A $4.6-million claim has been filed against Hawthorne by the developers originally selected to build a high-rise hotel and office project on a 20-acre redevelopment site just west of the San Diego Freeway.
Howard Mann and Eugene Rosenfeld of Andrex Development Co. of Los Angeles filed the claim last week, alleging that the Hawthorne Redevelopment Agency violated an agreement by demanding that Andrex pay more than previously agreed upon for land, demolition and relocation of businesses.
The city has halted negotiations with Andrex and begun talks with another developer.
The Andrex claim--the first step toward filing a lawsuit against the city--alleges that Hawthorne either "negligently or intentionally misrepresented" the actual acquisition costs of the project and thereby "induced" Andrex to enter into an exclusive negotiation agreement and spend more than $800,000. The figure includes a $220,000 deposit for the acquisition of the property and $275,000 in marketing studies and legal expenses, according to the claim.
$37 Million for Site
The balance of the $4.6-million claim represents lost potential income from the $125-million project.
City Manager R. Kenneth Jue would not comment on the claim, but acknowledged that acquisition costs will be higher than previously estimated, primarily because of the high cost of relocating heavy industrial equipment of businesses on the site. Jue said the total acquisition cost--there are 63 property owners in the area--will be nearly $37 million, rather than $28.6 million estimated in the agreement with Andrex.
Mann said in his claim that the city had agreed that Andrex would pay $23.6 million and that the city would provide $5 million by issuing bonds. Last April, a week before the city selected Andrex from among seven other applicants to develop the site, Andrex agreed to increase its contribution to $24.6 million to lower the city's obligation.
However, according to the claim, during negotiations after Andrex was chosen, the city "continuously attempted to change the economic deal." The claim says the city wanted Andrex to guarantee up to $14 million in bonds that the city would sell, and agree to pay an unspecified amount of "additional funds" needed to acquire the site.
The claim says that the city also refused to use any of the sales or hotel bed taxes it expects from the development to help pay for the increased acquisition costs. From the beginning, the city has said it would contribute only the increased property tax revenue generated by the project to pay off the bonds.
The claim says the city ended negotiations on Dec. 5 after Andrex refused to accept the city's demands.
City Manager Jue said that soon afterward the city began negotiations with Watt Investment Co. of Santa Monica, which was the city's second choice when proposals were ranked last April.
James R. Wadsworth, senior vice president of Watt Investment, said he is aware of the higher acquisition cost and is working with city officials to come up with a way to cover it. Wadsworth said city officials have continued to insist that expected sales and hotel bed taxes from the project will not be used for the bonds.
"The city has been consistent with us in negotiations," Wadsworth said in an interview. "Certainly the city is not obligated to use any of its sales or bed taxes for the project. I'm optimistic that we can make up the money somehow."
Wadsworth declined to say what specific financing methods are being explored.
Watt has proposed constructing a $185-million, 1.3-million-square-foot project that would include two 16-story office towers, four smaller office buildings and a 300-room hotel. That proposal will be changed, however, probably to reduce the amount of office space and add a second hotel, Wadsworth said.
Andrex's $125-million project included a 14-story hotel, a 16-story office building, a smaller hotel and three restaurants.