DOWNTOWN LOS ANGELES – The California Supreme Court’s Dec. 30
decision to uphold legislation eliminating redevelopment agencies
has placed a web of uncertainty over several Downtown projects and
sent local officials scrambling to make sense of the loss of the
powerful civic economic engine.
To meet the terms of the new law, the Los Angeles Community
Redevelopment Agency must sell all of its property that was not
tied to contractual obligations as of January 2011. Other projects
or CRA investments approved after June 29 – from streetscape and
façade improvements to land acquisitions or private developments -
are also on ice.
“If we did not get a contract in place as of June 29, it’s not
going ahead, period,” said CRA spokesman David Bloom.
In Downtown, that means the sale of the proposed Cleantech
Manufacturing Center site is dead in the water. Touted as the
anchor of the city’s imagined “Cleantech Corridor,” a cluster of
sustainability-minded industry along the Los Angeles River, the
CRA-owned property appears on its way back to the bank.
The court decision nullifies the agency’s deal reached in
November to sell the 20-acre site to developer Trammell Crow, which
had agreed to build a $40 million facility for green tech
companies. The agency was facing a deadline to pay its $15 million
debt to East West Bank by Feb. 1, which is also the day the CRA
will formally dissolve. While Trammell Crow could pursue the
property from the bank, the CRA covenants requiring the firm to
attract clean technology tenants are wiped out.
Funding for the development of a touted cleantech business
incubator in the Arts District is also in question, Bloom said, and
the agency’s plan to develop a half-acre park on Mateo Street next
to the incubator is suddenly without cash.
Rapid
Accounting
Redevelopment agencies use property tax dollars to fund economic
development projects that eliminate blight and raise real estate
values. They are funded with so-called tax increment, or the
increased property taxes after redevelopment project areas are
established. Critics of redevelopment, including Gov. Jerry Brown,
who led the charge to kill the 400 agencies across the state, say
they redirect crucial tax dollars away from schools and other
public services.
Many local stakeholders, from CRA and City Hall staffers to
land-use attorneys and developers, said they were surprised by the
Dec. 30 decision. That partly explains why, two weeks after the
ruling, officials are still scrambling to assess its impacts.
Last week, agency staffers were assembling a list of the
properties the CRA owns and reading through loan documents – some
dating back to the 1980s – simply to determine the source of money
attached to the assets. The funding stream is important because the
legislation protects redevelopment properties and initiatives paid
for with funds set aside for affordable housing.
Otherwise, the bill, ABX1 26, demands that a successor agency
“expeditiously” sell land not under contracts. On Wednesday, Jan.
11, the City Council voted to not take over as the successor
agency, leaving the responsibility and various liabilities to an
as-yet undetermined government entity.
The law does not establish specific timelines for property
sales. Instead, it sets up an oversight board consisting of county,
city, school and other officials charged with maximizing revenue
for the state.
What’s for
Sale?
While some critics of the court decision fear the redevelopment
dissolution will lead to a public land fire sale, which in theory
would flood the market and depress property values, it is unclear
how many Downtown CRA holdings would qualify for liquidation.
Properties under contract cannot be sold. That includes the land
below several large parking facilities in Downtown. Among them is
the Broadway Spring Center at 333 S. Spring St., which is leased by
a parking company that has the right to purchase the site. It’s the
same scenario at the Met Lofts – the South Park apartment complex
sits on city-owned property but is controlled by developer Forest
City through a long-term lease.
The situation has land-use attorneys such as O’Malley Miller of
Munger, Tolles Olson, who has represented developers before
the CRA, analyzing ABX1 26 and poring over related documents.
Miller said the redevelopment law and the ongoing fallout is “the
legislative equivalent of mud wrestling.”
Still, some of the new rules are quite simple, Miller said.
“It’s clear that existing ground leases and options to purchase
given to ground lessees are enforceable,” he said. “The CRA does
not get to walk on its existing obligations.”
The city and county’s long-delayed Grand Avenue project will
also come under the ABX1 26 microscope in coming weeks. The CRA
contributed two parcels to the four-piece development site on Grand
Avenue, including the land for the under-construction Broad museum.
Bill Witte, president of Related of California, which has the
development rights to the site, said the collection of land is
formally owned by the joint powers Grand Avenue Authority and is
protected by contractual obligations.
It may take months for the CRA’s successor agency to establish
which assets are candidates for sale. There will likely be some in
Downtown, but not enough to send shockwaves through the market,
said land-use attorney John Whitaker of DLA Piper.
“There’s potential for some sales of properties owned by the
redevelopment agency or successor agency for fair market value, but
there aren’t that many properties, I don’t think, of significance,”
Whitaker said.
One exception could be the grassy hillside at Fourth and Olive
streets where the CRA has routinely dispatched goats for some
creative landscape maintenance. The parcel was long ago envisioned
as the third phase of the adjacent California Plaza office
development, but the agency still owns the land.
Also unclear is whether the successor agency will have the
authority to bind buyers to CRA-enacted conditions. In
redevelopment deals, agencies generally require their partners to
pay for community benefits, from open space to affordable housing,
in exchange for development rights and other incentives. Such
conditions generally lower property values and reduce the buyer
pool. That could imperil the new law’s order to sell assets
“expeditiously,” but it would make for more attractive
opportunities for investors, Whitaker said.
The successor agency will not be authorized to engage in any new
redevelopment activities that require expenditures or add more
debt.
Contact Ryan Vaillancourt at ryan@downtownnews.com.
©Los Angeles Downtown News.
