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Family dispute puts JCPenney redevelopment on layaway

Wednesday, January 30, 2019

When people with an interest in downtown Bellingham think of the old JCPenney building at 1314 Cornwall Ave., a lot of words come to mind—and not many of them are good. For one, it’s the definition of a white elephant: oversized, expensive and useless. “Eyesore” and “blight” also apply. The building, formerly home of JCPenney and Woolworth’s department stores, has remained all but vacant since Bellis Fair opened on the north end of town in 1988.

Overall, the downtown has rebounded nicely from the retail exodus precipitated by the mall. But one major vacancy remains: 165 feet of unused storefront in the middle of what one merchant-neighbor, Ben Shaklee of ModSock, called a “dead block” during a City Council meeting.

“People see this space, and they think our downtown is vacant,” Tara Sundin, Bellingham’s economic development manager, told the City Council at the same meeting, on Sept. 24.

“In order for downtown to kind of get on to that next level, something really needs to happen with the JCPenney building,” Sundin said.

Now a new label might apply to the building: I wouldn’t be surprised if it were cursed. Just when it looked like the old retail shell might finally get the major makeover it needs, a legal battle between brothers over who owns the property has run the project off the rails.

Last year, the city hammered out an agreement with local developers to overhaul the retired 1960 department store and make it a player again in today’s downtown economy. The featureless brick-and-concrete facade would get windows. Multiple shops would open on the ground floor, and apartments affordable for the average worker would be added to the upper floors, project proponents said. City officials even spoke wistfully of children playing in parklets on the same sidewalk that currently looks like it belongs in a ghost town, even in the middle of a weekday afternoon.

The City Council unanimously approved a public-private partnership with developers Jeff Kochman and Jeff McClure on Oct. 8. The “two Jeffs,” as they are often called, would buy the building for $712,000 and spend another $12 million on the renovations. The city would buy the land under the building for a little more than $2.1 million and lease it to the developers.

A similar partnership has worked before. Kochman and McClure built the Market Place Building in 2004 on a city-owned lot at the corner of Railroad and Holly known at the time as “the pit.” The two Jeffs and the city said they had every reason to believe in their proposal to resurrect the Penney building, which would be renamed “Dock Street Flats” after the old name for Cornwall Avenue.

Construction would have begun this spring, with the new building opening in 2020. The structure is so solid, said McClure, who is an architect, that he and Kochman would be able to add two more stories, increasing the number of residences and thus improving their bottom line. The 50 to 90 new households proposed for Dock Street Flats would boost business at nearby shops and bring life to a dead block.

“We’re absolutely thrilled,” said Kane Hall, partner with Daylight Properties, which owns the adjacent Bellingham National Bank Building. He spoke at the Sept. 24 City Council public hearing on the proposed partnership between the city and the two Jeffs.

“Finally, something’s going to happen with the JCPenney building,” Hall added. “The building has become a symbol of vacancy in the downtown for too long.”

The benefits would be both physical and psychological, said an effusive Alice Clark, executive director of the Downtown Bellingham Partnership.

“It’s just intangible, but breaking through to the other side and having that (building) activated is going to be such a shift in us, mentally and emotionally, and I don’t know if we can really grasp it right now,” she said at the public hearing.

The optimism and relief inside council chambers quickly disappeared, however. On Oct. 8, the same day the council approved the agreement with the two Jeffs, longtime building owner Doug Tolchin moved the property out of one real-estate holding company and into another. He wrote letters dated Oct. 8 to the city and the two Jeffs, telling them the original company, Whatcom Center LLC, had no rights to the building and couldn’t sell it. He asked the city and the developers to cease their current course of action on the Penney building or risk a lawsuit.

The city and the two Jeffs had been negotiating the sale of the Penney building with Tolchin’s brother Bruce, who lived in California. After Doug attempted to halt the sale, Bruce Tolchin sued Doug, on Nov. 2. In documents filed in Whatcom County Superior Court, Bruce claimed he had control over the building, and Doug did not have authority to transfer the property from Whatcom Center LLC—the company formed to purchase the Penney building in 1998—to a new company Doug created on Sept. 26 called 1308-1320 Cornwall LLC.

Doug Tolchin initially managed Whatcom Center LLC, with his mother Mary Tolchin and a longtime friend from California, Gus Lignos. But Doug had agreed to transfer authority over Whatcom Center and the Penney building to Bruce in 2010, court documents say. According to Bruce’s lawsuit, he loaned Doug nearly $1.8 million from 2001 to 2007 to prevent Doug from losing the building in bankruptcy. Bruce claimed in the lawsuit that Doug never made any payments on the loans. With interest, the debt had grown to more than $3 million by 2009, the year the loans came due. Bruce took over controlling interest in the building because of Doug’s failure to repay the loans, according to court documents.

The lawsuit Bruce filed against Doug was enough to put a hitch in the city’s hopes and plans to see the Penney building redeveloped. But on top of that, Bruce was diagnosed with metastatic kidney cancer in July and died on Nov. 19, according to court records. Bruce’s death has put his Whatcom County case against Doug on hold. Frank van Veenendaal, Bruce’s longtime friend and the manager of his trust, requested that he take over the case. But, like just about everything else involving the Penney building, it won’t be that easy. Mary Tolchin is challenging Veenendaal in a California court. She claims, according to court documents, that Veenendaal got Bruce Tolchin to sign documents while he was severely ill and incapacitated—or else forged his signature—in order to bring most of Bruce’s $50 million fortune under his control.

Bruce Tolchin’s signature appears on a document dated Nov. 19—the date of his death—extending the closing date of the sale to this Friday, Feb. 1. Whatcom County Superior Court Judge Robert Olson, who is presiding over the lawsuit, will hear arguments about whether Veenendaal can sign another extension, to keep the potential sale alive while the property dispute plays out in court. Court filings say the sale will terminate without an extension.

Sundin said the sale could happen regardless of what transpires at Friday’s hearing.

“An agreement with Bruce Tolchin’s estate does not rely entirely on the outcome of the hearing,” she responded in an email. “From the city’s perspective, so long as we have a willing partner with authority to sell (which is subject to litigation), the project can move forward.”

When contacted for this story, Doug Tolchin declined to speak on the record about his brother’s lawsuit against him. Bellingham attorney Bryan Page, Bruce’s lawyer in this case, said it was his policy not to speak publicly about active cases. He did say he had no idea how long the case would take to resolve.

The two Jeffs, McClure and Kochman, did not respond to an email with questions about the Penney building and the lawsuit. Sundin, the city’s economic development manager, declined to be interviewed in person for this story but emailed a statement from both the city and the two Jeffs on Dec. 17:

“We recently learned of Bruce Tolchin’s passing, and our thoughts are with his family and friends during this difficult time. We enjoyed a positive, professional working relationship with Bruce, and we look forward to continuing to work with his representatives in the weeks and months ahead.”

Sundin’s also said the agreement with the two Jeffs remains in effect, and the only thing about the project that has changed is its timeline.

“The project itself has not changed, nor has our intent or desire to see this project through,” Sundin wrote. She confirmed via email on Jan. 15 that the city remained committed to the project.

In his cease-and-desist letter to the two Jeffs, Doug Tolchin invited Kochman and McClure to make him an offer on the building after the ownership question was resolved. Court documents indicate that Doug and Mary Tolchin believe the $2.85 million sale price negotiated by Bruce was below market value and is unacceptable to them. (Doug Tolchin attempted to sell the JCPenney building in 2006, listing it for $4.95 million.)

Meanwhile, as of Jan. 14, “For Lease” signs with Doug Tolchin’s phone number were posted in the old department store show windows. Doug’s own artist’s rendering of a renovated JCPenney building appeared on the sign, under the words “coming soon.”

Doug Tolchin was willing to go on the record about his plans for the property. “I anticipate that the building will be redeveloped into a Class A building,” he said in a Jan. 16 email. A floor plan sent with the email showed three ground-level units that he said could be occupied by retail, restaurant or cafe tenants. The upper floors could be a corporate headquarters, a government office or residential units, Tolchin said.

“All options are on the table and being evaluated,” he said.

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