Undercurrents: Don’t Sell When You’re Desperate for Cash

By J. Douglas Allen-Taylor
Thursday November 19, 2009 - 09:39:00 AM

There are two truisms in this world about budgeting and finance. The first is, never shop in a supermarket when you’re hungry. The second is, never sell property when you’re desperate for cash. In the first instance, you’ll almost always buy more than you need. In the second, you’ll almost always settle for less than it’s worth. 

The City of Oakland’s Budget Office and Finance and Management Agency, unfortunately, has proposed to do the second, and in so doing threatens to betray the city’s voters, sell off a major portion of the city’s heritage and potential future earning capacity, and continue in the worst tradition of the Jerry Brown administration. 

With the City of Oakland projecting an $18.87 million budget deficit for the remaining seven and a half months of the current fiscal year—after the administration and City Council having to close an $83 million gap this summer just to keep the city solvent—the Budget Office is now proposing that the city raise $11.6 million of that deficit by selling two city-owned properties: the Henry J. Kaiser Convention Center and the George P. Scotlan Convention Center. 

Oakland City Administrator Dan Lindheim passed the proposals on to the Oakland City Council with no recommendation, telling Oakland City Councilmembers at a special Tuesday afternoon meeting on the budget crisis that the proposals in the Budget Office’s report “are ideas and proposals [that are] not meant as a full catalogue of what can be done, should be done, or might be done” but were intended by his office to generate discussion. 

So let’s discuss it. 

In their report and recommendation to Mr. Lindheim that was passed on to the council, Oakland Budget Director Cheryl Taylor and Finance Director Joseph Yew—who cosigned the report—said precious little about the rationale for the proposed property sale, writing only that “Staff is currently reviewing the City’s portfolio of assets that could be sold in the current fiscal year. Such assets might include the George P. Scotlan Convention Center and the Henry J. Kaiser Convention Center and are anticipated to generate significant one-time revenue of $11.6 million. The sale of assets in the current real estate market will be challenging; there are few buyers who have available resources (either capital or credit) to minimally pay the insured value of the City’s properties.” 

Even if the double convention center sale were a good idea for the City of Oakland, one wonders where the $11.6 million figure came from? 

At Tuesday’s City Council meeting, Councilmember Desley Brooks said the two properties, together, were valued at $149 million. That figure, it turns out, comes from a 1992 action in which Oakland took out municipal bonds on the two properties through the California Statewide Communities Development Authority, assessing the value of the Kaiser and Scotlan centers at that time at $149,825,000 (April 24, 2001 memo from the Oakland Financial Services Agency to Oakland City Manager Robert Bobb. Even in a declining real estate market, it’s hard to imagine the value of the property plummeting $138.2 million in 17 years. 

If this were to go through, somebody would be set to make a sweet profit on the deal, and it wouldn’t be the residents and taxpayers of Oakland. 

The Scotlan Convention Center is the downtown facility currently used for Oakland’s conventions and major gatherings, and is located in the same structure as the Oakland City Center Marriott. CMI Group purchased the Marriott in 2007—the latest in a string of owners who have tried to make that location—and manages the Scotlan Convention Center on behalf of the city. Presumably, the proposed sale of the Scotlan Center would be to CMI, presuming they could find the capital to do so. But if that were done, Oakland would still need a convention center—every “world class city” does—and so, presumably, we would turn around and rent the Scotlan space back from CMI whenever we needed it. That would be the equivalent of selling one’s house to solve an immediate debt problem, and then renting the house from the person you sold it to. The long-term debt problem is not solved, and you have incurred a new monthly obligation on top of the previous monthly obligations you have been struggling to meet. In addition, the city would lose whatever revenue we are currently getting from renting out the Scotlan Center for trade shows and other non-city events. According to the San Francisco Chronicle, that amounts to $14 million in annual revenue for the city. 

I’m no city or budget economist, but how this particular proposal makes fiscal sense is beyond me. 

Now to the Kaiser Convention Center, the grand old white-façade building that sits across the 12th Street-14th Street roadway from the western edge of Lake Merritt. This was Oakland’s convention center beginning in 1915, operating under the name Oakland Auditorium, until the Scotlan facility replaced it in 1983. For the next 20 years, the Kaiser Center served as an entertainment, sports, and community events venue. It was closed in 2006 by the Jerry Brown administration, with the approval of the City Council, supposedly because its $400,000 per year operating expense could not be supported while the city was facing a two year, $32 million budget deficit.  

There were some attempts made to reopen the Kaiser Center with a new operating mandate, as a world trade center, as part of an entertainment complex that would include housing the Peralta Community College District’s Performing Arts Department, and as part of the abortive plan by the east coast developers to purchase the Oakland Unified School District’s Paul Robeson Administration Building. But those deals fell through, and the Kaiser Center has sat forlorn, lonely, unoccupied, and unused across from Lake Merritt for the last three and a half years. 

In May of 2005, I wrote an article giving several reasons why closing the Kaiser Convention Center was a mistake, including the following: “Closing the Kaiser Convention Center on the first of January also appears a little shortsighted, considering what’s about to happen along the Lake Merritt Channel between Lake Merritt proper and the estuary. As all observers of recent Oakland history know, the channel is due to be opened up with money approved by Oakland voters three years ago in the water bond Measure DD. In that same measure, Oaklanders voted to do away with that highway-like 12th Street-14th Street bypass between the lake and the convention center. Nobody at the present knows what the new configuration will look like, except that when it is finished, the Kaiser Convention Center will be accessible by pedestrian traffic from both Lake Merritt and lower 14th Street. Presumably Mr. Brown does not just want to close the center down, but he wants to sell it—either as a building intact, or for its land—to some willing developer, waiting in the wings. But waiting to sell the Kaiser after the Lake Merritt Channel renovations are actually done would make it a far more valuable property. Someone whose interests were in making more money for Oakland would wait. Of course, someone who wants to get a better deal for a developer would rush the sale through early. I’m not making any accusations about Mr. Brown, or anyone else. I’m just passing out observations.” 

With the Measure DD work in the western Lake Merritt area just beginning, that is as true today as it was in late 2005. 

At Tuesday’s special council meeting, two Oakland City Councilmembers threw cold water on the entire building sale idea. Brooks, who released the $149 million figure as the value of the two buildings, added that overall, the budget balancing proposals suggested by the Budget Office “aren’t viable for the solvency of the city.” And Council Finance Committee Chair Jean Quan said that “because of legal difficulties, the sale of the assets is probably not realistic.” 

But some Councilmembers bit on portions of the building sale idea. 

Councilmembers Nancy Nadel and Pat Kernighan opposed the sale of the Kaiser building, but said they would not be opposed to the sale of the Scotlan Center. And Councilmembers Rebecca Kaplan and Ignacio De La Fuente suggested that the sale of the Kaiser Center might be feasible if it went to a buyer who, according to Kaplan, promised to preserve the current public cultural use of the building. 

No immediate action was taken on the budget proposals, but Ms. Quan suggested that a vote might be taken by the council in December or January. 

If any portion of the proposed convention center building sales goes through, it would be the second time in less than a decade that Oakland sold away what citizens had thought to be core civic property. In 2001 and ‘02, the Port of Oakland Board of Commissioners under former Mayor Jerry Brown sold off the heart of publicly-owned Jack London Square to private developers, including the properties holding the Barnes & Noble Bookstore and what was then the popular Spaghetti Factory restaurant. Mr. Brown was interested in getting on the good side of developer interests in order to help finance his successful drive for the position of California attorney general, and potentially to return to the office of California governor. 

But one wonders whose interests the proposed sale of the Kaiser Convention Center and the Scotlan Oakland Convention Center serve? As Gov. Arnold Schwarzenegger once said in an entirely different context, this proposed building sale is a bad idea.