Kaysville City staff has recommended (dare I say made a sales pitch?) to release Clearwater Investment Group LLC (“Investment Group”) from its obligation to run an Equestrian Center on a parcel of land (“Parcel”) in the Sunset Equestrian Estates development (“SSE”) by amending the existing Development Agreement (“Agreement”). This is being presented to the City Council on July 1, 2021.
This is a bad recommendation for a number of reasons.
1. The Plat for the Parcel is Explicit that Changes are Not Anticipated
Note 2 of the plat recorded at the Davis County and presented to Kaysville City on March 8, 2011, states: “Parcel A is to be used for an Equestrian Center. This parcel is to be used for open space associated with the Kaysville Sunset Equestrian Estates development but may be sold to a private concessionaire who will construct and operate the equestrian facility. The deed conveying Parcel A shall place constraints on the parcel to assure it remains viable open space for this development.” The staff’s recommendation ignores the last sentence: “The deed conveying Parcel A shall place constraints on the parcel to assure it remains viable open space for this development.” The Parcel is not simply platted as an equestrian center, but also as viable open space for the SSE development. The proposed resolution and plan ignore this key requirement of the plat. The proposal fails to take into account the rights of the SSE homeowners.
2. The Proposed Amendment is not “Largely Benign”
The Executive Summary of the staff’s recommendation states: “the City believes that this amendment is largely benign.” Yet, in making the determination, the staff did not discuss this change with the SSE Homeowners Association or the homeowners of SSE. On the contrary, in early 2020 the homeowners organized a meeting with Symphony Homes regarding Symphony’s desire to amend the development agreement. Attending that meeting were a large crowd of homeowners, a number of city staff members, and at least Councilmember Barber. At the meeting the homeowners expressed concern and outrage at the proposal. Any attendee at that meeting would recognize that the proposed amendment is not largely benign. Instead, the proposed amendment is anything but benign to the very homeowners that the Agreement was meant to protect.
3. The Proposed Addendum will Materially Impact SSE Homeowners
The proposed Addendum presupposes that the West Davis Corridor “materially impacts the Property”. As will be discussed below, there is some question about whether this is the case. It is certainly the case that the proposed change will materially impact the property owners within SSE. If a material impact to a single parcel owned by an outside Investment Group is a sufficiently strong justification for the city to propose the amendment, then the city should also consider the material impact to hundreds of homeowners in SSE. Frankly, the material impact to hundreds of homeowners and Kaysville residents should be given more weight than the material impact to one outside investment group.
4. The Staff’s Recommendation Is Beneficial to an Investment Group but Is Not Beneficial to Kaysville Citizens
This proposed amendment only benefits the Investment Group. Unless there is some other non-disclosed plan in place (see below). It does not benefit Kaysville Citizens. Indeed, with a change in the Agreement, the Investment Group could sell this property for millions of dollars reaping a windfall. It’s understood that they purchased the Parcel for around $350,000). It’s interesting this company is called Clearwater Investment LLC rather than Clearwater Equestrian LLC. This suggests that The Investment Group has always been more interested in this parcel as an investment vehicle rather than owning and operating an equestrian center.
5. The Homeowners of SSE Detrimentally Relied on the Agreement
The homeowners of SSE detrimentally relied on the parcel being deeded as an equestrian center and open space. Indeed, it is understood the Investment Group purchased these 19.5 acres for about $350,000. The price of the Parcel was incredibly low because of the plat restrictions. The low price of this land was subsidized by the increased price of each homeowner lot in SSE. Each homeowner in SSE, whom are Kaysville citizens, paid a premium for a lot that includes an equestrian center and open space. Yet, with this proposed agreement, these homeowners will receive no renumeration for the premium paid for their lots. Instead, each homeowner in SSE detrimentally relied on the Investment Group and the City and this proposed amendment will negatively impact these homeowners.
Thus, this process and this amendment will effectively give the Investment Group a financial windfall at the detriment to Kaysville Citizens.
6. Lawsuit Avoidance is a Poor Reason to Release Clearwater from its Obligations
The proposed addendum to the Development Agreement explicitly states the purpose of the agreement is to avoid a lawsuit: “The City and Clearwater recognize the mutual benefits of resolving any dispute regarding this property without court involvement.” The slides in the presentation states, “The legislative rezone authority grants the City broad discretion to determine the appropriate land-use for this property.” Because of this power, the city should not be worried about a lawsuit from the Investment Group.
Oddly, last year, the city was more than happy to defend itself in the face of a couple lawsuits related to the fiber debacle. These suits were from actual concerned Kaysville citizens and the city was more than happy to defend itself in these lawsuits without opening settlement dialogue with its own citizens. Yet, for some reason, the city is now unwilling to defend its position from an outside Investment Group with a legal authority on its side. Why is this?
Rather than caving at the threat of a lawsuit, the city should take a stand for its past decisions and for its past agreements. And do it for its citizens! If lawsuit avoidance is the key, the city may end up in a pickle. The homeowners from SSE have considered taking this issue to the courts. One would hope that in such a situation the city would side with its own citizens rather than an outside Investment Group.
7. The City Wants a Frontage Road
Let’s be honest, the city and the Investment Group previously engaged in conversations about an arrangement to release the Investment Group from its obligations in exchange for a parcel of land for a city owned frontage road. If such an agreement is in the works, why is this not being discussed openly? Is this proposed addendum the first step to a land swap between the city and the Investment Group?
If the city needs the land, there are other vehicles to achieve this. The city has broad eminent domain powers. As such, the city could acquire a portion of the Parcel through these governmental powers rather than do so through horse trading. And the city could get the portion of the property at a discounted rate because the land has heavy use restrictions. This would be the ideal scenario.
If the city does not have the funds for the city to construct the needed frontage road, then that is an entirely different problem that should be addressed.
8. The Eminent Failure of the Equestrian Center Failure Is Overstated!
The failure of the equestrian center is not certain. Indeed, the staff presentation repeatedly states that viability of the equestrian center is only “in question.” Yet, failure is not eminent.
Indeed, the new freeway could actually bring more customers to the equestrian center because of the improved access and possible freeway signage. New homes are being built in Davis county and Kaysville on smaller and smaller lots, which could bring more need for an equestrian center in central Davis County. This could be a huge opportunity!
In addition, the equestrian center could mitigate its concerns about being near a freeway. The Investment Group could plant trees or build a wall to decrease the noise from the freeway. The location and arrangement of the equestrian center buildings, corrals, facilities, etc. could be rearranged to lessen the impact of the freeway. Based on conversations with people using the equestrian center, these plans are in the works.
Moreover, the homes along the street abutting the equestrian center are horse properties. Most have horses and some have recently asked the SSE HOA to allow more horses on their property. These horse owners have not approached the city to change the designation of their land because the freeway would not make their property viable for horse property.
9. The Failure of a Business is Not the City’s Problem
Even if the failure of the equestrian center is likely, the failure of a business is poor justification for releasing the Investment Group from its obligations. Is the city prepared to change release every party from their obligation simply because of the possibility of a business failure? Businesses fail all the time. Indeed, according to data from the U.S. Bureau of Labor Statistics, by the end of the fifth year of operation, roughly 50% of business have faltered. After 10 years, only around a third of businesses have survived. The Investment Group has been around for over 10 years. At this age, it is more likely than not that it will fail. Business failure is a part of capitalism and market forces fill in the gaps.
Moreover, the slides in the presentation to city council presuppose that it would be difficult to find anyone else to operate an equestrian center at this location. Why is this the city’s problem? This is the Investment Group’s problem. If the Investment Group is unable or unwilling to run a business on this property, they can sell the property along with the property restrictions. This begs the question whether the Investment Group has sought purchasers of the Parcel. Currently, the Parcel is not on the market, nor has it been on the market in the past few years.
And if it is the city’s problem, has the city researched all these statements from the Investment Group that is seeking to sue the city? Or is the staff just assuming it would be difficult? If the city has researched it, whom have they talked to? What market research has been performed?
It appears the city staff is presupposing that if the Investment Group can’t run the equestrian center, then nobody can, and the property will go to ruin. This is silly. If the property does go to ruin, then the city can take up the issue if and when that happens. But there is not guarantee that will happen. And if it does happen, there are many other options rather than allowing the Investment Group out of their obligations.
It is not the city’s place to bailout an Investment Group that has made a bad business decision. Rather than bailing out the Investment Group, the city should be holding them accountable to the agreement made between the parties.
10. The Investment Group Knew the West Davis Corridor was Coming
According to Articles of Organization filed with the State of Utah, the Investment Group LLC was formally organized on 2 March 2011. According to the Utah Department of Transportation, the West Davis Corridor project started discussing options in public meetings in 2010. The project was also widely reported on in the news starting in 2010. Hence, in 2011, when the Investment Group was formed, the Investment Group knew or should have known that a Freeway could impact the Equestrian Center project when the company was formed. Despite this, the Investment Group went ahead with the purchase and has ran their business. This is not a new and nor is it an unforeseen project.
11. Conclusion
The reasoning and justification provided by the City Staff of the proposed amendment is faulty, it’s based on supposition and assumption, and is a sells job. There are no facts. Moreover, this proposed amendment will cause harm to Kaysville residents, the avoidance of a lawsuit is a bad reason to make the amendment and will likely lead to other lawsuits, and the amendment is not needed to gain the needed frontage road.
The City Council should not support this proposed amendment.
