A prominent North Bay property owner has gone to court in a bid to prevent Santa Rosa from taking back one of its key landholdings downtown.
Cornerstone Properties is seeking a judicial review of the City Council’s determination that it had breached a 2021 sale agreement for the city property at 410 B St, setting up grounds for the city to reverse the sale.
The company, in legal filings, alleged the city erred in its decision and had not provided sufficient evidence to support that Cornerstone had failed to meet sale stipulations requiring it to move forward with development on two nearby properties as well as the B Street lot.
Cornerstone advanced proposals for the other two projects at a former rail yard on Sixth Street and a smaller parking lot on Ross Street, but progress on those projects has since stalled. Building plans for the B Street site were only revealed this spring after the city granted several extensions.
Cornerstone argued in its lawsuit that despite some setbacks the company had advanced plans as required, estimating it had invested more than $3 million into consultant fees and poured more than 7,000 hours into the projects.
“Far from a speculative vision, Cornerstone Properties’ work represents tangible progress rooted in years of sustained investment,” attorneys for the company wrote in the complaint.
The case was filed Sept. 10 in Sonoma County Superior Court by the business entity created by one of Cornerstone’s principals, Alon Adani, to purchase the B Street lot.
Allowing the city to take the property back would delay redevelopment of the site, the company argued, jeopardizing city plans to reimagine downtown with 7,000 new homes by 2040.
“What is at stake is not simply a contract — it is Santa Rosa’s opportunity to seize a once-in-a-generation chance to create a vibrant, liveable, and economically resilient downtown, or risk delaying that future for decades,” according to the lawsuit.
Cornerstone has asked a judge to find it’s not in default of the sale agreement, that the company is entitled to more time to submit required planning applications and to compel city staff to review its submission.
A City Hall spokesperson declined to comment on the pending case.
Council members are expected to discuss the lawsuit during a closed-door meeting on Tuesday ahead of their regular meeting.
The council, following a rare kind of public hearing on July 8, determined Cornerstone was in default of a 2021 sale agreement for a 1.4-acre parking lot on B Street and voted to repurchase the property for the same price it was sold, $1.34 million.
The decision dealt a blow to a company once expected to usher a new era of growth downtown and came amid mounting questions about the company’s ability to get a project built.
One of the North Bay’s most prominent commercial real estate ventures, the Petaluma firm owns and manages about 30 properties in the region.
The company over the last decade had increasingly turned its attention toward the city center, amassing one of the largest stakes downtown with plans for about 3,000 housing units across several sites, according to legal filings.
Key to that vision was the former city-owned parking lot.
But in all those years, the company hasn’t completed any local housing projects.
As a condition of the 2021 sale, Cornerstone was required to meet several post-closing obligations, including moving forward with development of two sites it had previously purchased —the rail yard and Ross Street lot — as well as the B Street lot within a certain time frame.
Four years after the sale, and after two extensions granted by staff starting in October 2022 and a third by the council in December, the company had yet to make good on its obligations.
In letters to the city and in the Sept. 10 complaint, Cornerstone pointed to market factors and rising construction costs as reasons for their slow progress.
Behind the scenes, the company’s assets, including several of the downtown Santa Rosa properties, have been entangled in a separate lawsuit unfolding between Adani and the company’s other principal that’s scheduled for trial next year in Marin County Superior Court.
Steven Kaufman, who co-founded the company in 1985 when it was first based in San Mateo, said in a June 2023 lawsuit that he is living with dementia and accused Adani, his longtime friend and business partner, of taking advantage of their friendship and his declining health to gain greater control of the company’s assets.
He’s accused Adani of breach of contract, fraud, intentional misrepresentation and civil theft involving various business dealings.
The latest complaint shed some light on that case.
Cornerstone said their bank accounts had been frozen as a result of the litigation between the two partners “which forced (Cornerstone) to rely on alternative funding in an effort to advance its projects.”
That delayed progress on the projects, but the company said it remained commitment to seeing them through.
Cornerstone argued city staffers showed an unwillingness to work with them on a revised sale agreement and project timeline following the latest extension granted in December and even after submitting plans in April for the B Street site and adjacent properties, which altogether span about 3 acres two blocks north of Old Courthouse Square.
Those plans for the so-called Mendocino District call for more than 850 units across two, 24-story towers, billed as the tallest apartment project north of the Golden Gate.
City administrators have previously said Cornerstone submitted plans just as the extension expired but they were incomplete.
Staffers, in recommending the council repurchase the parking lot property in July, cast doubt on the company’s capacity to meet project deadlines and line up construction financing, even with additional extensions.
Santa Rosa City Manager Maraskeshia Smith on July 10 sent official notice to Cornerstone that it was exercising its right to repurchase the property after finding the company had failed to meet the sale obligations.
The city opened an escrow with First American Title Company and instructed Cornerstone to submit required documents and close on the sale within 30 days, according to a copy of the notice the city provided The Press Democrat.
Cornerstone had not transferred ownership of the property back to the city as of Wednesday, the city confirmed.
Attorneys for the company did not immediately respond to a request for comment.
Cornerstone, in the lawsuit, accused city staff of terminating negotiations and issuing the default notice without good cause.
They argued the council’s decision to take back the property was “significantly influenced by perceived, and unsubstantiated, uncertainty about the future of the project in light of pending litigation between petitioner’s principals.”
The company said it planned to continue pursuing its projects at the rail yard and Ross Street lot and that it anticipated completing construction of the B Street project well ahead of 2033, the target date under the original sale agreement.
The company is seeking a write of mandate declaring the city’s decision to take back the property is unenforceable as well as an order forcing Santa Rosa to process its application for the Mendocino District project.
Cornerstone said it would be deprived of its property rights and forfeit significant investments if the court doesn’t step in.
A case management conference is scheduled Jan. 29 before Judge Jane Gaskell.
You can reach Staff Writer Paulina Pineda at 707-521-5268 or paulina.pineda@pressdemocrat.com. On X (Twitter) @paulinapineda22.