MTA—Subway Stops Prove Alluring To Developers

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After years of talk and several false starts, the Metropolitan Transportation Authority appears to be picking up steam in its efforts to develop the property around its subway stations.

With the recent announcement that the agency had reached an exclusive negotiating agreement with Wilshire Entertainment Center LLC, contracts have been signed for four stations and another three are being hashed out.

“The developers we’re working with now seem very optimistic and are negotiating in good faith and show no desire to pull back,” says Carol Inge, deputy executive officer for MTA.

Working through the bureaucracies involved in developing subway sites can be a frustrating process. Plans must be approved by the MTA, the Community Redevelopment Agency and often the Los Angeles Housing Department, a process that often can take years to complete.

But once that happens, there is a snowball effect. “For certain there’s a sense of momentum,” said Tony Salazar, president of McCormack, Baron, Salazar Inc., which is preparing to start a second phase of development at the Hollywood/ Western MTA station. “Once you have one or two of these going up, these portal sites are seen as desirable development activities.”

There are only two stops with actual buildings on them: the 60 units of affordable housing all occupied at Hollywood/ Western and TrizecHahn Development Corp.’s Hollywood & Highland mixed-used development. MTA is negotiating with Wilshire Entertainment Center and MacLeod Partnership LLC for two others and is accepting bids for development at three more. The negotiations involve the developer leasing the property on which it will build.


Momentum as economy slows

“I think the slowing that has occurred and is occurring may not impact the success of the project as our demand, in terms of density, is recession-proof,” said Rob MacLeod, principal at MacLeod Partnership. He says his plans for the Westlake/MacArthur Park station would work in a flagging or booming economy.

With more than 1 million people within a mile of the station, MacLeod said, the mix of national and local retailers and restaurants will find a captive audience. If he can get the money to build, that is.

MacLeod said lenders are tightening their belts because of the suspect economy and are particularly wary of projects on leased land, since lenders are more likely to lend on projects that offer both land and improvements as collateral, in case the developer defaults on the debt.

Despite that preference, lenders must satisfy regulations that require investment in urban redevelopment and could be more willing to take the chance on something built in conjunction with an MTA station.

For Salazar, who expects to get working in February on Phase II of his development, that means building 10,000 square feet of retail, a day care center for MTA riders to be run by the YWCA, and another 60 units of affordable housing. MacLeod, meanwhile, is proposing a $25 million development for a 45,000-square foot market and 70,000-square feet of retail at the Westlake/MacArthur Park station.


Ridership role

From the time workers started boring the subway tubes, skeptics expected that Angelenos would avoid the system in droves. As it happens, ridership in May was up 10,000 daily boardings from April. And as foot traffic at the stations increases, the chances for retail success rise accordingly, Salazar said.

“In the development community you have Grade A opportunities, you have Grade B, Grade C,” Salazar said. “I think people are seeing these are very Grade A opportunities. I don’t think these types of sites are going to get hurt.”

The only cloud on the horizon, he conceded, was if the credit tenants Starbucks, Tower and Blockbuster pull back from opening new locations. That’s when projects will not pencil out.

“Once (credit tenants) stop developing new sites, then the whole economy is going to start shutting down pretty drastically,” Salazar said.

Architect Jon Jerde, chairman of Jerde Partnership International Inc., said the first question to ask is whether the subway itself works. If it does, development at the sites should work simply because subway stations will be congregation points for riders.

“If one were going to develop (during a recession) this would be the place to go develop because this is the low-cost way of moving through the city,” he said. “Ridership would probably go up during a recession.”

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