Former Bitwise building provides Fresno with $1 million-plus leased space for city department

A renovated downtown building that’s been the focus of multiple lawsuits against now-defunct Bitwise Industries over the past couple of years will soon become home to the city of Fresno’s new Capital Projects Department.

The Fresno City Council approved a seven-year lease to take over the second floor of the 105-year-old State Center Warehouse building at 747 R Street. The furnished space, which amounts to more than 37,000 square feet, will eventually house about 140 employees for the department tasked with shepherding major infrastructure and construction projects for the city.

City officials said they hope the department moves into the building in mid-January. Between base rent and a proportionate share of building operating costs, the city will pay about $1,165,000 for the first year, with the base rent increasing by about 3% in each of the following six years.

The total that the city will pay to 747 R Street LLC over the seven-year life of the lease will be about $8.7 million. There is a provision for three additional one-year extensions to the lease through 2033.

The building on R Street north of Ventura Street, erected in 1918, is on Fresno’s Local Register of Historic Resources and underwent an extensive renovation to make it suitable for Bitwise Industries to take over as its new corporate headquarters.

The ground floor of the building has other office spaces as well as several R Street storefronts for restaurants, including Mexican restaurant Las Mañanitas.

The building’s connections to Bitwise Industries – a Fresno-based technology training and services company that financially imploded and filed for bankruptcy earlier this year – made some City Council members wary when the lease first came up for a vote Dec. 7. Two members, Luis Chavez and Miguel Arias, sought additional legal counsel from City Attorney Andrew Janz about the potential for the city to get caught in the crossfire of litigation by the building owner against Bitwise.

The lawsuit filed earlier this year by NICbyte LLC and a federal criminal fraud charge against former Bitwise co-CEOs Jake Soberal and Irma Olguin Jr., alleges that the R Street building is one of four in Fresno, Bakersfield and Oakland in which Bitwise Industries held only a 5% ownership stake, yet maneuvered to illegally take out millions of dollars in loans using the buildings as collateral. Bitwise no longer has any ownership stake in the building, Janz told the council.

Leasing instead of buying

City Manager Georgeanne White said the city opted to lease rather than buy the entire building. “If I remember correctly, the purchase price was over $10 million, …” White told the council at its Dec. 7 meeting, “and we don’t have $10 million sitting around.”

Instead, the lease costs will be charged to a pair of state grants that the city has received for major infrastructure improvements in downtown and other parts of Fresno as overhead for the capital department. “We can charge annual rent to that revenue source, but we don’t have money up front to just buy the building,” White said.

White described the starting rent of $1.80 per square foot per month as “very competitive in the downtown market.” In addition, while Bitwise was poised to move in before the company’s collapse and bankruptcy, it never took occupancy. “It’s got amazing furniture that’s never been used that comes with the building,” she said. “With the furniture, that is a huge expense that we will not have to incur. That’s definitely an added bonus.”

The extra space is needed because the creation of the new department in July not only moved 96 engineers and other staff from the Public Works and Public Utilities departments, but also added 46 new positions to the city’s payroll. “While increasing capacity to address the city’s infrastructure needs, the Capital Projects Department has outgrown the available space at City Hall and the department must relocate off-site to accommodate added staffing,” a staff memo to the City Council stated. “Due to the size of the department, there are limited office spaces available downtown that satisfy all the needs of the department.”

The former warehouse is adjacent to a city-owned parking lot – another savings for the city as well.

Remnants of the Bitwise legacy

In 2017, as Bitwise Industries was planning to expand in downtown from its headquarters South Stadium building at Van Ness and Mono streets, Soberal touted grand plans for the State Center Warehouse, then owned by a partnership called Bitwise at State Center LLC, comprising Soberal, Fresno developer Will Dyck, Erik Wilkins of Wilkins Enterprises, and Paul Quiring of Quiring Construction. The partnership outlined a series of renovations to make it suitable not only for Bitwise as a new headquarters but also to sublease to other tenants.

Five years later, however, the partnership was fractured, culminating in a breach of contract lawsuit against Soberal and Bitwise over the fate of the building. The lawsuit alleged that Bitwise was refusing to take up occupancy and being paying rent as had been previously agreed to.

The lawsuit was eventually settled out of court and dismissed in July 2022. Court documents did not disclose the terms of the settlement, but it apparently revolved around BW Industries Inc. – the parent company of Bitwise Industries – buying the building outright from the remaining partners Dyck, Wilkins and Quiring.

The settlement coincides with a time period in which NICbyte LLC, a Texas company, formed a new joint venture to purchase the building, as well as other Bitwise properties in Oakland and Bakersfield.

NICbyte LLC contributed almost $35.5 million for its 95% stake in its joint venture for the building’s ownership, while Bitwise had the other 5%. Bitwise was to become the master tenant for the building, responsible for managing the building and subleases to tenants. But in a lawsuit filed in May 2023 by NICbyte against Soberal, Olguin and Bitwise, the Texas company alleges that Bitwise took out unauthorized loans for millions of dollars using the building as collateral, and also listed it for sale without NICbyte approval.

NICbyte, through its subsidiary 747 R Street LLC, has since taken full control of its various former Bitwise buildings, and in addition to its lawsuit against Bitwise, Soberal and Olguin is also suing one of the lenders that made the loans for which the buildings were offered as collateral without NICbyte’s authorization.