The Eureka City Schools Board of Trustees voted unanimously in closed session tonight not to extend a $6 million property exchange agreement with a mystery developer in advance of tomorrow’s deadline for the deal to close.
The district controversially entered into the agreement Dec. 14, 2023, agreeing to trade 8.3 acres of its former Jacobs Middle School property on Allard Avenue to a company legally formed two days prior, AMG Communities-Jacobs LLC, in exchange for a small residential property on I Street and $5.35 million in cash. Under an amended agreement reached in July, both parties had until tomorrow to tie up loose ends and close the deal, which for the district meant securing a lot line adjustment from the city of Eureka and for AMG meant either making needed repairs on the I Street property or agreeing to compensate the district for the cost of making them.
“The district has done everything in its power to be able to close by tomorrow’s deadline, and we are poised and ready to do so,” Assistant Superintendent of Business Services Paul Ziegler told the board. “However, AMG has indicated it is not prepared to close and instead has asked for an additional extension. It has been a long and interesting road to get to this point and, with that said, staff does not recommend that we grant that additional extension. AMG has had plenty of time to perform and do what it needs to do to come to the table to close and, as I said just a minute ago, they’re not prepared to do so.”
After the meeting, Ziegler told the Journal that representatives of AMG had requested an extension “out past November” to close the deal. Asked if the LLC’s negotiators had offered a reason for the extension, Ziegler said he’d have to defer legal counsel to answer that. (An email to the attorney representing the district in the deal did not immediately respond to an email seeking an answer.)
Ziegler further told the Journal that the district believes it had everything lined up to close the deal, having determined through the city of Eureka that a lot line adjustment was not, in fact, needed. And he said staff believed AMG had everything in place to close the deal if it wanted to, noting the clause in the amended agreement that allowed the company to pay the district additional funds in lieu of making the needed I Street repairs.
While the matter wasn’t discussed until Ziegler’s report at the end of the meeting, the board reported out of closed session that it had voted unanimously, with Trustee Mike Duncan absent, not to agree to a third extension on the exchange agreement.
Exactly what this means for the deal is still to be determined. AMG could conceivably still move forward and close tomorrow, though district staff seemed to feel that is unlikely.
After Ziegler’s report, board President Susan Johnson briefly recapped the night’s decision and asked Superintendent Gary Storts what comes next.
“What does that mean?” she asked. “That means this deal is off and we’re done? What does that mean?”
“Technically,” Storts replied, “the agreement terminates tomorrow and if no further action is taken to extend beyond that point and we don’t move to a close, which it certainly doesn’t appear we are, we’re out of contract and Monday morning we have no further agreement with AMG.”
Johnson then asked Storts to bring back options for the board to consider regarding the property at a future meeting.
“If this doesn’t close tomorrow, which it doesn’t look like it will, we’ll certainly bring back options for consideration and direction at our (Aug. 29) meeting,” Storts said.
The district has reported that the California Highway Patrol, which had a $4 million purchase offer on the table before the district abruptly pivoted to accept AMG’s exchange offer, remains interested in purchasing the property.
Since its inception, the exchange deal with AMG has been controversial and shrouded in mystery, with the principals behind the LLC never revealed to the public by the district or the company’s representatives, attorney Brad Johnson and AMG spokesperson Sara Lee, both of whom deflected questions by saying it was a matter of attorney-client privilege. In the months since the deal was reached, the League of Women Voters and the Humboldt County Civil Grand Jury have criticized the district for a lack of transparency, due diligence and best practices in reaching the deal, while legal experts have contended the board’s approval of the exchange violated state open meeting laws. Structuring the deal as a nominal property exchange — even though its mostly a cash transaction — also allowed the district to side step the regimented process for selling surplus public property, which requires agencies to first make the properties available to other public entities.
As the Journal reported last month, email released in response to a Journal records request indicate Harold Freiman, an attorney working for the school district, believed as late as Nov. 8 that Eureka businessman Robin P. Arkley II was person looking to acquire the Jacobs site in a property exchange, though AMG and Arkley have both denied his involvement through their spokespeople.
But connections between Arkley’s interest and the property exchange are numerous. Arkley has waged a multi-prong attack on the city of Eureka’s plans to convert 14 municipal parking in the Old Town and downtown areas into multi-family housing developments. He’s bankrolling both the efforts a civil group that has filed lawsuits seeking to block the city’s plans and a ballot measure coming before voters in November that would effectively do the same.
Johnson, the attorney who negotiated with the city on behalf of AMG (and was negotiating with the city on behalf of someone Freiman thought was Arkley in November), filed the lawsuits, and his law firm has also been paid by the Measure F campaign, as has Lee, AMG’s spokesperson.
If passed, the ballot measure would effectively block the parking lot projects by requiring them to both maintain existing parking and create new parking spaces for their tenants, making the cost prohibitive, while rezoning the Jacobs property to accommodate housing, which proponents said would provide more housing units than the city has in its plans. But as soon as the initiative began circulating last year, news reports and opponents pointed out Eureka City Schools was poised to sell the Jacobs site to CHP, nullifying any potential impact of the zoning change.
Less than four months after the initiative’s proponents submitted signatures to qualify it for the ballot with the city, AMG had emerged with the property exchange offer for Jacobs. Arkley’s company, Security National, has since spent more than $700,000 on the effort to get Measure F passed.
AMG’s spokesperson, Lee, did not immediately respond to an email seeking comment after the board’s decision tonight.
This article appears in Eureka Street Art Festival’s Last Splash.
I bet “AMG” never intended to close on the deal, unless or until Arkley’s initiative won in the November election. If Arkley won, the Jacobs property would be all the more lucrative for a developer and he and others could pour $ in. But in the meantime, the initiative campaign could point to the property as ready for housing development, while also maintaining plausible deniability that he was an AMG investor… since it now appears plain that there are no substantial investors!!!