When a bare lot by Lake Merritt became an improbable symbol of gentrification in Oakland, its prospective developer, Michael Johnson, got thrust into the spotlight.

Neighborhood activists accused the local businessman and his company, UrbanCore, of rapacious land grabbing for wanting to purchase the 1-acre lot from the city to build a 24-story tower of market-rate condominiums. The land, they say, should be reserved for affordable housing and is likely worth more than the $5.1 million the city plans to sell it for.

Johnson has become a frequent presence at public hearings, arguing his case as the City Council prepares for its May 5 vote on a development agreement — the last step before selling the parcel. He paints himself as a humble businessman trying to bring much-needed capital into Oakland, and says an increase in housing supply, even market-rate housing, will ease the upward pressure on rents.

“We’re a small developer that focuses on urban infill, identifying sites that are either in minority communities or on the fringe of downtown areas,” Johnson said recently over iced tea at Lake Chalet restaurant, a couple days after his proposal passed through the council’s Community and Economic Development Committee. Across the brackish waters of Lake Merritt sat the parcel, a slab on the intersection of East 12th Street and Second Avenue, created via the narrowing of a roadway.

It’s become a battleground, and Johnson has become a fraught figure. Like Oakland itself, he’s scrappy and aspirational, with good intentions and, at times, not-so-good results.

Political connections

Johnson has worked on publicly funded projects in Oakland and the surrounding areas for decades, building hundreds of affordable housing units and forging political connections in the process, including with council members Larry Reid and Lynette Gibson McElhaney.

In 2003, Johnson partnered with Richmond Neighborhood Housing Services, which at that time was run by McElhaney, to rehabilitate the public housing complex in Richmond’s Easter Hill neighborhood. McElhaney is now the councilwoman representing West Oakland and remains the pro bono director of Neighborhood Housing Services, though she has not been on the payroll since her election in 2014.

In 2011, Johnson joined forces with Reid and the Oakland Economic Development Corporation to build the Coliseum Transit Village, a mixed-use development adjacent to the Coliseum BART Station that has yet to break ground.

Yet, while Johnson has established himself as a do-gooder who brings much-needed infrastructure to blighted areas, his publicly funded projects have had troubling instances of far exceeding their planned costs and costing taxpayers millions.

In 1999 his company, Em Johnson Interest Inc., partnered with another local firm, Baines & Robertson Inc., to build the 78-home Palm Villas redevelopment project in Reid’s East Oakland district. Oakland’s Redevelopment Agency granted land and demolition worth $2.8 million, then loaned the developers $3.3 million. Construction began in 2000, and the developers assured the agency that the loan plus private funding they’d raised would be sufficient. But on three occasions over the next several years, Johnson and his partner returned to the agency to plead for more financial help, threatening to stop the construction. The city’s redevelopment agency not only forgave the $3.3 million loan but granted another $3 million in public funds to keep the project afloat.

In the end, the 78 affordable homes ended up costing a total of $23.8 million to build, according to a 2005 city report — more than $300,000 for each of the small properties in East Oakland.

A city audit from that time shows that the developers charged the city for more than $110,000 for luxury cars and a vacation time-share, along with $15,000 for political donations. City officials rejected those expenses, and Johnson recently denied any knowledge of them; Baines & Robertson principal Michael Baines declined to comment.

Reid deemed Palm Villas a vital addition to his district.

“It turned out to be a great project,” Reid said recently. “It provided home ownership to people who hadn’t had those opportunities.”

But Palm Villas isn’t the only example of Johnson’s projects exceeding their anticipated costs. His revitalization of San Francisco’s Fillmore Heritage Center — which included 80 condos, a nonprofit jazz museum and the San Francisco iteration of Yoshi’s jazz club — also began with good intentions, but ended with Johnson defaulting on his loan payments to the city. He currently owes $1.6 million, he said. Yoshi’s was burdened with millions of dollars in construction debt before it opened, and its owners wound up filing for bankruptcy in 2012. A replacement club, the Addition, shuttered in January.

“The business model didn’t really work,” Johnson said, adding, however, that Yoshi’s produced some fantastic concerts and helped turn around the Fillmore retail corridor, even though it never landed in the black.

He’s confident that the Lake Merritt tower — now christened Lake House — will reap much better results. The sale will put millions into Oakland’s general fund, he pointed out at a Planning Commission meeting in April, adding that the high rise would also produce local jobs, generate property tax revenue and put UrbanCore on the hook for land improvements around Lake Merritt.

Members of the Planning Commission found that argument persuasive, and voted 3-1 to approve the tower. Oakland Redevelopment Program Manager Patrick Lane said in an interview later that city officials have no reason to fret over Johnson’s spotty track record because no public funds are on the line this time. Lane also noted that UrbanCore’s capital partner, United Dominion Realty Trust, is “a large national company with lots of assets,” which means it can absorb any cost overruns.

On April 14, Councilman Abel Guillen, who represents the Lake Merritt district, asked his colleagues on the council’s Community and Economic Development Committee to consider reappraising the parcel, out of concern that the $5.1 million price was too low. McElhaney and Reid rejected that idea, saying it was unfair to the developer, that it would take too long for Oakland to hire a new appraiser, and that such overly onerous processes would discourage other developers from investing in Oakland.

The committee voted unanimously to move the deal forward, and the council seems poised to follow suit, given that it comprises the same elected officials.

Oakland struggles

Oakland’s once-sterile downtown strip is now home to a number of swanky restaurants and even a few tech companies.

But in many senses, the city still struggles.

“I’ve heard how difficult it is to get investment in this community — it hurts my feelings,” McElhaney said when Johnson’s East 12th Street parcel went before the Economic Development Committee.

Oakland has seen few market-rate developments break ground since the downturn, largely because investors didn’t want to take a chance on the hard-luck city, said Rachel Flynn, director of Oakland’s Planning and Building Department. As a result, new arrivals compete with longtime residents for the existing housing stock.

“When demand exceeds supply, then owners can increase prices,” Flynn said. Residents with less disposable income get outbid, and wind up moving to cheaper outlying areas.

That dynamic has created anxiety in the Eastlake, a traditionally working-class neighborhood that has become increasingly desirable to newcomers.

“We’ve seen the different housing pressures on our community,” said Mari Rose Taruc, an Eastlake resident and co-founder of East Lake United for Justice, which is fighting Johnson’s plans for the tower. “We’ve seen rents increase. ... We’ve seen neighbors get pushed out.”

Signs of change

Taruc urged the city to back out of its deal with UrbanCore and save the East 12th Street parcel for affordable housing. But Flynn and others point out that affordable housing already accounts for the majority of new development in Oakland.

Eastlake residents worry that a new highrise will come with the loss of something sacred. Taruc, who has lived in the neighborhood for 17 years, said she already sees signs of change all around her: Fewer kids are hanging out on the street; fewer Chinese elders are on their stoops playing mah-jongg; what was once an immigrant district is becoming an enclave for white professionals, she said.

A new condo tower will further disrupt the neighborhood character, Taruc insisted. But Johnson demurred.

“The flip side is that if you have no project, you have no money to contribute to an affordable housing (fund) or to make improvements around the lake,” he said.

Rachel Swan is a San Francisco Chronicle staff writer. E-mail: rswan@sfchronicle.com

Twitter: @rachelswan