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SunCal Oak Knoll Failure Sticks City of Oakland With Clean-up Dilemma

Updated: October 1, to include City of Oakland-provided demolition/abatement costs.

The bankruptcy of the joint SunCal-Lehman Brother’s redevelopment project for the former Oak Knoll Naval Hospital has left the City of Oakland scrambling to procure a contractor to perform asbestos, lead-paint and fire-hazard abatement on City of Oakland property, while facing heat from nearby residents.

Previously we reported that Oakland residents living near the Oak Knoll property filed claims totaling $115 million against Lehman Brothers to secure funding for fire-hazard abatement and for nuisance and possible fire damages in the event that the working-fire-hydrant-deprived site ignites, as did the former Alameda Medical Depot Hospital in March of this year.

According to Al Auletta, Oakland’s Redevelopment Area Manager, the Oakland Redevelopment agency owns 5.45 acres of land at the Oak Knoll site. On those five acres sit eighteen abandoned housing units that are contaminated with lead-based paint and asbestos. Mr. Auletta told Action Alameda News by email that “Prior to the financial meltdown, we have been negotiating a sale of our 5.45 acres to SunCal, which would have included them abating and demolishing the 18 units. We are now taking matters into our own hands since we have no way of knowing when the development of the site will resume.”

He went on to write that he’s working on a package to allow abatement contractors to competitively bid for a contract to hazard-abate and demolish those eighteen units. The value of the contract is estimated to be $460,000, including $300,000 for clean-up and abatement, and $160,000 for demolition.

Work at Oak Knoll stopped last year when SunCal’s sole-source financial partner on the project, Lehman Brothers, filed for bankruptcy and triggered a global financial crisis. With Lehman bankrupt, SunCal had no other source of funding to pay contractors on the site performing asbestos abatement on other buildings. Deteriorating bags of alleged asbestos-contaminated material remain at the site to this day.

Oakland residents who live near the Oak Knoll site told Action Alameda News that when SunCal took over the site, most of the buildings that are now dilapidated were perfectly serviceable and habitable, like the buildings currently occupied by the Seneca Center and the federal credit union. However, SunCal started demolition immediately, residents say, possibly in violation of City of Oakland municipal law, which apparently requires developers to wait for an approved development plan before starting demolition. The presumed reason for starting demolition immediately is to deliberately blight the buildings, thereby making approval of development plans by local government and residents much easier. (Alameda residents saw this when AUSD slowly let the former Island High School site deteriorate until City of Alameda redevelopment officials tried to give it away to Warmington Homes in 2008, who hired a design firm to present pictures of the “blighted” site to neighboring residents during a public relations blitz to build support for a development.)

Bankruptcy court filings, including a statement signed by SunCal CEO Bruce Elieff, from 2003 through 2007, show that SunCal repeatedly spurned financing offers from Goldman Sachs and DE Shaw on other projects, in favor of Lehman Brothers. (DE Shaw is now SunCal’s financial partner on the Alameda Point project at the former Naval Air Station Alameda.) According to court documents, “by 2007, Lehman was by far SunCal’s biggest source of funding.” In late 2007, SunCal announced their acquisition of the Oak Knoll property – using Lehman’s money – for over $100 million, leaving local developers “astounded and amazed” over the price paid.

Sole-source financing seems to be SunCal’s achilles heel. It brought them down on dozens of projects in California, from which they might ultimately be squeezed out of by their former financial partner, Lehman Brothers. Lehman typically allocated only a 10% share in their projects to SunCal, if bankruptcy court documents are any guide. SunCal managed the day-to-day operations of the projects, while Lehman provided financing.

Mr. Auletta of the City of Oakland told Action Alameda News that in August, the City of Oakland arranged to have a herd of goats remove the low-lying vegetation on the City of Oakland property “which they did very efficiently.”

As the video below shows, which includes fire video acquired by Action Alameda News, the fire hazard at Oak Knoll is very real. Residents living near Oak Knoll identified eleven out-of-service fire hydrants at the site, and grass fires in the dry, East Bay hills are easy to ignite and spread rapidly.

Cheryl Farr, Special Assistant to the General Manager East Bay Municipal Utility District (EBMUD), previously told Action Alameda News that “OFD (Oakland Fire Department) confirmed that they are aware the water system at Oak Knoll is shut down and told our staff that it has been off for more than ten years. When the property was not developed as planned back many years ago, theft at the site compromised the water system and the city had the service to the system shut off” In other words, EBMUD punted the hot potato to the City of Oakland.

EBMUD Board President Doug Linney’s firm The Next Generation was paid $33,000 earlier this year by SunCal for public relations consulting services regarding SunCal’s Alameda Point plan.

The City of Oakland is hoping to procure services to abate the hazards on their property at Oak Knoll within three months, meaning work might start in January, after fire season is over.

2 comments to SunCal Oak Knoll Failure Sticks City of Oakland With Clean-up Dilemma

  • “Alameda residents saw this when AUSD slowly let the former Island High School site deteriorate until City of Alameda redevelopment officials tried to give it away to Warmington Homes in 2008, who hired a design firm to present pictures of the “blighted” site to neighboring residents during a public relations blitz to build support for a development.”

    I am not sure what your defintion of “blighted” is. I am not aware of any curent concerns the local residents have regarding the conditions at the former Island High School site.

  • Mike,

    The reference is to the presentation by the architects that Warmington Homes hired who gave a presentation at the library back in June or so of 2008. They included the obligatory pictures of the buildings in disrepair, dilapidated, etc. which the presented as evidence of the need to support their project.

    Surely you remember? You were there sitting in the back with Tracy Jensen. Andrew Thomas, Dorene Soto and Leslie Little of the City of Alameda were also there.

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