By Michael Goldstein
By Dennis Romero
By Sarah Fenske
By Matthew Mullins
By Patrick Range McDonald
By LA Weekly
By Dennis Romero
By Simone Wilson
Photo by Debra DiPaolo
You can’t blame the Mayor’s Office for wanting to keep Triple A in L.A. Not only does the Auto Club employ hundreds, but it’s a signature company that embodies the very car culture of Southern California, while occupying a landmark building just south of downtown. So when the Auto Club decided to transfer 250 employees to Costa Mesa, Mayor Riordan’s crack business team swung into action, both to woo AAA and to refill its partially emptied corridors.
The ideas flowed fast. The vacated space could become a center for biomedical industry. Or a hub for multimedia firms. And the entire Auto Club site would be a featured project of Genesis LA, the mayor’s new, major economic initiative, which was to launch in early 1999 under the leadership of Deputy Mayor Rocky Delgadillo.
There was just one problem. No one told Triple A. Auto Club executives claim they read about Mayor Riordan’s economic-development initiative — and their special role in it — in the newspaper. They weren’t mad, just puzzled.
To be fair, the Auto Club had made noises in past years about moving its headquarters to Costa Mesa. But in 1999, the plan was just to consolidate from four buildings to three at its Figueroa Street campus, a 1923 masterpiece of Spanish-mission-style architecture. The Auto Club rented out its excess office space and forgot all about Genesis LA.
But Genesis did not forget the Auto Club. There it is, listed among the “Genesis LA Success Stories.” According to the current Genesis LA press packet, Genesis and the Mayor’s Los Angeles Business Team “signed transactions that represent” no less than 275 “actual jobs with people working today” at the Auto Club site. And in an interview this month, the head of Genesis referred to that site as a “completed” project.
Such misleading exaggeration is one of the most striking features of Genesis LA, a well-intentioned, fledgling effort to improve the L.A. economy. Genesis has been portrayed as a bullet point in Mayor Riordan’s legacy. It’s also become a springboard for the rising career of Deputy Mayor Delgadillo, currently a candidate for city attorney running against City Councilman Michael Feuer.
A Weekly investigation found that Genesis LA is more potential than reality — and provides an excellent window into the style, achievements and excesses of Delgadillo, who inaugurated the Genesis project from within the Mayor’s Office. In little more than two years, Delgadillo has cajoled and even strong-armed the city bureaucracy to cut deals that might indeed help Los Angeles, but that certainly benefit developers and businesses favored by Delgadillo and Mayor Riordan.
In one episode, Delgadillo pushed the Department of Water and Power to ignore its open-bidding policies and sell a piece of “surplus” property directly to a businessman who has supported his campaign as well as the mayor’s education philanthropy. An assortment of developers have given money to Delgadillo’s campaign, many of whom must rely on his staff for help getting city subsidies and other assistance. Delgadillo himself solicited some of these contributions, according to sources who spoke off the record. Through Genesis, he also has developed common cause with billboard companies, which are strongly backing his campaign for the office of city attorney, which is charged with enforcing billboard ordinances. (See accompanying story.)
This business-first rĂ©sumĂ© does not equate well with the job of city attorney, in the view of one veteran City Hall bureaucrat, who requested anonymity: “I don’t think there are really bad motives here, but Rocky Delgadillo is a walking conflict of interest, and we’ve haven’t had that in a city attorney. He is someone who has a bias to let the private sector bloom. But if the City Attorney’s Office doesn’t play watchdog, who will? The city attorney deals with whether the city’s interests are being protected. That’s not an advocacy role, that’s an umpire’s role. The issue is not whether he’s a good guy or did some good. It’s that the job he’s running for isn’t the kind of job he’s been auditioning for.”
The prospects of Genesis LA itself are a question apart. “Genesis and the mayor’s Business Team have been trying to fill a gap that exists in city government,” said Madeline Janis-Aparicio, executive director of the Los Angeles Alliance for a New Economy, a nonprofit that focuses on the needs of the working poor. “There’s been one program here and one program there, but no way to pull it all together. But the deal-making approach makes things even less accountable. Genesis is set up outside the city in order to capture city resources. It’s almost a structure that can’t be held accountable.”
At its best, Genesis could be just the catalyst needed to link public and private dollars in the service of reshaping the city’s depressed areas. Genesis was formed with the idea that it could be an economic force for years to come. But so far, the project is so closely linked to the personalities and governing styles of Riordan and Delgadillo, that it’s difficult to say whether Genesis can or even should persist as a force in the next administration. The next mayor of Los Angeles faces an early decision on whether to continue Genesis, and in what form.
Over the past eight years, the Riordan administration has scored a handful of triumphs, including Staples Center, the Alameda Corridor project and the successful commercial reuse of the abandoned General Motors plant in Van Nuys. In a larger sense, the city — and Riordan — has benefited from a rising economy, which has invigorated retail and residential development.
But the results could have been better. A 1999 study by the Los Angeles Alliance for a New Economy and the UCLA Center for Labor Research and Education found that development help was not especially targeted at poverty-laden neighborhoods that most needed it. Moreover, the city lacked a comprehensive, coordinated and efficient business strategy.
Although the Mayor’s Office challenged these conclusions, Genesis LA was taking aim at these shortcomings a full seven months before the report was published. Under the leadership of Delgadillo and others, Genesis cherry-picked barren, polluted or dilapidated sites across the city, with the goal of turning them into job producers. Genesis would push for retail outlets in parts of town that lack them, but its primary focus would be manufacturing jobs — because once people have well-paying jobs, stores and restaurants are likely to follow on their own.
Delgadillo was part of the Riordan economic brain-trust almost from the beginning, finally rising to his position as deputy mayor.
Genesis LA grew out of the mayor’s Los Angeles Business Team, which received mixed reviews from the academic researchers, but did get credit for making the city bureaucracy easier and faster for developers to navigate. The Genesis initiative was announced in March 1999 and incorporated later that year as a nonprofit organization. The nonprofit, in turn, spun off a for-profit entity called the Genesis LA Real Estate Investment Fund. The for-profit controls $85 million in private investment capital for projects in low- and moderate-income areas. The nonprofit’s 12-member board includes Delgadillo (listed as an advisory member), former Assistant Deputy Mayor Marci Wiseman, Far East National Bank president Robert Oehler, several business people, and four attorneys, Ă˘ including two from Riordan & McKinzie — the mayor’s eponymous law firm.
“Genesis LA sites were not selected because they’re easy,” said Deborah La Franchi, a former Riordan assistant deputy mayor who is now president and CEO of the Genesis nonprofit. “Many of these sites were being worked on during Mayor Bradley’s administration. Our mission is to attack the high investment barriers to these abandoned and blighted properties located in Los Angeles’ most underserved communities.”
The nonprofit intends to develop three parcels of donated land. But in the main, Genesis attempts to assemble development deals funded by private capital, grants, subsidies, loans and the for-profit Genesis investment fund. The for-profit, however, is under no obligation to finance anything.
“The fund is operated totally autonomously from the nonprofit,” said George J. Buchler, president and chief executive of the Shamrock Real Estate Division, which manages the for-profit Genesis fund. “We are not required to take any of the sites or any of the projects. They are all at our discretion. They have to be a viable investment, in an area where there is sufficient market data to suggest a return. We haven’t taken every project we’ve been shown.”
That’s putting it mildly. The Genesis fund has offered to participate in exactly one of 22 Genesis sites, a proposed industrial park at a landfill and mining site in Arleta. But the fund has been busy elsewhere. According to published reports, it’s contributed $3 million to a $50 million office-renovation project on Vine Street in Hollywood. And it’s loaned $2.5 million to a $16.5 million Venice project that involves converting the old Roger Corman movie studios to artist lofts priced from $300,000 to $500,000 apiece.
“We’ve told our investors we will get them mid- to high-teens returns,” said Buchler. “That’s on an annual basis. An annual return in the 15 to 19 percent range.”
In short, the Genesis for-profit fund is nothing more or less than a moderate-risk, high-yield real estate fund that seeks investment opportunities outside of tony areas. Its public-service commitment is simply a willingness to consider all development pitches brought in by the nonprofit Genesis.
This noncommittal approach has its upside. An earlier economic incubator, the federally funded Community Development Bank, weighted itself down with loans to projects that never became viable, draining the bank of capital that it had intended to reinvest over and over again.
Thus far, however, several prospective Genesis projects have fallen apart or been delayed due to thorny economics or public opposition. Others are in the earliest stages. The projects that have gotten the furthest are seemingly the ones that have least to do with Genesis, though several benefited from support by the mayor’s Business Team.
One Delgadillo project, however, has penciled out nicely, namely the fund-raising for his aspiring political career. The 40-year-old Delgadillo is a native of Los Angeles who played football with distinction at Harvard and later became an intellectual-property attorney at O’Melveny & Myers. After the 1992 riots, he joined the management team at Rebuild L.A, an earlier nonprofit that sought to rebuild the urban core. “I wasn’t going to watch my city burn,” Delgadillo told the Weekly. “I wanted to give back.”
Rebuild L.A. could never meet the expectations set for it. The lessons learned, said Delgadillo, included: “Don’t over-hype. I think people at the time felt like we had to over-hype to bring in the people that would bring us resources.”
Also, “I learned that maybe bringing retail into the inner-city was not as much needed. It was not necessarily the way to build a community. We needed to bring in manufacturing jobs, the widget makers, the people that would attract wealth to that neighborhood. Because then the retail jobs would follow them, because there would be paychecks there to go capture.”
Delgadillo, a Democrat, then joined the staff of Republican Mayor Riordan, where Delgadillo has taken credit for the kinder, more progressive side of Riordan politics that sometimes emerges — such as a minority-business-outreach program and Riordan’s decision to oppose Proposition 209, the voter initiative that outlawed traditional affirmative action.
But Delgadillo’s closed-door style of deal making is vintage Riordan. And this no-nonsense approach to “getting things done” doesn’t always get things done. In 1998, Delgadillo spearheaded an effort to reform the city’s antiquated business-tax structure. Many of the meetings were invitation-only and included a who’s who of big-money players. The package that emerged included some reform ideas that won widespread praise, but the City Council balked. In part, council members were discomfited by a price tag that exceeded $20 million. But they also weren’t ready to back something that lacked broader input.
The City Council later formed an advisory committee to revisit tax reform. This time it was headed jointly by Delgadillo and Councilman Feuer and coordinated through Feuer’s office. The meetings were held in public. Lobbyists still had their say, but they had to make their points in public, along with other interest groups. This effort already has scored some successes. Right away, the council voted to exempt businesses with receipts of less than $5,000 from city taxes, and also to give new businesses earning less than $500,000 a free pass in their first year. Other reforms are working their way through the council, including an end to a tax penalty companies Ă˘ face when they transfer funds from one affiliate to another.
Feuer has earned some new respect from business owners through this tax-reform process. Delgadillo already was well regarded. Delgadillo’s donor list is studded with developers, attorneys and other business people with ties to Genesis projects. Some of these contributions were apparently the result of a direct Delgadillo entreaty.
“He said, ‘I need your help,’” reported one businessman, who requested anonymity. “But the guy’s not crass. Rocky has some level of refinement. There’s never a quid pro quo. He’s clear that he wants to be helpful for his friends.” This businessman was happy to contribute. “Rocky has still got his finger on the button in the development piece. Because these projects are slow, you know you are going to have to go back to City Hall for another bite at the apple.”
Under city election rules, such appeals for campaign dollars are legal as long as they are not made from city offices or on city time, according to the L.A. City Ethics Commission.
“If you’re a businessman, you kind of like Rocky,” added the business owner who donated to Delgadillo. “You know how to push Rocky’s buttons. He wants to raise money. He wants to get elected.” From an insider’s perspective, the businessman said he also could see why other downtown deal makers would support Delgadillo for city attorney over City Councilman Feuer. “Rocky is very political, unlike Feuer, who is apolitical, not business-friendly, and can be very difficult to work with.”
Delgadillo insists that he has strictly abided by all the rules. “It would be wrong to solicit contributions from people who have business pending before the city in exchange for promises of special treatment. I have never done this and would never do it.” He added that the same fund-raising questions should apply to Feuer, who also handles city business.
The city’s Chamber of Commerce has endorsed Delgadillo. And biotech entrepreneur Alfred Mann hosted a $1,000-a-plate fund-raiser. Mann has every reason to be supportive. When he sought to buy part of the Lakeside Debris Basin from the Department of Water and Power, the Mayor’s Office successfully argued that no other buyer should be considered, which is contrary to the agency’s procedures for disposing of surplus, government-owned land. As a January 2000 internal DWP memo noted, “The Mayor’s Economic Development Team is very anxious for the Department [DWP] to sell a portion of the Water System’s property known as the Lakeside Debris Basin to a company called Advanced Bionics.”
The Mayor’s Office then negotiated with the DWP on behalf of Mann. At one point, according to an internal memo, “The City Attorney drafted a letter to [then–DWP chief] David Freeman disparaging our office’s involvement in the deal. DWP staff is against the sale and has tried to terminate negotiations.” At another point, the mayor’s staff reported that the DWP “accused the Mayor’s Office of trying to ‘manipulate’ the appraisal” of the land to reduce what Mann would have to pay.
In effect, the Mayor’s Office was putting together a public-subsidy package for Mann: the exclusive right to public land at a discounted price. As public policy, the strategy is defensible — it makes sense to offer incentives to keep Mann’s burgeoning biotech empire based in Los Angeles. But the Business Team eschewed the “public” part — side-stepping public input, scrutiny and accountability.
Mann also is trying to obtain an additional piece of DWP property in the San Fernando Valley, and the mayor supports this effort as well, although other bidders also have expressed interest.
The jockeying on behalf of Mann finally drew the attention of Councilman Alex Padilla, whose northeast Valley district includes both sites. Keeping Mann’s companies, with their high-paying jobs, in L.A. is a great idea, noted Padilla spokesman David Gershwin, but both Padilla and the public were out of the loop until late in the negotiations. “The Mayor’s Office did not approach the council office with detailed information,” said Gershwin. “Did Genesis LA ever sit down and have a meeting with the councilman about these projects? No. Every single project needs community involvement and buy-in because there is such a history in our district of neglect and haphazard zoning.”
Padilla also used his City Council leverage to put the brakes on another Genesis site in his district, when he learned that the Mayor’s Office had crafted a deal to sell six city-owned acres for $100,000. Maybe the price is fair, because the land is a former landfill, but Padilla isn’t going to let the acquisition, which doesn’t involve Mann, go forward without scrutiny, said Gershwin.
Critics cite the Chinatown Cornfield escapade as an example of how the backroom deal making can backfire. The 45-acre Cornfield site was a busy rail yard for almost a century, and before that, farmland that included the main irrigation channel that nurtured young Los Angeles. The development plan endorsed by Riordan and Delgadillo for this now-contaminated expanse was an $80 million warehouse project courtesy of Ed Roski Jr., a mayoral favorite for building Staples Center. Riordan was prepared to kick in $14.2 million in federal subsidies to clean up the land.Ă˘
But what was good for Roski did not please activists and many adjacent Chinatown residents, who preferred a park or a mixed-use development with public open space. Environmentalists saw an invaluable opportunity to create a green zone near the L.A. River, which could then spur further river-restoration efforts. Activists finally stalled the project by demanding a full Environmental Impact Report. A similar scenario is playing out at nearby Taylor Yards, another river-adjacent Genesis site, where environmentalists and local residents also have sued over the lack of an Environmental Impact Report.
Which raises an interesting question: Is the Genesis effort at these two locations an example of cutting red tape to get things done or cutting corners to serve interests that may or may not coincide with the public interest?
At the Cornfield, activists have crafted a happy ending, using anticipated state park bonds to buy off Roski’s Majestic Realty. Roski gets to make money just by bailing out, and the community gets a better project. The fate of Taylor Yards remains uncertain, though a portion of the site will be parkland.
“Some of the Genesis projects continue to be re-scoped based on community needs,” said Genesis president La Franchi of the Cornfield property. “This is one of them. We will continue to work with all the parties involved. What we don’t want to see is that 10 years from now, that property is still vacant and abandoned.”
It isn’t in the promotional materials, but Genesis projects could leave two lasting imprints on the cityscape: Big Macs and billboards. McDonald’s has paid to play, donating $1 million to the Genesis nonprofit. McDonald’s restaurants are signed up for three Genesis sites, and the corporation is strongly considering five others. Over the last three yeas, revenues at urban McDonald’s are up 20 percent compared to a nationwide sales increase of about six percent, said Jim Carras, McDonald’s local director of development.
McDonald’s is “our exclusive sponsor for that industry category, but there is no exclusive right to locate” at a Genesis-designated project, said La Franchi. “I think that any company that is involved with Genesis is just more in tune with Genesis when new sites are brought on board. Other fast-food retailers have not been as aggressive at going into the inner city.”
A different take is provided in Genesis strategic-planning documents obtained by the Weekly. The documents contain tailored sales pitches to potential corporate sponsors. One company considered for approach was a local franchisee for the Tony Roma’s restaurant chain — “The L.A. franchise owners are extremely wealthy and committed to Los Angeles,” the document notes. Under “Key Points,” it reads, “They [also] own the L.A. Burger King franchise. Burger King cannot become a sponsor because McDonald’s already is — but Tony Roma’s can get in the door.”
At this week’s International Council of Shopping Centers convention, the city of L.A., Genesis and McDonald’s shared a booth in a faux mall erected within the Las Vegas Convention Center. Setting up shop by the “Food Court” gave L.A. access to one of the most heavily trafficked locations — because it’s where all the free food samples were being handed out. Other self-promoting cities, such as Detroit, Sacramento, Huntington Park and Chino, were relegated to more traditional digs in the “Municipalities Court.”
Money raised from McDonald’s and other donors pays for staff salaries at Genesis and also builds capital in an account that the nonprofit can use as a revolving loan fund.
“At the end of the day, if we get more McDonald’s out of it, so much the better,” said McDonald’s Carras. The corporation doesn’t endorse candidates, but in regards to the McDonald’s/Genesis link, “If Rocky uses that for his campaign, more power to him,” Carras said.
Janis-Aparicio, of the Alliance for a New Economy, is less enthusiastic: “The best indication of the mayor’s philosophy and Delgadillo’s is the kind of development and the kind of employers the mayor has pushed for the hardest. Co-sponsors of the Genesis project — Kmart and McDonald’s — are among the companies most virulently opposed to paying a living wage.”
Billboards also have a role to play in the Genesis game plan, even though the city is currently enforcing a moratorium on all new billboards. At the urging of Delgadillo’s office, the City Council recently approved the installation of billboards at two Genesis projects, as a way of making them “pencil out” economically. Not only do these signs get around the moratorium, but at one site, they also would bypass the city’s longtime ban on new freeway billboards, which are especially lucrative for billboard companies.
The tradeoff is worth it, said Delgadillo. “Many times the economic viability of these projects turns on a very narrow margin. Because of my deep conviction that everyone in every neighborhood deserves the opportunity to have a good job, I have been willing to look at any proposal to try and make the financing of job-producing projects viable.”
In the absence of incontrovertible success, Genesis has done exactly what critics have long accused the mayor’s Business Team of doing — inflating its numbers. According to promotional materials, “In his Economic Vision Address in March 1999, Mayor Riordan announced that by June 2001, Genesis LA will have signed transactions that represent 5,000 quality jobs and $250 million in private investment for inner-city development. We are proud to announce that the goals were surpassed as of April 19, 2000.” Delgadillo echoed this claim in an interview before the Weekly editorial board.
And sure enough, the column entries from a chart of successful projects add up to 5,210 jobs and investments of more than $305 million in private capital. But the list is suspect from the word go; the top entry is the Auto Club “project.”
“Folks here are not sure why we’re being considered a city economic-redevelopment project,” confessed Auto Club spokesperson Carol Thorp. Besides transferring about 250 employees, the Auto Club consolidated operations into three of its four buildings at the corner of Figueroa Street and Adams Boulevard.
Thorp double-checked with company officials about the role of the city and Genesis, reporting back that “The city offered to help us find a tenant. The one entity they sent over was from the entertainment industry. They looked it over and did not want it.
“We have no complaints about how the city treated us,” she added. “They tried to be helpful.” The Auto Club rented the space to a pair of nonprofit organizations it recruited on its own.
Another entry on the success-story list is called the Samitaur site, near the intersection of La Cienega and Jefferson boulevards. Developer Frederick Samitaur Smith has nothing but praise for the intent of Genesis LA, but noted that his project was well along when Genesis came calling. “They’ve been very helpful,” he said of Genesis and the Mayor’s Office. “Whenever I have a question, they’re able to hunt it. It’s a great effort and I wish it to continue.”
At Samitaur, Genesis takes credit for 1,350 jobs, a number that, according to Genesis, “represents the sum of actual jobs with people working today plus estimated jobs based on signed deals with financing in place, end users identified, space available for occupancy and/or spec space under construction.”
And so it goes, right on down the list.
A Weekly reporter tracked senior staff from the nonprofit Genesis and the Mayor’s Office all the way to the Las Vegas shopping-center convention this week to make sense of these numbers, to little avail. La Franchi offered that the Genesis effort was begun by the mayor’s Business Team well before Genesis was formally announced. Therefore, she said, it’s reasonable for Genesis to take credit for good things that happened before the formation of either the nonprofit or the for-profit Genesis. Regarding one pre-Genesis effort that was represented as a Genesis success story, La Franchi said, “The mayor’s Business Team was working on that site for years.”
Of course, the job-creation numbers of the Business Team itself have been called into question by the UCLA researchers. For which a mayor’s staffer offered a not-for-attribution explanation: “The numbers are just made-up numbers.” The staff member then decided a clarification was in order: “We basically call the developers, ask how many jobs they are creating and use that number.” And there is no adjustment, for example, to account for jobs lost at neighborhood hardware stores when a Ă˘ Home Depot opens in a new shopping center.
In interviews with the Weekly, planners and administrators throughout the city bureaucracy expressed irritation at Genesis for what they perceive as its taking credit for the work of others. This frustration reaches even into the Mayor’s Office itself.
At the same time, sources interviewed were confused over what Genesis has been up to. In that respect, Genesis has assumed the secretive and even undemocratic modus that has long typified the Riordan administration. Genesis puts the city seal on its documents, but when reporters wanted a list of the for-profit fund’s investment properties, an official said the information was “proprietary” because the fund is private and not subject to public-records laws. City Council members and staff complain that they’ve been shut out of development negotiations, then presented with done deals that they either must approve or face criticism for being obstructionist or “anti-business.”
But there haven’t been many realized deals — done or otherwise.
“I think they’re still trying to find their way,” said City Councilman Mark Ridley-Thomas of the Genesis effort. “What they’ve accomplished is unclear.” Like other Riordan initiatives, he said, it’s “been rather difficult at best to get off the ground and have an impact.”
In Ridley-Thomas’ South L.A. district, a rising shopping center called Chesterfield Square was recently promoted to Genesis status. In his view, however, Chesterfield Square has been of more help to Genesis than the other way around. “That project is not under construction as a result of the mayor’s economic-redevelopment office,” said Ridley-Thomas, adding, “The Mayor’s Office was largely disruptive, even to the extent of discouraging potential business tenants. We were told personally by tenants that they were being steered away from the project, that it ‘might not be the best deal in which to participate.’”
At the time, the Mayor’s Office was heavily involved with Magic Johnson’s development team in a plan to rejuvenate the nearby Santa Barbara Plaza. The Johnson venture never took off. Said Ridley-Thomas: “There are no two ways about it, the mayor’s staff, Delgadillo et al., did precious little to help the Chesterfield project come to fruition. As a matter of fact, they stood in the way.”
Chesterfield’s developers took a more positive view, saying they are grateful for the recent efforts of the mayor’s Business Team to help their project get government subsidies. Several Chesterfield developers are among the many who have contributed to Delgadillo’s campaign.
And why not?
“Rocky gets shit done,” commented one developer, who asked that his name not be used.
Take, for example, the deal involving Alfred Mann and the Lakeside Debris Basin. Eventually, the Mayor’s Office got the initial asking price lowered by more than a third. Mann’s purchase was approved by the City Council last week without discussion. Mann is holding a second fund-raiser for Delgadillo later this month.
“What Rocky gets done will have a lot do with who gave him dollars and who is friends with him,” said the developer. “But Rocky gets shit done.”
Dennis Dockstater contributed to this story.
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