Bayside Housing has not yet committed to taking on the failed Cherry Street Project.

“First, let me tell you this is not a done deal,” says Gary Keister. He is serving as the acting managing director of Bayside Housing. It has been without a permanent managing director since last year.

“We were being pressured into this by Homeward Bound,” Keister told Port Townsend Free Press.

Keister is the man behind the Old Alcohol Plant. His group of investors bought the building out of foreclosure in December 2014 and renovated a hotel that had been vacant since 2011. Beginning in 2016 the tower at the Port Hadlock property has been rented to Bayside Housing, a non-profit that provides transitional housing. The Old Alcohol Plant itself operates as a for-profit hotel and restaurant and bar business.

On Wednesday September 30, both the Port Townsend Leader and the Peninsula Daily News reported that Bayside Housing was going to take over the Cherry Street “affordable” housing project following the default by Homeward Bound Community Land Trust. Homeward Bound had been resurrected by the City of Port Townsend to take on turning a 70-year old four-unit apartment building barged from Victoria, B.C. in May 2017 into affordable rentals.

As readers of this site know, the Cherry Street Project has been a debacle from the start and keeps getting worse. When Homeward Bound could not find its own financing, the City shouldered a $1.3 million principal-and-interest bond obligation to lend the group the money to cover its cost estimate. Homeward Bound never got beyond putting the building on a foundation when it came back to the city saying it would need at least another $1 million. They did not get more money and defaulted on their loan in July 2020. They still hold title to the property, though the terms of their loan require that it revert to the city upon default.

The city and Homeward Bound prematurely announced that Bayside Housing would accept the project. Even on the fantastically generous terms offered by the city Bayside Housing does not appear to have the resources to take it on. At this preliminary stage, it has already faced financial setbacks.

It failed to secure a $700,000 bank loan. Its request for a separate $100,000 from the county was denied because an analysis of the project’s financial details showed it could not be a viable low income housing project. (See reporting by Patrick Sullivan at the Jefferson County Washington Facebook page).

And there’s this: Bayside Housing has never built or renovated anything. The group rents rooms from the Old Alcohol Plant and provides social services to its clients. It is not a building contractor. It does not own any real estate. According to its most recent IRS 990, it had only 4 employees, and that was before it lost is managing director.

The Port Townsend City Council on September 28 authorized the City Manager to negotiate a takeover of the project by Bayside Housing.

We asked Keister if Bayside Housing had the resources to see the project through and whether it was, in fact, going to assume responsibility for the Cherry Street Project.

In an email from Keister he told the Port Townsend Free Press,

The offer to which Keister refers was a $1 million offer from Keith and Jean Marzan to acquire the Cherry Street Project and build affordable housing, on the condition that the old building be removed and the land certified as asbestos free. Port Townsend Free Press had reported discovering in the city’s files an inspection conducted on the building before it was barged to Port Townsend. The inspection found asbestos in kitchen flooring. It also found lead paint on all the walls.

Port Townsend Free Press has also learned that asbestos was found in old pipes during excavation for the foundation.

The City Manager rejected the Marzans’ offer late last week. The Marzans may resubmit the offer with slightly different terms. They remain committed to building affordable housing and hope to work with the city to that end. Keith Marzan has a long career in banking and finance and has built nine homes in Port Townsend.  Keith Marzan says he has already lined up an experienced and qualified project manager.

Bayside Housing does not apparently have on hand the more than $1 million estimated by Homeward Bound needed to complete work on the old building. An additional, unknown investment will also be required to compete civil engineering and landscaping outside the building, a sum which Homeward Bound said was not included the final project cost estimate.

In its most recent publicly available filing with the IRS, Bayside reported 2018 net assets of $670,000, after contributions and grants of just over $1 million. But of that sum, $802,000 reported as income was actually pledges and grants receivables. Because the 2019 IRS Form 990 is not yet publicly available, we cannot report whether those pledges were received and what Bayside’s balance sheet showed at the end of 2019.

In April 2020 Bayside disclosed it was facing financial pressures. At the same time that it rents rooms from the Old Alcohol Plant, it also depends on the Old Alcohol Plant and its restaurant for financial support. Because of the Governor’s lock down order, those commercial enterprises, like all Washington hotels, bars and restaurants, saw their revenue almost completely dry up. Jefferson County is only in Phase 2 of the Governor’s reopening scheme, which places severe restrictions on bar and restaurant operations. Washington’s hotel industry has shrunk by about 25% and across the nation nearly 50% of hotel rooms have been vacant.

Under the terms floated by the City to have Bayside assume responsibility for the project, city taxpayers will take a hit of about $2.33 million. This and other details uncovered in two years of investigative reporting can be found by starting with our last report, “Latest Cherry Street Giveaway Hits Taxpayers Harder.”