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Tuesday, Nov. 13, 2007 | Valencia Business Park is a dusty, mostly vacant piece of once-forgotten land wedged between Imperial Avenue and Stevens Way in the southeastern San Diego neighborhood of Encanto. It is primed for development. The ground has been raised out of the floodplain by local government. The sidewalks are new. The sole street is clean and freshly paved, and the lots are graded and ready to go. A new post office waits for neighbors.
It is here that local couple Sharon and Mark Petrarca expected to expand their exotic bird business, Our Feathered Friends. Here, on what old site drawings call Lot A, there was going to be an environmentally friendly warehouse. It would produce the specialty birdseed and wooden birdcages the Petrarcas were counting on to take their business to another level. Contracts were being worked out with Petco and others to distribute their products.
That building was supposed to be here half a decade ago. Now, it doesn’t look like it’s going to be built, ever.
The land is owned by the Southeastern Economic Development Corp., the city of San Diego’s redevelopment arm for some of its poorest neighborhoods. In 2001, SEDC handed the development rights for Valencia Business Park to a local businessman, James H. Smith, who planned to build a number of warehouses on the land. Soon after, James Smith contracted with the Petrarcas to sell them one of those warehouses.
But four years later, James Smith’s deal with SEDC fell apart. The Petrarcas sued him for breach of contract and placed a claim on SEDC’s land while they sought to recover their damages from James Smith. On the final day of their trial, however, the Petrarcas were given another way out: SEDC President Carolyn Y. Smith offered a settlement agreement promising the Petrarcas a warehouse in Valencia Business Park.
The Petrarcas agreed and in the following months, documents show, SEDC and its new developers, Beverly Hills-based Pacific Development Partners, appeared to honor SEDC’s promise. At one point, PDP sent the Petrarcas a site plan showing them where their warehouse would be located.
So when PDP’s attorneys called on the Petrarcas to remove their claim on SEDC’s land, the couple obliged, freeing the way, they thought, for their warehouse to finally be built.
They were wrong.
Instead, PDP changed its plans for the land and designed the Petrarcas out of the deal altogether with Carolyn Smith and SEDC’s consent. And, it turns out, the public officials that would approve PDP’s contract never knew of the legal settlement in the first place. Carolyn Smith never brought the settlement forward for approval to the SEDC board or the San Diego City Council, which oversees SEDC.
Last month, the Petrarcas sued SEDC and Carolyn Smith on allegations of fraud and breach of contract. In the suit, the Petrarcas claim they were duped into releasing their claim on the land and dropping their lawsuit against James Smith, only to see their agreement discarded so that another developer could make a bigger profit.
And the two principals of that new developer, PDP, have a strong and continuing business relationship with the chairman of SEDC’s board, Artie M. “Chip” Owen. Since he joined SEDC’s board in 2003, Owen has reported being paid tens of thousands of dollars from PDP in real estate commissions. And he continues to partner with PDP’s principals on at least one ongoing project, the details of which he declined to disclose in an interview.
While PDP has picked up another contract in southeastern San Diego, the Petrarcas have watched as their business has wilted and their dreams have faded. Without a permanent home for their seed and cage offerings, the couple’s deal with Petco fell apart. Their warehouse crew has gone from 10 to two employees, they say.
“Even after everything we’ve seen with local government in recent years, this still at a very human level shocked my conscience,” said John Moot, the Petrarcas’ attorney.
SEDC officials declined to comment on Valencia Business Park, citing the new litigation. In an August interview, they said Owen’s relationship with PDP is irrelevant to them as long as he abstains from voting on its projects, which he does. Owen’s role is limited to running board meetings and voting, and doesn’t include negotiating contracts, they said.
“He has a relationship with PDP and it has nothing to do with this agency,” Carolyn Smith said.
Welcome to Valencia Business Park, home to a community saga, revealed through dozens of interviews and months of document review, that has spawned at least three lawsuits and created a trail of broken promises, but has yet to produce more than a post office.
It’s the story of just one of the anonymous plots of land scattered throughout San Diego’s most troubled neighborhoods that have been identified by local government for revitalization. But in the case of Valencia Business Park, the body tasked with organizing that rebirth has been accused of going against its word. And while the dreams of some local businesspeople have either been ignored or dismantled along the way, one well-connected player is still standing.
From Janitorial Services to a Failed Development
Chip Owen showed the first interest in developing Valencia Business Park. But he later withdrew his proposal for the land for reasons he said he doesn’t remember.
That opened the door for James Smith, who introduced the Petrarcas to the site.
The Petrarcas liked the business park because of its central location and freeway access. It would make a nice addition to their two exotic bird stores. Because the developer, James Smith, had the backing of a government agency, SEDC, the Petrarcas saw no reason to doubt his credibility, said their attorney, Moot.
In April 2002, the Petrarcas signed a contract with James Smith for the development of a 17,000-square-foot building at the then-market price of $73 a square foot. Working with a local architect, the couple started to draw up plans for the green warehouse.
“This was sort of their dream,” Moot said. The Petrarcas declined to be interviewed for this story, choosing to have Moot serve as their spokesman.
James Smith was an unlikely candidate to develop Valencia Business Park. While he was a local businessman, his experience was in janitorial services, not development. Smith doesn’t deny his lack of experience in development. Indeed, he said before Valencia Business Park came along, he wasn’t really interested in becoming a player in southeastern San Diego’s development scene.
He said that Royce Jones, an outside attorney for SEDC, approached him and talked him into taking on the deal.
SEDC chose an unusual route to develop the project. The agency never put the project out to bid publicly. It weighed no other proposals for the land. And it never asked for James Smith to prove he had the financial capabilities to realize the development, according to a deposition of Carolyn Smith taken in connection with the Petrarcas’ legal action against James Smith.
To help the businessman get settled into his new role, SEDC recommended Chip Owen as a paid advisor. While working for James Smith, Owen also took a position on the SEDC board.
Half a decade on, James Smith said he’s been bankrupted by Valencia Business Park. He believes he was only brought in to be the local face that would help steer Valencia Business Park through community groups and a complicated planning process.
Smith said he paid out hundreds of thousands of dollars and spent two years getting Valencia Business Park permitted, only to have the project pulled from underneath him at the last minute. “It looks like I may have been led to the slaughter,” he said.
While trying to get Valencia Business Park built, James Smith made plenty of errors, documents show. He missed several permitting and financing deadlines. In letters and memos to James Smith’s company, SEDC officials expressed concern at the rookie developer’s failure to prove he had financing for the project, his apparent inability to find tenants and his tardiness in meeting deadlines.
He said SEDC officials had assured him he would have an easy run through the permitting and planning process, but he ended up going through a lengthy and costly ordeal.
Meanwhile, with the costs of construction skyrocketing and his prospects looking more dubious, James Smith was seeking advice from other, more experienced players in San Diego’s development scene.
One such developer, Russ Ries of Marus Enterprises, wrote James Smith on Sept. 22, 2004, advising him that his project still had a long way to go and suggesting he try to break his agreement with the Petrarcas. James Smith’s promise to build the Petrarcas’ warehouse at the price of $73 a square foot, Ries cautioned, “no longer works.” James Smith would have to get at least $110 a square foot to make the deal pencil out, Ries wrote.
James Smith said Owen also told him to abandon the project once he discovered he had to go through the extra planning steps.
Still, James Smith pushed ahead, trying to work a deal out, until eventually, in April 2005, he reluctantly threw in the towel under pressure from SEDC.
The Petrarcas sued James Smith and his company, Roseau Development, claiming up to $2 million in damages and alleging breach of contract. Because of the pending lawsuit, a claim was placed on SEDC’s land, complicating any sale of the land or development agreement.
That case came to trial in April 2006. The last day of the trial brought a surprise.
Carolyn Smith, who has served as SEDC president for 12 years, was due to take the witness stand. Instead, she and SEDC’s lawyer, Royce Jones, the same attorney who James Smith said convinced him to take the deal in the first place, approached the Petrarcas and their attorney and offered to settle the lawsuit on James Smith’s behalf, according to court documents.
It was an odd arrangement; neither Carolyn Smith nor SEDC was a party to the Petrarcas’ lawsuit, but the Petrarcas heard the SEDC officials out.
The settlement agreement, which was scratched out by hand by the Petrarcas’ attorney, stated that SEDC, working with a developer, would “cause to be delivered a 10,000 sq. foot building in the Valencia Business Park for $73 per sq. foot.”
The document, signed by Carolyn Smith, James Smith and Sharon Petrarca, essentially promised the Petrarcas a smaller warehouse, but for the same price they had agreed to four years earlier, which, by then, was a bargain.
James Smith said he was “pleasantly surprised” when SEDC presented its settlement agreement. He said he assumed the agency was trying to make amends for bankrupting him and for “getting me into this mess in the first place.”
A New Developer: PDP
Following the settlement with the Petrarcas, documents show, SEDC quickly put the couple in touch with PDP’s Mark Burger. Via e-mail, PDP presented the Petrarcas with maps of the site that included drawings of their building. The business owners were updated on the development’s progress by both SEDC and PDP.
One site plan from May 2006 shows what the Petrarcas thought was their building: Building A, a 10,000-square-foot warehouse at the end of Stevens Way’s cul-de-sac, next to the new Earl B. Gilliam Post Office.
It appeared the Petrarcas were getting close.
Then, on Sept. 21, 2006, an attorney for SEDC wrote Moot. The SEDC attorney noted that the agency and PDP were finalizing their development deal and needed the Petrarcas to remove their claim on the land. The Petrarcas agreed, lifting the claim and thus removing an important obstacle for the project.
But four months later, it became clear that PDP wouldn’t be building the Petrarcas’ building at all. And, it appears SEDC did little to stop it.
In a Jan. 24, 2007 memo, Burger told Carolyn Smith that he couldn’t make up the difference between the price promised in the settlement by SEDC and the current market price.
“It became apparent to me that we would never be able to deliver a building that would cost us a minimum of $135.00 per sq. ft to Our Feathered Friends for $73.00 per sq. ft.,” he wrote.
Burger continued: “I hope this is helpful in explaining why we must go in a different direction on the project.”
The Petrarcas wouldn’t be getting their building.
Indeed, according to court testimony, it’s unclear if SEDC ever intended to build it. Carolyn Smith and her staff never sought an approval for the settlement from their board or the City Council, which ultimately is the governing body for the city’s redevelopment arms.
Asked by the Petrarcas’ lawyer during a deposition whether she ever planned to present SEDC’s board with the settlement agreement, Carolyn Smith replied: “I haven’t given it any thought right now.”
PDP moved on from the Petrarcas’ project. It abandoned its plans for an industrial hub and instead struck a deal to house one of British grocer Tesco’s first neighborhood markets in Southern California.
Any thought that Valencia Business Park would contain any warehouses at all was on its way out of the plans altogether.
In June, the SEDC board agreed to rezone Valencia Business Park from industrial uses to a grocery store and other retail establishments. Pending final City Council approval, PDP’s contract will no longer call for it to add 65,000 square feet of industrial space. Instead, it will build 40,000 square feet that will include a grocery store, restaurant and retail.
A new supermarket will fill a void in the neighborhood. The greatest problem facing the community hasn’t been a lack of affordable housing, said SEDC consultant Jerry Trimble of Keyser Marston Associates, it’s been the lack of such things as grocery stores. “They needed a supermarket so they don’t have go to an expensive corner shop,” he said.
PDP is a familiar face to SEDC. The firm and its principals have done a number of deals with the redevelopment agency in recent years that in some way involve Owen, a local real estate investor who recently became SEDC’s board chairman.
Since joining the SEDC board in 2003, Owen has abstained from voting on PDP’s projects. Indeed, a number of the business deals he did with PDP or its principals took place before he joined in the board in 2003.
He discloses having received between $10,000 and $100,000 a year in income in 2004, 2005 and 2006 from PDP, according to the statements of economic interest that public officials must file. The income is from a deal Owen brokered for PDP in 2002, but the commission was deferred and paid out in installments, Owen said.
But Owen has other connections to PDP that wouldn’t be apparent from SEDC board minutes or his statements of economic interest.
After being pressed, Owen revealed in an interview with voiceofsandiego.org that PDP principals Mark T. Burger and Ronald A. Recht partnered with Owen in two limited liability companies he publicly managed that did development deals with SEDC in the late 1990s and early 2000s.
In the late 1990s, Owen also brought PDP to SEDC’s table on a development deal commenced without a public request for proposals, which are frequently used by local governments to bring in a wide range of development options.
That project, which became the Imperial Marketplace Plaza on Imperial Avenue, included $15 million in assistance from SEDC and the sale of about 30 acres of public land to PDP for $1. It is widely touted as being a project that has helped revitalize and serve the neighborhood.
SEDC officials also said Owen continues to be a partner with PDP in projects outside of the redevelopment agency’s boundaries.
Owen said that isn’t entirely correct.
“I don’t have a relationship with the developer currently. I haven’t had a relationship with that developer in San Diego for years,” he said.
Owen said he maintains a business relationship not with PDP, but with its two principals. The project they are involved in, Owen said, is outside of SEDC’s jurisdiction.
In an interview, Owen declined to disclose the name of the company he’s involved in with Burger and Recht and where that project is located.
He would only say that the business relationship comprises of industrial and retail development and is outside of San Diego. He said his personal finances aren’t relevant.
“I’m a private person,” he said.
Owen said he doesn’t have any financial interest in the Valencia Business Park. He said he speaks with Burger from PDP weekly or monthly, but that he had no idea PDP was involved in the deal until long after the company began working on it.
To avoid conflicts of interest, state law requires public officials to abstain from voting on projects they have a financial interest in.
Minutes of SEDC board meetings indicate that Owen did indeed abstain and disclosed a business relationship with PDP.
He also abstained from any actions related to James Smith’s development company because of his prior consulting work. PDP and Roseau Development are two of only a relatively small group of business entities whose projects have gone before the SEDC board in recent years.
In an August interview about Owen’s role at SEDC, Carolyn Smith and Royce Jones said they never got into a great level of detail with Owen about his relationship with PDP. They said his abstention from voting was sufficient.
Owen’s role as chairman of the board is limited to running the meetings and voting on proposals, the officials said. “He is not sitting in on our meetings when we are negotiating,” Jones said.
After the Petrarcas’ fraud lawsuit was filed last month, SEDC officials declined to comment further on Valencia Business Park, as did Owen. Burger of PDP also declined to comment on this project.
That the development opportunity has been given to an out-of-town developer with ties to SEDC’s board chairman has rankled Bishop George McKinney, whose church overlooks the bare earth of Valencia Business Park.
“That doesn’t pass the smell test,” he said.
For 45 years, McKinney has run the St. Stephen’s Church of God in Christ across the street on Imperial Avenue.
McKinney wants to develop Valencia Business Park and told SEDC so in 1997. Already, he’s expanded his church to include a school and a $12 million senior housing development on Imperial Avenue. So the business park looks like the perfect spot for him to keep growing. He’d been in talks with James Smith about buying one of his lots.
McKinney said he wants to add a high school, a job training center and an auditorium. And, at a City Council meeting last year, he said he’d pay $1.75 million for the land — more than the $1.5 million agreed to by PDP.
McKinney said his 45 years of service to the local community and his development track record in make him a perfect choice to develop the land.
“I’m here in San Diego and I’m not from Beverly Hills,” McKinney said.