Hollywood Parking Ills Cost City
Shortfall: Revenues from the Hollywood & Highland parking garage will not be enough for a bond payment.
By HOWARD FINE
When L.A. city officials approved TrizecHahn Corp.’s Hollywood & Highland retail and entertainment project four years ago, they took a gamble.
They agreed to sell bonds to finance a parking structure on the project, pledging city parking funds as security in case the structure couldn’t pay for itself.
In the four months since Hollywood & Highland opened, that gamble doesn’t seem to be going well. The 3,000-space underground parking garage is rarely full, as fewer-than-expected visitors have come to the complex.
Last week, city transportation officials acknowledged that revenues from the city-owned parking structure were coming up short and that they would have to tap into citywide parking funds for at least $2.3 million to make imminent bond payments. Those funds had been earmarked for repair and replacement of parking meters and the development of public parking structures.
“Additional funds to cover the difference between the bond payment amount and the Hollywood-Highland parking facility will have to come from the citywide Special Parking Revenue Fund,” said Alan Willis, principal transportation engineer with the city’s Department of Transportation.
Officials with the city and TrizecHahn attribute the shortfall to a confluence of factors. First, the project opened nine months later than originally predicted, leaving the city with fewer revenues to make the initial May 1 bond payment. That alone will require tapping $2.3 million in citywide parking funds.
Additionally, Sept. 11 and the recent economic downturn have kept away large numbers of tourists. And many shoppers feel that parking rates at the city-owned parking garage are too high. TrizecHahn officials are trying to persuade the city to lower the fees, which range up to $10.
All of these factors are likely to force the city to draw even more from the citywide parking fund for the first payment and quite possibly for future payments as well.
“We anticipated this might happen, just not this soon or this severe,” said state Assemblywoman Jackie Goldberg, who was the Hollywood area city councilwoman when the TrizecHahn deal was signed and the bonds were sold. “At the time I felt and I still believe that in the long term the project will generate additional revenues.”
Goldberg spearheaded the negotiations over the project, persuading her fellow councilmembers to have the city commit an unprecedented level of resources to the development.
$97 million in city funds
The city put $97 million toward the $615 million Hollywood & Highland project: $67 million for the parking structure and $30 million to fund a portion of the construction cost of the Kodak Theatre, which next week will host the Academy Awards.
TrizecHahn is on the hook if the revenues from the project are insufficient to pay off the $30 million in theater bonds. The city is on the hook if revenues fall short of the roughly $5.4 million in annual bond payments for the parking structure.
According to the bond prospectus issued by the city, the developer’s consultant, Walker Parking Consultants, projected that the parking structure would generate $7.3 million in its first year of operation. Subtracting out the $2.1 million the city is paying each year to Five Star Parking to operate the structure, that leaves $5.2 million in revenues that could be used to pay off the bonds just short of the amount needed for the annual bond payment.
(Parking revenues were projected to increase to $8.5 million by 2004, leaving a little more of a cushion for the city to make the bond payments.)
Willis said last week that the city did not know how much had been collected at the parking structure or how much the shortfall would be. That’s because the agency is conducting an audit of revenue collections after confusion over the parking validation program during the first few weeks of operation.
“We’re looking to see if all the parking fees that should have been collected were in fact collected,” Willis said. “Only then can we tell how much the shortfall actually is.”
The audit should be completed in time for the DOT to present its final budget to the mayor early next month, he said.
City officials could draw on a $5.4 million reserve fund set up with bond proceeds to close the parking revenue gap. However, terms of the bond sale require the city to fully replenish the reserve fund in 12 months, making that an unattractive option.
The question is whether the city will be forced to tap the citywide parking fund for future payments, and that depends largely on whether the parking lot can be filled.
While the economy may be reviving, tourism remains way down. That’s forcing the center to rely more than anticipated on local customers. And even TrizecHahn representatives say that the project is losing ground, largely because of the high parking rates.
“We’re competing against the Beverly Center, which charges $1, against Century City Shopping Center, which charges nothing for the first three hours, and against the soon-to-be-opened Grove Shopping Center, which will charge $1,” said Jerry Neuman, an attorney with Allen Matkins Leck Gamble & Mallory LLP, who has been counsel for TrizecHahn on the project. “And here we are, charging $3 an hour up to $10 for an evening of shopping and dining.”
The city’s Department of Transportation set the rates after conducing a study of rates at surrounding parking lots. “The typical rate in nearby lots is $2 every 15 minutes, or $8 an hour, so this is therefore one of the least expensive rates in the area,” Willis said. Most of the other lots in the area, however, are not connected to shopping centers.
“We are trying to determine if it’s possible to promote increased usage of the garage without reducing total revenue,” he said.
Neuman said those discussions focus on two tiers of rates: one for movie-goers and shoppers; the other for special events held at the Kodak Theatre. He said the discussions are also looking at the possibility of TrizecHahn taking on more of the debt payments for the city-owned Kodak Theatre.
Beyond lowering the rates, filling the parking garage may depend on whether there’s enough at Hollywood & Highland to attract repeat visitors.
“Look, back when Westwood was really hot 25 years ago, I operated a parking lot and charged $5 for cars to park there,” said Bill Francis, managing principal with the Burbank office of Walker Parking Consultants. “Many said that was way too much to charge for parking, but you know what, people paid that charge. And they kept coming back because Westwood was the place to be. The lot was full virtually every afternoon and evening. When Westwood was no longer the place to be, though, the parking rates were the first thing to be criticized.”
New Cities Would Be on Hook for Development Debt
By HOWARD FINE
With secession movements afoot in Hollywood and two other sections of the city, what happens to community redevelopment projects like the one at Hollywood & Highland if a breakaway actually occurs? Who ends up with the bonded indebtedness?
State law allows for all redevelopment projects in these areas to transfer to the new cities. State legislation governing redevelopment law requires that revenues collected within community redevelopment project areas remain in those project areas. And if that area changes jurisdiction, it would make sense to have the project also change jurisdiction.
But the interpretation of the law is that there is no definitive requirement that a specific project area be transferred to a new city. Ultimately, it’s up to case-by-case negotiations between the parties involved.
“This would become part and parcel of the complex negotiations over asset transferal,” said Craig Hoshijima, senior managing consultant with the Newport Beach office of Public Financial Management Inc., which just completed an analysis concluding that Hollywood could be a viable city. “In most cases, the new city would take title to the redevelopment projects.”
That’s predicated on the assumption that the new cities would establish their own community redevelopment agencies. And since setting up that structure takes time, the new cities may opt to contract with the Los Angeles Community Redevelopment Agency, at least on an interim basis, according to CRA Deputy Administrator Richard Benbow.
The situation is murkier for those projects like Hollywood & Highland, which have decades worth of bond payments still outstanding.
“It all depends on the bond covenants,” said Larry Kosmont, an L.A.-based economic development consultant. “Some bond covenants allow for the transfer of debt to another jurisdiction; others don’t.”
For those that do allow the transfer of debt, splitting up the revenues is fairly simple, thanks to the requirement that all revenues generated by a project stay within the redevelopment project area it’s located in.
But for those that don’t, Kosmont said it might be necessary to have the new jurisdiction refinance the bonds or pass through revenues to the L.A. Community Redevelopment Agency. The refinancing option, though, could come at a price: Kosmont said some bond covenants place a penalty on refinancing, typically about 2 percent of the remaining principal.