L.A. allows USC to take over site of proposed major development.

In an effort to preserve future hoped-for revenues for the city and its Community Redevelopment Agency, the Los Angeles City Council on April 6 voted unanimously to allow the University of Southern California to take over title to the site of what was to be the $150 million USC Plaza commercial development project and to remove the existing $22 million property from the current tax rolls.

This action, if signed off on by Mayor Richard Riordan and Los Angeles County Assessor Kenneth Hahn, would eliminate current property tax revenues, at least $250,000 annually, from county and CRA coffers.

The deal would allow USC to transfer title of the ill-fated project site to the non-profit university. Title is currently held by Figueroa Corridor Associates, the partnership formed between USC's nearly defunct for-profit subsidiary, Real Estate Development Corp. (REDC), and minority businessman James Jones, to undertake the ambitious project. That project -- which called for a high-rise office tower, retail and hotel complex to be located on Figueroa Street across from the university's conference center at Jefferson Boulevard -- was unveiled during the expansionary 1980s. But it has been indefinitely shelved due to the economic downturn.

The pending deal would allow USC to retain title to the site, avoid property taxes, and use the property for student parking. Proponents of the deal said taxpayers would ultimately benefit when USC moves forward with its major commercial project, which it would supposedly do when the economy improves. Also, the proposed deal would require USC to buy the portion of the project site still owned by the CRA, which constitutes about 15 percent of the total site.

But not everyone supports the deal.

"The city, by approving this, is impacting its ability to function in the urban renewal area," said developer Michael Thompson, a critic of this action. He serves as chairman of the CRA's Hoover Redevelopment Project Area Committee, an elected citizen and business group which advises the agency on projects in the USC area.

"The CRA is reducing its bonding ability by over five million bucks," said Thompson. "They are in effect allowing Figueroa Corridor Associates and USC to pay for the property with city funds; the minority partner (Jones) is being squeezed out -- and there is no guarantee anything will ever be built."

Dennis Dougherty, USC's senior vice president for administration, said USC Plaza has never been built because -- with the recession and the 1992 riots -- financing sources dried up.

As a result, in mid-1993, Gerald Trimble, general partner of the Figueroa Corridor Associates partnership and REDC's president, wrote to the CRA asking for a two-year extension on the groundbreaking deadline specified in the partnership's original contract with the CRA.

By the time this request reached the CRA board in February, CRA staff had amended it to add a title transfer from the for-profit Figueroa Corridor Associates partnership to the non-profit university, for a nominal price of about $1. The university would assume Figueroa Corridor Associates' existing loan balance of $25.5 million. The partnership took out that loan from Bank of America in 1990 to purchase the property.

According to the CRA staff memo to the board, "It is USC's intention to use the property for student parking and to remove the property from the tax rolls during their period of ownership."

But the university already owns and operates a 1,700-space parking structure -- a former May Co. warehouse about 1,000 feet east of the USC Plaza site on the other side of the Harbor (110) Freeway.

USC officials admitted that parking structure is currently 70 percent vacant because the location is "unpopular" with students. Normally, to qualify for non-tax status, a land parcel must be used to further the charitable purpose of a non-profit institution. Thompson noted that, while students must be delivered to campus in order to educate them, it would be difficult to justify the removal of a new parking lot from tax rolls when an existing lot nearby isn't used to anywhere near capacity.

"The parking lot issue bothered us at first too," admitted John Sheppard, planning deputy for Ninth District Councilwoman Rita Walters, who ultimately favored the proposal. USC and the USC Plaza site are both in the ninth council district.

"But we also looked at the big picture," said Sheppard. "They're looking for a break. We looked at down-the-road, major tax increment (revenues) from this project. We want to see a development, and we don't think another private person or party would come in and develop it."

John Hemer, CRA's director of real estate, pushed for the CRA board and city council members to approve the extension, title transfer and removal of the land from the tax rolls. He said, "The agency's motivation was to keep the owner participation agreement (the contract between CRA and Figueroa Corridor Associates) intact because the belief, still held, is that USC -- no matter what entity -- is the best possible and most likely developer of the site."

"The economy has gone south on us, and everybody else," Hemer added. "In consenting to the transfer, we avoid the possibility of the agreement going into default."

Hemer said that, although the university would stop paying property taxes on the site, the new agreement, if inked by Mayor Riordan, would require USC to purchase the portion of the site still owned by CRA, originally priced at $3.9 million.

"We told them to step up to the plate and start paying us money," said Hemer.

This new deal calls for the parcel to be reappraised at current market value, estimated by Hemer to be between $3.2 and $3.5 million, and sold to USC on the basis of a $100,000 down payment and quarterly payments for the next 10 years. The CRA would hold the note. Payments would be amortized over 20 years, but the note balance would be due in a balloon payment in 2004.

"We believe it will give us (the CRA) cash-in-hand of about $250,000 a year," said Hemer.

"When the economy improves, this project will be brought back to the tax rolls on a phase-by-phase basis," Hemer explained. "USC must transfer it back to the for-profit subsidiary under the current agreement."

But the actual document approved by the CRA and City Council does not guarantee that USC purchase the land, if both parties don't reach an agreement on price, according to Thompson. "There is absolutely no verbiage in the agreement that says USC must transfer it back to their for-profit," he said.

Thompson called the idea that the tax revenues are being replaced with equivalent loan payments a financial sleight of hand.

"The character of the money has changed. USC will use tax savings to buy public land," he said. "We, the public, are paying SC, through tax savings, to buy land from us, the public. And it is at a price less than they had originally agreed to pay."

Tax increment revenue, explained Thompson, is what the CRA utilizes to finance bonds, which pay for other development projects, thereby leveraging the agency's funds. The revenue from USC's loan payments, if the deal materializes, cannot be used for financing bonds, he said. Adding the lost bonding capacity to the lowered land prices, he said, "results in a total cumulative negative impact to the public of over $12 million."

Moreover, Thompson said he doubts the office high-rise complex will ever be built, so future tax increment revenues are in doubt.

"The need for high-rise office structures, especially in and near downtown, is disappearing with the speed of light. Telecommuting negates the need for them," he said. "The development that USC has propounded, in my professional opinion, is no longer feasible, and won't be feasible in the future."