It seemed like a steal.
For just shy of $450,000, Christine Hanchett could make the cheery yellow condo in San Jose’s historic Hensley district her new home. So, in early 2017, the software sales manager put in a bid for the one-bedroom, one-bath unit at 435 N. Second St., which happened to be owned by the city.
Hanchett signed the purchase and sales agreement, and San Jose officials promised to bring the deal before the City Council for a routine vote of approval within two weeks. Two weeks came and went with no vote and no word from the city.
She began to worry.
While city officials went radio silent, Google made national news for finally coming out about its plans to build a massive corporate hub on the western edge of downtown. Property values began to rise at the prospect of the search-and-advertising giant’s planned development. Observers called it the “Google effect.”
Hanchett would’ve welcomed the news with a host of other downtown property owners, but she wasn’t quite sure where her pending sale stood with the city. Her once-competitive offer of precisely $448,000 began to look plain cheap compared to how much surrounding homes began to sell for in the wake of the Google announcement.
But the city kept stringing her along, she says, making her unsure of whether to hold out hope of securing her coveted abode in the beating heart of San Jose. Instead, she spent the ensuing two-plus years fighting for answers as $13,000 of her own money sat locked in title. What she expected would be a straightforward 45-day transaction festered into a bureaucratic nightmare.
Thirty-one months later, the condo remains uninhabited and off the market, leaving Hanchett in limbo and a coveted downtown abode empty amid an affordability crisis and housing shortage of historic proportions.
“If I had known that that wasn’t going to come through, I could have taken that money and bought something else at the time,” Hanchett laments. “I was waiting on this. I can’t buy a condo for $448,000 now. It makes me so angry.”
Up and Away
That the city owns a residential property is unusual to begin with. Nanci Klein, San Jose’s director of real estate and second in command at its Economic Development Department, says the Second Street condo is the only house in the city’s possession and that an alleyway between McLaughlin Avenue and Sherlock Street is its only surplus property on the market today.
“The city never land-banked,” she explains. “So the [sites] we have are mostly right-of-way takes from roadways. This was very much an unusual sale for us.”
San Jose scooped up the property in the early aughts when the city had a policy of helping senior-level staffers with mortgage payments so they could move close to work. The last person to live in the North Second Street condo was Barbara Attard, who served as San Jose’s independent police auditor from 2004 to 2008, when the council—bowing to pressure from the police union—voted behind closed doors against renewing her contract. After she moved out, the condo sat empty for the better part of the next decade.
When the city finally decided to list the property online in 2017, it caught Hanchett’s eye.
Email records show that it took 10 months from the time Hanchett signed the purchase pact to when city officials finally began answering her questions about the delay. In January 2018, city real estate manager Terry Medina shared some new information about the deal. He told Hanchett that the city should’ve given non-profit organizations the first right of refusal, according to a new state law.
“At this point I need to offer the property to affordable housing groups, recreation and education agencies for a 60-day period,” Medina wrote in an email to the city’s outside real estate agent, Kelly Aronica. “If any of those groups express an interest in the property, they have 90 days to negotiate the fair market value of the property. At the conclusion of the potentially 150 days, if we can reach an agreement on the fair market value, I can offer the property to the general public for sale. … Since the property was rented previously, I also need to offer the property to the former tenant.”
When those 60 days were up in March 2018, Hanchett circled back with Medina. He told her there were “complications” with the sale. Then, once again, the city’s line of communication went dark.
Hanchett later learned that Medina misled her about having to renege on the agreement to give non-profits a first crack at a bid. “That ended up not to be true,” Klein admits. “There was a question in the midst of all of this which didn’t help the timing about the impact of new state rules. It would have been a different situation if the city owned the building, but at one level it didn’t meet the test for surplus affordable housing property.”
In other words, the city screwed up. And City Attorney Rick Doyle concedes as much.
The years-long delay had nothing to do with the “state law surplus property issue,” he says, because of San Jose’s status as a charter city and exemption from that right-of-refusal requirement. So what gives?
The city’s real estate division “sat on it [for] a long time and dropped the ball,” Doyle says. “There’s no other way to look at it.”
By summer 2018, city officials decided to reject Hanchett’s offer. The market had simply changed too much during the drawn-out delay, and Klein wanted to re-evaluate the price of the condo. The new appraisal pegged the property value at $578,000—more than $100,000 over the originally agreed upon price. To make up for the setbacks, however, city officials offered to sell it to Hanchett for $513,000.
Hanchett wonders if the delay was all a ploy by the city, which knew about the Google deal long before news of San Jose’s negotiations with the company went public.
“Of course all the real estate prices hopped up,” Hanchett says. “How was I supposed to know? They all knew. There’s no way they didn’t know Google was going in.”
But Klein insists that the time lag had nothing to do with the Google land sale, which was approved at a December 2018 council meeting. San Jose’s BART extension, high speed rail and follow-up work from the 2017 Coyote Creek flood were among the many priorities on the city’s economic development work plate, she notes.
“There’s a lot going on at any given time,” Klein says.
Despite city officials deeming $513,000 a “fair market value of the property,” the San Jose council in October last year decided in closed session to nix Hanchett’s new offer and try to finagle a better deal. “Council determined that they wanted to put the property back out on the market because there was a recognition that the council works for the whole of the community,” Klein says. “If it was possible to get additional dollars, that was their responsibility to maximize the dollars in return to the city.”
Shortly after the council decision, in a Nov. 27, 2018, email, Mayor Sam Liccardo apologized to Hanchett. “You have every right to be frustrated by the process, which appears to have been poorly executed,” he wrote.
However, he explained, he felt an “ethical and fiscal responsibility” to serve all of the city’s residents, not just one person trying to buy a publicly owned property. “I’m not going to exacerbate [the] real estate [department]’s mistakes by making another error of judgment to compensate for the first,” Liccardo added.
As of this week, the North Second Street condo has yet to return to market. In a late July interview, Klein told San Jose Inside that she expected to put the condo up for sale in September. Yet even today, it remains unlisted.
The whole ordeal has Hanchett feeling frustrated and cheated. In her view, the city broke its promise, and violated a legally binding agreement by changing the rules as it went.
“They didn’t adhere to contracts,” she says. “Why am I bound by real estate law and they’re not? We did everything in good faith and exactly on the timeline. There’s legal guidelines for real estate transactions and, evidently, they don’t have to follow them.”