Sonoma County supervisors weigh complex Chanate Road land deal to create affordable housing

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Chanate property timeline

1874 — Sonoma County purchased farmland in hills northeast of Santa Rosa and established the Old County Cemetery in the southeast corner of the property.

1887 — Sonoma County Hospital built on Chanate Road.

1936 — New county hospital built on the north side of Chanate Road to replace Hillcrest County hospital and farm.

1939 — Oak Knoll Sanitarium/Norton Behavioral Health Center build on south side of Chanate Road to treat patients with tuberculosis.

1956 — Two-stories, including kitchen and cafeteria, added to the county hospital.

1972 — Four-stories added in expansion.

1996 — Hospital buildings leased to Sutter Health.

2014 — Sutter Health vacated buildings, relocating to its current location near Highway 101 and Mark West Springs Road.

2017 — County agrees to sell property to Oakmont Senior Living for up to $12.5 million, depending on how many homes it built.

2018 — Judge voids deal with the county, ruling it should have been subjected to environmental review. County puts the property back up for bid.

The favored buyer of a large swath of county-owned land long coveted for housing development offered a single dollar for the 72-acre northeast Santa Rosa property, along with various incentives that could dramatically increase the county’s financial returns over the next 15 years.

The deal, however, would result in far fewer homes on the property than envisioned in 2017, when Oakmont Senior Living and its owner, developer Bill Gallaher, agreed to pay up to $12.5 million for the old county complex on Chanate Road.

Details of three bids for the property were divulged Thursday night, when county officials released evaluations of the rival proposals. County staff are urging the Board of Supervisors to dismiss two of the bids Tuesday and initiate negotiations with the California Community Housing Agency, a Kings County-based government agency that is teaming up with two Bay Area companies to build rental housing on the property.

Under the complex proposal, the county could earn $83.8 million from the deal in 15 years, according to estimates contained in the bid. The potential windfall far exceeds the other two bids for the property, which ranged from $8 million to $11 million for the land up front.

The county would receive a $5 million advance on promised future equity and permission to use the morgue and public health lab on the property for five years. Most importantly, it would obtain an option to buy back the property in 15 years, likely at a significant discount to the price it would command on the open market, staff concluded.

Supervisor Shirlee Zane, whose district includes the Chanate property and surrounding neighborhoods, would not reveal her position on the offer but said it meets the criteria set by the county for bidders. She attempted to quell speculation that the county was getting a raw deal by taking $1 just a few years after nearing a $12.5 million deal for the same property.

“We wouldn’t even be considering this if it was that simple,” Zane said. “There’s layers of public benefit, and it’s not fair to say (the county) is getting $1 (for the property).”

If its offer is accepted, the California Community Housing Agency will partner with Larkspur-based consultant Catalyst Housing Group and San Francisco-based developer BUILD to construct rental housing on the property.

Together, they plan to build 500 units of affordable housing, with buildings up to two stories tall, on the 71.6-acre site that was once home to Sutter Medical Center and the old county hospital.

“We’re very, very excited to be in this market,” said Lou Vasquez, founding partner with BUILD. “I think we can fill a need here, and that’s part of our mission.”

BUILD last did business in Santa Rosa in 1987, when it built office buildings in Fountaingrove. Vasquez said about one-quarter of the company’s projects now include affordable housing.

Officials with Catalyst and the California Community Housing Agency did not return multiple telephone calls and email messages seeking comment over three days.

Santa Rosa will have final say on the shape of any proposed development, but the California Community Housing Agency’s pitch to make 100% of the development affordable gives it a distinct advantage over its competitors, said Caroline Judy, director of the county Department of General Services.

Chanate property timeline

1874 — Sonoma County purchased farmland in hills northeast of Santa Rosa and established the Old County Cemetery in the southeast corner of the property.

1887 — Sonoma County Hospital built on Chanate Road.

1936 — New county hospital built on the north side of Chanate Road to replace Hillcrest County hospital and farm.

1939 — Oak Knoll Sanitarium/Norton Behavioral Health Center build on south side of Chanate Road to treat patients with tuberculosis.

1956 — Two-stories, including kitchen and cafeteria, added to the county hospital.

1972 — Four-stories added in expansion.

1996 — Hospital buildings leased to Sutter Health.

2014 — Sutter Health vacated buildings, relocating to its current location near Highway 101 and Mark West Springs Road.

2017 — County agrees to sell property to Oakmont Senior Living for up to $12.5 million, depending on how many homes it built.

2018 — Judge voids deal with the county, ruling it should have been subjected to environmental review. County puts the property back up for bid.

In contrast, the two rival bidders — Oakmont Senior Living and EAH Housing — promised to make 25% of the housing affordable, the bare minimum under state laws that apply to the sale.

With its pitch to build some 500 units on the property, the California Community Housing Agency has significantly scaled back the size of the development from the 2017 proposal by Oakmont Senior Living. Its plan to build 867 units — the largest development in the city — ignited neighborhood opposition and led to a lawsuit that ultimately torpedoed its deal with the county.

The county rescinded its agreement with Oakmont last October after a judge ruled the land sale should have been subjected to an environmental assessment because it contained sufficient details on the extent of development.

Aftershocks from that landmark court loss were visible in Oakmont Senior Living’s response to a county question about its development plans this time around.

“Based upon previous litigation, OSLP does not have plans for development and is interested solely in a fee simple sale of the property,” according to county documents.

Oakmont Senior Living officials could not be reached for comment Friday.

Judy pushed back on the word “proposal” to describe the bid by the California Community Housing Agency, saying there’s no development proposal in the bid and supervisors won’t vote on a development proposal. She characterized the current process as “completely different” from the one that led to the lawsuit.

“Our hope is that everyone recognizes that selling the Chanate property is really an opportunity to invest in housing,” Judy said. “The need … is of paramount interest to the entire community.”

The property, Judy said, continues to cost taxpayers $800,000 per year in security costs. The sale, should it go through, would eliminate those costs to taxpayers and represent a major step toward filling what Judy said is an unmet need for affordable housing within an important demographic group.

The favored proposal pitches housing affordable to households with incomes at 80% of county’s median, the highest and most expensive rung of affordable housing.

Previous local projects have focused on cheaper, more affordable units, offering little help to folks like firefighters, teachers and other middle-class professionals, Judy said.

“It’s addressing a need that just has not been served,” she said.

EAH Housing and Oakmont Senior Living have not notified the county of any intentions to appeal the staff’s recommendation to reject their bids, Judy said.

If the project goes through, it will be the second affordable housing project funded in Santa Rosa by the California Community Housing Agency. The group, with authorization from the city of Santa Rosa, issued public bonds in April to buy the Annadel Apartments along Jennings Avenue with plans to slowly convert those into affordable units.

As with that project, the agency will issue bonds to pay for development at the Chanate Road property. It is proposing to sell $275 million in bonds to finance construction, with a 35-year window to pay that debt down.

While the county would no longer own the property, it would retain an equity stake in the land. The value of that stake would increase as the California Community Housing Agency pays down the debt on the bonds. At the end of the 35-year period, the county’s stake would be valued at $359 million in present-day dollars, according to initial estimates provided in the agency’s proposal.

The county could gain access to its equity at Year 15, when it would have the option to re-sell the property and cash out its equity, estimated at $83.8 million in present-day dollars, according to the agency’s estimates.

The Board of Supervisors will meet Tuesday to review the bid for the property. County officials have scheduled community meetings to answer neighbors’ questions about the sales process at 5:30 p.m. Wednesday and Thursday at the Chanate Rotunda, 3313 Chanate Road.

Despite her caution, Zane reiterated Judy’s praise of the project, saying the California Community Housing Agency is targeting housing for middle-income people who can’t afford housing in Sonoma County. Zane said she believes the public is hungry for affordable housing, even if there’s a stigma associated with the phrase.

“It’s not just an appetite; it’s a really dire need in our county,” Zane said. “There are a lot of people suffering because they can’t afford to put 60% of their paycheck into housing.”

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

EDITOR'S NOTE: Sonoma County Hospital was built in 1887. Hillcrest was a nickname used 60 years later to distinguish the old building, converted to a sanitarium, from the new county hospital. The old County Cemetery was created in 1874. An earlier version of the timeline accompanying this story contained incorrect information from the County of Sonoma.

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