City officials still hope to make Knight's Inn and Ski Run corner project a reality

The City of South Lake Tahoe is still trying to work out a deal with the Halferty Development Company, a $4 million sale of the developable portions of the lots known as the "Knights Inn Properties."

During Tuesday's City Council meeting a purchase agreement was scheduled to be voted on, but SLT City Manager Nancy Kerry had to pull it off the agenda.

"We are still working on it," Kerry told South Tahoe Now. "We are still negotiating and have some issues to work out."

An aging motel in a sensitive environmental zone, the Knight's Inn was seen by the City as a way to bring in new development while fixing water quality issues and appeared to be a project that benefited all private and public partners.

In the fall of 2012, Halferty and the City began to work out details for the Pasadena based company to purchase two lots at the corner of Ski Run Blvd and Lake Tahoe Blvd, ones owned by the South Tahoe Redevelopment Successor Agency (STRSA) known as the "Southwest Corner." The sale of the lots for $800,000 was close to reality when it was learned that the nearby Knight's Inn might be fore sale, thus expanding the potential for development. At the time, the City was also going to sell 12,000 square feet of Commercial Floor Area to the company for $300,000.

The California Tahoe Conservancy (CTC) issued grants from monies received from the state's water bond, Proposition 1, and the City applied for a $4.5 million grant. This was to cover the construction of water quality improvements and the restoration of a Stream Environment Zone (SEZ) in the Bijou Park Creek Project, an area that covered the Southwest Corner, Knights Inn properties and CTC's neighboring properties. This was a proposed partnership and cooperation with the CTC.

But, on July 12, 2016, Executive Director of the CTC informed City staff and the Halferty that the their staff recommendation to its board would be to deny the City's grant application because the "project would not meet a sufficient number of Sustainable Community and Prop 1 goals, although their Grant Review Committee Members had recommended the project for funding."

This wasn't a deal breaker though, as at the same time, CTC encouraged the City to apply for a planning grant to further analyze the proposed project for funding opportunities (the City has since submitted an application for a planning grant).

"The denial of the City's application for Prop 1 grant funding will eliminate the portion of the project proposed for SEZ restoration," Kerry said in her planned City Council presentation. "It was suggested to the City that the project would qualify for funding and possibly qualify for the TRPA's new "bonus commodity unit" program if the project was primarily a community park rather than redeveloped as commercial property. As the idea of a community park came forward, the City has explained in project team meetings and one-on-one meetings, the City is not in the financial position to use taxpayer funds to acquire the property for $6M and convert it to a community park, which would be a substantial loss of revenue and economic opportunity. Further, the project area is not the right location for a community park and a community park is inconsistent with the Tourist Core Area Plan, which specifically directs development to Town Centers."

The City is purchasing the Knight's Inn from owner Pradip Patel for $6 million, then planned on getting the money back from the $4 million sale of that lot to Hagerty along with 31,000 square feet of CFA, the original sale of the Southwest Corner with its CFA for $1.1 million, and the sale of 64 Tourist Accommodation Units (TAUs) they got from the Knight's Inn purchase to Placer County for $800,000.

Now that deal is at jeopardy because of the CTC action and Haferty's orignal plans to mix retail with environmental benefits in the project area at jeopardy.

"We have not given up hope that we can get this deal done," said Mayor Pro Tem Austin Sass who is also a member of the subcommittee charged with the task. "It will take another week or two to make it happen."

Austin, "We have not given up hope that we can get this deal done. Another week of two to make it happen, We still want to make sure.