By Kathryn Reed

In what was touted to be a signature project to showcase how redevelopment can work to benefit the environment and the economy, and how competing agencies could work together is now the ultimate example of Tahoe drama that has collectively cost taxpayers and the would-be developer nearly $1 million.

South Lake Tahoe entered a contract with Pradip Patel, owner of the Knights Inn on Highway 50, in February to purchase the property for $6 million. This was $1.5 million more than the appraised value. The city was going to recoup the difference by selling the commodities tied to the parcel.

(The transaction would have skewed the real estate market if the sale were to be above the appraised price; making comps for future sales a sticking point.)

The Tahoe Regional Planning Agency in an attempt to curtail development assessed a value to things like commercial floor area, tourist accommodation units and coverage. More recently they developed a pilot program – which has not been used – where bonus units are available if stream environmental zones are restored. All of this plays into this project and in some ways is partially to be blamed for the demise of it.

The blame, though, for why this project is dead in the water can be shared by nearly everyone who ever had anything to do with it.

This is what the Whole Foods in South Lake Tahoe could have looked like.

In the contract between South Lake Tahoe and Patel was a contingency that the deal was dependent on $4 million from the California Tahoe Conservancy. The money would have been used to fund the environmental work, including daylighting the stream that is now diverted through an underground culvert and reducing sediment reaching Lake Tahoe by 10,000 pounds per year.

But the Conservancy board never got a chance to vote on this expenditure of Proposition 1 dollars because Executive Director Patrick Wright wouldn’t put it on the agenda. Tom Davis, the city’s rep on the Conservancy board, said he is going to demand the issue be heard in December – even if it’s too late.

The city started working with the CTC last October when it initially applied for funding. At the eleventh-hour the city was told to rewrite the application. City and Conservancy staff have differing opinions about why the paperwork had to be done, but those outside the agencies point to Wright as being the difficult player in all of this.

He wanted a larger say over what the project looked like. He wanted those bonus units from the TRPA.

The Conservancy has one of the largest pools of commodities in the basin. With the agency no longer flush with cash from the state, it has been resourceful in how to sustain itself. Selling commodities is one way.

The Knights Inn collects about $100,000 in transient occupancy taxes a year. Photo/LTN

What got lost in battle between the city and Conservancy was the final outcome. All involved agree that what was proposed was so much better than what is there now.

While there was going to be some stream environmental zone (SEZ) restoration, ultimately this was more of a stormwater project. The more SEZ that was to be restored, the more bonus units that could have been procured. The Conservancy wanted an SEZ project.

It didn’t pencil out for all the development to be solely on the southwest corner. In part this had to do with how much parking Whole Foods required.

While fine-tuning of the project, it was obvious that to build a viable commercial area that the SEZ was going to be redeveloped, not entirely restored. This didn’t sit well with the Conservancy.

To have made the SEZ numbers pencil out the city needed to include the two CTC parcels adjoining the hotel property in the back.

A Conservancy staff member told Lake Tahoe News one thing holding up release of Proposition 1 money was that the city had not completed the CEQA document. City officials said they first heard the CEQA argument from LTN, never from the CTC. That environmental document, which cost a couple hundred thousand dollars, is done. But for it to be circulated it had to be tied to a project and currently there is no project.

Proposition 1 dollars that were to be used for this dictate that the project must be multidimensional – which this would have been.

The Conservancy kept changing its reason for why Proposition 1 funds were not appropriate for this project. The city contends it did everything Wright wanted when it came to applying for the money. Only the board can actually allocate the dollars, but it has never had a chance to say yes or no.

The Conservancy wants the city to study the site more; the board awarded a planning grant at its September meeting. The city has yet to accept it. The city believes there has been enough planning and that now it is time to develop. The city had hoped to break ground next spring.

Hindsight shows that bringing in all the players sooner may have resulted in a different conclusion. Better communication may have helped to avoid what became an insurmountable disconnect.

Three members from the Conservancy and three from the city met again on Oct. 4. Davis was there as the bridge since he is the city’s rep on the CTC board. Davis said it didn’t go well.

The area in green represents the Knights Inn parcel, while the gold are is the southwest corner property at Ski Run and Highway 50. Map/South Lake Tahoe

The Tahoe Regional Planning Agency and League to Save Lake Tahoe told LTN they are still hopeful a project that benefits the environment and economy will come to fruition – it just might take different players. It will be necessary that everyone’s vision is stated at the get-go so compromise can come before contracts are signed.

Ironically, the city ended up not needing the Conservancy’s money. It had $5.1 million from Halferty Development, $800,000 from Placer County from the sale of onsite tourist accommodation units, and the city contributing $100,000.

But the contract the city had with the hotel owner was so poorly written that not only did it give the city an out, it gave Patel an out. He exercised it and said he would not sell.

Even so, the city at its Oct. 18 meeting is likely to have closed session items pertaining to potential litigation involving Patel allegedly breaking the contract and possible litigation with the Conservancy. Patel never told the city why he is not selling. He didn’t ask for more money.

Patel is now talking to a developer from the Bay Area. He wanted to work directly with Whole Foods, but that company already had a deal with Halferty. Plus, Whole Foods requires an ingress/egress to its stores where a stoplight exists. This could have worked via the southwest corner site. Caltrans has said it won’t allow a light at Herbert Avenue, which is at the western edge of the hotel complex. This means Patel can’t have his Whole Foods.

Patel chose not to talk to Lake Tahoe News. His attorney, Mike McLaughlin, also did not return a call.

About a decade ago Patel was in negotiations with the Conservancy to sell the property for about $8 million. No formal offer was made by the state agency.

Patel has little incentive to sell. Real estate 101 says no one is going to sell if they don’t have to. He has two kids in high school, so he wants to stay here. His family’s home is on the back of the property. Plus, he’s making a decent living operating the 100-plus room hotel. That is not to say if the price is right, he wouldn’t start packing.

Halferty Development out of Southern California has been waiting patiently to develop that site in conjunction with the neighboring parcel known as the southwest corner at Highway 50 and Ski Run Boulevard. The firm has invested hundreds of thousands of dollars. And today the cost to build is much greater than what it was just a couple years ago.

Halferty is in escrow on the corner lot, which is expected to close in the spring. Those close to the deal believe the sale will go through even though the greater vision has been eclipsed by circumstances outside of Halferty’s control.

Insiders say Halferty could still recoup what it has paid out to date and make a profit with a project on the corner.

Chris Peto, COO for Halferty, would not talk to Lake Tahoe News about the company’s plans for the southwest corner nor would he confirm that his company is now looking at other property on the South Shore to develop.

Halferty had Whole Foods lined up to open one of its new concept grocery stores. Other possibilities had been REI and Trader Joe’s. Because the latest plans were to build on both sites, what becomes of the southwest corner remains to be seen.