Hollywood & Highland Sale Price Cuts CRA Income
By DANNY KING
And a declining tide lowers the fleet.
The pending sale of Hollywood & Highland, at the deeply discounted price of about $200 million, will lead to a 7 percent cut in the amount of money L.A.'s Community Redevelopment Agency uses to meet its Hollywood bond obligations.
In the fiscal year ending June 30, CRA will take a $14 million share of the property tax revenues collected in the 1,100-acre Hollywood redevelopment zone.
But when the deal between CIM Group Inc. and Trizec Properties Inc. closes later this quarter, its assessed value will decline by $100 million. That will result in a cut to the projected tax increment revenues for the area's redevelopment zone of about $1 million a year, according to the CRA.
The $200 million price tag represents roughly a third of the development cost for the 1.2 million-square-foot retail and entertainment center and the adjoining 637-room Renaissance Hollywood Hotel. It is about two-thirds of its assessed value on county tax rolls.
"The $100 million change in value is significant there's no other way to slice it," said Larry Kosmont, president at Kosmont Cos. "The chance that (the CRA) totally made it up from surrounding properties is slim."
With interest rates remaining low, $1 million can be leveraged into as much as $10 million in investment, and with state, county and city funds being tightened, the reassessment reduces a valuable source of public funding.
But Helmi Hisserich, deputy administrator for the CRA's Hollywood region, said the agency's budget for the redevelopment zone would not be adversely affected by the revised assessment, noting that appreciating values of properties surrounding Hollywood & Highland would make up for the projected shortfall.
"Our current budget is not impacted in any way," said Hisserich. "Nothing will be pushed back by this."
The assessed value of the properties in the Hollywood redevelopment zone is $3 billion for the fiscal year ending June 30, up from $1.8 billion for the year ended June 30, 1986, when the zone was established.
With property values increasing at a 6 percent to 7 percent annual rate, the projected drop in income from the Hollywood & Highland sale will be made up in about a year, said Hisserich.
Assessed values have been increasing at between 6 percent and 7 percent annually, and if that pace keeps up the drop at Hollywood & Highland would be made up in about a year, she said. She insisted that the decline in the value of Hollywood & Highland was an anomaly.
The $14 million collected by the CRA in the Hollywood redevelopment zone is its share of the annual increase in property taxes as values appreciate. This tax increment funding is used to repay bonds issued to raise the CRA's contribution to specific projects in the zone.
Despite Hisserich's assurances, the Hollywood & Highland-induced reduction has raised concern from at least one developer seeking CRA funds for a new project in the Hollywood zone.
"We've factored in some dollars from the CRA, and I hope they give us some attention," said Albert Otero, partner at L.A.-based American Housing Partners, which is developing a mixed-use project at the old Louis B. Mayer building at Hollywood Boulevard and Western Avenue.
Otero is seeking CRA funding of about 10 percent of the $35 million development, which could include 180 residential units and 30,000 square feet of retail. "The person going in (to the CRA) with big expectations is going to get shot down," he said.
Having focused much of its efforts on commercial projects in Hollywood's historic core along Hollywood Boulevard west of Gower Street, the CRA is migrating southeast and has played a greater role in projects with residential components.
Its $3.6 million backing of a Walgreens-anchored project at Sunset Boulevard and Western Avenue, which includes 56 affordable housing units, is typical of its recent direction.
Three developers are now seeking CRA aid for mixed-use projects in the Hollywood zone, and the agency has already committed about $2.5 million to one of them. It will kick in a little more than 1 percent of the $200 million mixed-use project planned near the intersection of Hollywood Boulevard and Vine Street, which will include a 300-room W Hotel and 262 residential units.
The move into mixed-use development signals a departure from the agency's style, specifically its estimated $90 million contribution to Hollywood & Highland that included a substantial contribution to the project's city-owned parking garage.
Developed by Trizec for about $630 million, the complex opened weeks after the 2001 terrorist attacks decimated the tourist market. As a result of poor performance, Trizec took $360 million in write-downs for the project between the fourth quarter 2001 and the third quarter 2002. The Chicago-based developer agreed to sell the project to CIM in January.
"The silver lining is that the buyer's a good buyer," said Kosmont. "Maybe they'll revitalize (the complex) so that sales tax generation makes up the difference."
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