Development OK Spurring New Projects
Despite last week's designation by the L.A. City Council of a 879-acre downtown redevelopment zone with the potential for as much as $2.4 billion in government investment and subsidies the first steps in the process will be small.
And they won't happen soon.
"The money's not really going to start flowing until year three," said Don Spivack, deputy administrator for the Community Redevelopment Agency, which formulated the zone. "Nothing will really happen for a couple years."
Over the next 30 years, the plan calls anticipates nearly 13,000 new housing units, the development of 6.7 million square feet of commercial space and myriad infrastructure improvements.
With the approval in hand, the CRA will kick off the process of using existing funds and borrowing from sources like federal block grants to generate commercial development projects in the area.
The CRA expects to spend $53 million, less than 2 percent of the total, over the next five years. Of that, $19 million will be directed toward economic development and $13 million toward a combination of market rate and low-income housing. The balance will be targeted toward public facilities and homeless services.
As a result, imminent changes in the area will be measured in small steps, not giant leaps. Among the initial projects:
& #149; In league with California Hospital Medical Center's Mercy Housing Arm, the CRA is working to develop 62 affordable housing units at Venice Boulevard and Grand Avenue. Groundbreaking is expected within a year.
& #149; In the Toy District, at the northeast corner of City Center and in the northern part of the Fashion District, the CRA will rehabilitate 1,500 single-room-occupancy units for the indigent in the next two years.
& #149; At Spring Street and Broadway, the CRA is working with private developers to rehabilitate a number of Historic Core office buildings into about 1,300 market rate units over the next three to five years. Plans for parking structures along Broadway are also in the works.
& #149; About $8 million will be spent on the build-out and modernization of homeless shelters throughout the entire zone.
Advocates of the plan believe that the immediate focus on issues like homelessness and infrastructure is necessary to clear the way for larger-scale investments.
"They're going to have to address the homeless issue, and that could be expensive," said Mark Weinstein, president of MJW Investments, developer of the $130 million Santee Court mixed-use project in the Fashion District. "If you don't solve the homeless issue, you won't be able to utilize those areas."
With improvements to infrastructure and public subsidies in place, institutional investors could follow the lead of entrepreneurial developers like Weinstein and Tom Gilmore, who have invested in the area.
"Institutionally financed developers generally feel most comfortable investing in markets where there is strong demand, and strong political will to make their projects financially viable," said Tom Bak, managing director at Trammell Crow Co. Bak would not say whether Trammell Crow is looking at development opportunities in City Center.
By directing public resources toward City Center, the city has the opportunity to succeed where previous redevelopment zones failed such as Bunker Hill in the late 1950s and the Central Business District zone of the '70s.
"When they developed Bunker Hill, they really ignored the blight created in the Historic Core," said Ed Rosenthal, a member of the CRA advisory board and a broker for Grubb & Ellis Co. "By affecting the general environment, they'll make it easier for specific projects to succeed."
The designation is expected to result in an increase in property values and taxes, 80 percent of which will go to either the CRA or its housing trust fund. The $2.4 billion figure would be generated over the next 30 to 45 years, according to Spivack, who declined to estimate how much will be needed to meet the housing and development goals.
"We are certainly not going to spend more than we generate," he said, adding that the CRA's goal is to leverage every CRA dollar spent into $3 in private funding.
Big projects proceed
As for the designation's impact on larger-scale projects like L.A. Arena Land Co.'s $1 billion Los Angeles Sports and Entertainment District Project (aka "Staples II"), and the Philip Anschutz-backed proposal to build a football stadium nearby, nothing has changed, said Spivack.
(County officials, objecting to the inclusion of the 30-acre Staples II site in the redevelopment zone, which it claims would result in the loss of $278 million in tax revenue over 45 years, have threatened to sue the city over the plan.)
"The convention hotel is still under discussion with the city," said Spivack. "The rest of it is kind of market-driven. This has not changed."
Officials from L.A. Arena Land Co. did not return calls seeking comment.
If there is a downside to the redevelopment zone, it's that the anticipated increase in property values might create hurdles for private investors looking to establish partnerships with CRA to develop property.
Ground costs in the eastern portion of City Center range from $75 to $100 a square foot, while land near Staples Center sells for about $120 a foot, according to Rosenthal. Both figures are up about 60 percent over the past three years, a factor that could keep potential private investors on the sidelines until prices level off or come down, according Weinstein.
"You can't keep throwing money at something that doesn't make (financial) sense," said Weinstein. "Having the extra (redevelopment) money won't make much of a difference."
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