As the latest attempt by private investors to save the Garden Grove Galleria project appears headed for failure, the demolition of the nine-story, rusted steel structure that has long been an eyesore on the city’s skyline is becoming ever more likely.
The toxic relationship between the owner of the property, the nonprofit Emlen W. Hoag Foundation, and Cathay General Bancorp, which has a ground lease on the property, spilled into Tuesday’s Garden Grove City Council meeting, with attorneys for both parties lobbing accusations at each other.
The City Council has grown increasingly impatient with the lack of construction on the defunct Galleria project, which has been stalled since 2009 when the Cathay, which is financing the project, refused to pay the developer’s construction costs, citing a decline in the property’s value during the economic downturn.
Amidst lawsuits over the original project, Cathay and the Hoag Foundation have tried for several years to find a new developer to take over the project and avoid a demolition order on the existing structure.
But at Tuesday evening’s meeting, William Grant, president of the Hoag Foundation, told council members that they can no longer keep paying for attorneys fees for a project that may never come to fruition.
He said the fees have put the nonprofit in jeopardy of violating IRS codes that prohibit it from spending more than 50 percent of its revenues on expenditures unrelated to its programs, which support the Garden Grove Boys and Girls Club.
“This certainly is not the outcome that we had all hoped for and diligently tried to avoid. But as a nonprofit bound by our fiduciary responsibility we have no other options,” Grant said.
Grant’s statement came just after an unexpected offer by Cathay Bancorp, announced to the City Council, to reimburse Hoag for the more than half a million in attorney’s fees it incurred last year.
The reimbursement offer caught Hoag officials by surprise — they had originally requested the reimbursement in June but had not heard back from Cathay.
William Brinckloe Jr., Hoag’s attorney, claims Cathay has also ignored requests by the Foundation to see site plans for the development. The foundation is concerned that continuing to spend money on a project with no clear end date could run afoul of laws that prohibit nonprofit organizations from engaging in speculative property investment.
“The question is, what’s the probability of this project getting done?” Brinckloe said.
Attorney Lisa Kim, general counsel for Cathay, said the bank has bent over backwards to satisfy the Hoag Foundation, agreeing to pay for security for the property, delinquent property taxes and rent and even some attorney’s fees.
According to the bank, Hoag’s decision not to go forward with plans with developer Brooks Street and the LAB Company came out of the blue.
“Cathay is fully prepared to pay all the attorney’s fees for Hoag — immediately — all outstanding fees. On the condition that they will work with us on good faith to review Brooks Street’s plans,” Kim said. “There’s no other developer that’s going to take this [project]…We just need them to look at it.”
Grant and his attorney, William Brinckloe Jr., said they would not accept the funds without first returning to the foundation’s board.
After the meeting, Kim would not comment on the progress of Brooks Street’s plans for the development or the dispute over attorney’s fees.
“Let’s not talk about it. If we want to see this deal go forward we’d better not talk about that at this time,” Kim said.
Facing an impasse, council members contemplated how long they would be willing to give the organizations to work it out before moving on the demolition order.
Mayor Bao Nguyen proposed giving the parties until Dec. 25 — hoping the deadline would imbue them with the holiday spirit — to agree to submit plans and move forward, or else authorize the city attorney to execute the demolition order.
Other council members said that deadline is too ambitious.
According to city attorney Omar Sandoval, the city would likely ask the court to appoint a receiver to expedite the demolition process. Given the scale of the demolition for such a large steel structure, which would require special permits and engineering, it could be six months before anything gets done, Sandoval said.
Councilman Steve Jones cautioned that the city should not get involved in refereeing the dispute.
“I’d just like to reiterate that this is a private market failure…We should protect our own interest and not get sucked deeper into this party dispute than we already are,” Jones said.
He said the economic value of the existing steel structure is worth maintaining.
“I would like to see this building get completed…and turn the most blighted piece in town to the most wonderful piece in town,” Jones said. “I think it’s imprudent to act too hastily in the middle of a very high dollar, private party dispute.”
The City Council ultimately decided to give the Hoag Foundation until their Dec. 8 council meeting to convene its board and consider the bank’s offer before discussing the demolition order, but it’s unclear whether the organization has the appetite to keep working with Cathay.
The animosity that has developed between the two sides was on full display outside the council meeting, with attorneys and representatives for both parties hurled insults at each other.
“You are the most insane attorney I have ever met,” Kim told Brinckloe.
“To say the whole foundation is controlled by its attorney and it’s all about attorney’s fees, I’ve never been so personally attacked in my life,” Brinckloe fired back.
Contact Thy Vo at [email protected] or follow her on Twitter @thyanhvo.