LA Weekly

Story Update, May 8:

The Los Angeles City Council put off until May 21 a final vote on whether to subsidize the luxury Grand Avenue project, and one council member tells the L.A. Weekly he now opposes the plan.

Bill Rosendahl is the first council member to break from the city council’s lockstep support of millions of dollars in tax breaks for developers of The Grand. He told the Weekly he questions the wisdom of city subsidies for a $3 billion hotel and condo development, and has reservations about its co-ownership by Dubai, a non-democratic emirate on the Persian Gulf ruled by a royal family.

Istithmar, an investment fund controlled by His Highness Sheik Mohammed bin Rashid Al Maktoum of Dubai, was approved on March 17 as the project's new 45 percent investor by officials including County Supervisor Gloria Molina and City Council Member Jan Perry.

Rosendahl, who in 2007 backed the project, voted against it at an April 21 meeting of the city council’s Budget and Finance Committee at which Bernard Parks, Greig Smith and Jose Huizar all voted for it.

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ON WEDNESDAY, AS IT GRAPPLES with a record deficit and $90 million in new fees and taxes proposed on Angelenos, the Los Angeles City Council is also likely to authorize a special “tax district” allowing it to hand $66 million in tax breaks to two prominent development entities: Related Companies and the royal family of Dubai.

City Hall’s plan to forgive taxes on a five-star hotel, condo and luxury shopping complex dubbed the Grand is apparently moving forward despite news that its two well-heeled partners, who control billions of dollars in global holdings, can’t obtain construction financing for their oft-delayed mecca for the monied.

The Grand was originally hailed by billionaire Eli Broad, Mayor Antonio Villaraigosa, Los Angeles County Supervisor Gloria Molina and most of the rest of downtown’s elected leaders as a “public-private” way to glitz up downtown’s Civic Center while financing a public park at little cost or risk to taxpayers. But that rationale seems muddled today. Now, proponents are seeking another $30 million from taxpayers — to “enhance” what had been billed as a virtually free public park by adding a pedestrian bridge, stage and other features.

The troubled $3 billion project, which would form a rough L-shape running from City Hall west to the Dorothy Chandler Pavilion, turning south along Grand Avenue and ending near Disney Hall, has proved to be filled with controversial surprises.

First, CalPERS, a huge state-employee investment fund that had given the project its respected backing, abruptly pulled out as an investor — replaced by the autocratic Dubai royal family, one of the least public entities in the world.

Then, on April 22, the Los Angeles County Board of Supervisors voted to seek $30 million in taxpayer funds — from the deficit-ridden state of California — so that a “basic” $56 million park can become an “enhanced” $86 million scheme.

And now, the City Council is expected to give its final approval to $60 million in rebates on taxes that would typically have been charged to the Mandarin Oriental Hotel, plus $6 million in parking tax rebates normally paid by developers.

One city source familiar with the negotiations insists that the project’s huge public subsidies are “not a true loss to the general fund. Yes, it’s money that is lost to the general fund — but it’s not money that would come if there wasn’t a hotel. ... We would not have those funds if the hotel was not there.”

And that has been the argument all along — that without the city and county subsidy, nothing might be built on the land, so the city would lose out on property taxes and other income. (A similar tax forgiveness was granted to AEG, the developers of the L.A. Live concert hall and luxury hotel next to Staples Center.)

Private Sector Takes a Pass

Yet evidently, in these difficult real estate times, even a Sheik’s ransom can’t entice a construction loan from a financial institution. The opulent project is 45 percent controlled by His Highness Sheikh Mohammed bin Rashid Al Maktoum Sheik — a notable irony since the very rich sheikh rules the undemocratic emirate of Dubai, yet is being welcomed with open arms by Villaraigosa and other Los Angeles pols who have condemned other undemocratic regimes. Even though the multi-billionaire sheikh controls the investment made by the Dubai royal family, Related Companies publicly admitted several days ago that, due to the tightening loan market, it has been unable to secure construction financing for the Grand.

So much for a statement by Bill Witte, Related’s top California executive, at a February 25 meeting of an intragovernmental entity known as the Grand Avenue Authority, which oversees the endeavor: “Contrary to what you may be reading, we are moving full speed ahead.”

The repeatedly delayed start date, Witte now anticipates, will be sometime in the first quarter of 2009.

These are “genuinely and generally difficult economic times,” says Robert S. Harris, professor emeritus at USC’s School of Architecture. Though Harris has not followed the economic aspects of the project, focusing instead on its promise of invigorating the Civic Center in Los Angeles, few would disagree with his outlook.

But is the Grand just another of the many large projects stalled nationally? Or did the politicians and bureaucrats in the county, the city and the Community Redevelopment Agency — all of whom had approval over different elements of this project — have some warning of its clear risks when they originally, and eagerly, backed the concept?

“A lot of projects are shutting down — this is not unique. But I suspect that this project is somewhat more vulnerable than others because it’s so explicitly high-end,” says Allan D. Kotin of Allan D. Kotin & Associates, a real estate consulting firm specializing in public-private joint ventures.

In fact, more than a year ago, the city’s Chief Legislative Analyst Gerry Miller stated in a report that the high-end hotel, shops and condos would not make enough profit to attract investors without help — thus City Hall’s special tax breaks.

But now, even $66 million in tax subsidies hasn’t helped to attract a construction lender.

“Why would you build high-end luxury condos in downtown L.A. right now?” asks frequent Grand Avenue critic Joel Kotkin, an author who specializes in business analysis and the urban landscape. “The market is saturated.”

Insiders have privately stated that the competing L.A. Live project is more economically viable, and some have said the Grand will simply not be built.

“Sometimes these projects never come back, sometimes they do,” says Kotkin. But he also observes that the Grand’s “juicy subsidies” give the endeavor a leg up.

Paul Novak, planning deputy for Los Angeles County Supervisor Michael D. Antonovich, the only elected official in Los Angeles city or county government to vote against the Grand, has a different interpretation: “If private investors aren’t willing to gamble on this project, then why should the taxpayers of the city and county be forced to?”