Confusion greets Three Cal Plaza default notice, some see union tie.

The "notice of default" the Los Angeles Community Redevelopment Agency recently filed against the developer planning California Plaza's third office tower has left downtown real estate insiders confused about the agency's motives -- and the fate of a leading candidate for the Metropolitan Water District's permanent headquarters.

Some sources said Cal Plaza developer Bunker Hill Associates may be willing to "call the agency's bluff" by relinquishing its current development agreement with the CRA -- and subsequently offering a new competitive bid under terms more in tune with downtown L.A. market conditions.

Some even suggested the agency's move is primarily a ploy to pressure the Metropolitan Structures West-led Bunker Hill Associates team into resolving a labor dispute at Cal Plaza's hotel -- in which BHA has but a 10 percent interest -- in favor of the Hotel & Restaurant Employees Local 11 union. Many said they're convinced that CRA would negotiate more flexibly -- and hence help BHA try to complete a deal with MWD -- if Hotel InterContinental management allows the union to represent workers there.

CRA Commissioner Dennis Luna denied that the agency's position is tied to the hotel labor dispute. He added that if BHA walks away from the current development agreement, the agency would welcome a new bid from a revised BHA team and all other interested parties.

On April 15, the CRA's Board of Commissioners resolved to terminate its "Disposition and Development Agreement" with BHA if the development team doesn't pay its delinquent rental payments on the Three California Plaza site within 30 days. That back-rent has been accruing at $125,000 monthly since March 1, 1992, and now totals $1.62 million, according to CRA and BHA officers.

Representatives of the development team indicated they'll forfeit the right to develop the Three California Plaza site -- along with the $2.17 million bond they posted to secure that right -- rather than invest $125,000 monthly into the risky highrise office development.

Three California Plaza is slated for a site just north of 4th St., directly across Olive St. from Cal Plaza's first two office highrises. BHA has also developed the Museum of Contemporary Art, the InterContinental and the Museum Apartments at California Plaza.

The proposed tower remains one of three finalists for MWD's headquarters, but the regional water wholesaler's decision on the matter -- previously scheduled for April -- has been delayed until September, according to Jay Malinowski, MWD's director of public affairs.

Considering that MWD is one of few tenants seeking so much space in the soft downtown real estate market, the CRA instead "should have looked at the situation from a business perspective and shown more flexibility" with BHA, lead developer of CRA's biggest single development and the Bunker Hill Project Area's signature project.

If MWD doesn't go with Three California Plaza, BHA might be stuck paying the site's base rent for four or five years before the market needs such a property, another prominent downtown broker added. "It just wouldn't make sense for them to put in another $5 million or more just to hold on to the site," the source commented.

But Metropolitan Structures might see more benefits in letting the current development agreement expire, forfeiting the bond and then putting together a new bid when the agency seeks new development proposals, several sources noted.

Depending on how quickly the city puts the project out for bid, MWD could conceivably still be there waiting, they added. Some also noted that the CRA might be disbanded and a future developer likely would deal instead with the new mayor and City Council.

Although Metropolitan Structures managing partner Hal Jensen said market conditions don't warrant additional investments to cure the default, he declined comment on any new Three California Plaza team he might subsequently put together.

But Commissioner Luna said the agency "would encourage them to try again -- the more serious players the better for the CRA."

"But if there's going to be a long wait with no rent coming in (from the site), the staff determined that it's better for the time being for us to control the site's fate, rather than BHA," Luna explained.

While Luna scoffed at the notion, some sources went so far as to suggest that the agency's position -- particularly the timing of the default notice -- represents an attempt to resolve a labor dispute at California Plaza's new Hotel InterContinental. According to this theory, the CRA would offer BHA more flexibility on the Three Cal Plaza site's base rent terms if the hotel operators allow the Hotel & Restaurant Employees Local 11 to represent hotel laborers.

While most sources were reluctant to publicly criticize the CRA, several commented that CRA Board Chairman Jim Wood's position as the No. 2 executive with the L.A. County Federation of Labor is a factor in the agency's position on the Three Cal Plaza site.

But lobbyist Tom McCarty with real estate consultancy Gavin Associates, which has represented several downtown highrise developers, didn't mince his words.

"The agency's timing suggests that the hotel dispute is the spin that's been put on" the default notice resolution, McCarty stated. "If the developers are incapable of curing the default, they would also be incapable of fulfilling their proposal to MWD."

"Logic would dictate that the CRA would work with the developers to keep them out of default in this market environment," McCarty added. "So I believe the move does indicate they're trying to club (BHA) over the head with the (default) notice to induce a resolution of the labor dispute," he concluded.

Luna disagreed. "I don't subscribe to that theory at all; this was strictly a business decision and there are much larger economic forces at play here," he said.