Lots of Space

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The automobile industry has delivered a double whammy to cities nationwide, including those in California. A significant decrease in the sales tax revenue usually generated by auto dealerships has shrunk the municipal coffers of already cash-strapped cities. On top of that, vacant dealership properties standing as ghostly reminders of the Great Recession are endangering the long-term economic vitality of those cities.

The number of existing auto sales facilities nationwide is based on a national annual sales rate of 16 million vehicles; sales in 2009 dropped to 10.4 million vehicles, the lowest in nearly 30 years. But it is generally accepted that even before the onset of the recession, the auto sales industry was overbuilt and overfacilitized. Add to this the automobile industry’s significant transition, the change in how people buy cars and ratcheted-up credit standards. It is unlikely, even when the economy recovers, that we will see many of these vacated dealerships put back to use by new car dealers.

Cities with vacant dealerships need to evaluate how these properties fit into their plans, and to envision how the space can be repurposed to boost city income and bring value to the cities’ citizens.

How cities approach the reuse of these properties will be determined, in part, by whether the dealerships are older properties in long-standing parts of the community or located in newer auto malls on the outskirts of suburban areas.

Older dealerships are typically on one or two acres. If the city has recently updated its general plan or zoning codes, flexibility may exist for infill, mixed-use or transit-oriented development. Existing infrastructure like water, sewer and roads may be sufficient for an infill project.

While it may not be difficult to envision a mixed-use development in place of a vacant auto dealership in the middle of town, making it happen may not be so simple, especially in Los Angeles.

Community objections

It takes a lot of time to go through the entitlement and environmental review processes before permits and approvals can be obtained by developers. Nearby residents will inevitably weigh in. Although no one wants to live adjacent to a vacant car lot, community objections to increases in building height, density and traffic can hold a project hostage until some creative negotiation (or litigation) pries it loose.

Culver City is a classic illustration of some of these challenges faced by developers. The city has long desired a transit-oriented development on Washington and National boulevards, at the interim terminus for Metro’s Exposition Line. Developers purchased an aging Mazda dealership to make way for an increased-density, mixed-use transit-oriented development allowed under the city’s mixed-use ordinance, and included public parking for the nearby transportation hub. City planners, however, put the project entitlements on hold pending completion of Culver City’s comprehensive Specific Plan for the area. Those delays ultimately substantially lengthened the development and entitlement periods, which brought the project to a halt during the economic downturn.

Newer dealerships are often located at the edge of suburban areas in auto malls that are “hard zoned” for vehicle sales. Typically four to five acres – but sometimes as many as 12 acres – these dealerships have provided significant sales revenue for many cities. City officials may resist repurposing the land in hopes that the industry will rebound, and making the major zoning changes that will allow for more diverse projects can become a political battle. But many of them will recognize that, over time, these outlying areas will become urbanized, as happened to the areas where the older dealerships now reside. Inevitably, land values will rise, and higher land-value development will become desirable. Why not plan for the future?

Developers are cash-strapped, too. While many can envision creative, adaptive reuses for shuttered dealership properties, the credit market has made risk-taking nearly impossible. Some cities and developers are using the recovery-zone economic development bonds and recovery-facility bonds made available through the stimulus bill (American Recovery and Reinvestment Act of 2009) to attract new employment to vacant facilities and to develop public facilities, educational and vocational facilities, and make infrastructure improvements. While public money comes with stringent requirements, the net result to cities, developers and entire communities could be transformative.

Cities are also creatively attracting employers and reviving blighted properties by providing redevelopment loans, investing property tax increments or future sales taxes in a select group of private partners. For example, Johnson Fain, an L.A.-based architecture firm, recently transformed a former downtown car dealership into its headquarters. This kind of adaptive reuse of an existing structure creates a vibrant and thriving employment environment that has fiscal benefits for all community stakeholders.

Private development dollars do still exist, and cities that remove barriers to potential development partners will have a better opportunity to experience the kind of growth that will help their cities in the short term. No matter how the auto industry evolves or how people buy cars decades from now, cities that plan for the long-term viability of their communities will have a better shot at an economically sustainable future.

David Waite is a land use and environmental lawyer at Jeffer Mangels Butler & Marmaro LLP in Los Angeles.

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