Cost of Lost CRA Could Hit Billions

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Cost of Lost CRA Could Hit Billions
Broad Museum rendering.

It’s been feared that disbanding the Los Angeles Community Redevelopment Agency would be a big blow to the local real estate industry. The first tallies are coming in and the numbers are jaw dropping.

In the city of Los Angeles alone, at least 144 projects with a total value of $1.03 billion will lose $345 million in critical redevelopment funds and are likely to be scuttled.

An additional 86 projects valued at $4.83 billion are still eligible to receive public funds because they are further along, but it’s not certain that all of those will go forward either.

Those are the preliminary estimates by the CRA, which has put together a draft survey of its projects as it works to unwind itself now that Gov. Jerry Brown’s plan to dissolve the agencies has been upheld by the California Supreme Court.

Economic development consultant Larry Kosmont said the loss of the L.A. agency and others in Los Angeles County will be profound given the financial state of most cities.

“The biggest impact is there’s no real vital economic development tool for these cities,” said Kosmont, chief executive of Kosmont Cos. “It’s going to have a penetrating and deep impact on many levels.”

The final decisions on projects will be made by hastily organized successor agencies and oversight boards that will be appointed over the next several weeks. However, the law is clear on this much: Any project that didn’t have a written commitment of public funds before June 30 will be out of luck.

In Los Angeles, that means many community facilities, infrastructure and affordable housing projects, but also high-profile plans such as downtown’s proposed CleanTech Corridor and the redevelopment of the Marlton Square retail mall in the Crenshaw District.

Meanwhile, the developments that remain eligible and likely to receive the promised funding include a similar mix of projects, including big ones such as the $2 billion mixed-use Grand Avenue project.

David Bloom, a CRA spokesman, said he believes the loss of public funding actually masks how much development financing is at risk. The agency is providing a modest portion of the total development costs, but it acts as the foundation to attract the larger private-sector financing.

“So there’s a lot of leverage there and a lot of bang for the buck for public investment,” Bloom said.

Troubled projects

The CRA, which has been in existence for some six decades, led development and funds projects in blighted neighborhoods. Its funding was drawn from bond monies paid back by increasing property values.

Brown, arguing the agencies diverted money from more core public services, eliminated them as part of his 2011-12 state budget. Local governments countered that the move was unconstitutional, but the Supreme Court supported Brown in a December decision.

Among the projects that are now without CRA funds is a $69 million housing project near downtown on Washington Boulevard by non-profit developer Mercy Housing. The mixed-use, transit-oriented development with 262 affordable units was slated to receive $10 million from the CRA.

Mercy Housing President Doug Shoemaker said he has been negotiating for years with the CRA on the project, which was supposed to break ground this year. Without the funding, it cannot go forward.

However, Shoemaker believes that the project should be on the list of eligible developments. The CRA board voted to approve the project in March and adopted a development agreement in early June, he said. But it didn’t get to the City Council for final approval until July 1, which means, according to the CRA’s interpretation of state law, it’s not eligible to receive funds.

“They’ve taken the steps necessary from our perspective,” he said. “It’s been through two public bodies and from our perspective that makes it an enforceable obligation.”

Other projects on the unfunded list include 32 housing projects, community planning and infrastructure developments. Among them are public improvements to Pacoima and Panorama City that were set to receive $15 million, as well as a planned artist district in Boyle Heights that was to receive $600,000.

Then there are the projects that didn’t have specific dollar amounts attached to them. Those include the plan to develop a CleanTech Corridor along the Los Angeles River south of downtown. The largest site in the corridor was formerly home to bus manufacturer Crown Coach, and Mayor Antonio Villaraigosa had sought to locate green and cutting-edge companies there.

The redevelopment agency holds a $13.4 million loan on the Crown Coach site, and has attempted five times to get the property in the hands of developers over the years. Last year, it had finally come close to what appeared to be the most promising deal yet. Dallas developer Trammell Crow Co. had agreed to buy the property, but by the time sale details were straightened out and the deal received City Council approval, the June deadline had passed.

“That was a frustrating loss,” Bloom said.

It’s not clear what will happen to the site now. It’s possible the city could allocate other funds to move the Crown Coach and other priority projects along.

Funding available

Projects eligible to receive their redevelopment funds also vary. Among the largest are the planned Broad Museum next to Walt Disney Concert Hall and the adjacent multiphase Grand Avenue project by Related Cos. of New York.

The $152 million museum, which will house billionaire Eli Broad’s art collection, is still set to receive $52 million, while the $2 billion Grand Avenue complex of housing and shops will get $50 million.

Bill Witte, president of Related California, noted that the agreements for the Grand Avenue project were signed in 2007. He anticipates breaking ground on a high-rise tower with 260 market-rate and affordable housing units later this year.

“While there are all sorts of issues in the redevelopment arena, the presumption is that the abolition of redevelopment should not materially affect us,” Witte said.

However, Bloom said the board in charge of disassembling the agency does have the option to choose to not move forward on eligible projects in some cases.

“There’s a good chance that all those will move forward but I’m not going to presume,” he said.

There is uncertainty about what will happen next because it was only just a few weeks ago that Brown named the appointees to the boards that will oversee dismantling of redevelopment agencies statewide.

In Los Angeles, the members are Timothy McOsker, a partner at Mayer Brown who was formerly Mayor James Hahn’s chief of staff; real estate investor Nelson Rising, a former chief executive of MPG Office Trust Inc.; and government relations consultant Mee Semcken, former City Council liaison for the CRA. The group had its first meeting Feb. 3.

The board is in charge of disposing of the agency’s properties, paying off its debts and sorting out all other outstanding work. But it can’t sign off on anything until a county oversight committee is established to approve any decisions. That seven-member committee will include appointees by the mayor, county supervisors, the county superintendent of education, a representative of the California Community Colleges and a representative of the former CRA. There is a May 1 deadline to compose the committee.

What’s more, any decisions of the county oversight board also must be reviewed by the state Department of Finance.

“It’s a fog that hasn’t cleared in terms of the path on how to do this,” said Renata Simril, managing director in the L.A. office of Jones Lang LaSalle Inc. “Hopefully, it leads to lemonade and where you are able to revive economic development and some of these projects.”

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