A new grand jury report details the blunders by the Santa Clara County Housing Authority in a bungled office building deal that resulted in a $16 million loss.
In just two years, the government agency bought and sold the two-story, 86,100-square-foot property at 3553 North First Street in San Jose, SiliconValley.com reported, citing a June 10 report from the civil grand jury. The office building sits on a 6-acre parcel next to a light rail line.
In December 2020, the Housing Authority paid $37.5 million for the building, described as providing a “much-needed expansion space for staff” by the Housing Authority’s Executive Director Katherine Harasz in comments at the time to SiliconValley.com.
Harasz retired in 2021. Preston Prince became the authority’s new executive director.
In September 2022, the agency sold the office building for $24 million, for a core loss of $13.5 million. Insurance, maintenance and other carrying costs added $2.7 million to the total, equating to a $16.2 million loss, according to the grand jury, which titled its report “Flawed information, flawed decisions.”
The county agency never occupied the building.
The grand jury’s report gives a rare inside look at how an organization’s search for real estate can lead to a fiasco.
The story began when the agency decided its offices in downtown San Jose at 505 West Julian Street were too old and small to serve its needs. It considered building a new headquarters, but the estimated $100 million cost was prohibitive.
The search for options led to the purchase of 3553 North First Street. But the agency soon decided it wouldn’t work and looked for alternative uses of the asset. It created a three-member committee from its board to examine viable strategies.
But officials failed to present options to its decision-makers, according to the report.
“Santa Clara County Housing Authority executive management presented the ad hoc committee, and later the full housing agency board, with financially flawed analyses, and evaluated only options to sell the property without seriously or rigorously considering alternatives,” the grand jury report states.
Housing Authority officials defended their decision.
“We reviewed the location through a resident and community-centered lens, analyzed the options, and made an informed decision to sell the building,” Prince said. “The loss was not taken cavalierly.”
Prince noted that the Housing Authority board and community members supported the sale.
“There were turbulent market conditions post-COVID, and we wanted to respond to the needs of our residents and the affordable housing crisis in Santa Clara County,” said Jennifer Loving, chair of the Housing Authority’s board.
The grand jury listed possible alternatives to a sale, including:
➤Occupy the property until office market prices rebounded;
➤Lease the property until prices rebounded, viable because the Housing Authority paid cash for the building and didn’t have to repay a loan;
➤ Rezone the property to enable affordable housing development on the site; and
➤Rezone the property for a hybrid development, namely office and affordable housing.
Instead, “executive management selectively filtered information to present only what they thought should be reviewed by the board,” the jury’s report states. “The civil grand jury learned that executive management informed members of the committee and the board that the only viable option was to sell the property quickly.”
The report also found that the county Board of Supervisors didn’t show much interest in 3553 North First Street. The grand jury learned that some of the supervisors didn’t know the housing agency lost millions of dollars, and other supervisors “were indifferent to the Housing Authority’s financial loss because the loss did not come from county funds.”
– Joel Russell