Long Beach’s plan to pay back significant losses to the operator of Community Hospital by transferring ownership of the hospital property is in jeopardy after the state ruled it must be offered on the open market to affordable housing developers.

The Post obtained a letter the State Department of Housing and Community Development sent to city staff on March 1 that says the agency determined the city cannot transfer ownership of the 8.7-acre property it’s owned for over a century to the hospital’s operator due to a 2019 law meant to encourage construction of affordable housing.

The current lessee of the facility, Molina Wu Network, has proposed a plan to acquire the land and turn it into a mental health and wellness campus—and the City Council changed the deed restriction to allow for this—but it is now unclear whether that can happen.

In a statement on Tuesday, Deputy City Attorney Rich Anthony said city staff is in negotiations with the state over its finding and believes the MWN proposal would qualify for an exemption under the Surplus Land Act.

“However, if no exemption applies, the city would comply with the Act and would build that process into the timeline for the next steps of land disposal,” Anthony added.

MWN said in a terse statement on Tuesday that the company was unaware of the state’s finding.

“MWN was never informed of this letter, never provided a copy, nor did we learn of the letter’s specifics until we were first provided a copy by a member of the press on April 25 when asked for comment,” the statement said.

The company said, given the new revelations and their implications, it would have no further comment.

MWN did not respond to a question as to whether it still wanted to pursue the mental health and wellness center.

The 2019 lease agreement requires Long Beach to reimburse MWN for its losses—which the company claims total more than $30 million—up to the value of the property. City officials had previously said the city could meet that requirement by essentially giving the facility to MWN, but a determination that the property qualifies as “surplus land” and must be made available to affordable housing developers would throw a significant wrench into that plan.

The lease agreement was initially approved as a way to facilitate the reopening of the hospital, which had shuttered in June 2018. MWN reopened the medical center for transfer patients in January 2021, and the emergency department opened in May of that year. But MWN closed the hospital for good in December, which the company blamed in part on the mounting cost of seismic repairs, a low patient census and the high cost of nurses during the pandemic.

Neither Councilman Daryl Supernaw, whose district used to include Community Hospital, nor Councilwoman Suzie Price, whose district now includes the property, said they were aware of the March 1 letter or the state’s finding prior to inquiries by the Post.

Supernaw said city staff had previously acknowledged the possibility that Long Beach would have to declare the land as surplus under the 2019 law, but he said that was routine for every city-owned property. City staff never gave an in-depth explanation to the City Council on the law’s potential implications for Community Hospital specifically, and didn’t elaborate when he brought it up recently, the councilman said.

Anthony said in his statement that the council is aware of the discussions with the state, “but such discussions are currently at the staff level.”

The property was appraised at $17 million in 2018, and MWN and the city have been seeking their own up-to-date appraisals of the land in recent months. A decision on the transfer of the property had been expected soon.

It is unclear how the two sides will reconcile this newest development, which has thrown a number of other deals across the state into flux. The city of Anaheim was recently found in violation of the law over its plans to sell Angel Stadium to the team’s owner—a process that took years to resolve.

If the state’s finding stands, the city must declare the Community Hospital property as surplus during a public meeting and then send a notice of availability to affordable housing developers registered with the state. Developers have 60 days to respond.

Once bids have been made, the city is obligated to engage in “good faith negotiations” with developers for 90 days and submit documentation to the state prior to any agreement terms. The state then has 30 days to review the proposal to determine if it violates the law.

The two allowable developments outlined by the state law include:

  1. A housing development, which could have ground floor commercial uses that restricts 100% of residential units for people or families of low or moderate income, with 75% allocated for lower-income households.
  2. A mixed-use development with 300 or more units, including 25% for lower-income households.

Both options allow for either rental or for-sale units. Prices, however, are required to remain affordable, as defined by the state, for 55 years for rentals and 45 years for ownership housing.

Under the city’s Land Use Element, the Community Hospital property is zoned for up to six stories of moderate-density apartments or condominiums. The surrounding area is already home to various multi-story apartment and condo buildings.

The Surplus Land Act worked its way through the state Legislature throughout 2019 and was signed into law by Gov. Gavin Newsom on Oct. 9 of that year.

The current lease between the city and MWN for the operation of Community Hospital was being negotiated at the same time the state law was being approved. The 45-year lease agreement was officially signed in December 2019.

Staff writer Kelly Puente contributed to this report. 

Editor’s note: John Molina is the owner of MWN, and he is also the primary investor in the parent company that owns the Long Beach Post. Read more about the Post’s ownership here.

Community Hospital likely to be sold as city seeks to pay operator millions in losses

Brandon Richardson is a reporter and photojournalist for the Long Beach Post and Long Beach Business Journal.