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Committee Approves $14 Million in Loans, Grants for Renovation of Oakland’s Fox Theater

By J. Douglas Allen-Taylor
Thursday July 10, 2008 - 09:28:00 AM

Oakland City Council’s powerful Community and Economic Development Committee approved $14.45 million in new city loans and grants to the Fox Oakland restoration project Tuesday afternoon, bringing the total projected cost of the project to $82.7 million. 

The reasons given by the city administrator’s office for the funding requests were cost overruns since 2006, design changes and modifications, and the projected cost of tenant improvements by the theater management as well as the Oakland School for the Arts. 

The original cost of the restoration project, when it was approved by City Council in the summer of 2006 was $60.1 million, $32 million of which is being provided by the city in loans. The project includes a restaurant, a restored Fox Oakland theater, retail space, and housing for Jerry Brown’s Oakland School for the Arts charter school. 

Included in the new funding request is $7.45 million for a bridge loan to the Fox Oakland Theater nonprofit operating organization, $2 million in tenant improvement grants to GASS Entertainment (managers of the Fox theater when the project is completed), $2.7 million in loans to the Fox Theater master tenant, and $2.3 million in loans for tenant improvements to the Oakland School of the Arts. 

In a staff report recommending the new funding, Dan Lindheim, then in the position of interim director of the city’s Community and Economic Development Agency, wrote that the city now finds itself over a barrel in the Fox Oakland project.  

“At this point in the project,” Lindheim wrote, “there seem to be few choices. To keep the project on schedule, adoption of the resolutions is required. If funding is not approved, project construction will likely stop until alternative funding sources are identified. This could prevent project completion and put the agency at risk of having to meet its obligations under the guarantees it made to the tax credit investors, a loss of almost $22 million in equity for the project. In addition, costs for remobilizing the contractor following work stoppage would greatly increase remaining project costs. Finally, without the additional funds, the tenant improvements required to attract tenants will not be made and parts of the project could remain vacant.” 

Fox Oakland restoration Project Manager Phil Tagami, a well-connected Oakland developer, told CEDA committee members that the loans were needed especially because, while the project has identified 30 sources for funding, “many of those fundraising sources are on a different clock” and the city money is needed until those sources come through. 

But the request for the new funding, which now goes before the full Oakland City Council, immediately brought charges by the Oakland City Hall gadfly Sanjiv Handa, publisher of the East Bay News Service, that “I told you so,” since he had said in 2006 that the Fox restoration would cost far more than the original bid.  

Gene Hazzard of the Oakland Black Caucus told committee members that the city was allowing the Fox Oakland developers to “low-bid” the project originally and then to come back and fully fund it through cost overruns. 

While CEDA Committee chair Jane Brunner said, “I think the Fox is terrific; downtown is looking different, and it’s going to look better and better,” she added, “I am concerned about what Gene (Hazzard) said about the low bidding.” 

At Brunner’s request, city staff said they would add a provision to the loan agreements that the loans be backed with collateral.