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Project Greed

The Los Angeles Community Redevelopment Agency has quietly agreed to give up millions of dollars in public money to help rush through a private sale of prime real estate in downtown Los Angeles.

In their final meeting before being replaced by Mayor Antonio Villaraigosa’s appointees, members of the CRA board on October 6 signed off on a new agreement for the mammoth and controversial Metropolis project, heralded as the defining landmark of downtown Los Angeles when it was first brought to the agency on the drawing boards — in 1988.

City Centre Development promised the city in 1990 to build Metropolis as a downtown gateway of offices and shopping next to the Convention Center and the Harbor Freeway, but has ended up holding the once-desolate land for a decade and a half as the value of its empty property has skyrocketed. City Centre’s original contract with the CRA bars it from selling the property without first building something, and provides for compensation to the city if a sale goes forward anyway.

But the new deal, which has yet to come before the City Council, wipes out the sale ban and allows City Centre to unload the land at a huge private profit after the site was assembled at public expense by the CRA.

The redevelopment agency eliminated public streets and condemned private homes, apartments, a church and a medical center in the 1990s to permit the project to move forward. Developers participating in CRA projects typically are prevented from selling their unbuilt properties, to keep them from using local governments’ redevelopment power to help them hold on to land and reap profits from “flipping,” or selling the entitled land at a huge markup without adding any housing, office space, retail or hotels.

“People are aghast about this deal,” said a development professional. “Usually when you sell a project and there is agency assistance involved, some money should come back to the agency.”

The $70 million sale from City Centre to IDS Real Estate Group is to be completed by December 1, representatives of both companies said. But with City Council action not yet on the horizon, the sale may have hit a snag, with City Hall denizens expressing concern about everything from the dearth of affordable housing the project provides to the letdown of the new design.

The original design by superstar architect Michael Graves featuring earth-toned terra cotta tiles, as a nod to traditional California building materials, has been thrown out in favor of a more traditional skyscraper design by Gruen Associates. The design concerns Councilwoman Jan Perry, whose district takes in the Metropolis land.

“I have had discussions with IDS regarding the number of housing units,” Perry said. “I’ve had discussions with them on the square footage, and on the mix, but with respect to the architectural statement, in my opinion that is not yet final.”

Also, much of the office space is to be replaced in the IDS plan with market-rate housing. The four-phase complex, criticized in the 1980s for staking out new ground many blocks from the next closest downtown development, now will rise in what has become a densely packed downtown neighborhood, near Staples Center (unimagined when Metropolis was first proposed) and the L.A. Live sports and entertainment district (which broke ground in September), deepening the problem of a traffic standstill during commuting hours near the Harbor Freeway–Santa Monica Freeway interchange.

Even members of the CRA board, in approving the new clause that eliminates the ban on selling the empty land, had some words of discomfort when the redevelopment staff brought the matter to them.

Paul Hudson, the CRA board chairman who was appointed by Mayor James Hahn and recently replaced by Villaraigosa, noted that 19 units of housing that were to replace the apartments and turn-of-the-century homes razed after eminent domain proceedings were never built. And he was unhappy that IDS plans to take care of its replacement burden by paying $500,000 to Skid Row Housing Trust to help complete a project that is already financed.

The housing on the Metropolis site, lost to condemnation in the 1990s, belonged to “working-wage folks,” Hudson said, and cannot be replaced with space on the other side of downtown for the chronically homeless — or with the high-income market-rate housing that the new Metropolis will feature in two residential towers and another 88 units atop a 480-room hotel.

Replacing the 19 units with a payment for Skid Row housing “is a fraud, in my opinion,” Hudson said.

Concerns were also voiced about the relatively low amount of money IDS is to pay for its right to build a denser Metropolis project than otherwise allowed under zoning laws. The density rights, transferred from the low-slung Convention Center in the form of a greater floor-area ratio, or FAR, are typically purchased by a CRA developing partner in exchange for commitments to pay for affordable housing.

Madeline Janis-Aparicio, who was on Hahn’s CRA board and remains on Villaraigosa’s board, said the low FAR payment gave her pause. But she said at the CRA board session that she could live with the terms, given what else IDS was willing to put on the table.

“What really moved me was the commitment of the developer to provide extensive community benefits,” Janis-Aparicio said. “A lot of good jobs, a lot of trees, a lot of making this a wonderful place for the community, the public.”

One of the project’s four towers is to feature a hotel, and IDS has agreed that a union contract will be in force for the employees there.

Janis-Aparicio, the director of the Los Angeles Alliance for a New Economy, spearheaded the drive for a living wage law for Los Angeles contractors and has pressed for union and community benefits agreements in CRA and other city development projects.

The board vote to adopt the new agreement was unanimous. In their presentation to the board, CRA staff did not underscore the shift from the outright ban on sale in the original 1990 owner participation agreement to the sale provision in the new contract.

A developer of other Los Angeles projects questioned the CRA’s practice of permitting developments to move forward in exchange for community benefits packages that may or may not equal the value garnered by the seller of CRA land in a “flip.”

“If you give them the community benefits they want, you get a free pass,” the developer said. “It doesn’t matter if it’s a good project or a bad one. It will go through.”

The value the CRA would be giving up was underscored in a 2004 memo by then-project administrator Ayahlushim Hammond.

The memo, apparently drawn up in anticipation of the sale, calculates the value of the CRA’s role in assembling the property. It notes that City Centre Development reimbursed the CRA just under $2.87 million for the 1990s cost of condemning three parcels of land and vacating nearly 19,000 square feet of public street, and will acquire 45,138 square feet of land at the extraordinarily low cost of $63.49 per square foot.

Hammond’s memo puts the current value of the land area acquired at $11,458,732, or a difference in value paid to the CRA and received by City Centre of $8.59 million.

The memo, a copy of which was obtained by the Weekly, was not in the CRA’s public files on the Metropolis project. Hammond, who has left the CRA, declined comment.

CRA officials responsible for the project were unavailable for comment this week. Project manager Lillian Burkenheim did not return calls, and downtown regional administrator David Riccitiello was on vacation, according to CRA spokeswoman Kiara Harris.

City Centre Development began planning Metropolis in 1988 when it held an architectural competition and hired John Vallance from the CRA. Vallance has tried to shepherd the project for the last 17 years, but ran into several roadblocks, including the real estate market collapse in the early 1990s, and two hard-fought eminent-domain lawsuits.

He said the owners of City Centre — partnerships based in Switzerland and Luxembourg — were not prepared for such a long haul.

“The people I work for, their heads are just swimming with the bureaucracy and the red tape they have to deal with,” Vallance said. “They have exhibited an extraordinary amount of patience. It certainly doesn’t surprise me that they would like to sell it and move on.”

City Centre has a colorful history. Its principal owner is LA Center Inc., which is in turn owned by TAG Group USA and its Luxembourg parent. TAG was started and is owned by the billionaire Ojjeh family, including the late Akram Ojjeh, a Syrian-born Saudi who made his fortune brokering deals between European arms sellers and the Saudi government. His sons, Mansour Ojjeh and Aziz Ojjeh, bought the Swiss Heuer watch company and joined it with an investment firm to form TAG Heuer, which in turn is a major presence in Formula 1 auto racing. A former partner in the Metropolis deal was a firm headed by G. William Miller, the treasury secretary under Jimmy Carter and a consultant on terrorism prevention.

Vallance said City Centre and IDS entered into a sale agreement in March — meaning an unusually long eight-month escrow period, during which land values have continued to climb.