By Dan Rosenfeld

How public art at two downtown Los Angeles transit-oriented developments came to generate ongoing income for a private developer and local government.

Public art in transit-oriented developments presents a valuable marketing opportunity, both for public agencies and private developers. Dollar for dollar, investments in public art may provide the highest financial returns of any funds committed to an aspect of a transit project.

Click here to read the rest of the article in Urban Land Magazine.

by Russell E. Morse, Truman & Elliott LLP

The California Supreme Court’s recent decision in California Redevelopment Association v. Matosantos served as the final death knell for redevelopment agencies inCalifornia.  In the landmark decision, the Supreme Court upheld as constitutional the state law dissolving municipal redevelopment agencies, but rejected the companion law, which allowed municipal redevelopment agencies to stay open if the cities/counties in which they existed agreed to make certain payments benefiting the state’s schools and special districts.

Redevelopment agencies are semi-autonomous creations of the state with the intended purpose of improving blighted areas by building housing and commercial projects.  In the City ofLos Angeles, the CRA/LA helped lead to the revitalization of areas such asHollywood(e.g. theHollywood&Highlandcomplex and the ArcLight/Cinerama Dome) and Downtown.

During the summer months of 2011, when Governor Jerry Brown called for a plan to eliminate municipal redevelopment agencies, a compromise of sorts was developed and two companion laws were passed in the California Legislature, Assembly Bills 1X 26 and 1X 27.  While Assembly Bill 1X 26 prohibited the redevelopment agencies from conducting business and ultimately dissolved the redevelopment agencies, Assembly Bill 1X 27 allowed the redevelopment agencies to stay open and operate, as indicated above, if those cities and counties with redevelopment agencies paid so-called “ransoms” or as some referred to it, “shakedown money” to the state.   The California Redevelopment Association, along with a number of other groups, sued the State arguing that each measure was unconstitutional.

After months of legal wrestling, the Supreme Court, on December 29, 2011, held once and for all that Assembly Bill 1X 26, the dissolution measure, was constitutional and the California Legislature could dissolve redevelopment agencies.  However, the Court also held that Assembly Bill 1X 27, the measure conditioning further redevelopment agency operations on additional payments, was unconstitutional.

This result is a worst-case scenario for redevelopment agencies.  As of February 1, 2012, all redevelopment agencies were officially dissolved.

Since February 1, 2012, cities and counties have made the decision whether to become the successor agency to the defunct redevelopment agencies and take on their “enforceable obligations” or not.  While many cities and counties in the state are choosing to take on the duties, the City ofLos Angeleson January 11, 2011, voted not to absorb the City’s redevelopment agency and its 193 employees into a city function.  With more than $109 million in costs if it took on the agency, the City declined.

Accordingly, Los Angeles’ redevelopment agency was handed over to an oversight authority of three members – all of them appointed by Governor Brown.  These members include Mayer Brown partner/former James Hahn chief of staff Timothy McOsker, Chairman of Rising Realty Partners, LLC Nelson Rising, and former CRA/LA city council liaison Mee Semcken.  The new appointees formed a “designated local authority” (DLA) that assumes certain duties associated with the terminated CRA/LA.

These duties include disposing of agency assets (including disposing of approximately 400 parcels of real estate), paying existing bond debt, following through on pre-existing contractual obligations, maintaining reserves, enforcing former redevelopment agency rights to protect and benefit bondholders, managing properties until contracted work has been completed and preparing an administrative budget and obligations payment schedule.

The DLA will be overseen by a seven-member Oversight Board consisting of representatives of the taxing agencies in whose boundaries the redevelopment agencies were located.

According to the CRA/LA, there are 26 projects in various stages of completion.

The DLA, along with the soon-to-be-appointed oversight boards, will supervise the completion of properties in development, at least until those contractual obligations have been delegated to third parties.

Since February, the DLA has met and is quickly coming up to speed to meet the demands of existing CRA projects.  The 7-member Oversight Board has not yet been appointed and must be in place by July 15, 2012.  The DLA cannot sign off on anything until the Oversight Board is established.

On the legal side, the Community Redevelopment Association can appeal the Supreme Court ruling to the U.S. Supreme Court, however, this appeal is unlikely to be heard before the selective Court.

So while the structure appears to be in place to continue the CRA/LA projects currently in motion under the authority of the DLA, questions on the mechanisms to be used in the future to help revitalize blighted communities and construct affordable housing remain unresolved.

For questions or comments on this article, contact the author at rmorse@trumanelliott.com.

by Justin Gugajew, Tax Manager, Moss Adams LLP

Given the spotlight that has been cast on the national debt lately, very few believe there will not be sweeping government reform, whether through tax increases, spending cuts, or both.  Even if Congress fails to reach a deal to help balance the budget, many current tax incentives would expire after 2012.  In addition, absent new legislation, starting in 2013 we will see several rate increases, including:

• A jump in the highest marginal federal tax rate, from 35 percent to 39.6 percent
• A 3.8 percent surtax on net investment income to help fund health care reform legislation
• A rise in the capital gains rate, from 15 percent to 20 percent.

So clearly, as real estate professionals navigate through transactions this year and beyond, tax implications become an increasing concern.  Real estate investors are commonly exposed to a spectrum of complex tax laws, and tax planning can be a vital tool to help increase cash flow.

One important strategy is taking advantage of the opportunity to accelerate the depreciation deductions of fixed assets, such as real estate.  This is called cost segregation, and it allows a taxpayer to reclassify certain assets, effectively reducing their tax lives.  The result?  A reduction in the taxpayer’s current income taxes, freeing up more cash to invest in the business.

Another issue to monitor: Given the current political environment, carried interest legislation has also been mentioned in Congress.  Under the current draft, such legislation could affect many real estate joint ventures and require real estate operators to recognize taxable income much earlier—and at a higher tax rate—than they do now.

Regardless of what changes come about in Congress, it is important to consider tax implications when entering into transactions and structuring deals.  Understanding the strategies available to you can help you stay afloat during uncertain times.

For questions or comments on this article, contact the author at Justin.Gugajew@mossadams.com.

A special point-counterpoint breakfast program drilled down on the issues related to the recent report published by ULI, “The New California Dream.”

Speakers included:

Moderator:

• Lynn Jacobs, Former Director, California Housing & Community Development Department

Presenters:

• Arthur “Chris” Nelson – Director, Metropolitan Research Center, University of Utah

• Peter Gordon – Professor, University of Southern California

Respondents:

• Taylor Mammen – Principal/Director of Consulting, Robert Charles Lesser Company

• Erik Pfahler – President, CityWest Ventures

• John Given –Principal, Development, CIM Group

View the presentations

· Nelson – ULI New CA Dream 3-22-12

· Housing Breakfast – Peter Gordon

View the New California Dream report here.

The commercial real estate world suffers from a failure of imagination, says ULI Los Angeles Advisory Board member George Garfield, president, west region, for Transwestern. Practitioners have an opportunity to leverage their strengths at one of the most disruptive times in U.S. history, he says.

“Much of what is written about commercial real estate focuses on the transaction and the financial underwriting of a project or deal, whereas little attention is paid to the idea of place or the experience of service. But it is the realm of execution—which is powered by imagination—that drives the experience and, ultimately, the financial performance. Those of us in the commercial real estate business need to move away from a strictly financial explanation of cap rates and returns on investment, as important as they are. We are here to design compelling places and services. When we do this well, the financial returns can be stellar.”

Read the rest of the article in UrbanLand.

As the balance sheets of corporate America are getting stronger and companies are trading up to Class A industrial properties, the Class B and C buildings have to be rehabilitated to compete. These Southern California projects have transformed industrial properties to be contenders.

Read the rest of the UrbanLand article here.

Known as the Duke of Art Deco, Dave Goldstein has made a profitable business out of his hobby of restoring vintage apartment buildings, which is helping stabilize values in neighborhoods where film stars and future presidents once dwelled.

Los Angeles native Dave Goldstein, who is passionate about historic restoration, began collecting and restoring vintage apartment buildings 25 years ago. Today, he has a portfolio of 30-plus properties restored to their original condition—and a following of art deco and Hollywood groupies lining up to rent them.

Scattered in desirable neighborhoods from the Hollywood Hills to the Miracle Mile, Goldstein’s properties generate above-average rents, from about $1,300 for a “single”—which, in L.A. real estate parlance, is a one-room unit with a separate kitchen—to $3,800 for a three-bedroom unit. Although his properties are turning a profit, Goldstein contends that he is not in the rental business for the money. “It’s a hobby that got out of hand,” he says.

Click here to read the rest of the article.

LOS ANGELES, Calif. – More than 300 real estate professionals, city planners and other leaders at the forefront of revitalizing the inner city convened Wednesday, March 7 at the Dorothy Chandler Pavilion in downtown Los Angeles for ULI Los Angeles’ (ULI LA) signature annual event, Urban Marketplace. The mission for this year’s Urban Marketplace was to create a forum for attendees to exchange ideas and conceive deals that can contribute to creating a healthier and more sustainable Los Angeles – even in the wake of the Redevelopment dissolution.

In an opening panel discussion moderated by ULI LA Executive Director, Gail Goldberg, panelists, Cecilia Estolano of Estolano LeSar Perez Advisors and former CEO of the Community Redevelopment Agency of the City of Los Angeles, Daniel Tellalian of Emerging Markets and Josh Gertler of Consensus Inc. raised key concerns for Los Angeles as a place where residents can enjoy a healthy lifestyle today and in the future. They asserted that to elevate Los Angeles to be competitive with other major metropolitan cities across the country, LA must find a way to make significant improvements to the core components of a healthy city including access to affordable housing, alternative forms of transportation and healthy food. Below are the top takeaways from the panel presentation:

• “Los Angeles is the most unaffordable market in the US” stated Estolano. She highlighted LA’s lack of affordable housing options siting that many households are forced to spend 50-60% of their income on housing alone. The dissolution of the Redevelopment Agency requires developers, cities and institutions find creative ways to provide for much needed affordable housing options.
• The California FreshWorks Fund, a project of the California Endowment and private-public partnership loan fund raised $264 million to bring grocery stores and other healthy food retailers to underserved communities where healthy food options are more than a 20-minute drive from home. Tellalian stated that the fund was established in response to the severe deficiency in healthy food options in South Los Angeles. He added that the fund incentivizes retailers to invest in neighborhoods where they may not otherwise due to lack of data on the viability of the market, lack of infrastructure or attractive existing building conditions and lack of tolerance for risk in times of economic uncertainty.
• “The County of Los Angeles made a conscious decision to invest in transit with the passage of Measure R by more than a 2/3 vote” stated Gertler. He continued, stating that in order for the transit infrastructure to be effective, it needs to be part of a larger vision for Los Angeles. The fate of too many projects is determined by local communities one small piece at a time. There is a bigger connection between transit, the built environment and zoning that must be considered and harnessed at the regional level. “Connectedness and engagement are fundamental elements of healthy communities” stated Gertler. Transit must function seamlessly within the surrounding neighborhood and regional context to successfully achieve that goal.
• Estolano added to Gerter’s point, “What we lack is a clearly articulated vision of what we want future growth, development and planning to accomplish.” She asserted that the vision must be framed around how a person lives in the context of where their children go to school, how they commute to work with or without a car, how far work is from the home, access to healthy food and ability to interact with their neighbors outside of their personal property.
• In today’s economic environment, Tellalian stated that the public sector needs to be a friendly place for private and institutional investment. Today, Los Angeles is one of the most difficult places to do business and invest. “Why are all of the new developments happening just outside of our city limits?” Tellalian asked rhetorically.
• Gertler concluded with a recommendation to develop a 21st century approach to public engagement. He stated that policy makers need to make it more convenient for the public to participate in the public process and therefore we need to expand the menu of tools to make the opinions of those who have been left out relevant. Communication can no longer be one directional, but must allow for a two-way dialogue.
• Estolano concluded with her recommendations for creating a healthier Los Angeles including:

1. Establish a permanent source of money for affordable housing, transportation oriented development and compact urban development perhaps similar to the California FreshWorks Fund model to replace what was lost with the dissolution of the Redevelopment Agency.
2. Create opportunity for existing talent and businesses in the region by investing in our strongest sectors and businesses.
3. Estolano asserted that in order to make these ideas a reality there needs to be leadership and leadership is going to come from risk-takers in the private sector, in the community and philanthropists who will be willing to push the public realm to think ahead into the future.

Following the opening panel presentation, attendees participated in a series of ongoing Roundtable Discussions to conduct meaningful dialogue about these and other pertinent aspects of urban development.

The following is a list of Roundtable topics, including moderator participants assigned to each:

1. Small Development Projects – Moderators: Steve Jones, Founder and President, Better Shelter; Matt Stibal, Loan Consultant, Gateway Business Bank
2. Revitalizing the LA River and its Neighborhoods – Moderator: Omar Brownson, Executive Director, LA River Revitalization Corporation
3. Transit Oriented Development – Moderators: Ed Casey, Partner, Alston+Bird; John Hrovat, Principal and Co-Operation Officer, Urban Partners
4. Moving a Project Forward with Public-Private Financing – Moderators: Tony Canzoneri, Esq., Partner, McKenna Long; Larry Kosmont, President, Kosmont Companies
5. Financing Projects with EB-5 Investments – Moderators: Jon Curtis, Principal, California Golden Fund; Ryan Aubry, Senior Vice President, California Golden Fund
6. What you Need to Know About Enterprise Zones – Moderators: Andrew Anson, CEO, Empowered Banking; Carolyn Weiss, Director Central-West Region, Los Angeles City Incentive Zones
7. Preservation of Affordable Housing – Moderators: Holly Benson, Vice President of Housing Development, Abode Communities; Dan Falcon, Senior Vice President, Los Angeles Operations, McCormick Baron Salazar
8. The Future of Redevelopment – Moderators: Robin Hughes, President & CEO, Abode Communities; Dan Rosenfeld, Senior Deputy to Supervisor Mark Ridley Thomas
9. Senior Housing and Permanent Supportive Housing – Moderators: Lisa Payne, Policy Director, Southern California Association of Non-Profit Housing (SCANPH); Tara Barauskas, Director of Housing, A Community of Friends
10. Downtown LA – The Tipping Point is Reached – Moderators: Hal Bastian, Senior Vice President & Director of Economic Development, Downtown Center Business Improvement District; Kent Smith, Executive Director, LA Fashion District; Blair Besten, Historic Downtown LA BID
11. TOD, Infill and Brownfield Development without Redevelopment Agencies – What Tools are Available Now? – Moderators: Leo Rebele, Vice President and Environmental Services Manager, Gannett Fleming
12. USC: Changing Campus Adjacent Neighborhoods – Moderator: Brian League, Executive Director of Real Estate Development, USC Real Estate; Jon Soffa, University Architect and Executive Director, USC Planning & Design
13. Transit Oriented Development – Moderators: Charles Tourtellotte, President and CEO, TAAG LLC; Gene Kim, Vice President, Parson Brinkerhoff
14. Effectively Utilizing Media and Marketing in Real Estate – Moderators: Nazan Armenian, Senior Vice President, Consensus Inc.; Josh Gertler, President, Consensus Inc.
15. Healthy Policies for Healthy Cities– Moderators: Bill Roschen, President, LA City Planning Commission; Margot Ocanas, Policy Analyst, RENEW Los Angeles County
16. Creative Office Space – Making it Work – Moderators: Thomas Majich, Development Manager, Industry, Ltd.; Milan Ratkovich, Development Manager, The Ratkovich Company
17. Downtown Women’s Center Shelter – Moderator: Molly Moen, COO, Downtown Women’s Center; Joe Altepeter, Site Director, Downtown Women’s Center; Maureen Sullivan, Principal, Pica+Sullivan Architects, Inc.; Joe Pica, Principal, Pica+Sullivan Architects, Inc
18. Bringing Back Broadway and the LA Streetcar – Moderators: Paul Habibi, Chief Consultant, LA Streetcar, Inc.; Eric Metz, Associate, Los Angeles Streetcar, Inc.; Jessica Wethington-McLean, Executive Director, Bringing Back Broadway, Office of City Council Member Jose Huizar
19. Alternative Lending Programs / Life After RDAs – Moderators: Ernest Tidwell, Los Angeles Economic Development Corporation; Vilcar Koo, First Vice President and SME Program Manager, China Trust Bank
20. Adaptive Reuse – Moderator: Karin Liljegren, Principal of Architecture and Interior Design, Omgivning
21. Healthy Food Financing and Development – Moderators: Vanessa Delgado, Director of Development, Primestor; Carl Middleton, President, Northgate Gonzalez Real Estate Company

About ULI Los Angeles
The Urban Land Institute (www.uli.org) is a nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the Institute has more than 40,000 members representing all aspects of the land use and development disciplines.

ULI Los Angeles has an active membership drawn from the counties of Los Angeles, Ventura, Kern, San Luis Obispo and Santa Barbara, and is composed of groups and individuals united in their pursuit of improving land-use policies.

Contact:
Lauren Hanson, ValleyCrest Landscape Companies, (818) 737-2607
Jack Skelley, Paolucci Communication Arts, (310) 791-2755, ext 312