City Charging Ahead, Another $37-40M for Cooley/97 Interchange For JR Access

Picture this--your company sales are down 30%, you are going to lose $10M this year, your reserves are starting to look a bit low, and your major market has seen its sales drop by 2/3's, and all signs point to sales getting far worse before they get better. And your second major line is starting to see inventory pile up rather heavily as well.

You've been planning a great new addition to your product lines, but have run into problems here and there and now it's late. Plus the regulators told you just recently that you have to fix some "issues" they are concerned about before you can take your new product to market. And it's going to be a very expensive fix, like a $37 to $40 million dollar fix if all goes as planned.

And throw into the mix that your first big sale in this new product line, to a high-profile buyer who managed to force through a sweetheart deal on faith, still hasn't followed through and that buyers' promise expires in less than two weeks.

What would you do?

Personally, I would batten down the hatches, keep the product development percolating at a low-level, cut back expenses as far as I possible could, especially any expenses directly related to the promise my "buyer" made and plan to cut them even more if the sale falls through, and live to win another day. Wait it out. Let the cycle come back around, in my favor. Realize that I had a hell of a run and I better tighten everything up fast before I let it all get away on me and end up worse off than ever.

Taking my time and making sure I'm ready when the cycle inevitably goes up again. It could be two or seven years, who knows. But I would run lean at all costs, ferociously preserving my reserves, and eking out value from every penny going out while maximizing every dwindling penny coming it. Making my existing customers damned happy. I would want to make sure I'm still here, I survived, and I'm ready for the next big ride.

But is that what our fine City Council and it's ever-the-optimist Special Projects Manager R. Garzini are planning to do?

Hell, no. They are forging ahead as if it's 2004, and the bubble called Bend Real Estate is just hitting the booster rockets.

Build it and they will come. It works great, in a movie. In the real world, if the time is right, the price is right, and the place looks nice, they might come with a little persuasion.

One out of three ain't bad, if you're an optimist.

I just wish the Council saw the realism that close to two hundred of our local residents are seeing as their homes are getting foreclosed on in this beautiful Christmas season.

The Garzini Letter

Cue ominous tones. A little lightening and thunder. And send "The Letter" to Juniper Ridge Partners. The one that said the City has a spine. No more amateur hour, put up or take a hike.

It's here And I wish this letter had been sent months earlier, for it actually addresses some of the concerns with Juniper Ridge Partners("JRP") and the Disposition and Development Agreement("DDA") the City has been negotiating with them.

To many it seems as JRP has been trying their damndest to get a sweetheart deal covering the next 25 years. Case in point: the only binding part of the Memorandum of Understanding" signed between JRP and the City back on Sept. 6, 2006 is the part that guarantees JRP at least $2.5 million.

The important part, you know.

11.5 For a period of the greater of (a) one year after the date of this MOD or (b) six months after the expansion of the UGB and end of any appeal periods, the parties agree to exclusively negotiate, in good faith, terms and conditions for the disposition and development of the Property (the "Exclusive Negotiation Agreement"). The City and the Agency agree not to solicit any other proposals or negotiate with any other private developer regarding the Property during the Exclusive Negotiation Agreement. At the end of the Exclusive Negotiating Agreement, if a DDA is not executed, the City Council will vote to either (a) extend the Exclusive Negotiating Agreement for a mutually agreeable period, or (b) terminate the Exclusive Negotiating Agreement. If Developer negotiates in good faith but a DDA is not executed and the Exclusive Negotiating Agreement is terminated, the City will reimburse Developer and Investor 75% of their master planning, design, legal, marketing and related expenses, up to a maximum reimbursement of $2,500,000. By separately initialing this paragraph 11.5, the parties further agree that this, and only this, paragraph 11.5 of the MOD shall be binding on the parties. The remaining provisions of this MOD are non-binding and shall be given no force and effect, pursuant to paragraph 11.2. If this paragraph is not separately initialed,
there shall be DO binding exclusive negotiation obligations on any of the parties.

So, it doesn't guarantee them $2.5M, it says 75% of expenses up to $2.5M. Big difference. Yet, $2.5M is the amount listed on the "Detail of Juniper Ridge Costs Through FY07-08".

When I read this memo from Garzini, I was struck by how many of the issues he raised should have been raised long ago. Like this one:

At certain junctures throughout the twenty-five year term, the City needs to be able to evaluate the project, including the performance of the developer and the investor, to determine whether the City wishes to continue the arrangement. We need to modify the term and add provisions to provide for scheduled review and potential termination (and related remedies if the City elects to terminate the DDA because such termination is in the public interest or is pursuing termination because of developer or investor default).

Now put this into the context of this part of the MOU:

MANAGEMENT; OPERATION; KEY PERSONNEL.
The parties acknowledge and agree that Developer was selected by City to develop the Project because of Developer's unique qualifications and proposal for development. Because of the scope and nature of the Project and the relationship between the City, the Agency and the Developer, the qualifications, key personnel and identity of the Developer are and 'will continue to be of particular concern and importance to the Bend community and its City representatives. For these reasons, the parties agree that subject to the terms of the DDA, the Developer) by and through Ray Kuratek and Jeff Holzman, will be involved in the Project through the build-out period.

I mean does any sane organization commit to 25 years of the same crew, with no performance guarantees?

Yet our City's negotiators, whether staff or council members, seem to have wanted to. Why? That's one of my big questions.

I have an open records request in for all communications between Garzini and JRP, as well as any payments to JRP. To be continued...