Related Cos. is three weeks away from final approvals on an affordable housing project in Pacoima, and is also trying to launch an $80 million mixed-use development in Little Tokyo. Both projects have been in the works for two years.
They’ll both be in jeopardy if Gov. Jerry Brown’s controversial proposal to eliminate redevelopment agencies goes forward. That’s because Related said the projects need redevelopment money to pencil out. Without that money, the company would likely have to drop them.
“These projects have been in the works for some years and now the plug could just get pulled with no warning,” said Bill Witte, managing partner of the California division of New York-based Related.
Related is just one of dozens of L.A.-area developers with projects in limbo as a fierce battle is being waged between cities and the Brown administration over the future of redevelopment.
The company’s biggest local project, the renewal of downtown L.A.’s Grand Avenue, could also be affected because the financing for the affordable housing section could be at risk.
Christine Essel, chief executive of L.A.’s Community Redevelopment Agency, said the loss of funds would have economic consequences throughout the city because the 275 projects in the agency’s five-year pipeline could generate up to 40,000 construction jobs and 10,000 permanent jobs.
“What’s at stake is the city’s ability to implement an economic development strategy to address the city’s unemployment rate and economic difficulties, especially in the hardest hit neighborhoods that are now redevelopment areas,” Essel told the Business Journal last week. “In some of the census tracts in our redevelopment areas, we have unemployment rates of nearly 40 percent.”
Redevelopment agencies sell bonds and use the money to subsidize approved projects. The bonds are repaid with an increase in taxes created by the improvements on the land. Those projects for which bonds have been sold would be allowed to go forward under Brown’s plan, and so could projects that only have binding development agreements. But any projects in earlier stages would be at risk.
In Santa Monica, one developer said the prospect of eliminating redevelopment agencies places his project under a cloud of uncertainty. Metropolitan Pacific Capital and Kansas City, Mo.-based AMC Entertainment Inc. want to tear down a downtown municipal parking garage and build a 12-cinema multiplex with a four-story Imax theater.
John Warfel, vice chairman of Santa Monica-based Metropolitan Pacific, said even though the project would not directly receive redevelopment subsidies, the project does depend on infrastructure improvements, which could be imperiled.
“We have no idea how the development process would be impacted if the redevelopment agency were forced to close down,” Warfel said.
The impact could be more dramatic in the east San Gabriel Valley city of Pomona, where Upland-based Lewis Retail Centers is proposing to turn a pair of shuttered auto dealerships into a major retail center with at least one big-box anchor tenant. The city plans to buy the property through bond financing.
“If the governor’s proposal goes through, our ability to acquire the land from the current owners would be seriously compromised,” said Raymond Fong, the city’s redevelopment director. “If we can’t acquire the land, it’s likely the entire project collapses.”
Calls to Lewis Retail executives were not returned.
Unlike Los Angeles and other cities, Pomona as of late last week had not taken any steps to move redevelopment money to shield them from the governor.
As part of his budget proposal released earlier this month, Brown said he would eliminate nearly 400 redevelopment agencies throughout the state as of July 1. Saying they divert tax money to developers, he said he would redivert $1.7 billion a year that the agencies collect in property taxes to local school districts, counties and other local jurisdictions. Brown said at the time that with the state facing a $25 billion deficit, schools and other local government agencies deserved priority over long-term redevelopment.
Under Brown’s Jan. 10 budget proposal, all redevelopment agencies would be dissolved July 1. Projects already under way would be completed under a replacement agency that would also handle payment of outstanding bonds. Projects in the pipeline would be cut off. The governor has said he wants local voters to approve the funding of them. Brown also wants to scrap enterprise zones, where companies get tax credits for hiring employees.
The Los Angeles CRA met hastily behind closed doors Jan. 14 and agreed to turn over control of $930 million for the agency’s 275 projects to the city to shield redevelopment money from the state.
A Brown spokesman reacted angrily to the CRA’s move, saying the governor hoped that the agency was not “squirreling away money for the indefinite future when schools, police and firefighters are in need of this funding.”
The Los Angeles City Council considered the fund transfer last week, but decided to put off a vote until at least this week to further study the issue.
Following the example of Los Angeles, other redevelopment agencies across the state hastily crafted similar transfers, including local agencies in Culver City, Long Beach, Pasadena and Santa Monica.
The issue of redevelopment agencies historically has split the business community roughly along big business-small business lines. Bigger developers say they need the financial help to offset the risk of building, particularly in areas that are economically stressed.
But critics charge that the redevelopment system benefits wealthy developers who contribute to political campaigns and tend to get favored treatment from the politically oriented redevelopment authorities. They also say redevelopment agencies’ use of eminent domain often hurts small businesses and property owners because they are the ones forced to leave their stores and sell their land.
Witte at Related said he hopes the strategy of shielding the money from the state will work, but he’s still concerned.
“I’m a little more confident with the CRA action that the projects can move forward, but the situation is still very volatile and no one is sure where this is all going and what it’s going to mean for our projects,” he said.
Related’s Grand Avenue project is slated to receive CRA funding for affordable housing units, among other things. However, the collapse of outside financing has forced the company to put that project on hold.
Witte hopes that the current fight over redevelopment zones is resolved long before the company is ready to resume the downtown L.A. project. But if redevelopment agencies were to be eliminated, he said it was unclear how the affordable housing component of the project would be financed.
“There’s much worry in the affordable housing community over the governor’s proposal,” he said. “This is the main financing mechanism outside of federal tax credits and outright grants from the state.”
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