BOULDER - The city of Boulder may have overspent taxpayer dollars in a rush to purchase property for a new recycling center, a Boulder County Business Report investigation has found.

A review of city e-mails by the Business Report revealed questionable practices by city staff leading to a high purchase price, including a failure to conduct an outside formal appraisal and communicating with the seller's real estate agent to help support the sales price to city council.

None of the actions are illegal, but raise questions on how the city goes about acquiring real estate, and if it is properly conducting due diligence on the taxpayer's behalf.  In light of the information, Boulder mayor Matthew Appelbaum told the Business Report he would support a call for the city manager to review and improve the city's real estate practices.

On Aug. 19, Boulder City Council approved the $5.45 million purchase of 9.7 acres at 6400 Arapahoe Ave. for future plans to relocate EcoCycle, the Center for Hard-to-Recycle Materials (CHaRM), and ReSource Conservation to the site.

City officials raised trash taxes by an average of $17 per year for residents and by $53 per year for businesses to pay for the property.

Leading up to the purchase, residents and some city council members questioned a seemingly high sales price.  The seller, Colorado Tennis Facilities LLC, had acquired the property in March 2008 for $3.9 million from BMC West Corp. Since then, the economy and real estate market had worsened significantly.  Why then would the city agree to pay a 40 percent premium?

Under pressure to answer that question from city council was Doug Newcomb with Boulder's real estate division.  E-mail records obtained by the Business Report show that on July 1, Newcomb sought help to support the sales price from the seller's real estate agent, Jason Kruse with The Colorado Group.

"Good morning Jason, at last night's neighborhood public meeting, some of the neighbor's questioned the 'high' sales price.  Two of our city council members were present.  By 11 AM this morning I am to beef up the portion of the council agenda item memo that talks about that price.  I am supporting the price.  What I'd like to have from you for my memo part is your factual information supporting the sales price.  You will remain anonymous. I'm the staff member blessing the price."

When asked about the e-mail, Newcomb said he was trying to obtain as much information as possible for city council.  It was difficult from his end, he said, because Boulder County officials had originally negotiated the contract, later assigning it to the city.  The county backed out of the deal because it had concerns whether it could achieve its zero-waste goals on the property, primarily recycling construction materials.

Boulder County Administrative Services Director Keith Ickes conducted that original negotiation.  Records show his first offer at $3.3 million on April 24, followed by a second offer of $4.9 million, and the final offer of $5.45 million on May 22.  Ickes said each counter-offer from the sellers was significantly higher.   

Both Ickes and Newcomb maintain that the $5.45 million price tag was a reasonable deal, compared recent land deals involving the city and county in 2006 and 2007. But that was before the economic meltdown, local Realtors point out.

Ickes also argues that the sellers obtained the property in March 2008 in a distressed situation - therefore achieving a low purchase price of $3.9 million from BMC West Corp. in March 2008.

But Becky Gamble, president of Dean Callan & Co. Inc., who represented BMC West in that deal, denied that claim.

"BMC was motivated to sell the property, but it was not a distressed sale," she said. Gamble said an appraisal of the property back then put the value at around $4 million.  

As a real estate broker, Gamble said the value of property is "always in the eye of the beholder," - the price depends on the buyer's future vision for the property, she said.  But as a taxpayer, she feels that the city overpaid.

"Especially today, because most everything related to commercial real estate has declined in value," she said.  "That suggests that deeper due diligence didn't occur."

The worsening economy had made it "financially challenging" to build the tennis center on the 6400 Arapahoe Ave. property, co-owner Kendell Chitambar told the Business Report in early July. In addition, public records show that the owner's 5 percent, $2.73 million loan on the property matured on Aug. 1.

Additional e-mails between city and county staff show further attempts by staff to get an understanding of the property's value, but because of a rush to get the deal done, the actions were never taken.

On July 14, City of Boulder Environmental Coordinator Elizabeth Vasatka e-mailed Ickes asking about a property appraisal.  Ickes replies that he talked to two appraisers, who indicated that it would take 30 days to complete a formal appraisal.  

"That seems well beyond our time frame," Ickes wrote.

City and county officials say they are not required to conduct appraisals for the properties they purchase, although they do in rare occasions.  For the most part, the governments rely on their own expertise.

By late July, with a deadline for the deal nearing, there were additional questions about the property, including environmental and traffic concerns.  On July 21, Boulder City Council approved paying Colorado Tennis Facilities $4,000 a week to extend the purchase deadline until Aug. 24.  While it now had time to conduct an appraisal, the city chose not to do so.

Appelbaum admits the deal could have played out better for the city.

"As council members, we were aware what it sold the previous time, and we were concerned about the price - we depend on city staff to do the best analysis they can," he said. "It probably wasn't handled the best way it could have been. Not because of anyone's blunders, but because of the circumstances surrounding the deal."

Appelbaum pointed to the city not being the original negotiator as one factor.  He also noted that it is difficult for public entities to negotiate a good deal.

"Because everything is out in the public - the sellers were aware we wanted this property, and they were aware of our other options, which would have cost us about the same or more," Appelbaum said.  "That basically always puts us at a disadvantage."

While the purchase is a done deal, Appelbaum said he'd be open to asking City Manager Jane Brautigam for a review.

"What council can do is to learn from this," Appelbaum said.  "We can take a look to see how this process can be improved."