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Thursday, Mar 30, 2023

Politics Plays With Projects

Developer Howard Kozloff is steering clear of any multifamily projects in the city of Los Angeles for the next few months.

Instead, he’ll wait to see how rival ballot measures with potentially conflicting restrictions on new development, one approved last month and the other going before voters in March, shake out on the legal and policy fronts.

“These two don’t work together,” said Kozloff, managing partner of Agora Partners in West Los Angeles. “We’re not going to spend time and money on sites that require zoning changes to work. … And we won’t until April at the earliest, after the March ballot.”

Whichever measure becomes law – the recently passed Build Better L.A. or the proposed Neighborhood Integrity Initiative – developers will face strict new rules that some say could make construction costs prohibitive, curbing development and slowing the creation of much needed new housing.

Build Better L.A. requires multifamily projects that need planning variances to provide affordable housing and hire local workers at union wages.

The Neighborhood Integrity Initiative would put a two-year ban on all commercial projects that need planning variances, unless they offer only affordable housing. Once the moratorium ends, the initiative would prohibit most projects that require general plan amendments.

The biggest contradiction? Build Better L.A., also known as Measure JJJ, aims to achieve its housing and labor goals by allowing general plan amendments, zone changes, and height district changes. The Neighborhood Integrity Initiative is designed to wipe out those changes altogether, beginning with the moratorium and leading into permanent policy once the city’s planning framework is updated.

“Build Better L.A. says you can move forward under certain conditions. The Neighborhood Integrity Initiative, however, says you cannot move forward at all,” said Dale Goldsmith, a land-use attorney at West L.A.’s Armbruster Goldsmith & Delvac who represents many developers.

What’s most likely, according to Goldsmith and other land-use experts, is that the Neighborhood Integrity Initiative, if passed, would override Build Better L.A. to some extent.

What’s still unclear is whether it would wipe out the measure completely, dispense only with contradictory provisions, or allow Build Better L.A. to fall into place after the end of the two-year moratorium.

Frank Mateljan, a spokesman for Los Angeles City Attorney Mike Feuer, said the office is working on comparing the substantive provisions of the two ordinances, and could not yet say how the Neighborhood Integrity Initiative would affect Build Better L.A.

Ultimately, the task of untangling the contradictions would likely fall to the courts.

“Someone would have to file a lawsuit and ask the judge to decide these issues,” said Ed Casey, a land-use attorney at downtown’s Alston & Bird. “The court’s job is to find something where you can reconcile the initiatives.”

That could put developers such as Kozloff in limbo for months – at least – as they wait out lengthy litigation.

“The city will have to wait to see what the court does with either or both of them before figuring out the implementation,” said Kyndra Joy Casper, a land-use attorney at Liner’s downtown office.

Dueling visions

The two ballot measures that could wield tremendous influence over L.A. development – and are stirring up serious concern in real estate circles – were born from competing visions for city growth.

The Coalition to Preserve L.A., backed by the AIDS Healthcare Foundation, introduced the Neighborhood Integrity Initiative in November 2015.

The foundation, based in Hollywood, had already taken a strong stance against large development in the area, fighting against a three-story Target on Sunset Boulevard, the Millennium Hollywood mixed-use complex, and the Palladium Residences. All three projects are still in planning limbo, with the Palladium recently targeted by an AIDS foundation lawsuit filed against developer Crescent Heights and the city of Los Angeles.

The Neighborhood Integrity Initiative would aim to halt such projects from the get-go. In addition to the moratorium on projects that require a general plan amendment, or zone or height changes, it would order independent consultants to file environmental impact reports, rather than the developers who are aiming to get the projects approved. The initiative would also order the city to do a massive redo of its planning code to prevent so-called “spot-zoning.”

The initiative drew opposition from affordable housing and labor advocates, who launched Build Better L.A. in February with their own take on how to fix L.A.’s development woes. Under Build Better L.A., most major multifamily developments that need zone changes would have to set aside a certain percentage of the units as subsidized housing for low-income residents. Also, developers would need to hire local workers and pay the prevailing wage. It also provides incentives for developers to build housing near major transit lines.

Build Better L.A. and the Neighborhood Integrity Initiative were initially both on the November ballot, which would have made them “competing measures” with only one able to prevail. But when the Neighborhood Integrity Initiative moved to the March ballot, it opened up the possibility of both being voted into law.

Finding way

Even if the Neighborhood Integrity Initiative doesn’t pass, the development community is already raising red flags about Build Better L.A., which land-use experts describe as vaguely written. That could lead to litigation to clarify the roadmap for developers.

“There are a lot of provisions in the code that are unclear,” said Joel Miller, vice president at land-use consultant firm Psomas in downtown. “Someone is going to raise his hand and say, I don’t understand this. Forget whether I agree with this or not – I just don’t understand.”

The Neighborhood Integrity Initiative campaign is also in the confusion camp about how to interpret Build Better L.A.

“It’s vague and it’s convoluted,” said Neighborhood Integrity Initiative campaign manager Jill Stewart.

If her measure passes, she is looking to city officials to untangle any contradictions with Build Better L.A. “The bottom line is figuring out what each subsequent law changes about existing law,” she said.

Rusty Hicks, who is campaigning for Build Better L.A. as executive secretary-treasurer of the Los Angeles County Federation of Labor, said he expects his measure to be slightly tweaked and clarified as the city puts it into action, and recognizes it could still face legal challenges.

“It doesn’t surprise me that some who would be unhappy with particular provisions of JJJ would talk of litigation,” he said. “But I’m certain that in the end, the policy will be implemented in line with what the intent of the voters was.”

That is, if it’s not completely trampled by the Neighborhood Integrity Initiative. As Hicks interprets the initiative, its approval would eliminate all provisions connected to JJJ.

If Build Better L.A. stands, housing developers are anticipating tough times as they face higher costs and lower returns.

“Higher construction costs and increased affordability without any offsets is just going to lead to fewer housing units,” said James Armistead, downtown L.A.-based vice president of development for Fairfield Residential in San Diego.

Developer Kozloff is already doing the rough math. Many projects that previously would have been profitable now would not even come close to breaking even.

“It is not a matter of saying, Oh, well now, my margin’s going to be 20 percent instead of 22 percent. This is: My margin’s going to go from positive to negative,” he said.

Meantime, owners of developable land will just stand pat, waiting for buyers to resume interest.

“Untitled land is probably not going to be put on the market for sale,” said Mark Tarczynski, executive vice president at Colliers International downtown. “(Owners) will just continue using it as a parking lot or whatever it is.”

On the flip side, entitled land is now highly sought after and is likely to increase in value, he said, as it becomes scarce.

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