Eureka Schools Amends Property Exchange Agreement, Sets Escrow Deadline

Eureka City Schools has entered into an amended property exchange agreement with a mystery developer looking to acquire its old Jacobs Middle School site that stipulates the parties should close escrow on the deal on or before July 11. Meanwhile, the California Highway Patrol seems to be back at the negotiating table for the old campus it had hoped to purchase and turn into its Northern Humboldt headquarters until the district, seemingly out of nowhere, entered into an exchange agreement with a newly formed company — AMG Communities-Jacobs, LLC — on Dec. 14.

CHP had not been included as an identified negotiating party in closed session agenda items regarding the Jacobs campus in the months immediately following the district board’s decision to exchange 8.35 acres of the Allard Avenue property for a small, residential property on I Street and a $5.35 million cash payment. But the district then resumed listing CHP as a negotiating party in April.

Superintendent Gary Storts said the district continues to work toward closing the exchange with AMG but the district remains in contact with CHP because it “has continued to express interest in the property.”

A series of documents released in response to Journal requests, meanwhile, shows things slowly plodding forward under the exchange agreement.

The parties entered an amended agreement April 4 that for the first time sets a hard target date for the close of escrow, though the July 11 date can be pushed back if mutually agreed to by both parties. Additionally, the amended agreement sets a schedule for AMG to address “disapproved conditions” at the I Street property and for the district to survey and subdivide the property. The agreement also required AMG, which previously had only put down a $1,000 independent consideration fee in order to enter into the exchange deal valued at $6 million, to put down a $100,000 deposit — a requirement that the document says stems from the developer’s desire “to demonstrate its commitment to the exchange.”

It’s worth noting, though, that the additional deposit is to be fully refunded to AMG “promptly” if the parties fail to close escrow. (This, it’s further worth noting, is in contrast to the non-refundable $35,000 deposit AMG had put down weeks earlier to enter into an agreement to purchase the I Street property, according to the document, which would be well beyond the typically required 3-percent deposits for residential real estate transactions.)

Eureka City Manager Miles Slattery said the district has not yet officially started the process with the city necessary to subdivide the 8.35 acres of the former school site included in the agreement from some adjacent fields the district will retain. But Slattery said he’s informed the district it will take the city just about a week or so to consider a subdivision request after receiving a site survey, so the district still has time to meet the July 11 escrow deadline.

Meanwhile, in a Feb. 26 letter, Eureka City Schools notified an attorney representing AMG that inspections had revealed a number of problems with the I Street property it would be getting back in the exchange, ostensibly for workforce housing. Specifically, the letter noted the property’s sewer connections “require certifications,” its accessory dwelling unit improvements were not “built pursuant to an approved permit” and garage improvements “are not code compliant.” The letter also advises that the property’s pest inspection report indicates further inspections are required, that standing water under the building’s substructure also requires further inspection and a tree leaning against its roof needs to be removed.

Under the amended agreement, AMG is required to provide regular updates on its work to address those issues and either have them all “cured” by June 15, after which the district will have 14 days to reinspect the property.

An April 30 update provided by AMG’s attorney indicates that, two months after the district’s letter, the developer had not taken action on any of the issues raised except the pest inspection. That inspection identified some needed plumbing work, chemical treatment to eradicate wood boring beetles, installation of a wood retaining wall and replacement of some damaged siding, but also noted some portions of the structure needing inspection could not be accessed for a variety of reasons.

The developer’s May 31 update to the district, meanwhile, notes the previously requested pest inspection report had been provided and responds to the other 13 “disapproved conditions” with the line, “AMG is in the process of gathering quotes for a comprehensive repair contractor.”

While the amended exchange agreement requires the work be done by June 14, it also provides some leeway by allowing AMG to increase its cash payment to the district to make up for work it is unable to complete by the deadline.

As is the case with the first exchange agreement, the amended version is signed on behalf of AMG by Texas-based attorney Brad Johnson, who is listed as the LLC’s manager on documents filed with the California Secretary of State’s Office by Amador City attorney Thomas Swett. According to documents released to the Journal pursuant to a public records request filed with the school district, the two attorneys seem to have been the district’s only points of contact for AMG. Who the LLC’s principles are remains a mystery, with Johnson and a spokesperson for the LLC having repeatedly declined to identify them. A website created by the company initially identified its backer as “a small investment firm,” but a spokesperson responding to Journal questions later said it is a “private group of small individual and family investors” that does not include local businessman Robin Arkley.

AMG’s website and spokesperson have repeatedly gone out of their way to distance the property acquisition from Arkley and his efforts to thwart Eureka’s plans to convert city-owned parking lots in Old Town and downtown into apartment buildings to address the city’s housing shortage.

In addition to backing an effort to file a host of lawsuits challenging the city’s plans, Arkley has also bankrolled an initiative on the November ballot that would likely block the city’s development plans by adding onerous parking requirements to all developments in Old Town and downtown, while rezoning the Jacobs campus site for multi-family development. Early skeptics of the initiative pointed out that the campus was owned by the district, which, having declared it surplus property, was then in ongoing negotiations to sell it to CHP for a reported offer of $4 million, arguing the zoning change was unlikely to result in construction of the hundreds of housing units the initiative’s backers were projecting.

AMG then seemingly came out of nowhere to offer the property exchange agreement with the district, an agreement that was ratified two days after the LLC was legally formed and signed by Johnson, who it’s worth noting represents both the group legally challenging the city’s housing development plans and proponents of the initiative.

A subsequent records request filed by the Journal with the school district seeking documents and correspondences referencing the proposed property exchange revealed virtually no paper trail exists leading up to approval of the exchange agreement. If there were any of the documents that would typically be generated by a public agency negotiating such a transaction — emails scheduling meetings, phone calls or site visits, or evidence of due diligence, like requests for financial documents or records associated with the property the district was looking to acquire — the district maintains they are no longer in its possession.

A CHP spokesperson did not immediately respond to a Journal inquiry regarding the agency’s ongoing interest in the Jacobs site.

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This article appears in Glorified!.