbors he said he heard a recurring concern: Were county supervisors inclined to support Gallaher's project because of the campaign support they've received from him, his relatives and employees over the years?

Olson said the worry was widespread.

“Almost universal. That was immediately where everyone went,” he said. “It looks very favorable to him, and there wasn't an open process.”

County officials have insisted the process was competitive and extensive, capped by supervisors' public vote in February to enter exclusive negotiations with Gallaher.

They've also stressed that public comment will be heard after the real estate deal is approved and Santa Rosa begins its look at the proposed development.

“This is a real estate deal. Real estate deals happen in confidence in order to maximize taxpayer dollars. That's the way the law has it,” said Board of Supervisors Chairwoman Shirlee Zane. “Once it becomes land development ... it's 100 percent public. So the development of this whole master plan will be 100 percent public under the city's jurisdiction.”

But Jim Barnes, a resident of Cobblestone Drive near the old hospital complex, reflected the lingering concerns about political influence weighing heavily on the deal.

“I think it's a giveaway to Gallaher,” Barnes said. “If you give enough money to the right people, you end up with a good deal on getting a big chunk of property. … I don't know if it's direct or indirect, or if it's just a good ol' boy network and there's an expectation of future large campaign contributions or what the deal is with it and with whom.”

Such assertions are groundless, Zane said.

“I find it offensive that people are throwing this stone. I find it really offensive, because I have such a diverse base of contributors and supporters,” she said. “If they support me, it's because they trust me and they believe I'll do the right thing.”

The Press Democrat's campaign finance review found that Zane was the largest beneficiary of the nearly $135,000 donated by Gallaher, his family members, employees and their family members. Most of the nearly $63,000 in contributions to Zane came following her 2008 campaign, when she was first elected to the 3rd District supervisor seat. She is now in her third term.

The vast majority of the donations were made in identical amounts on the same days.

Zane, whose district includes the Chanate Road site up for sale, said the spending played no role in the county's move to sell the property to Gallaher. She pointed to the high cost of supervisorial campaigns - which can exceed $1 million - and said she was “really angry” anyone would think political contributions influenced the deal.

“I'm not beholden to anybody but the people I serve, and for me, those people, at the end of the day, are the people who are the least loudest. They're the people who are the most vulnerable,” she said.

Shahhosseini said there was “nothing to read into” the contributions to Zane.

Zane also said it would be false to assume any of Gallaher's business associates were “there to write checks only because of him.” Those associates would only contribute if they felt the candidate was a “worthwhile representative,” Zane said.

“You still have to win their trust, too,” she said.

After Zane, first-term Supervisor James Gore received the next-highest amount of contributions, at about $38,500. All of the money came in the months after his hotly contested 2014 race for the 4th District seat representing the north county.

Supervisor Lynda Hopkins does not appear to have received any contributions from Gallaher or his associates directly. But Gallaher did give $20,000 to an independent committee that opposed her rival last year for the 5th District seat, former state Sen. Noreen Evans.

Hopkins indicated she was unaware Gallaher had contributed to the committee, which by law was barred from coordinating with her campaign.

“I worked really hard to run a positive campaign. That (committee) was very negative, and I publicly stated my disapproval of that,” Hopkins said, referring to advertising backed by the independent committee.

Supervisors David Rabbitt and Susan Gorin received at least $13,500 combined from Gallaher, his family members or business associates.

Supervisors' vote in February to enter exclusive negotiations with Gallaher generated significant concern from neighbors who learned just days before about the conceptual plans and felt there needed to be more public input before the sale moved forward.

That critique has lingered as community members raised other, more specific concerns about the project, including a recent campaign from neighbors who want a 125-foot “building buffer zone” to preserve open land behind their homes near the Bird Rescue Center.

“We're not against the development - we are just hoping for a reasonable accommodation to maintain the characteristic of our own neighborhoods,” said Heidi Facciano, a Chanate Court resident leading the buffer-zone campaign, which included a Saturday rally about the issue. “Mainly the reason why we all purchased our homes is because of that picturesque back field.”

Zane said those concerns would be addressed after the county sells the land and the project goes through the city's planning process. Shahhosseini took a similar view.

“All of this will absolutely be discussed, and it'll go through the long and difficult process when the land use is heard - the actual land-use decision,” Shahhosseini said. “We'll of course sit down with all of the neighbors, all of the concerned parties, make sure that everybody is taken care of through this process and do our best to satisfy all of those concerns.”

If successful, the Chanate housing development would be a legacy project not only for the full Board of Supervisors but also specifically for Zane, who has adopted a political mantra of “build, baby, build” to tout her support for housing construction.

Zane said the neighborhood opposition to the proposed residential project has shown her a “new definition” of the traditional not-in-my-backyard development opponents.

“It's kind of like saying, ‘I got what I want, but I'm not going to share it with you.' ... It's very sad,” Zane said. “I didn't expect that so many bright, educated people could be so against something that I thought the community was together on, which is the highest need right now in this county.”

Four of five supervisors will need to vote in favor of the sale agreement in order for it to move forward on Tuesday. Because state law requires the sale of public property to be approved through an ordinance, supervisors will need to vote a second time as well, anticipated on July 11 if Tuesday's vote goes through.

You can reach Staff Writer J.D. Morris at 707-521-5337 or jd.morris@pressdemocrat.com. On Twitter @thejdmorris.