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Reports Cite Chill Between Developer, UC Prof Backer By RICHARD BRENNEMAN

Friday August 06, 2004

The alliance between Berkeley’s most controversial developer and the city’s biggest backer of high-density residential buildings has reached an impasse, according to Berkeley City Councilmember Dona Spring. 

Spring said reports have reached her indicating that David J. Teece, a wealthy UC professor and entrepreneur, has withdrawn from backing new projects from Patrick Kennedy and his Panoramic Interests corporation and instead teamed up with Hudson McDonald LLC, a corporation created last October by two former Kennedy affiliates, Christopher J. Hudson and Evan McDonald. 

Kennedy, reached by the Daily Planet Thursday, at first said, “I have nothing to say to you,” then reconsidered. “Go ahead and ask your question.” 

Asked if Teece had severed connections with Kennedy on any further projects, the developer said, “I’m not at liberty to talk about any of my business ventures.” 

Repeated calls to Teece’s office and home phones went unanswered. The secretary at his campus office said Thursday that she had delivered a reporter’s request for a call to the entrepreneurial academic, who was traveling outside the country.  

Developer Hudson requested questions via e-mail, which were submitted early Thursday. He responded, in part: “Hudson McDonald LLC is happy to discuss any of its projects that are completed or are currently under construction. It is generally our policy not to discuss the specifics of our business.” 

Evidence of the realignment may be found in the corporate records for the limited liability corporation formed to develop a proposed high density residential and retail complex at 1950 Martin Luther King Jr. Way. 

According to documents filed with the California secretary of state, the original legal agent for 1950 MLK LLC was Patrick Kennedy. But a check late last month showed a new legal agent—Anne Misaka, who, according to documents filed with Alameda County Recorders Office, holds Teece’s power of attorney. State records also list her as chief financial officer of Teece Investment, one of the UC professor’s many business interests. 

Misaka’s address on the filings—2000 Powell St., Suite 510, of Emeryville—is also the same address and suite cited in filings for the Teece Family Foundation, David J. Teece, CEO. 

The 1950 Martin Luther King Jr. Way property first came into play when developer Avi Nevo’s Aldar Investments bought the property in February, 2001, for $2,650,000. Fourteen months later, 1950 MLK LLC bought the property for $5,700,000, with Kennedy listed as the corporate agent. 

Kennedy announced plans for a five-story, 190-unit apartment on the site, which long housed Grand Auto Supply. The move prompted howls of protest from neighbors and, who oppose tall, high-density developments along the University Avenue corridor. 

Berkeley City Councilmember Spring said Teece split from Kennedy in the wake of repeated leaks and mold infestation problems at two downtown Berkeley apartment/retail structures, the Gaia Building and the Berkeleyan. 

Kennedy has filed suit against the contractors for both buildings, and papers filed in connection with the Gaia Building place losses at more than $10 million on a structure that cost $12 million to build. 

The split marks the end of a financial juggernaut that literally transformed the face of a city.  

Over a five-year period, the Association of Bay Area Government’s Finance Authority for Nonprofit Corporations backed the Kennedy/Teece partnership by underwriting $72,130,000 in mostly tax exempt bonds, some carrying premium AAA ratings and the rest rated AA. 

The funds were available because ABAG had had found that the city lacked sufficient affordable housing for low-income renters. To obtain the funds, Kennedy had allocated 20 percent of the units in each new project for tenants earning well below the regional median income.  

In chronological order, according to ABAG’s website, the interagency group authorized bond issues—largely tax exempt—for the following Kennedy/Teece projects: 

• $6,000,000 issued on April 1, 1998, for the Berkeleyan. A recorded loan agreement shows that Teece had lent Kennedy $50,000 to initiate the project two years earlier. 

• $4 million on May 18, 1999, to fund the ARTech Building. The corporate address for ARTech Building, LLC, is Suite 510 in Emeryville, the office that houses several of Teece’s corporations. Patrick Kennedy is listed as managing member of the LLC.  

• $15,365,000 on July 25, 2000, for the Gaia Building. Recorded documents list Kennedy, Teece and Reid Martin—former owner of the site—as principals. 

• $10,445,000 on April 4, 2002, for the Acton Courtyard Apartments, with Teece listed as an investor in multiple documents. 

• $8,290,000 on May 1, 2003, to refinance the Berkeleyan, retiring the original issue of five years earlier. 

• $18,000,000 on Dec. 12, 2003, to fund the Fine Arts Building, another Kennedy/Teece project. 

• $6,210,000 on Dec. 12, 2003, to fund the Darling Florist Building. Kennedy and Teece are listed as principals of Touriel Building, LLC, developers of the project. 

• $9,820,000 on Dec. 12, 2003, to fund the Bachenheimer Building. Recorded documents list Kennedy and Teece as principals of the loan recipient, Bachenheimer Building, LLC. 

Each building was formed as a separate limited liability corporation, affording investors protection against losses greater than their investments. Investors can be individuals, partnerships, trusts, estates, corporations, associations, and other limited liability companies. 

The paper trails documenting the projects’ ownerships sometimes took Byzantine turns, illustrated in the case of the new Fine Arts Building. 

The corporate entity for the property, 2471 Shattuck LLC, is named for the property’s address. Corporate filings with the California secretary of state list two members—Patrick Kennedy as manager and Teece Irrevocable Trust No. 3, represented by Norman Laboe, a San Francisco attorney. 

A 2002 ABAG application for conduit financing on the project listed additional members: David J. Teece, “an equity investor living in Berkeley,” and Panoramic Interests employees Evan McDonald and Christopher Hudson. Another 2002 document describes Teece and Kennedy as “key principals.” 

The LLC invested $5 million in the project, against the $18 million in ABAG sponsored bonds. 

For Acton Courtyard Apartments, LLC., documents Kennedy filed in 2002 with the secretary of state list Kennedy, Jubilee Restoration, Inc., and Endurance Investors, LLC, as members. 

ABAG documents list the LLC’s owners as Kennedy, Jubilee and Teece (“an equity investor living in Berkeley”). 

Oddly, despite a rule that all corporations doing business in California must file with the secretary of state, that office reports no records of an Endurance Investors, LLC. But a clue comes from the entity’s address as listed in the documents: 2000 Powell St., Suite 510, in Emeryville—the same address listed by the Teece Family Foundation Teece Investment CFO Anne Misaka. 

Teece’s multi-million-dollar consulting firm, LECG, which is incorporated in Delaware, is housed in an office building on the same floor. The firm’s filings with the California secretary of state list David J. Teece as the firm’s legal agent, with an address of Suite 600 in the 2000 Powell St. building—the same suite and address listed on LECG’s website for their Emeryville office. 

Jesse Arreguin, director of Associated Students of the University of California’s City Affairs Lobby and Housing Commission and a Berkeley Housing Advisory commissioner, has been an outspoken critic of the way student tenants have been treated at the Gaia Building and the Berkeleyan. “I am very concerned about the mismanagement of these properties and the violation of tenants rights,” he said. 

Panoramic Management, the Kennedy firm which operates his apartment/retail buildings, demands that tenants sign documents giving him the right to take monthly rents directly from their bank accounts—depriving them of the option of staging a rent strike. 

“Teece is a professor of the University of California, and he’s supposed to be looking after the welfare of students—yet he’s involved with a developer who treats his tenants unfairly,” said Spring. 

Tenants have complained about construction noise and mold smells emanating from their apartments, and Spring said tenants have told her that extra water charges are imposed on renters who keep complaining about problems at the buildings.