Lennar Still Struggles to Close Concord Deal, Even with Catellus Out of Running

Lennar's proposed development rendering
Concord, Catellus, Lennar, SunCal, master developer, Concord Naval Weapons Station, Mare Island, Port Chicago, East Bay, BART
Lennar’s proposed development rendering

By Adam Steinhauer

Even with its last competitor out of the running, Lennar Urban is still struggling to close a deal with the city of Concord to begin redevelopment of some 5,000 acres on the former site of the Concord Naval Weapons Station.

At an April 5 meeting, the Concord City Council voted to delay selection of a master developer for the first phase of the project for another week, even though only one candidate remains. Catellus Development Corp., which had stood as the second finalist, dropped out of the running last month, after earlier accusing Lennar of exerting improper influence.

[contextly_sidebar id=”lDhuEqYNl9EZPKDZLpSjpihLPlcS7E8Z”]Now, skepticism of Lennar hangs over the last step of the process. Before voting to delay its decision, council members pressed Lennar executives for contract terms that would require the company to bear more of the cost of affordable housing, more transparency into its finances and greater guarantees of financial backing from Lennar Urban’s corporate parent, publicly traded Lennar Corp. Some Concord residents called for a restart of the selection process or for the city to persuade Catellus to return to negotiations.

“I’m concerned that we’re not getting the best deal just yet, in terms of what’s being proposed,” Mayor Laura Hoffmeister said. “I think that there’s some room to move, in terms of getting a better benefit for the community.”

The stakes are high for Lennar, the city of Concord and any other potential developer. Redevelopment of the Naval Weapons Station may ultimately bring more than 12,000 new housing units and 6.1 million square feet of commercial space.

Council member Dan Helix said that the project is likely to have a “regional impact on the entire Bay Area” as real estate prices skyrocket.

“We’re putting a gold mine in your hands, or at least that is the potential,” Helix said to Lennar Urban Chief Executive Officer Kofi Bonner. “I know it, and I want the best deal for the city, and I want it in the contract.”

The Council voted to delay its decision after its meeting dragged on for more than three hours, without getting through a waiting a list of more than 70 people who had asked to address the Council.

Along with those who opposed Lennar’s selection, the speakers also included advocates for the company, calling for the project to move forward to create jobs and ease the Bay Area’s housing shortage.

The process to select a master developer has already taken more than two years. And after the developer is chosen, it may take more than another two years for construction on the first homes to begin. First, the Navy will have to transfer land to the developer, the developer must create a specific plan for the project and environmental studies must be completed.

At a previous meeting, on March 28, the council had voted to refund a $250,000 deposit to Catellus as it withdrew its proposal for the Naval Weapons Station site.

Catellus’s accusations against Lennar last September had led the city to start an investigation headed by City Attorney Mark Coon.

Before the investigation was finished, Coon leapt to his death from the third floor of a Walnut Creek parking garage, in what police have said was a suicide.

An independent special counsel was then hired by the city to investigate Catellus’s allegations.

The independent counsel’s report, given to the city in February, found that associates of Lennar made contributions to former mayor Tim Grayson’s campaign for State Assembly and that Lennar supporters, including former San Francisco Mayor Willie Brown, met with Grayson. The contributions violated a ban against lobbying that the developers had agreed to as part of the selection process, the report found.

The report also found that the City Council and city staff violated state open meeting laws, with private conversations that led city staff to remove a recommendation in favor of Catellus’s proposal from a staff report.

Lennar representatives have denied wrongdoing, arguing that its associates’ campaign contributions do not meet the definition of lobbying, under California law.

The City Council voted to allow Lennar to remain in contention for the project, despite the report’s findings. Grayson, who is still a member of the City Council, has recused himself from votes on the issue.

For its part, Lennar argues that it is the nation’s foremost manager of military base redevelopment projects. Its past work includes the redevelopments of the Mare Island naval shipyard in Vallejo, Treasure Island and the Hunters Point Shipyard in San Francisco and the El Toro Marine Corp Station in Southern California. As such, the company claims unique experience in dealing with the unforeseen environmental issues and other problems that are likely to arise.

Advocates for Lennar’s proposal at the April 5 meeting included organized labor representatives and nonprofit administrators who said they’ve benefitted from the company’s past projects in San Francisco.

Lennar’s proposal to Concord includes two options for financial structures, both of which guarantee payments to the city.

“Lennar’s proposal protects Concord,” Lennar Urban Chief Financial Officer Vickie Nyland told the Council. “The hallmark of our proposal is we’re obligated to perform even if the project underperforms.”

That includes guarantees that the company will build streets and infrastructure. Also, Lennar offered two options for how the deal could be structured financially. Under one, the city would receive $36 million in guaranteed payments over 10 years and additional profit sharing after the project achieves a 20 percent internal rate of return. Under the other option, Concord would be guaranteed $60 million, and additional profit sharing after a 25 percent IRR.

Lennar’s proposal also includes 665 affordable-housing units, 25 percent of the total units to be built in the 500-acre first phase of the project.

To do so, however, Lennar asks that the city provide $40 million to close the gap between the cost of developing those units and other affordable-housing subsidies available.

Council members pushed Lennar executives to weight its affordable housing development less toward units for moderate-income residents and more towards those with low and very low incomes.

“If it means that you have to build some of these tiny town houses that are so popular on TV, that seem to be cheaper, alright, I’m easy,” Councilmember Edi Birsan said. “We need to find housing for low- and very-low-income capacity.”

At the same time, Mayor Hoffmeister expressed reservations about putting $40 million, out of the city’s $60 million in guaranteed payments from the project, back into subsidizing affordable housing. She suggested that Lennar could carry more of that cost.

“I’m concerned about having to take more money out of our pocket to do affordable housing, thinking that you have, as Councilman Helix said, a gold mine here in terms of future land valuations going up and appreciating in the future that could offset some subsidies,” Hoffmeister said.

Lennar Urban CEO Bonner said that the company would be willing to meet any terms that Catellus had previously offered in its development proposal, which was once favored by Concord city staff.

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