Loans Approved for Oakland’s Fox Theater

By J. Douglas Allen-Taylor
Thursday July 17, 2008 - 09:43:00 AM

The Oakland City Council approved $14.45 million in new city loans and grants to the Fox Oakland restoration project Tuesday night. Councilmembers made no comment in voting for the new expenditures, but not before a small coalition of Oakland residents had plenty to say in opposition. 

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 council decision brings the total projected cost of the Fox Restoration project to $82.7 million.  

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 improve-ment 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. 

Fox Oakland restoration project manager Phil Tagami defended the requests, saying that “the Fox Oakland doesn’t belong to me, it belongs to the city,” adding that the tenant improvements that required the new funding were approved by the board of the Fox Oakland Theater, “not by me.”  

Tagami had told the council’s Community and Economic Development Committee members last week 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 at Tuesday’s council meeting, Oakland business owner Geoffrey Pete blasted the city for not requiring collateral for the Fox Oakland operating organization and the arts school. 

“The city has a two-tiered system when it comes to requiring loans from developers,” Pete said, one for African-Americans and one for other developers. “When African-American developers have been given loans for city projects, they have to collateralize them with their homes, and some of them have lost their homes when they defaulted.” 

Pete named Joe Debro, developer of the old Alice Arts Center (now the Malonga Casquelord Center), as one of the developers who lost his home under such a loan arrangement. 

“You didn’t give Joe Debro a break,” Pete said. “He got one bite of the apple.” Pete urged the council to make Fox Oakland developer Phil Tagami and board members of the Oakland School of the Arts—including OSA founder Jerry Brown—to put up their homes as collateral for the requested loans.  

The original proposal for the Fox restoration loans had included no provision for collateral. But at Councilmember Jane Brunner’s request during last week’s Community and Economic Development Committee deliberations on the proposal, city staff added a provision to the loan agreements that the OSA loan would be backed by collateral from donations to OSA from a Clear Channel billboard in Oakland. 

During last week’s CED Committee deliberations, the proposal brought charges by the Oakland City Hall gadfly Sanjiv Handa, publisher of the East Bay News Service, that “I told you so” in 2006 that the Fox restoration would cost far more than the original bid. And 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 come back and fully fund it through cost overruns. 

While Brunner said in response, “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.” 

The original cost of the restoration project, when it was approved by the 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. 

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, signed off on an assertion that the city now finds itself over a barrel in the Fox Oakland project. 

“At this point in the project,” the staff report noted, “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 $22.0 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.”