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UPDATE:  The Fresno City Council voted 6-0 late Wednesday to withdraw from an affordable housing project deal involving the largely-vacant University Medical Center hospital in southeast Fresno.

“As things stand, I think we have to bow out,” said City Council member Nelson Esparza, who raised concerns that led to Wednesday’s special meeting to discuss the matter.

City Council President Luis Chavez did not participate in the meeting. He said his recusal was due to a conflict of interest over the former hospital’s proximity to his personal residence.

No other council members spoke during the meeting, which that lasted less than an hour.

(Original story below.)

A project to build 800 units of housing in central Fresno is in jeopardy, as the city of Fresno threatens to pull out of a deal involving the county and a private developer.

In 2019, Fresno County agreed to sell the vacant UMC hospital — a 30-acre site at the corner of Kings Canyon Road and Cedar Avenue — to CMG Construction Management Inc. for $4 million. The developer would then build housing units, with 40% designated as affordable units.

Now, the Fresno City Council — which had to approve covenants as part of the deal — is expected to vote to withdraw at a special meeting today. It starts at 3 p.m. online.

“The City’s involvement resulted from what appears to be a conflict of interest, seriously calling into question the propriety of moving forward,” the resolution brought forth by Councilman Nelson Esparza says.

Neither Esparza, nor county officials, were willing to shed light on what the conflict of interest was.

“We’ve been working together for two years on this wonderful project, and I’m as surprised as anybody,” CMG CEO Mark Stevenson said.

Stevenson had “no idea” what the conflict of interest the city documents cited referred to. He says he’s worked well with Esparza in the past.

Complex Agreement Between County, City, CMG

Although the county owns the property, the city is required by law to sign off on the project since it involves affordable housing. Otherwise, the county would have to sell the property through a bidding process.

The county, in a letter sent Tuesday to City Attorney Douglas Sloan and City Manager Thomas Esqueda, said there is disagreement whether the city covenants, known a regulatory agreement, actually expired last year and what the effect of that may be.

“CMG has asserted that it believes the Regulatory Agreement is still in effect, valid and binding on the parties. Should the escrow not close due to the failure of the condition for confirmation of the Regulatory Agreement, I cannot forecast what the potential contractual implications might be,” County Counsel Daniel Cederborg wrote.

The letters prompted Esparza to convene a special meeting.

City Uneasy With Deal

“We have new concerns. The project is tainted and it was born of a conflict of interest. The city is not comfortable as long as the current developer is attached to the project,” Esparza said.

Escrow is scheduled to close on Thursday.

The city approved the covenants in August 2019. However, the project has been delayed because of COVID-19 and the difficulty of raising funds.

The county and developer described the city’s role as ensuring compliance for affordable housing.

Without the city’s covenants, the deal is dead, according to County Administrative Officer Jean Rousseau.

“The regulatory agreement is legally necessary in order for the County of Fresno to finalize the purchase agreement with CMG of the VMC property.  Without the regulatory agreement, the sale to CMG  by the County would not be legally valid under the Surplus Land Act and so the parties would not be able to close escrow on April 1, 2021,” Rousseau said.

Stevenson says the deal can still be salvaged if the city pulls out, saying there are “alternatives” to the regulatory agreement. Other agencies, Stevenson said, can provide regulation.

The city does not have a financial stake in the project.

800 Units on the Line

The county says the project would bring 800 units of housing, in a mixed-used type of development. Stevenson says CMG will invest more than $100 million in the project.

Stevenson said the UMC project would be for permanent housing that would help the city with its goals.

That is not enough for Esparza.

“We’re always looking for great opportunities to build housing,” Esparza said. “Weighing the costs and benefits of potentially moving forward, the city is uneasy about proceeding with this particular deal.”

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