WAFed’s best option: Accept City’s offer on Chuckanut Ridge

By Larry HorowitzOn Nov 06, 2010

For those who’ve been following the Chuckanut Ridge / Fairhaven Highlands issue with interest, regardless of which side you’re on, I believe all of us are ready for it to simply go away. Fortunately, Washington Federal is in a position to do just that.

With that in mind, a few days ago I sent a memo to WAFed Sr. VP Tom Kenney who serves as the bank’s Northern WA Regional Executive and oversees Horizon Bank’s former operations. I explained to Mr. Kenney why many believe the actual development value of Fairhaven Highlands is well below what WAFed may perceive it to be, and I suggested that accepting the City of Bellingham’s offer is likely the bank’s best option.

If you’d like some background information, feel free to select “Chuckanut Ridge” under the “Categories” search tool above where you’ll find 32 previous articles published on this site.

Here’s my memo to Tom Kenney:

Memorandum

From: Larry Horowitz, Concerned Citizen, Bellingham, WA

To: Tom Kenney, Senior Vice President, Washington Federal

Cc:

Jim Doud, Board member, Washington Federal

Roy Whitehead, Chairman, CEO & President, Washington Federal

Jack Jacobson, Executive Vice President, Washington Federal

Cathy Cooper, Senior Vice President, Washington Federal

Richard Evans, Case Manager, FDIC

Jim Miller, Attorney, FDIC

Dan Pike, City of Bellingham Mayor

Barry Buchanan, City of Bellingham Councilmember

Michael Lilliquist, City of Bellingham Councilmember

Jeff Thomas, City of Bellingham Interim Planning Director

David Bricklin, Bricklin & Newman, LLP

Re: Fairhaven Highlands: Throwing good money after bad… Or … Why Fairhaven Highlands is dead in the water

Date: November 1, 2010

Dear Mr. Kenney:

I certainly appreciate that Washington Federal is doing its best to minimize its loss on the Fairhaven Highlands property it now owns as a result of WAFed’s FDIC-assisted acquisition of Horizon Bank. Unfortunately, it’s clear to many of us who have closely followed this project for more than five years that Washington Federal is prepared to throw good money after bad on a project that is dead in the water.

As you know, the Fairhaven Highlands application has secured absolutely no entitlements to date. Not a single permit has been issued from any of the agencies that have jurisdiction. Although it’s difficult to determine the rationale behind WAFed’s current strategy, I suspect the bank is following guidance you have received from the attorney who previously advised Greenbriar NW Associates (GBNW), the joint venture between Horizon Bank and David Edelstein’s Greenbriar Construction, which actually owns the property.

It is likely this attorney has told Washington Federal that, although there have been no entitlements actually secured, the development application is vested under five-year old laws that enable the project to proceed with minimal environmental regulations. I suspect this attorney has informed the bank that there is some value associated with this ability to circumvent all development regulations that have been adopted since the Fairhaven Highlands applications were submitted in April and November 2005.

Notwithstanding the moral and ethical aspects of circumventing laws specifically designed to protect public safety and the environment, any belief you might have that this project will be approved under outdated laws is misguided.

You may not be aware, but the State of Washington Department of Ecology (DOE) has jurisdiction over the majority of the wetlands impacted by the Fairhaven Highlands development. On November 12, 2009 (before WAFed acquired Horizon Bank’s assets), DOE submitted its comment letter on the Fairhaven Highlands Draft Environmental Impact Statement (DEIS). I have attached a copy for your information.

In their letter, the DOE wetland and water quality specialists state:

"The DEIS specifies that this project is vested under the City of Bellingham’s outdated Wetland and Stream Regulatory Chapter , adopted in 1991. This regulatory code does not represent the current science on wetlands and their biological and chemical requirements and limitations. Although the City may allow permit approval using this outdated code, the Department of Ecology (Ecology) will be reviewing the project under Clean Water Act Section 401 and Chapter 90.48 RCW authority, using state and federal guidance, which was developed using the best available science. All of the action alternatives would fall within Ecology’s authority under these two laws.

"Taking best available science into consideration, all of the action alternatives would cause far greater indirect impacts to wetlands and direct impacts to their buffers than indicated in the DEIS.

"Currently all alternatives proposed are inconsistent with state and federal wetland and buffer guidance and requirements. In order to avoid future costly delays during state and federal permitting, we recommend that the project include an alternative that clusters development into one section of the site, thus avoiding Category I wetland and buffer impacts and allowing habitat connectivity with large forested upland buffers to the on- and off-site wetlands."

In other words, regardless of how vesting is viewed by the City of Bellingham, none of the alternatives included in the Fairhaven Highlands DEIS will obtain permits from DOE. DOE will require wetland buffers that meet best available science (BAS). In Bellingham, the city’s proxy for BAS is the 2005 Critical Areas Ordinance (CAO), which was adopted one business day after the Fairhaven Highlands Wetland & Stream application was submitted. The Bellingham CAO calls for 150’ buffers for the majority of wetlands and 200’ for two of the Category I wetlands. By contrast, the initial Fairhaven Highlands application provides 50’ buffers.

As you may know, there is a transportation requirement associated with developing this property. The developer must either construct a connector road between Chuckanut Drive and Old Fairhaven Parkway or widen the 12th Street Bridge, both very expensive propositions. Based on DOE’s comment letter, it will not be possible to build the connector road without violating the buffer requirements, so this option is no longer available. In the past, your attorney has claimed that widening the bridge is not financially feasible. As I claimed earlier, this project is dead in the water. If you cannot build the road and cannot afford to widen the bridge, you cannot meet the transportation prerequisite and cannot obtain a permit from the city.

This leaves the option of selling the property to the City of Bellingham, a willing buyer. In his October 28, 2010 letter to Bellingham Interim Planning Director Jeff Thomas, your attorney indicates that WAFed is working to obtain “outside” agency clearances that would allow sale negotiation with the city. I suspect at least one of these outside agencies is the FDIC who is on the hook for 80% of any losses related to loans acquired from Horizon Bank. At last count, the GBNW joint venture owed more than $24 million to Horizon Bank. Theoretically, since Horizon Bank owned 50% of GBNW, half of that amount was a loan from the bank to itself. The other half, or $12 million, was owed by David Edelstein’s Greenbriar Construction. Based on the FDIC’s material loss report for Horizon, it appears WAFed has written this loan down by $16.3 million, leaving a balance of approximately $8 million on its books.

Presumably, the $8 million reflects the value of the Fairhaven Highlands property inflated for any value associated with its vested right to circumvent five-years’ worth of development regulations. Based on DOE’s comment letter, I’d say the value of that vested right is essentially zero.

It’s time for WAFed and the FDIC to recognize the fact that the Fairhaven Highlands development value is much lower than the $8 million WAFed has on its books. The likelihood of obtaining permits from all agencies with jurisdiction is virtually nil.

Why not move forward now on the City of Bellingham’s generous offer to take this property off your hands? Such an action will not only improve your bottom line, but will vastly improve how WAFed is perceived in the community.

Thanks in advance for your consideration.

Sincerely,

Larry Horowitz

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About Larry Horowitz

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Comments by Readers

Doug Starcher

Nov 08, 2010

Well done Larry, near the end of your post you refer to Bellingham’s generous offer. Do you have any information on that offer? You also refer to an October 28 letter to Jeff from Wa Fed’s attorney I couldnt find it in the links in the October 31 post, is it somewhere else? Thanks

Doug

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Larry Horowitz

Nov 08, 2010

Thanks Doug.  I have added a link to the Oct 28 letter from GBNW?s attorney to Jeff Thomas just above your comment.

Regarding the city?s offer, I actually have very little information, but I understand the city is interested in acquiring the Chuckanut Ridge property and another property Horizon Bank owned on Lookout Mtn.  I believe the offer is for both properties.  Whether WAFed considers the offer generous depends on what they believe these properties are worth.  Clearly, DOE?s more stringent requirements substantially reduce the development potential ? and development value ? of Fairhaven Highlands.  It appears WAFed has not yet factored these restrictions in.  When they do, perhaps they?ll be more open to responding to the city?s offer.

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John Servais

Nov 10, 2010

A reliable source has told me Mayor Dan Pike plans to withdraw the city’s offer to purchase Chuckanut Ridge.  I don’t have to call and ask Dan - I’m reporting that he has said that.  He can comment here if he wants.

I did ask some council members and was told they knew nothing about this.  Further, they said Dan Pike does not control this negotiation - the council does. 

You know, these “negotiations” have been going on since Washington Federal took over the property in January - almost 10 months ago.  From continual off the record reports that I have gotten over that time, the city negotiating position has been confused.  I hope these reports are wrong.  I’d be delighted to read next week that the city has bought the property for $6 million.  But the question remains:  What is going on?

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Larry Horowitz

Nov 10, 2010

I agree that the entire negotiation process has been confusing; but I disagree about being delighted if the City has to pay $6 million for Chuckanut Ridge.  It?s not worth that much.

The one thing I know FOR SURE:  I wouldn?t want to be in a position where I was waiting for Washington Federal to make a loan decision.  Who has that much patience?

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Tip Johnson

Nov 10, 2010

The City could speed things up by doing something they should have done in 1996 when City Planner Chris Spens described the Chuckanut Ridge zoning as “a mystery at best.”

They should finally review the zoning.  After all, the DEIS showed that only one half the officially zoned density was disastrous.  If half the zoning won;t work, the zoning must be in error.  Zoning is supposed to define what is appropriate for the community - not cultivate disasters.

If the City would docket this phony, mysterious zoning for review, the probable result, and interim uncertainty, would soon put a stop to all of this project’s nonsense.  It’s that simple.

All the City has to do is?its job!

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Harvey Schwartz

Nov 13, 2010

I have a few comments/observations:

The city is negotiating a price for a property that is worth a value to be determined by the city (basically) through zoning decisions…..which has a certain feel of conflict of interest. However, as mentioned by Tip - it seems like some decisions need to be made about what the city is negotiating for and what WA Federal is selling.

If you’re at a barter fair these types of negotiations are no big deal…but big players don’t usually take a best guess at what something is worth.

That said…WA Federal would be wise to understand the mind set of Bellinghamsters that caused the Albertson’s on the south side to fail even though all their demographic studies showed that it would be a success.  (I personally spoke with someone from national that was perplexed by that dynamic).  But my point is not a negative but a positive.

Elephants and Bellinghamsters have long memories.  If the bank wants to become a local hero…they can cut to the chase - forestall all the zoning hearings and public testimony and give the city a great deal on the property and collect the interest (lots of business by people like me that would go out of their way to do business with such a bank).  I would not be opposed to giving them name credit for those of us with short memories.  How about “Southside Hundred Acre Woods” with a special thank you to WA Federal for generously helping the city to acquire this unique property….or even calling it WA Federal Park (depending on the level of their largess)......

Harvey Schwartz

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