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A person rides a bike past the abandoned Carousel Mall in San Bernardino on Aug. 23, 2022. The mall had been closed since 2017 and was demolished in 2023. (File photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
A person rides a bike past the abandoned Carousel Mall in San Bernardino on Aug. 23, 2022. The mall had been closed since 2017 and was demolished in 2023. (File photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
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The developer once contracted to overhaul San Bernardino’s long-troubled Carousel Mall is suing the city for breach of contract.

“After (San Bernardino Development Co.) spent years and millions of dollars for services and intellectual property contributions upholding its end of the bargain, the city unilaterally terminated the (agreement) on May 3, 2023, without warning and in breach of the (contract),” the , filed March 28 in San Bernardino Superior Court, reads in part. “As a result of the city’s and its staff’s misconduct, SBDC has suffered millions of dollars in damages.”

The suit was filed on behalf of Renaissance Downtowns USA and ICO Real Estate Group, working together as the San Bernardino Development Co.

In an email Friday, city spokesperson Jeff Kraus said redevelopment of the mall remains one of the city’s highest priorities.

“Redevelopment of such a complex site is challenging. Cities like San Bernardino enter into exclusive negotiating agreements to do just that — negotiate,” Kraus wrote, noting that the agreement was “specific and clear” that the city never promised or guaranteed SBDC that it would enter into a final development agreement.

“In fact, the ENA contained explicit language that was drafted and reviewed by attorneys for SBDC as to a liquidated damages clause in the event a deal could not be reached,” Kraus wrote. “When we arrived at the point where a deal could not be made, the city terminated the ENA in strict accordance with the ENA.”

The mall opened as Central City Mall in 1972. It was renamed in 1991 when a carousel was added to the building in an attempt to revitalize the shopping center, which was already in decline. By 2003, the mall had lost all of its anchor stores. The mall, down to 14 tenants in an increasingly empty building, closed its doors for good in 2017. In 2021, the city contracted with Renaissance Downtowns USA and ICO Real Estate Group to redevelop the mall site.

But according to the suit, city officials “controlled and manipulated the process in bad faith for their own ends by systematically misleading the state housing agency, obstructing the negotiations, delaying key milestones, refusing to provide (contract)-mandated updates to the city council and the community … hiding material information from SBDC and publicly disparaging the project and SBDC.”

The result, according to the suit, was legal trouble with the state of California, which accused the city of violating four laws during the development process in March 2023.

The state accused the city of submitting “incomplete and, in places, inaccurate” documents, according to David Zisser, assistant deputy director for State Department of Housing and Community Development’s Housing Accountability Unit. The city had claimed that no affordable housing developers had expressed interest in the Carousel Mall property when, in fact, two had. State law required the city to engage in at least 90 days of good faith negotiations with each of them. At the time, officials blamed former employees for the reporting issues.

According to Zisser, San Bernardino was required to declare the Carousel Mall property surplus land before figuring out what to do with it. Instead, the city began negotiating with Renaissance Downtowns USA and ICO Real Estate Group, choosing them to redevelop the site more than two months before the land was declared surplus property.

As a result, the state agency, which develops housing policy and building codes, rescinded its approval of the project and notified the state attorney general of the issues. San Bernardino was given 60 days to fix the issues HCD had identified.

In May 2023, just days after site demolition began, the city terminated its agreement with SBDC, paying a $100,000 early termination fee.

“Any citizen of San Bernardino can plainly deduce that the city used the (state accusations) as an excuse to rid itself of its relationship with SBDC and pursue more profitable self-serving relationships with other developers,” the suit reads in part.

“Apparently, certain council members were misled into the false belief that HCD left the council with no choice other than to start the (legal) process from the beginning,” the lawsuit reads in part. “This could not be further from the truth, since HCD actually encouraged the city to work with SBDC to cure the (legal) violations by providing more affordable housing instead of starting the process over again.”

The state dropped its charges against the city in June 2023.

The San Bernardino Development Co. is seeking an unspecified amount of money in both compensation and  punitive damages as well as a jury trial.

At this time, no formal plans have been announced to redevelop the former site of the Carousel Mall.

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