The city of El Cajon is in the real estate business now, seeking to unload a two-story office building on Broadway that it acquired through foreclosure proceedings.
Nine years ago, Mark Hanson and the Heartland Foundation persuaded the City Council to use federal money to float a loan. The scheme was for the charity to take out a mortgage on a building that nonprofits could use as a training center.
How much training actually occurred is unclear. What is clear is that the Heartland Foundation quickly stopped making loan payments. El Cajon scrambled and adopted the practice of using a portion of each year's money from the feds – Community Development Block Grant funds – to make the previous year's loan repayments on behalf of the charity.
This practice continued for eight years with the taxpayers of El Cajon being kept in the dark. Of course, word was sure to leak out on a practice the private sector would never condone: Allowing a party to renege on mortgage payments yet remain on the premises.
Mayor Mark Lewis and City Manager Kathi Henry denied any harm to the public, arguing that the building held as collateral was worth more than the original $1.3 million mortgage or the $2.2 million that El Cajon is out of pocket today.
The trouble was, El Cajon had never bothered to get an appraisal of the property. It was able to find an accredited appraiser to value the office building at $2.66 million, ignoring that the original buyer, Hanson and foundation, were willing to sell it for $1.45 million – a deal the city had to quash.
Extensive litigation resulted, the ultimate resolution being that Hanson and the foundation were allowed to walk away from their partnership with the city, El Cajon owns a potential white elephant it really does not want to talk about, and city staff and policy-makers have not done a review of policies that got them into this debacle in the first place.
So, imagine the dilemma of Redevelopment Director David Cooksy in trying to write a semi-candid for-sale advertisement:
“Wanted: Buyer for prime (that's our opinion, anyway) commercial office building in central El Cajon.
“Immediate move-ins available (we only have six paying tenants in the two dozen or so offices).
“Price is $2.66 million (semi-firm) but possibly negotiable to $2.2 million (we're in that much already).
“Seller has an appraisal of $2.66 million based on comparable sales. The revenue-stream appraisal method, annual rents times a multiple to determine value, is not applicable (with many tenants paying substantially below-market rents, that method never really worked).
“Seller prefers transaction to be on an as-is basis but is willing to do minor repairs ('substantial renovation' is not in our vocabulary).
“History of building, and how city acquired it, is a long story (we'd rather you not ask).”
Cash-strapped El Cajon is likely to take a bath on this property. The city's general fund is not at risk, Henry says, because the city can dip into federal grant money to make itself whole.
That only federal tax money, not local tax money, is at risk on a local malaprop is not all that comforting.
It is not comforting either that Henry and Lewis have failed to explain how this debacle was allowed to happen – was it mismanagement or cronyism?
Some jurisdictions learn from a mistake. El Cajon, however, has done nothing to assure the public that new policies are in place and that another Heartland deal could never happen. That is least comforting of all.
