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Latest developer backs out of Chanate Road deal with Sonoma County

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Sonoma County supervisors on Tuesday were forced to scrap their latest effort to sell the troubled Chanate Road campus after a third developer walked away from negotiations, striking another blow to the county’s yearslong quest to offload the land in northeast Santa Rosa for housing.

The lead developer, San Rafael-based EAH Housing, backed out last week after six months of contract talks, company officials confirmed Tuesday. A bid to replace EAH with another affordable housing firm was rejected by the Board of Supervisors in a closed-session meeting Tuesday, according to county officials.

EAH’s business partner cited delays coming to agreement on terms and conditions for its decision in its Feb. 3 letter to the county.

“It wasn’t quite coming together for us,” Scott Johnson, EAH director of business development, said in an interview Tuesday. “We wanted to give the team and the county the opportunity to continue moving forward with another inclusionary partner.”

The setback comes three years after the Board of Supervisors first tried to offload the property for up to $12.5 million in a deal with local developer Bill Gallaher. His plan, which envisioned more than 800 units on the 72-acre site, was derailed by a lawsuit filed by neighbors.

As the years have dragged on, county costs of maintaining the property have skyrocketed and property appraisals have dropped precipitously, raising questions about the county’s ability to dispose of the property, one of the largest vacant public parcels eyed for housing within city limits.

“The sale of the Chanate property continues to be challenging for this board and this county,” said Board of Supervisors Chairwoman Susan Gorin. “It’s a beautiful piece of property. Yet we just can’t seem to get the right partners and the right deal being made.”

Under the county’s current process, any deal for the property would come with a 50-year promise to set aside at least a quarter of the constructed units as affordable housing. Final approval of any development would rest with the city of Santa Rosa.

EAH, which specializes in affordable housing, was the lead in a development team that included Integral Capital and master developer JH Community Partners, which sent the Feb. 3 letter.

The county was required under state rules to deal principally with affordable housing firms or public or nonprofit entities.

JH Community Partners would not meet those standards, but the Santa Clara company has been pursuing a deal for the Chanate site since 2016, according to Curt Johansen, the managing partner. It’s already replaced one of its partners in the deal since August.

In a bid to keep the latest deal alive, the company offered in its Feb. 3 letter to find another affordable housing developer, naming BRIDGE Housing, Burbank Housing, Eden Housing, Mercy Housing, Satellite Affordable Housing Associates or MidPen Housing.

“On a personal level, I have invested much time and expense to pursue this opportunity,” Johansen said in his letter.

But the Board of Supervisors nixed that plan Tuesday during a closed session meeting, General Services Director Caroline Judy said.

“With EAH’s departure, there is no qualified buyer remaining,” Judy said. “Under the law, there is no replacement.”

Supervisor Shirlee Zane, whose district includes the Chanate Road property and who served as a public champion of the prior deal with Gallaher said before the meeting she wouldn’t comment. She could not be reached afterward for an interview.

When the county opted to begin exclusive talks with the EAH team last August, the group was the only one left in the latest round of proposals. The county’s favored buyer, California Community Housing Authority, had already backed out, and Gallaher’s Oakmont Senior Living did the same via a scathing letter read by an employee of his at the Aug. 20 meeting. The EAH group provided two offers. One was for about $4 million, and involved the company tearing down the buildings. The other offered up to $11.6 million, contingent on Santa Rosa’s approval of a certain number of housing units.

Sonoma County supervisors made it clear they didn’t like either offer, but the board had little choice.

“We have one buyer available,” said Supervisor David Rabbitt at the Aug. 20 meeting. “If they’re hungry, let’s sit down and negotiate. Based on what’s in front of me, I’m not supportive.”

The Chanate Road property sits mostly vacant, and maintenance costs have soared as the county seeks to curb break-ins and vandalism at the sprawling campus that sits on both sides of Chanate Road.

The county spent $768,000 last year mostly on securing the buildings against break-ins. By June of this year, costs are set to reach $519,783, including last November and December, according to county documents.

The last major step reached by the board was to tear down 13 of the buildings on the site, dedicating $10.8 million in September to the effort. Bids for that work have yet to go out.

In the meantime, the property’s value has dropped. It was appraised for $7 million in 2016. The value dropped to $4.24 million in 2019. The ongoing threat of a lawsuit played into the lower appraisal, according to county documents.

Escalating costs tied to seismic studies and future demolition of the asbestos-ridden buildings have also contributed to the sinking valuation, officials said.

County leaders envisioned the Chanate campus as one of four county properties that could be sold or redeveloped to spur housing creation in the aftermath of the 2017 fires, which destroyed 5% of Santa Rosa’s housing stock and 5,300 homes countywide.

But several years later, none of those sites have generated any housing, and the Chanate property is now back to square one.

“It is a perfect property to place an appropriate level of housing and services,” Gorin said. “I’m confident we can find a developer to move that forward with the neighbors. But it seems to be challenging right now.”

You can reach Staff Writer Tyler Silvy at 707-526-8667 or at tyler.silvy@pressdemocrat.com.

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