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State Breathes Life Into CRA Projects

Several hundred projects in the city of Los Angeles halted by the death of redevelopment agencies apparently have gotten a reprieve, at least for now.

The state’s Department of Finance, which is deciding the fate of thousands of such development projects across California, has approved $318 million in payments to the city through the end of the year.

Among the prominent projects receiving money is the proposed CleanTech Manufacturing site in downtown, slated to receive at least $13 million; a large mixed-use project on Vermont Avenue by J.H. Snyder Co., which is to receive $5 million; and a Grand Avenue mixed-use project by Related Cos., which will receive $6 million.

The Related project is part of a stalled but ambitious effort to redevelop Grand Avenue around Walt Disney Concert Hall. The money will be used to leverage private investment, subsidize affordable housing and build public improvements.

“I’m obviously pleased they approved it,” said Bill Witte, president of Related California, a unit of the New York company. “We always thought it was a pretty open-and-shut case, but it’s nice to have that behind us because lenders and investors look at this stuff.”

The decision by finance officials was welcomed by local developers and L.A. officials. It stands in marked contrast to the disappointment felt last week by Glendale, Pasadena and several other cities when a Sacramento Superior Court judge refused to bar the state from taking millions of dollars of redevelopment funds.

A law last year backed by Gov. Jerry Brown dissolved California’s roughly 400 local redevelopment agencies.

The agencies subsidized local construction projects by keeping some property taxes that normally would have gone to the state and other taxing entities. Brown’s move last year was aimed at taking back some of that money to help balance the state’s budget.

At issue is an estimated $5 billion in redevelopment funds, but the law allows local officials to retain money to honor “enforceable” redevelopment obligations. And that’s where Los Angeles appears to have benefited.

H.D. Palmer, a Finance Department spokesman, said the agency followed the strictures laid out in the law and approved funding for projects that had a written contract with financial obligations for a specific payee signed before June 27, 2011. Those obligations also had to have a dedicated funding source, such as property taxes or agency reserves.

It is not clear how many building projects appear to be saved. But the $318 million Los Angeles is receiving will go toward at least 830 financial obligations that include not only projects but employee salaries and payables as small as $1,500. More than $206 million was approved for obligations incurred between January and June, and an additional $111 million will be paid in installments between July and December.

Receiving the funding will be the successor agency to the Los Angeles Community Redevelopment Agency, which like others in the state was formally abolished last year.

A spokesman for the successor agency, which adopted the same name as its predecessor, said that officials believe that any project that received money in the two disbursements was in good position to be fully funded in the future, though it was not certain since state officials will review projects twice a year.

“We certainly hope that to be the case but each six-month review is another bite at the apple,” said CRA spokesman Ackley Padilla.

The L.A. agency estimates its total obligations are more than $2 billion over several years.

Paid projects

The CRA announced that dissolving redevelopment agencies was putting at least 144 local building projects valued at more than $1.03 billion in jeopardy.

Not all of those were funded by the state this month, but among the more prominent ones that did get money was the Crown Coach site south of downtown along the Los Angeles River. It is part of the CleanTech zone where officials would like to draw modern manufacturing companies in industries such as transportation and energy.

It will receive several smaller payments totaling about $1 million for site engineering, cleaning up polluted oil and related work. It also gets $13 million to pay East West Bank, a Pasadena bank that lent the agency money to buy the site.

The monetary award was a huge relief for city officials who have been trying to redevelop the site for years but have stumbled. Most recently, a deal was reached with Dallas developer Trammell Crow Co., but the City Council couldn’t sign off on it prior to the June deadline. However, with the state funding, the land at least remains in city hands for a possible future deal.

The most high-profile project is the Grand Avenue redevelopment, which during the real estate boom was imagined to be a $2 billion project with thousands of housing units and thousands of square feet of retail.

The CRA petitioned the state for close to $6 million through the end of the year, a portion of the $32.6 million in public improvements, affordable housing subsidies and other assistance it plans to give the project over time. The state approved $5.63 million in payments through the end of year.

Meanwhile, Related plans to break ground this year on an apartment building on Grand featuring 260 market-rate and affordable units as well as ground-floor retail. Witte said the local contribution was critical in order for the project to include affordable housing.

Related has lost redevelopment funding in about a half-dozen other cities where it had active projects. Witte said had the state not approved the Grand Avenue funding, it would have felt obliged to file legal action since it believes it clearly met all of the law’s criteria to continue to receive funding.

“I think there are cases where the Department of Finance overreached and if I felt that, I would file a legal challenge,” he said.

Moving forward

Though the Finance Department has approved the payments to Los Angeles, it specifically noted in its approval letter dated May 26 that it reserves the right to cancel future payments should a developer or grantee breach a contract.

But Richard Close, who is member of a seven-member oversight board appointed to oversee the winding down of redevelopment agencies, believes that any project that just received funding will continue to do so.

However, Close, a partner at Santa Monica law firm Gilchrist & Rutter, warned that he expects legal challenges to go on for some time, mostly from developers who might not have met the strict letter of the law.

“The controversy is what you don’t see there,” he said. “There are a number of projects where there is no signed agreement as of June 2011, but property owners are going to be claiming that they had an enforceable obligation even though it’s not in writing. You’re only seeing the tip of the iceberg.”

Indeed, that was one of the issues brought up by Glendale, Pasadena and other cities that tried to bar the state from taking their redevelopment money. Many expect those cities will continue their fights by filing additional lawsuits.

As for why Los Angeles seemed to fare better than other cities, it’s not entirely clear. But Renata Simril, a broker and managing director of the public institution practice at Jones Lang LaSalle Inc. in downtown, said the varying state decisions reflect that the redevelopment law was passed hastily and now everyone is trying to figure its implementation.

“There’s a lot of collateral damage as the result of hasty legislation,” she said.

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