Uncertain Fate for Urban Projects in California

By Terry Pristin | New York Times

LOS ANGELES — It is impossible to miss the long-moribund Santa Barbara Plaza, a collection of mostly boarded-up retail buildings in South Los Angeles across the street from a shopping center that just underwent a $30 million overhaul. After some costly missteps that only worsened the blight, plans to transform the ugly 19.2-acre site into a mixed-use development called Marlton Square finally seemed to be gathering steam, and the city redevelopment agency started clearing the land last summer.

But now Marlton Square, like many urban development projects in California, is in limbo. The state’s 397 community redevelopment agencies, including the one that was shepherding Marlton Square, went out of business on Feb. 1, victims of the state’s fiscal crisis. Legislation enacted last June to eliminate the agencies was upheld in December by the California Supreme Court.

California’s community redevelopment agencies were created in the 1940s to encourage urban renewal. The agencies could acquire property, including through condemnation, finance infrastructure improvements and sell the land to private owners at below-market prices. Their dissolution has thrown into question the fate of hundreds of projects, including housing developments intended for low- and moderate-income people.

In California, it is relatively rare for developers to be offered tax abatements, density bonuses and other incentives for building in places that are considered risky. Instead, the redevelopment agencies could use the additional property taxes that were generated by enhancing the value of the land, and this so-called tax increment financing became the primary redevelopment tool. This year the incremental tax would have amounted to $5 billion, or 12 percent of all of the property tax collected throughout the state.

Since February, local officials throughout the state have been sifting through billions of dollars’ worth of projects to determine which ones qualify as enforceable obligations entered into before June 29, 2011, the date the legislation was signed into law.

“We have very specific goals and instructions: to complete the unwinding as expeditiously as possible and to maximize value,” said Nelson Rising, a prominent Los Angeles real estate developer. Mr. Rising is one of three board members appointed by Gov. Jerry Brown to lead the so-called designated local authority, which will review pending projects in Los Angeles and try to dispose of land that it is not committed to develop.

Redevelopment agencies proliferated after 1978 and the passage of Proposition 13, the ballot measure that severely limited revenue for cities by capping property taxes. Los Angeles County alone had 71 of these agencies.

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The agencies have been credited with many successful efforts to revive neighborhoods, including downtown Los Angeles, the Mission Bay section of San Francisco and the Gaslamp Quarter in San Diego. But critics have long argued that the agencies operated without sufficient oversight. Particularly in smaller cities, redevelopment officials have been accused of mismanaging the money or financing projects that have nothing to do with alleviating blight.

Zev Yaroslavsky, a member of the Los Angeles County Board of Supervisors, said the redevelopment funds were a “honey pot” that were often used merely to enrich developers or build sports stadiums rather than fulfill the agencies’ original mission. “The reason the governor made a run on the redevelopment agencies is that they had ceased to be faithful to the purposes of redevelopment,” Mr. Yaroslavsky said.

Dismantling the redevelopment agencies may have been the least controversial action Mr. Brown could have taken after inheriting an operating deficit of $25 billion, several real estate specialists said. Many Californians believed that the money was more urgently needed for schools and the police.

In voting for dissolution, the California legislature also approved a compromise measure that would have kept the agencies alive if they shared some of their tax increment revenue with cities and counties. But the League of California Cities, a lobbying group for municipalities, refused to accept this compromise and challenged both laws. The court struck down the revenue-sharing measure, a double loss for the league.

“It became an all-or-nothing thing, and they got nothing,” said Dan Rosenfeld, a senior deputy to Mark Ridley-Thomas, a Los Angeles County supervisor and a proponent of redevelopment agencies. Supporters say they have had a crucial role in creating affordable housing, and stimulating economic development and improvements to public transit.

“A lot of these projects would not otherwise pencil out without subsidy” from the redevelopment agencies, said Tim Kawahara, the executive director of the Ziman Center for Real Estate at the University of California, Los Angeles.

Of greatest immediate concern is how dissolution will affect the development of housing for people with low and moderate incomes. Since 1979, 20 percent of the property taxes diverted to the agencies had been set aside for this purpose. But Mr. Kawahara said lawmakers seemed determined to make up for the loss of as much as $1 billion a year in subsidies.

Thomas L. Safran, a leading developer of affordable housing in the Los Angeles area, said he wondered whether he would be able to build a small apartment building on a site on Sherman Way in the San Fernando Valley community of Reseda, replacing a movie theater that has been closed for decades.

“It’s up in the air,” Mr. Safran said. The redevelopment board had given his company the exclusive right to negotiate for a small loan and the land, but no development agreement was signed before the bill became law on June 29.

Also up in the air are the plans by Trammell Crow, a Dallas-based developer, to build a factory in downtown Los Angeles that would make light-rail cars, batteries for electric cars, solar panels and other renewable energy products.

The factory, called the CleanTech Manufacturing Center, would be on a contaminated 20.6-acre site where buses were once produced. Last fall, the community redevelopment agency approved the sale of the land to Trammell Crow for $15.4 million; the developer would have to pay off the maturing bank loan that had financed the acquisition of the land. Bradley Cox, who runs Trammell Crow’s Los Angeles office, said several tenants had expressed interest in occupying the center’s 400,000 square feet of space.

Even if the new designated local authority group approves the post-June 29 purchase agreement, Trammell Crow will not necessarily have the deal sewn up. The decision will be reviewed by an oversight committee representing the taxing agencies. That committee’s ruling could be rejected by the state Finance Department.

Mr. Cox said he was optimistic. “We think we’re the right developer,” he said. “We have a lot of experience with environmentally challenged properties.”

Though no deal had been completed for Marlton Square in South Los Angeles, the project to replace the derelict shopping center is not necessarily dead, said David Bloom, a spokesman for the new designated local authority.

Kenneth T. Lombard of Capri Capital Partners, a Chicago company that owns the neighboring Baldwin Hills Crenshaw Plaza, said moving forward with the Marlton Square project was essential for the long-term success of his shopping center. “We’ve got a much better story to tell,” he said, “but that story will be even stronger when I can eliminate the question, ‘What’s going on across the street?’ ”

But Mr. Bloom said it was hard to see how Marlton Square could come together in the absence of the guiding hand of a redevelopment agency. What has been lost, he said, is the means to look way beyond the terms of current officeholders to bring about change.

The community redevelopment agency “was charged with taking a very long-term view on the recovery of challenged neighborhoods,” he said. “It allowed for continuity. That’s not easy to achieve in government today.”