Former City Employees Warn Council Against North Mare Island Deal

VALLEJO, CA — The Vallejo City Council will be asked Tuesday whether to approve a purchase agreement with developers for north Mare Island that become a contentious issue for some, even leading to a lawsuit against the city.

Three former city employees who allege they were wrongfully terminated for "whistleblowing" on a deal to sell north Mare Island are making one last plea to the City Council to reject the current development deal at Tuesday's meeting starting at 7 p.m.

"Vallejo is proposing to sell 157 acres of publicly owned land in a contract that is at odds with conventional public land deals," said attorney J. Gary Gwilliam, who represents plaintiffs Slater Matzke, Joanna Altman, and Will Morat in their wrongful termination and whistleblower claims against the city of Vallejo.

"The land deal has no performance guarantees, no public benefits — there isn't even a sales price that provides net revenue to the city when turning over this valuable land. This land deal goes against the best interests of Vallejo residents," Gwilliam said in a release put out by his firm earlier this week.

The trio filed suit in early 2021, citing wrongful termination and defamation. All three worked for then-City Manager Greg Nyhoff's office and say they were fired after they raised questions during a confidential investigation about his dealings with developers.

In a pre-litigation claim filed in August 2020, the ex-employees allege that Nyhoff "engaged in unethical and improper actions, including graft and corruption." The plaintiffs said the former city manager met secretly with developers and then suddenly changed the specifics of the deal's term sheet to benefit the developers.

A term sheet is a set of negotiable bullet points between a developer and the city. It is the first step on the road to a purchase agreement.

Tennessee-based developers Southern Land Company said that they did in fact meet with Nyhoff alone for lunch in the fall of 2019, when they also gave him a tour of their office and one of their development sites. Another developer involved in the Mare Island project, the Nimitz Group, did not respond to questions about whether they met with Nyhoff in Tennessee.

When Nyhoff returned from his trip to the South, he changed the term sheet without consulting his team, to the shock of the litigators.

"The term sheet that we first negotiated in 2019 had full council support," said Morat, former assistant to the city manager and economic development manager.

He added that Nyhoff rewrote the agreed-upon plan and created a term sheet that gave the city of Vallejo no leverage.

"I've never come across this in the public sector, anywhere where a public agency sells a sizable piece of land ... It's astonishing that somebody thinks that this is how you do a public deal," Morat said.

Sheryl McKibben, vice president for marketing and relations for the Southern Land Company developers, said the term sheet changed because once her company got on board, it did "due diligence" and requested changes.

"The terms did not make financial sense to us," she said. "We worked with the city to make necessary adjustments."

"We had a term sheet that was solid that everyone agreed on, and then, 'poof!' a couple of months later things have done a complete 180," said Altman, former assistant to the city manager and another of the trio who is now suing the city. "We were kind of waving the flag that this was not right, because there's something going on there. And then we were summarily terminated."

The original term sheet suggested a lease with a guaranteed purchase for 157 acres on north Mare Island with a caveat that the contract could be yanked if no construction was built. The ground lease could be extended up to 19 years, with a guaranteed purchase option that could be triggered at any time when construction was ready to begin.

Extensions would be based on milestones that could be met by building on the southern part of the island. The city would lease the north for $451,000 annually, which would cover city loan payments.

The second term sheet, and the final agreement going before the council on Tuesday, removes previous benchmarks and deliverables from the developer and outright sells the acreage for $3 million.

Southern Land Company officials say that owning the land is essential for their ability to attract investors.

McKibben says that her company will be spending millions to remediate the soil on the northern end of the island, to the tune of $20 to $50 million. She says that her firm will be motivated to do such things and create a thriving community there.

The city put out a north Mare Island FAQ sheet where it outlined why the term sheet was changed. The city makes two main arguments, first that the developers will not be able to attract investors if they are leasing the land. Second, Vallejo agrees with Southern Land that the soil remediation and other factors would cost the developer millions.

"The "as is" market value of north Mare Island was equal to negative $20.9 million," reads the city's FAQ sheet.

Morat says that Southern Land is making a spurious argument when it says it will have to invest millions into soil remediation.

"Legally it has to be paid for by the Navy. They are obligated to do any clean up as per a contract with the city."

Southern Land will have to spend money to make the land ready for "vertical" development, however.

Morat says that in land deals involving public land in cities, the real value of land is looked at in long-term planning.

"I don't care what the purchase price is," he said. "Our earlier term sheet was always about 'What are you going to build there?' I care about what you're actually going to do with that land. And the original term sheet had those requirements."

Southern Land has held several public meetings in which they have expressed their vision for the property, which includes housing, retail, walking/biking/running trails, play areas, and even a school.

According to the city's staff report on the Mare Island agenda item, the developers are being asked to provide a "Beautification Plan" within eight months post-sale, outlining "interim landscaping, hardscaping, enhanced fencing, lighting and security which may include elements such as trees and flowers, public seating, and public art."

McKibben also says that owning, not leasing the land is essential for Southern Land's ability to attract investors, something they say is crucial to the island's development.

"It is extremely difficult to find investors willing to put their resources into developing land that is owned by another entity," she said.

To this, Morat cries foul.

"Not only is that incorrect, it's a lie," he said. "The fact that they had a guaranteed purchase option through a development agreement with the original term sheet is sufficient enough to go out and get any kind of financing."

The litigants maintain that if Vallejo takes this deal, it will have lasting negative impacts on the city for decades.

"Truly, this deal isn't even about purchase price," Morat said. "It's about the secondary impacts for decades — jobs, taxes, public infrastructure such as streets, sidewalks, parks, lights, water lines. And with the way we are just handing everything over, we're passing off the keys to the city for not only peanuts, but most importantly, there's no way to compel performance to get the developer to do what should be done in the best interest of the community."

Though the worst-case scenarios suggested by the trio are things like the developers simply sitting on the land for decades and doing nothing with it or turning it over to a manure storage company (something they say was a real pitch they once got for the land), Southern Land says it will make good on its promise to beautify the area and boost the local economy in the process.

"North Mare Island is the island's gateway," McKibben said. "It has many challenges and will be very expensive to remediate — but Southern Land believes it's worth doing. The combined benefits of undertaking 'place-making' the entire island rather than just the southern portions will be greater than the sum of its parts."

The litigators and some residents are wary of handing over public land and hoping that a developer will do the right thing for the community.

"We tried to stop the deal two years ago because that was what was in the best interest of the city and community," said Morat. "And that's still within the best interest of the city and the community. And you can fire us wrongfully. But you're not going to silence the truth."

People can follow the meeting virtually at 7 p.m. Tuesday at this Zoom link.

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