Developer backs out of $8 million deal to buy Chanate Road campus

Sonoma County officials are scrambling to salvage a multimillion-dollar sale of the county’s Chanate Road campus by the end of 2020, after their latest favored buyer for the northeast Santa Rosa property backed out amid efforts to force a lower price, county officials confirmed this week.

The decision by Newport Beach-based Village Partners to walk away from plans to buy the 72-acre property for almost $8 million has led the county to rekindle talks with two former bidders, each with lower initial offers, according to county officials.

A deal struck with either of those potential buyers — a prominent Sonoma County developer and an Orange County home builder — could yield the county $1.5 million to $3.5 million less based on the sale agreement that just fell apart with the Southern California developer.

The recent collapse of the pending deal is the county’s fourth such setback in a tumultuous, yearslong effort to unload its former hospital campus to free up the sprawling hillside campus for much-needed housing development.

“We have two other offers on the table that we’re looking at,” said Supervisor Shirlee Zane, whose district includes the Chanate Road property, formerly home to the Sutter Hospital campus. “What we’re trying to do is sell the land as soon as we can.”

With two weeks left before leaving office, Zane expressed frustration at the county’s inability to offload its properties for housing, including the Chanate site, saying county officials should “get the heck out of” the real estate business.

It’s highly likely Sonoma County will not meet its latest self-imposed Dec. 31 deadline to sell the Chanate property, which officials say is the largest piece of vacant urban real estate in the county.

Susan Gorin, chair of the county Board of Supervisors, acknowledged a daunting list of unknowns remain in the days leading up to that deadline.

“I don’t think that’s going to happen,” Gorin said, of reaching another deal by the end of next week to secure a near-term sale of the Chanate site, “but I’m not sure.”

After years of seeking a suitable buyer to take possession of the property, supervisors accepted in October Village Partners’ $7.795 million bid, kick-starting a bruising, two-month negotiation with the company. It culminated with the developer pushing to reduce its bid based on a number of concerns before backing out on Dec. 12, Sonoma County General Services Director Caroline Judy said.

“They came back wanting a price adjustment and a change in terms,” Judy said. “The county counteroffered, and ultimately, they decided to exit the deal.”

Judy, the general services director, did not specify which issues spooked Village Partners, or whether those items were disclosed by the county in the reams of documents posted online ahead of the bidding process. County officials also declined to share the firm’s sought-after lower sale price, citing ongoing negotiations with the other potential buyers.

Zane, a lightning rod for neighborhood criticism because of her strong support for the original deal three years ago to sell the Chanate campus to local developer Bill Gallaher, was skeptical during the board’s selection of Village Partners earlier this year. She was wary of dealing with an out-of-town buyer unfamiliar with the site’s myriad problems, foremost among them the asbestos-ridden buildings and its location atop the Rodger’s Creek Fault.

That skepticism turned out to be well founded, Zane said this week.

“Everything I predicted would happen with this offer has happened,” Zane said. “When they did their due diligence, they found out all of these things, and wanted a significantly lower price. … It got totally botched.”

Michael Morris, principal with Village Partners, said seismic concerns related to the site, among other issues, prompted the Newport Beach company to seek a cheaper deal from the county.

“It’s unfortunate all the way around,” Morris said in a phone interview Wednesday. “I wish them luck on getting the next deal done.”

The county has now shifted negotiations to Irvine-based City Ventures and Gallaher’s Oakmont Senior Living in Windsor.

In October, City Ventures offered $6.5 million, while Oakmont Senior Living bid $4.24 million. Two other competing offers that month were higher, but neither allowed the county or its partners to lease back space on the Chanate site.

Representatives for City Ventures and Oakmont Senior Living did not return phone calls this week seeking comment.

In 2017, supervisors first agreed to sell the land to Gallaher, who offered up to $12.5 million as part of a plan to build up to 867 housing units at the site along scenic Chanate Road, a winding, wooded corridor south of Santa Rosa’s Fountaingrove neighborhood.

Neighbors rallied against the sale, filing a lawsuit tied to environmental concerns that forced the county to drop the deal with Gallaher.

More setbacks in connection with attempts to sell the property followed.

California Community Housing Authority, a quasi-governmental entity based in the Central Valley, backed away from a potential deal in fall 2019, and subsequent negotiations with another buyer, San Rafael-based EAH Housing, crumbled in February.

As the county’s difficulties over the land sale escalated, security and maintenance costs for the site increased, reaching $768,000 for the period between July 2018 and June 2019.

The squalor inside was pervasive. Squatters left used needles, trash, rotting food and human waste. In August 2019, supervisors voted to spend $10.8 million to demolish 13 of the decrepit buildings on the property. But even that effort has faltered. To date, the county has removed just two trailers from the site.

The property was one of three county-owned sites that Zane and other local leaders singled out years ago as pivotal to a more ambitious push to expand county housing stock. The other properties were the former water agency site on West College Avenue and the future Roseland Village property in southwest Santa Rosa.

It is unlikely that any of the three will come to fruition with new housing before 2023.

“The one thing I find so disappointing in the past 12 years (as supervisor) is that the county has hundreds of acres of land that could have been developed to the benefit of the community, and not one of them has been developed,” Zane said.

“I think the county needs to figure out, either how to develop land or get the heck out of the business, and stop pretending we know what we’re doing, because we don’t, clearly.”

Zane is in the final days of her supervisor tenure after losing her run for a fourth term against an insurgent campaign by former Santa Rosa Mayor Chris Coursey, who ran in part on the fallout from the original Chanate sale and a pledge the county would be more transparent and allow for more public engagement on such land deals.

Based on the latest setback, Zane said, the Chanate saga will be Coursey’s problem now.

The next supervisors’ meeting is Jan. 5, and Supervisor Lynda Hopkins, the incoming chair, was tight-lipped this week about the county’s next steps regarding the Chanate tract, even while chaffing at the secretive process. She was not clear on when the matter would land on the board’s meeting agenda.

“This continues to be a huge challenge for this county — getting this across the finish line,” Hopkins said of selling the Chanate campus. “I recognize the frustration of the neighbors, who are left with uncertainty, and also the ongoing deterioration of the old buildings.”

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