Developers across the country were encouraged last week when the U.S. Supreme Court narrowly ruled that municipalities can forcibly take private property for economic development projects.
But in Los Angeles, developers more or less shrugged.
California’s Constitution bars municipalities from using private property for economic development projects unless city officials can prove the area is blighted, while the Supreme Court decision covered a more expansive definition of condemnation used in other states.
“In California we can only condemn property that is blighted and we have to have a study that shows that,” said Bud Ovrum, chief executive of the Community Redevelopment Agency of Los Angeles.
The state constitution narrowly defines blight and puts the onus on municipalities to prove the area is in need of economic redevelopment. Still, property owners have long complained that local redevelopment agencies too loosely define blight and exercise eminent domain too frequently for development.
To a degree, Ovrum agreed. He said defining blight can be subjective, and there is frequent disagreement between municipalities and property owners. “It’s like pornography,” he said. “It’s in the eye of the beholder.” Those disputes often end up in court.
Ovrum, who on July 1 will become deputy mayor for economic and community developemt in the Antonio Villaraigosa administration, said he believes the decision will likely have little local impact.
Howard Katz, a Casden Properties Inc. vice president, said the ruling reinforces the right municipalities have to create new master plans for neighborhoods and to improve their economies. He said cities, especially built-out ones like Los Angeles, find it difficult to assemble enough property to build new projects without exercising eminent domain.
“The reality is that it’s very hard to assemble properties,” he said. “It takes a partnership between the developer and the city to make that happen.”
Still, Katz contended most cities in California frown on using eminent domain, especially if property owners oppose selling their land.
In response to the ruling, state Sen. Tom McClintock, R-Thousand Oaks, said he was introducing legislation to amend the California constitution to make it more difficult for municipalities to use eminent domain.
It also would require land forcibly purchased by municipalities to be restored to the original owners or their rightful successor if the property isn’t used. “The U.S. Supreme Court broke the social compact by striking down one of Americans’ most fundamental rights,” McClintock said, in a statement.
Bidding Intensifies
Bidding for one of L.A.’s premiere downtown office towers has been narrowed down to three.
The finalists for Wilshire at Figueroa, formerly known as Sanwa Bank Plaza, are Maguire Properties Inc., Thomas Properties Inc. and German investment firm Rreef Funds LLC, according to sources close to the deal.
Industry chatter seems to favor Maguire, a local real estate investment trust, snagging the 1 million-square-foot high rise. Calls seeking comment from Maguire Properties weren’t returned.
All three bids are north of the building’s $350 million asking price, sources said. The 52-story building is owned by a partnership of Hines and Deutsche Immobilien Fonds AG. The partnership has hired Secured Capital Corp. to market the property. Messages seeking comment from Secured Capital weren’t returned.
Some downtown brokers believe the building could have some leasing challenges. Within the last several months, the building has lost two large law firms, Hennigan Bennet & Dorman LLP is decamping for a 41,500-square-foot pad at the TCW Building and Heller Ehrman LLP is moving to Bank of America Plaza at 333 S. Hope.
Singing the Blues
The owner of the Hollywood landmark Sunset Media Tower, commonly known as the House of Blues building, has put the highrise on the market.
Archon, a division of Goldman Sachs Group Inc., has hired Cushman & Wakefield Inc.’s Carl Muhlstein and Steve Algermissen to find a buyer for the 310,000-square-foot building.
The 22-story highrise is expected to fetch about $85 million, or $275 a foot. By comparison, CIM Group Inc. paid $20 million, or $227 a foot, last month for the Stephen J. Cannell building at 7083 Hollywood Blvd. a deal also brokered by Cushman & Wakefield.
Asking rents in both buildings are about $2.40 a foot.
Archon bought the Sunset Media Tower about six years ago for about $45 million.
The building one of the better office properties in Hollywood is about 90 percent occupied to tenants with long-term leases, the larger of which were signed recently and are near market rates.
Tenants include VNU NV subsidiary Nielsen Media Research, HOB Entertainment Inc. the parent company of House of Blues and Frederick’s of Hollywood Inc., which maintains its headquarters there. There is also 20,000 square feet of completely leased ground floor space, much occupied by a Coffee Bean & Tea Leaf caf & #233;.
Office rents have been rising in Hollywood as older buildings continue to be taken off the market and converted into condominiums and apartments while no new office buildings are even in the planning stage.
At the end of March, office buildings in Hollywood had an average vacancy rate of 8.3 percent, down from 12 percent in the previous quarter and 22 percent from the year-ago period, according to Grubb & Ellis Co.
As the amount of office space decreases, rents in the community’s existing buildings are expected to rise. Average Hollywood asking rates were $2.45 a foot at the end of March an increase from $2.28 a foot in the year-ago period.
*Staff reporter Andy Fixmer can be reached by phone at (323) 549-5225, ext. 263, or by e-mail at
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