The Flip Side of Housing Affordability
We need to pay more attention to the wage side of housing affordability.
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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:
From: Larry Horowitz, Concerned Citizen, Bellingham, WA
To: Tom Kenney, Senior Vice President, Washington Federal
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.