Connect with CP&DR

facebook twitter

Follow us on Facebook and Twitter

Cities Fret Over Fate of Redevelopment-Owned Properties

As the adage goes, they may not be making any more real estate these days. But, for some bargain-hunters, the death of redevelopment may be the next best thing. 

In the coming months, successor agencies and their oversight boards will be deciding which in-progress redevelopment projects will go forward and, conversely, which assets will be disposed of. Presumably, all of those assets that are not placed on respective agencies' lists of enforceable obligations will be sold and their proceeds dedicated to local taxing entities.

Uncertainty about the fate of those properties—both the prices they will fetch and, perhaps more importantly, the developments that could result—are adding to cities' anxieties during the wind-down of redevelopment. 

Properties held by successor agencies fall generally under a few categories: 

Larger, developable sites that need no unusual preparation or environmental remediation.

Small parcels that had been intended to be merged with others to form viable development sites.

Contaminated sites awaiting publically financed remediation.

Dilapidated historic structures awaiting publically or privately renovation.

Sites acquired and designated for affordable housing. 

Sites acquired and designated for infrastructure and public services. 

The number of such holdings ranges from zero in some cities to roughly 400 in Los Angeles. The former Los Angeles Community Redevelopment Agency holds around $300 million in property that was intended to be leveraged into roughly $3 billion in investments, according to CRA/LA spokesperson Richard Bloom. But those numbers do not necessarily have anything to do with the values once properties are liquidated—that figure is unknown even to the agency itself. 

The city is hoping for a few blockbusters, at least in high-profile former project areas such as Hollywood. 

"It's location, location, location," said Bloom. "Some of these properties are going to be extremely attractive to developers."

Renata Simril, managing director at real estate services firm Jones Lang LaSalle and formerly a developer with Forest City Enterprises, said that many former RDA properties will be inherently unattractive to developers, if not because of their site characteristics then because of their locations. 

"I think it's important to note that redevelopment's function was to help provide tools in blighted or underserved," said Simril. "So by nature of them being RDA project areas, the majority are very depressed areas."

Bloom said that the agency is currently putting together a list of its assets, but even the most detailed list will not reveal the properties' market values. 

"There's a conflict between expeditiously selling this stuff and selling it at the highest value," said Bloom. 

Riverside Mayor Ron Loveridge put it even less diplomatically. "The instructions are to sell them ‘expeditiously,'" said Loveridge." "I'm not quite sure what that phrase represents."

Loveridge estimated that Riverside has about 160 properties that could be liquidated. He said that figure is comparable to those of neighboring cities in the Inland Empire, which has been famously hard-hit in the recession.  

"Across the state, you multiply ours and a lot of properties are going to be on the market at a very down time in the economy," said Loveridge. 

A notable foil to Los Angeles and its large Southern California neighbors is San Francisco. Tiffany Bohee, interim executive director of the San Francisco Redevelopment Agency, said that the city has relatively few un-contracted properties on its books. San Francisco is often considered an anomaly in the redevelopment world because the city and county are one in the same; therefore, the city had less incentive to shield tax monies through redevelopment.  

Cities are, of course, hoping that these properties fetch top dollar from developers who are eager to carry out the cities' redevelopment plans. But that's a best-case scenario. The process and timelines by which these sales may take place have yet to be determined. Timing could drastically affect the value of certain assets, as California's real estate market remains soft and successor agencies may be forced to take relatively low bids unless they are permitted to wait until more opportune moments.

Meanwhile, certain properties may find few, or no, bidders no matter when they go on the market. Statewide, redevelopment held countless marginal properties and even properties that would be considered useless to anyone but the agencies themselves. Agencies acquired slivers of real estate with the intention of folding them into larger assemblies, and they own untold acres of contaminated properties that many of them were intending to remediate with funds provide by the "Polanco" brownfields program. (The Polanco program, created by AB 3193 in 2005, provides some immunity from liability for redevelopment agencies and successor property owners of contaminated sites.)

While small agencies may have no trouble cataloging their holdings, some larger agencies are struggling just to figure out how many properties they own and what those properties are like. 

"Part of the challenge of compiling the list of things you're going to sell is not only figuring out the properties but also tracking down all the funding sources...and the strings attached in that regard," said Bloom. "Are there environmental remediation issues or anything else that might affect the value of a piece of property...and then look at the market value?  It's sort of hard to know until you put it on the market." 

Many of the properties that are likely to catch developers' eyes—and therefore fetch the highest prices—are also those that cities considered crucial for their redevelopment plans. In downtown San Diego, the former Centre City Development Corp. may have to liquidate properties that had been set aside for such crucial facilities as parks and fire stations. Though those projects were in only the early planning stages, CCDC had acquired properties with the express purpose of securing them before developers did. 

CCDC contends that selling those properties—and thus losing the opportunity to build parks and fire stations—imperils the robust residential development that is planned for the area. Intended high rises and their thousands of would-be residents will have inadequate fire protection and limited access to open space, both of which, planners say, are crucial for creating a viable community there. 

"If downtown continues to build out and absorb up to 90,000 people by 2030 with no new parks and no new fire stations, at some point it's just not going to be a livable place anymore," said Graham. 

Many cities fear that developers who acquire former RDA properties will have little incentive to build anything resembling that which the redevelopment plans had envisioned. 

"One of the uncertainties about this is that if you have five people want a property and the one who bids the most money is the worst of the five, do you go to the highest bidder?" said Loveridge. "If you're the highest bidder and you're not selected, do you go to court?"  

Moreover, without redevelopment agencies will no longer be around to negotiate for other ancillary community benefits. 

"The agency was able, in its day, to not only get projects built, but also to get other community benefits in exchange for the agencies subsidies they were able to extract various commitments from developers to help get these projects built....a whole lot of that stuff obviously goes by the board," said Bloom. 

Zoning controls may thus offer cities their only remaining means of controlling land uses in former project areas. Graham said that the City of San Diego is considering a zoning change that would make its intended fire station and park sites for "public use." The city had not previously done so because CCDC controlled the properties already. 

"There are some controls available to a city to help maximize some of the more marketable properties because they have the ability to impose zoning/land use planning controls," said Iris Yang, at attorney with Best Best and Krieger, who specializes in redevelopment.  

Of course, the potential for selling properties, no matter how attractive or marginal they may be, first depends on the decisions of successor agencies' oversight boards and the state Department of Finance. Cities are intensely wary of the process by which both entities will decide properties' fates. 

"There's absolutely no direction on how the oversight board conducts its meeting, how it liquidates assets, there are no procedures in place to standardize any of that," said Graham, echoing common criticisms of Assembly Bill X1 26, the bill that guides the dissolution process. "It appears that each county and city will be crating its own process as it plods along."

Cities are particularly anxious about what will happen in the event of disagreement.  

"We don't know how forcible the Department of Finance is going to be in reviewing the decisions of 400-plus oversight boards throughout the state," said Graham. "How fair is that?" 

Contacts: 

Richard Bloom, Spokesperson, Community Redevelopment Agency of Los Angeles, 213.977.1600

Jeff Graham, Spokesperson, Centre City Development Corp. (San Diego), 619.235.2200

Ron Loveridge, Mayor, City of Riverside, 951.826.5311

Renata Simril, Jones Lang LaSalle, 213.239.6000