Trump's Ambassador Gambit
For eight years, mega-builder Donald Trump, the poster boy of the get-richer-quick set, has quietly endured a $50 million beating out West. Worse yet, the drubbing has come at the hands of the L.A. school district, which has fought him tooth and nail over the site of the defunct Ambassador Hotel, which he owns with a consortium of investors.
But now Trump has launched one last bid to outflank the school district and recoup his losses with a massive commercial development at the Wilshire Boulevard site - a project that would torch the school district's hopes of building a high school there.
City staff and City Councilman Nate Holden immediately hailed the proposal. "The area needs jobs, it needs retail sales, and it needs services for the residents of the area," said Edward Saulet, a project manager with the city's Community Redevelopment Agency. "And it can use an entertainment complex."
As quickly, school-district officials denounced Trump's move as a political tactic that would almost certainly fail. "Clearly they'd like to generate political opposition to using this site as a school," school board member Jeff Horton said of the development proposal. "We're all for economic development and things that provide jobs, but we also need a school for the kids."
Mayor Richard Riordan, caught between competing claims as L.A.'s "education mayor" and chief business booster, is standing for now with hands in pockets. "The development of the Ambassador site is a matter between the parties involved," he said Tuesday in response to queries from the Weekly.
The development proposal, floated by Trump Wilshire Associates, an international consortium anchored by the New York tycoon, is the first in years for the Ambassador site. Trump and his partners would raze the storied but long-shuttered Ambassador Hotel and replace it with a 23.5 acres of movie theaters, restaurants and so-called power retail outlets, such as electronics stores, office-supply outlets and home-products warehouses.
But there's more to this proposal than meets the eye. This plan is the child of desperation, a last-ditch bid by hard-pressed developers to turn a profit in Los Angeles and fight off school officials who have long wanted to build a high school. It's a battle that has dragged on for close to a decade, but also one that is reaching an almost unnoticed crescendo. If this current development proposal gains steam, the Trump partners could hold onto the land; if they fail, the school district could well take over through foreclosure, and perhaps even build a school.
L.A. Unified's trump card is a $48 million deposit placed on the land in 1990 as part of condemnation proceedings. Originally, these funds were intended as only preliminary compensation for the land, but after the real estate market crashed, the school district refused to pay more, and finally abandoned the condemnation proceedings. Trump Wilshire sued, asserting that the school district was acting unfairly and illegally. During years of litigation, however, courts sided mainly with the school district. Eventually, L.A. Unified issued an ultimatum: Hand over the land - or return the money.
Trump Wilshire Associates, meanwhile, already had spent the deposit - to retire its own mortgage on the land. This didn't matter during years of litigation, when the only people who had to be paid were teams of warring attorneys. But now time is running out for Trump Wilshire.
To date, the Trump partnership has hemorrhaged an estimated $50 million on costs ranging from attorney fees to insurance, security and property maintenance. But everyone has turned out a loser in this tale. The school district has nothing to show for years of litigation and millions of its own dollars, and a generation of children began and finished their public schooling without ever seeing construction started on the promised high school.
"I can't say I want to see a school at the Ambassador site because we legally abandoned that property," said Horton. "What they owe us is the money. We're not actively trying to acquire that land, but we still have this problem to solve. We still need a school somewhere in that neighborhood."
In the waning days of the 1980s real estate boom, Trump - long a force on the East Coast - let word circulate that he intended to build the world's tallest building, 125 stories, on the Ambassador site, and to put his name on it. The aging hostelry was effusively described as the most valuable real estate on earth.
Trump's plans did not include saving the historic and once-grand resort hotel, site of the famous Cocoanut Grove nightclub and the place where an assassin killed Robert F. Kennedy.
All the while, the school district had big plans of its own. Officials once estimated they could fill an Ambassador high school just with students from the nine blocks around the hotel site. Some of this crowding pressure will be relieved with the 1999 completion of the Belmont Learning Complex near downtown, but the Ambassador site remains pivotal. Its central location would allow the school district flexibility to relieve overcrowding at several nearby high schools. In addition, the land is basically flat and ready to build on.
"It's rare to find unused land," noted Horton, whose school-board district includes the surrounding neighborhood. "We don't want to take people's homes or established businesses. The Ambassador property has a building on it, but it hasn't been used for anything for a long time. That's why we tried to get it."
Of course, the school district could have readily acquired the site in advance of Trump and his partners, but for years officials failed to pull the trigger on the deal. And once Trump bought in, he was in no mood to be bought out.
Just like Trump, some school-district officials also looked covetously at the Ambassador's much-desired Wilshire frontage, and they hatched speculative development schemes of their own. And just like Trump, the district would take a financial beating in pursuing these goals. One district blueprint allotted the back portion of the site for a school and the front for 1.6 million square feet of retail, including a 30-story office building. The parcel, officials reasoned, could be a source of revenue for the cash-strapped school district. These retail visions would later be transferred, unsuccessfully, to the Belmont Learning Complex.
For years, the only thing rising at the Ambassador was the legal tab. In 1990, the school district initiated condemnation proceedings, asserting its right as a government agency to take the land for a public use. The $48-million deposit was part of this process, a legally required deposit until the land's true value could be determined. Amid intense lobbying from both the district and Trump Wilshire, a key state funding board narrowly sided with LAUSD, committing $50 million of state money to the land purchase, funds that could have sealed the deal.
But then the school district got its chance to buy a similar-sized plot at Belmont for $30 million. In 1993 the state agreed to pick up the tab on the Belmont purchase, but also rescinded its $50 million commitment at the Ambassador. By this time, the real estate market had collapsed, and the Ambassador site was no longer worth even the $48 million deposit. Problem was, the district was obligated to pay Trump Wilshire the property's value on the day of the 1990 condemnation, when real estate was at its priciest. To avoid this cost, the district abandoned the condemnation.
Here the district was taking a calculated gamble. If Trump Wilshire couldn't develop the site in a dead market and also couldn't return the deposit, the school district could win the entire site anyway through foreclosure. This strategy infuriated Trump Wilshire managers, who accused L.A. Unified of trying to steal something it wasn't willing to pay for. Stuck with a property it couldn't develop, Trump Wilshire sued to force L.A. Unified to take the land after all, but pay a premium price for it. No jurist, however, had much sympathy for the brash, out-of-town developer, no matter how much he and his partners might be abused by the school district.
LAUSD always argued that it was acting in the public interest - either to get a school or to save tax dollars - and that logic always carried the day. The litigation took most of the 1990s. Finally in December, an L.A. superior court judge ruled that the school district did not have to complete its purchase of the property.
Now the market - and the equation - has changed again. Trump Wilshire is free to build, but is racing the clock. Sometime soon, it must cut a check for the original $48 million plus interest to LAUSD - or risk losing everything to the school district - unless it can make something happen either in the market or in the political realm.
"We intend to pay the school district back," said developer representative Barbara Res. "But we also intend to develop the property."
One ally for the Trump Wilshire is City Councilman Holden, who represents the Ambassador area. Holden is legendary for his inconsistency, but he's been remarkably unbending on this subject: He wants private development at the Ambassador, not a school.
Former Mayor Tom Bradley also opposed a school at the site; Mayor Richard Riordan won't take sides.
As he has on other issues, Riordan seems prepared to let nature take its course, on the theory perhaps that a hotly contested 23.5 acre site in the heart of the city is not a proper mayor matter. "Information regarding the status of the project or questions should be directed to the involved parties," said Riordan's statement.
For their part, district officials, after some initial panic, insist their position remains strong. "My only guess is that this proposal is a political trial balloon to force the district to settle its lien for 50 cents on the dollar by getting Nate Holden and other stooges to front for them," said one district source off the record.
Added another: "It's completely bizarre. It could be an attempt to see if some investor wants to come to the plate or an attempt at political leverage against the school board."
"No development can proceed until the district's debt is taken care of," said Richard K. Mason, general counsel for L.A Unified. "Our only interest is getting paid back what we're owed."
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