CRA’s Demise Puts Downtown Properties in Limbo

DOWNTOWN LOS ANGELES - The California Supreme Court's Dec. 29 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.

Correction: A previous version of this story reported incorrectly that the state Supreme Court decision came down on Dec. 30. It was Dec. 29.

Contact Ryan Vaillancourt at ryan@downtownnews.com.

©Los Angeles Downtown News.