Moe Foes

Why the city hates humanitarian and downtown developer Moe Mohanna

Moe Mohanna balked when the city wanted to trade this hole in the ground for his buildings on the 700 block of K Street.

Moe Mohanna balked when the city wanted to trade this hole in the ground for his buildings on the 700 block of K Street.

SN&R Photo By Larry Dalton

“My name is Moe Mohanna, and I am one of ‘those people.’”

That’s Moe Mohanna’s tag line. He means that he identifies with the poor and disenfranchised on the K Street blocks where he owns more than a dozen buildings.

“I come from a very old culture, the Persian culture. We believe that the only way you have a society that is sustainable is that you take everyone with you. We move forward and leave no one behind.”

Depending on what you bring to the table, whatever preconceptions you have about Mohanna, K Street and the whole endeavor of redevelopment downtown, you might read that and think, “right on” … or maybe you just gag a little bit.

“I only know about his humanitarian side, that’s where I’ve seen him shine,” said Sister Libby Fernandez, executive director of Loaves & Fishes, an independent charity for Sacramento’s homeless.

For years, Mohanna has leased space to the charity for certain programs, and “he gave us a really good deal,” Fernandez adds. He buys water for the homeless and helps distribute it along the American River during the hot parts of the summer. He helped found Sacramento’s Clean and Sober program, and his daughters volunteer at the Mary House shelter. “He’s been a real supporter of poor people,” Fernandez said.

But others aren’t so impressed with Mohanna or what he’s done in the neighborhood. People like Richard Lewis, who along with downtown developer David Taylor is building a cabaret and restaurant in the old Woolworth’s building at 10th and K streets. “There has to be a legitimate reason to go to K Street,” Lewis explained. “There are a lot of reasons not to go to K Street, they’re walking up and down the street asking you for money.”

“Those are my people,” counters Mohanna.

Depending on who you ask, Mohanna’s a scoundrel, a saint, a hustler who’s always got an angle, the champion for the small businesses the city wants to replace with chain stores.

“Mohanna is pretty shady,” said former K Street merchant Kenny Russell, with a laugh. He is the owner of Big Brother Comics, and one of Mohanna’s former tenants. While Russell was just cutting his teeth in business, he and Mohanna haggled over rents, utilities and maintenance constantly. “But I really like him, because he gives people like me a chance.”

The way Russell sees it, the city has done some pretty shady things, too. Like kicking him out of Mohanna’s building on K Street and asserting the city was the new owner of the property when it wasn’t.

Others, Mohanna loudest among them, have faulted the city for skirting public-meeting laws, and playing favorites with out-of-town developers at the expense of local property owners—all in the name redevelopment. In the process, Mohanna has been painted by the city as a slumlord and an obstructionist. And earlier this year he was sued by city officials for backing out of a redevelopment deal that he says he was forced to enter into under the threat of having his property taken away. As the legal battle dragged on, K Street has deteriorated to probably its worst state in years. Maybe Mohanna is a scoundrel.

Maybe it takes one to know one.

Mohanna’s story is a peculiar version of the American Dream. He grew up in a well-to-do family in Tehran, Iran, which had the means to send him to Oxford. But he dropped out of school by age 18, and his father cut him off financially.

In 1969, he emigrated to Boston, where the only job he could find was as a janitor and handyman at a halfway house.

Over time, he saved some money and bought a run-down apartment building, fixed it up and started his life as a landlord, making enough money to put himself through engineering school.

In 1974, he headed for the warmer weather and more socially tolerant environment of California. After dabbling with some suburban development in Rocklin and Roseville, he soon turned his attention to K Street’s row of dilapidated buildings, which reminded him more of the old East Coast neighborhoods.

He restored old Odd Fellows building at 9th and K, where 1870s architecture had been obscured by subsequent modernizations. He bought other buildings on K Street that at the time nobody wanted and lured in whatever tenants he could— a Hallmark store here, a Burger King there.

Mohanna’s vision for K Street, à la the French Quarter. Note the addition of second-floor shops and a foot bridge to Downtown Plaza.

Courtesy Of Moe Mohanna

Early on, he was one of the few people doing anything to slow or turnaround downtown’s long decay. He helped found the quasi-governmental Downtown Partnership, knocking on doors to get area businesses to tax themselves to fund cleaning up the neighborhood. He was an insider and a powerful player downtown.

As recently as 2004, John Dangberg, then director of the Capitol Area Development Authority, told the Sacramento Business Journal that Mohanna “is very well respected. … He wants to do the right thing for Sacramento, and he’ll speak up if he thinks something is not right. But he’ll do it in a gracious manner.”

Three years later, Dangberg, now an assistant city manager for the city of Sacramento, is locked in battle with Mohanna over the redevelopment of K Street.

Mohanna’s K Street properties have been described in the Sacramento Bee as “the most dilapidated buildings in the most dilapidated blocks of downtown.”

Some have been vacant for years, like the old Tower Records building at 8th and K. But they are hardly the only vacant buildings; the city has owned the vacant Woolworth’s building for 10 years. Work on the new development there only began last month.

Russell, the comics-store owner, said there were some problems with his K Street space. There was a hole in the bathroom ceiling he couldn’t get fixed. “It was just this big hole up this weird closed off room. It was like a horror movie.” A lot of the hallway lights didn’t work. On the other hand, “Who else was going to rent to me? I couldn’t have afforded rent anywhere else, not when I started out.” Russell’s friend Troy Agid, who owned Bonehead Tattoo in the same building, described his space as “beautiful.”

“He buys buildings very inexpensively, and doesn’t put a whole lot of money into them, that’s true,” said Sean Kohmescher, owner of Temple Fine Coffee and Tea on 10th Street between J and K, another Mohanna property. “But that’s not different from any other downtown property owner. I think he’s just an easy target because he owns so much.”

Temple is one of the more successful rehabs in the area, and quickly became a favorite spot. “He’s very small-business oriented,” said Kohmescher. “I think he understood what I wanted to do, and he believed in my vision.” And that block has changed dramatically as a result. “That was the hangout. You’d have people squatting in the doorway with their pants down.” Today, it’s lobbyists and political types, along with the downtown hipsters copping a squat on the Temple’s patio—pants securely up.

Over the years, Mohanna built up a stock of more than a dozen buildings on K Street, many more around town.

But, in 2004, his relationship with the city was about to change drastically. He was about to go from being “well-respected” to just being in the way.

In the spring of 2004, Mohanna received letters from the Sacramento Housing and Redevelopment Agency, and the city’s Economic Development Department letting him know that the city was sizing up his property for purchase and redevelopment.

That year, Mohanna says, he tried to buy another K Street building, 710 K Street, which housed the old Records used-record store and the Flagstone Hotel, a single-room occupancy hotel on the top floor. Mohanna showed SN&R a contract that he had written up at the time, and a check made out to the building’s owner, Ron Henry, for a $100,000 deposit.

But Mohanna says he was discouraged from buying the building by the city’s downtown-development officials. The city had a policy on relocating the low-income tenants of the old Flagstone and he said he was told that he would have to pay “up to $50,000 per unit.” With 40 tenants, “It was just going to be too expensive,” Mohanna says.

Those same city officials were at the same time talking to Joe Zeiden, owner of the Berkeley-based Z Gallerie furniture chain. The city wanted to coax Zeiden’s Z Gallerie store in the Downtown Plaza out onto K Street, to serve as an anchor store for a much larger redevelopment project encompassing the 700 and 800 blocks—much of that property already owned by Mohanna.

The way Henry remembers it, he and Mohanna had talked about the sale, but that there was never any written agreement. But he does remember being under a lot of pressure from the city to sell and get out.

“I was forced to sell it by the city,” said Henry. “They just came to me and said the hotel had to be closed. They wanted it torn down, and I didn’t understand that.” By most accounts, the building was in terrible shape. It had a bat problem and cracks in the walls.

Henry said he had to sell the building for the first offer he got. And the first offer he got was from Zieden, who paid $1.2 million for the property. Henry said he paid the relocation fees himself, out of the proceeds of the sale.

“It wasn’t fair to me. But what can you do? I’m just an average guy. I’m not a fighter, not like Mohanna,” Henry said. Around the same time Zeiden also bought a building on the 800 block of K Street.

With Zeiden installed on K Street, thanks to some encouragement and muscle from the city, it was time to send Mohanna a message.

Saxophonist Eric Price, before K Street’s music police made him pack it up.

SN&R Photo By Larry Dalton

In the spring of 2005, the Sacramento City Council approved a plan giving Mohanna and other K Street landowners had 90 days to come up with redevelopment plans, or face losing their properties through eminent domain. The action was clearly aimed at Mohanna, the largest landowner in the area.

Zeiden, who by now owned two K Street properties, one each on the 700 and 800 blocks, came in with proposals to take ownership of all the buildings on both blocks and turn them into an upscale shopping strip.

Mohanna, who owned most of the property on those two blocks, and his business partners proposed a grocery store, refurbished shops and high-rise housing.

At the same time, the city set up an “ad-hoc” committee, which would meet privately to consider those development proposals. Throughout the spring of 2005, four City Council members and three private individuals, including two real-estate experts and the chairman of the Downtown Partnership, held a series of closed-door meetings to discuss the K Street proposals and to decide who would be awarded the right to develop, Mohanna or Zeiden.

“By that time, Zeiden was the man,” Mohanna says. “They came up with this phony process, but the deal was already done, my friend.”

Government watchdogs cried foul, as the state’s open-public-meeting laws didn’t allow the council to create public-private committees like that to consider development projects behind closed doors.

Mayor Heather Fargo defended the meetings, saying that, at least according to city lawyers, the private meetings passed legal muster. But that didn’t convince Terry Francke with Californians Aware, a nonprofit that monitors government agencies’ compliance with public information laws.

“One of the chief benefits of public meetings is that it keeps them from making stupid mistakes and going down blind alleys,” said Francke. Considering the mess the city finds itself in today, a little more sunshine on the process back then might have been a very good thing.

“A secretly steered advisory process that doesn’t provide fruitful solutions should not be a surprise to anyone,” Francke explained.

At the end of June 2005, the U.S Supreme Court made a controversial decision in the case of Kelo vs. City of New London. The case upheld the rights of local governments to take private property and give it to other private entities, for the purpose of redevelopment or increasing tax revenues.

The case set off a backlash against eminent domain across the country. Soon, Mohanna was appearing at press conferences with conservative state Senator Tom McClintock, R-Thousand Oaks, in support of eminent-domain-reform legislation.

Perhaps sensitive to the new political climate, the City Council decided to split the baby. Mohanna and his business partners, John Lambeth and would-be high-rise developer John Saca, would enter into a complicated land swap, giving Zeiden the 700 block and Mohanna the 800 block of K Street.

To make it work, the city would give Zeiden the properties bought with city redevelopment funds on the 700 block. Zeiden would also get Mohanna’s buildings on that block.

Mohanna’s team would get the buildings that the city owned on the 800 block, and get to keep the buildings he owned there.

It was a good deal for Zeiden, who would get a $20 million subsidy in buildings and land from the deal.

For Mohanna, the deal was not as sweet. He would end up with about the same amount of property as he started with. And the language of the land-exchange agreement made an explicit threat, stating that the deal was being made “in lieu of requesting authority to exercise such power of eminent domain. If the parties are unable to reach agreement on the sale and purchase of the Property, use of eminent domain could be publicly considered.”

Mohanna says he didn’t have much of a choice. “Would I have made the exchange without the threat of condemnation? No. But I signed it and I agreed to go through with.”

In the summer of 2006, the city hired a company called Overland Pacific & Cutler, a “land and right of way acquisition and relocation specialist,” to empty the store fronts on K Street.

The company started papering K Street businesses, sending them letters stating that Sacramento’s redevelopment agency had “acquired title to the property,” although that wasn’t true. Many letters had boiler-plate language saying the businesses had 90-days to get out: “If you do not vacate the premise by that date, the Agency will initiate legal proceedings to recover possession of the premises, along with rents and damages.”

The city relocated Griselda Barajas-Keolanui and her popular Tex-Mex restaurant, even though it didn’t own the building.

SN&R Photo By Larry Dalton

Mohanna protested that the city didn’t yet own his buildings. He saw his buildings being emptied of tenants and as much as $40,000 a month in rent going away.

He wrote to Overland Pacific & Cutler, asking them to stop. But he says he never received a response from the company.

“They treated us like shit,” said Agid, owner of Bonehead Tattoo. Agid, attempting to find out whether the city had a legal right to evict him, reached a representative at the company.

“She said, ‘Don’t call me, your landlord is lying to you.’ It just got ridiculous,” Agid recalled.

When Griselda Barajas-Keolanui got her eviction notice in August 2006, she “panicked.” Her restaurant, Texas Mexican, had been at 8th and K streets for 14 years. She said that Mohanna had made improvements to the property, and her business thrived. It was one of the few unionized restaurants in town, and she did a booming business hosting political fund-raisers along with a well-connected lunch crowd. “My patrons were City Council members and judges. Was I bringing a bad element to K Street? Maybe so.”

As with the other evicted businesses, Barajas was allowed to negotiate for relocation costs. But she had spent years building a business in a specific location with a specific customer base. Many of the properties the city’s brokers showed were far away from her customers, in places like Arden-Arcade.

“I wanted to be part of the redevelopment. You don’t put that kind of work and money into a place just so somebody can come and take it away from you.” She didn’t know that the city didn’t actually have title to the property, so Barajas took the $60,000 the city offered her, and moved her Tex Mex staff into the catering business and her cafeteria business she runs at the Capitol.

The city’s economic development manager Leslie Fritzsche told SN&R that some notices were sent in error to some tenants in buildings Mohanna still owned, but that the mistake was later corrected.

“I don’t know. Is it illegal to say you own something when you don’t?” asked Barajas. “I was taught not to take things that don’t belong to me.”

It wasn’t just Mohanna’s tenants who felt like they were getting cheated. In the 710 Street building that housed Records and the Flagstone Hotel, record store owner Kevin Hartman said the new building owners offered him a space on the block, but “it was in the basement, and it would have cost us twice us much in rent.”

Like Barajas, Hartman said he believes that his business was a legitimate draw. “There were people coming from all over, from the Bay Area, to find rare stuff.” Today, Hartman runs his record store out of the old Tower Video store on Broadway—and reports business is slow.

“It just seems ridiculous to me that the city is trying to redevelop that block by kicking out all of the businesses there,” Hartman added.

On November 26, 2006, the Mohanna buildings at 810 K Street caught fire. The timing was suspicious, but the city Fire Department determined it had been started by transients living there illegally.

The fire was contained to Mohanna’s building, but the city determined 810 K Street, a Zeiden building at 812 K Street, and two other buildings on the block all had become dangerously unstable and would need to come down.

Mohanna said he begged the city not to knock down the buildings, which he believed were salvageable. But Fritzsche told SN&R that the plan had always been to knock down those buildings, because they had no historic significance, and because Mohanna’s plan called for high-rise housing on that part of the block. “The operating term, all along, had been ‘shovel ready,’” Fritzsche explained, meaning that once the land swap was completed, it would be ready to build on.

Mohanna denies it was ever his intention to start high-rise construction right away, citing the housing downturn and other financial problems other high-rise developers are currently facing in Sacramento. Just getting financing for such a project could take years, he noted. “Our plan was always to restore those buildings, and have tenants, and do high-rise buildings at a later date,” Mohanna explains.

In order to make the land exchange work for him, Mohanna had to convince his banks to transfer his mortgages from his 700-block buildings to the buildings he would be taking over on the 800 block.

But now that those buildings were demolished, the banks refused to switch the loans. Zeiden would have his buildings, but Mohanna would have a hole in the ground. Without the buildings, and therefore no prospects for tenants, he said he had no way to pay his debts. He argued that the land exchange was no longer a fair swap, and he didn’t want to go through with it. The city countered that the buildings were immaterial, that they were supposed to be knocked down anyway. Mohanna said “no deal.”

Dangberg, the assistant city manager, said the city offered to take care of Mohanna’s debt issues, offering him a $4 million loan with a very low interest rate, but the downtown developer refused. “The ‘ask’ just kept getting bigger and bigger and more convoluted,” said Dangberg. “At one point he had 11 lawyers sitting around the table.”

The war on blight turns another corner. Several city-owned buildings on K Street have been vacant for the past year.

SN&R Photo By Larry Dalton

“I don’t know what else the city could have done. The city has bent over backward to the point where their heads are touching the ground,” agreed Lewis, would-be cabaret developer. “I’m just amazed by the obstruction that’s going on here.”

Mohanna agrees that the negotiations became convoluted, but by his lights that’s because the city was playing favorites and trying to push him out. He wasn’t exactly thrilled to enter into a deal under the threat of eminent domain in the first place.

He was being offered loans to pay for property that now had no buildings, and no immediate potential of making money. Later, the city offered to buy him out completely. “They made an offer to force us out. Well, it’s not for sale,” Mohanna explains.

Twenty million bucks in the hole, the city sued Mohanna in February. It also filed a lis pendens on the property, a notice to any prospective tenants or financing agents that the property was part of a lawsuit. K Street as a result got worse and worse. Vacant storefronts and vacant lots multiplied.

Sid Garcia Heberger, manager of the Crest Theatre and member of the Downtown Partnership, told SN&R, “To see it all unravel has been very frustrating and disheartening.”

In August and September, Mohanna won two rounds against the city in the Sacramento Superior Court. The court removed the lis pendens document that the city had filed on Mohanna’s property. Then the court ordered the city to pay Mohanna over $40,000 in court costs. The judge’s ruling also indicated that the city was “not likely to prevail on the merits” of the case, because the fire and removal of the buildings represented “a material change to the property.”

Mohanna has begun bringing tenants back into his buildings. Some are new; there’s a pizza place and a hip-hop clothing store. Some are old; Texas Mexican Restaurant is planning to move back in November.

“It’s risky,” Barajas said of resurrecting her popular restaurant while the property is in dispute. “But I’m excited. I’m standing up for what is right.”

Some tenants are more unusual, like Moss Bittner, who’s moved into a space donated by Mohanna to launch a couple initiatives aimed at jump-starting the cultural life of K Street. (See “Guerilla guitars,” page 23.)

In the short term, Mohanna has hired a real-estate firm called Terranomics to help him find new tenants for his vacant buildings. Ironically, Terranomics places a lot of national chain stores. But Mohanna says there’s room for both chains and independents.

The city’s lawsuit remains in place. And on September 20, the city’s Downtown Partnership voted 22-1 to encourage the City Council to consider all options, including condemnation and eminent domain, to resolve the land fight. Mohanna, as a member of the Downtown Partnership Board, was the only no vote.

On Tuesday, September 25, Mohanna sent a letter to Mayor Fargo, asking for a meeting and a chance to reconcile with the city. Fargo agreed the next day, and the two, the city attorney and the city manager are getting together any day now.

“The city is still committed to making progress on the 700 and 800 blocks,” Fargo told SN&R. “The 700 block is really key because of that connection between Westfield Downtown Plaza and the rest of K Street. So we are still committed to going forward.”

It’s not hard to find people who say Mohanna had his chance and failed to do the right thing with his property.

“The city thinks he’s a chump, that he’s small time. But that’s easy to say when you aren’t the one who buys distressed properties and tries to fix them up—the one who has to pay the mortgage on them,” said attorney Kelly Smith, who has worked for Mohanna on eminent-domain issues. “It takes a lot of hustle.”

Mohanna’s properties over the years may have lacked the excitement of a big redevelopment project. In some cases, they may have lacked some basic upkeep. They were a going concern and a space for small businesses, nothing fancy, just Mexican restaurants, tattoo places and comic-book shops.

“But it’s not a Gaslamp district,” said Lewis, referring to San Diego’s upscale shopping and entertainment district built in a once-rundown quarter of the city.

To get a Gaslamp district, or any other kind of district, the city has said it will only use eminent domain as a last resort. To actually go through with it, the city would have to make the case that there’s some extraordinary public benefit to be had to justify the taking. Smith doesn’t think building a Z Gallerie fits that particular bill. “Eminent domain is just a ruse to take somebody’s property and give it to somebody you like better,” he said.

Mohanna meanwhile said he’s got a vision for his K Street property, which would include new stores and second-floor retail accessible from the street. He’s even toyed with the idea of proposing a foot bridge that would connect the buildings on the 700 block to Downtown Plaza. Whatever the outcome of his legal dispute with the city, his new plans will likely be greeted with skepticism.

“Beauty is in the eye of the beholder,” Mohanna says. “I don’t have any Abercrombie and Fitch. I have small minority-owned businesses. My Afghani tenant has the same right to be here as Urban Outfitters.”