Grand jury rips county housing agency over San Jose real estate blunder

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By Yosi Yahoudai
Founder and Managing Partner

Office building at 3553 North First Street near the corner of Rio Robles in north San Jose.

SAN JOSE — A grand jury has scorched a Santa Clara County housing agency for blunders in its attempts to wheel and deal on a San Jose office building that became a money-losing odyssey of lost opportunities.

“Flawed information, flawed decisions” is the title of a new civil grand jury report on the county Housing Authority’s botched efforts to handle the purchase and sale of an office building on a prominent north San Jose corner that the housing agency had once eyed as its headquarters.

The Housing Authority’s purchase of the office building and the agency’s subsequent sale of the empty property triggered a stunning $16.2 million loss in less than two years for the county organization, the grand jury determined in its June 10 report.

The office building in question is located at 3553 North First Street, a two-story structure that totals 86,100 square feet — but just as importantly, that occupies a choice six-acre parcel next to a busy light rail line.

The county housing agency’s blunders arose from its efforts to find a future headquarters for its staff and client meetings.

In December 2020, the Housing Authority paid $37.5 million for the office building — which, ominously, was once occupied by LeEco, a China-based tech company whose Silicon Valley operations imploded without warning.

At the time, the county housing agency described its office building purchase as a transaction that provided “much-needed expansion space for staff” and plentiful parking for visitors and clients, as the Housing Authority’s executive director at that time, Katherine Harasz, said in comments she provided in December 2020 to this news organization.

Harasz retired in 2021 and was replaced by a new Housing Authority executive director, Preston Prince.

But by September 2022, the Housing Authority sold the office building — which the county agency never occupied — for only $24 million. That was a core loss of $13.5 million.

Carrying costs such as insurance and maintenance, along with deferred maintenance expenditures, tacked on another $2.7 million to the financial setback for the Housing Authority.

That means the Housing Authority suffered a total loss of $16.2 million due to its purchase and sale of the office building, the Grand Jury report determined.

The Housing Authority’s quest to find a new headquarters arose when it determined that its offices in downtown San Jose at 505 West Julian Street were too old and cramped to serve ongoing staff and client needs.

As a result, the county agency began to cast about for options, including constructing a new headquarters on East Santa Clara Street near the downtown. The Housing Authority calculated it would cost $100 million to build a new headquarters at the East Santa Clara Street site, according to the grand jury investigation. That amount was deemed to be prohibitively expensive.

That eventually led the Housing Authority to the 3553 North First site, a property purchase that became a financial fiasco for the county agency, the grand jury report found.

The Housing Authority created an ad hoc committee composed of three members of its board to review the options for the future of the office building it had bought in late 2020.

The hunt for options was flawed and eventually became a failure, the grand jury determined.

“The (Housing Authority) board and the (ad hoc) committee had a fiduciary obligation to examine all viable options for using or repurposing the (3553 North First Street) property to maximize long-term value to the organization and to further the Santa Clara County Housing Authority’s mission,” the grand jury stated in its report.

Instead, the Housing Authority’s top brass, led by Prince, failed to fully present the options that the county agency could pursue regarding the office building, the grand jury report found.

“Santa Clara County Housing Authority executive management presented the ad hoc committee, and later the full housing agency board, with financially flawed analyses, and evaluated only options to sell the property without seriously or rigorously considering alternatives,” the grand jury stated in its report.

The alternatives appear to have plenty of merits.

Among the possible alternatives, according to the grand jury:

— occupy the property until office market prices rebounded and sublease unneeded office space.

— lease the property until prices rebounded, an option that was viable because the Housing Authority paid cash for the office building and wasn’t under pressure to repay a real estate loan.

— rezone the property to enable affordable housing development on the entire site.

— rezone the property for a hybrid development. This option would retain the existing office building and construct affordable housing on part of the six acres.

Instead, the Housing Authority’s executive management steered the agency’s board into a narrow set of options.

“Executive management selectively filtered information to present only what they thought should be reviewed by the board,” the jury’s report stated. “The civil grand jury learned that executive management informed members of the committee and the board that the only viable option was to sell the property quickly.”

The muting of certain options appears to be a severe failure, in the view of Bob Staedler, principal executive with Silicon Valley Synergy, a land-use consultancy.

“This report shows a lack of governance by the Housing Authority board over (executive director) Preston Prince and his executive staff,” Staedler said. “They have both failed the Santa Clara County Board of Supervisors in their role.”

In 2022, Staedler suggested that the civil grand jury launch a probe into the real estate debacle.

“The lack of transparency and misrepresentation of the material facts cannot be excused,” Staedler said.

The report also determined that the five-member county Board of Supervisors took a lax approach in reviewing the Housing Authority’s floundering commercial real estate adventures on North First Street.

“The civil grand jury was surprised to learn that some county supervisors were unaware the Housing Authority had SCCHA had lost millions on the property,” the scathing report determined. “(Other county supervisors) were indifferent to the Housing Authority’s financial loss because the loss did not come from county funds.”

Ultimately, it appears the blunders dealt a blow to Santa Clara County’s quest to find ways to create more housing in the South Bay, the jury’s report found.

The errors were worsened by what seemed to be a lax attitude by the county Board of Supervisors regarding the housing agency’s floundering over the North First Street site, the grand jury stated.

“This laissez-faire attitude is concerning to the civil grand jury,” the report stated. “The county Board of Supervisors must be acutely aware that any significant loss of public funds for housing is a lost opportunity for the county to address the overwhelming need for affordable housing opportunities.”

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About the Author
Yosi Yahoudai is a founder and the managing partner of J&Y. His practice is comprised primarily of cases involving automobile and motorcycle accidents, but he also represents people in premises liability lawsuits, including suits alleging dangerous conditions of public property, third-party criminal conduct, and intentional torts. He also has expertise in cases involving product defects, dog bites, elder abuse, and sexual assault. He earned his Bachelor of Arts from the University of California and is admitted to practice in all California State Courts, and the United States District Court for the Southern District of California. If you have any questions about this article, you can contact Yosi by clicking here.