Will City Have To Pay $70,000-A-Month To Subsidize Bay Fair?

The parking lot at Bay Fair Center where the Farmer's Market is held each Saturday may look like a simple, asphalt rectangle.

But that two-acre plus parcel is at the heart of a legal dispute that could affect the city's finances and the future of the mall's Macy's store.

In a nutshell, the owner of the parking lot has been leasing the site to mall owner Madison Marquette for $70,000 a month — a sum that hasn't been paid since August according to one lawsuit filed Dec. 13 in Alameda County Superior Court.

The aggrieved landowners filed a second lawsuit in Superior Court on Jan. 31 in which they argued that the city of San Leandro must pay $400,000 in back rent because its now-defunct redevelopment agency signed an agreement guaranteeing to make the lease payment if the mall-owner defaulted.

City Attorney Jayne Williams told Patch that the city is convinced that it does not have to pay for any shortfall out of its general fund. But the guarantee has been  listed as a possible obligation that would be paid out of a separate stream of property tax revenues flowing from former redevelopment projects.

A spokesperson for Madison Marquette said the company never comments on matters under litigation, leaving unanswered the question of why it stopped its $70,000-per month-payments starting in August.

The Macy's connection

Attorney Anthony Varni represents the King Family Trust, long-time owner of the land in question. He said he thinks Madison Marquette stopped lease payments as part of a complex negotiation involving Macy's, whose agreement to occupy Bay Fair expires in July.

Varni said -- and city officials confirmed -- that San Leandro had been paying $250,000 a year in what amounts to rent subsidies for the mall since the mid-1990s, when it looked like Macy's might pull out of Bay Fair.

With the redevelopment agency now wiped of existence by the state Legislature, this will be the last year such a subsidy will be be forthcoming, and Varni said that with Macy's tenancy up in the air, the mall owner was looking at his clients' lease payment as one of the pieces in the Bay Fair financial puzzle.

For its part, Macy's said it never discusses lease negotiations. "That said, we have no plans to close any stores," spokesman Jim Sluzewski told Patch.

A long way from a fruit grove

Varni said the King Family has owned the disputed land for decades, going back to the days when there were apricot fields and a drying shed on the site (see attached PDF from the San Leandro Library's historical photo archives for an old apricot orchard).

The basic Bay Fair land lease has been in place since 1989 and runs through 2038, with an escalator clause that determines the lease payments, he said.

The King lawsuit against the mall owner is straightforward, charging the defandants with a "failure and refusal to pay rent and related charges . . .  in the amount of $69,974.44 per month."

The case against the city is more complex because the redevelopment agency, which originally guaranteed the lease payment no longer exists.

The city contends that if the disputed lease guarantee is enforceable, payments would come from a separate trough of property tax revenues earmarked to retire redevelopment agency obligations, and not from general tax funds to support cops, public works and libraries.

The King lawsuit also charges that the redevelopment agency wrongly transferred $2.1 from its coffers to the city before it was dissolved — money that the landowners think should be used to cover the rent in arrears.

Williams, San Leandro's city attorney, said the transfer was a loan repayment "separate from anything to do with the lawsuit."

Bay Fair subsidy in spotlight

The case has focused attention on the extent to which redevelopment agency funding had propped up Bay Fair Mall.

San Leandro Community Development Director Luke Sims said Friday that the city, through its redevelopment agency, has put between $6 million and $7 million into the mall since the mid-1990s.

This included an initial investment to revive the center and the $250,000-a-year rent subsidies that end this year.

"This investment retained the shopping center at a time during the '90s when shopping malls were closing down," Sims said.

He expressed confidence that Madison Marquette would reach agreement with Macy's on extending its occupancy -- without public sector involvement -- because the Bay Fair locations of retailers like Target, Old Navy and Kohl's are "some of the strongest stores in Northern California" for these companies.

Meanwhile, some questions remain: Whether and/or when Madison Marquette will resume payments on the land lease; or will some form of publicly-financed guarantee pay $70,000 a month on the Farmer's Market parking lot until 2038?

(Editor's note: Thanks to the Patch readers who followed the fine print of city council agendas into the archives of Alameda County Superior Court to the documents that began to unravel the case.)

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