School district to pay inflated price for Ambassador.

State law prohibits renegotiating summer 1990 price

The Los Angeles Unified School District, its hands tied by California's eminent domain law, will likely pay much more than current market value for the Ambassador Hotel site, where the district plans to build a high school.

According to lawyers for the school district and for Trump Wilshire Associates, the state's eminent domain law dictates that the property must be priced according to market real estate values that prevailed when the district condemned the property in August 1990.

The district and Trump Wilshire Associates are currently involved in a Los Angeles Superior Court lawsuit regarding the price that the district should ultimately pay for the landmark Mid-Wilshire hotel site.

Appraisers for the district, which has initiated condemnation proceedings on about 16 acres of the 23-acre site, valued that 16-acre portion in 1990 at $46.25 million. Appraisers for Trump Wilshire Associates, at roughly the same time, assigned a value of $123 million to the 16-acre parcel.

New York developer Donald Trump and European business associates bought the Ambassador site for $63 million in 1989, near the height of the Los Angeles real estate bull market. Trump's group will retain ownership of about six acres of Wilshire Boulevard frontage on the Ambassador site.

The school district appraisers initially valued the property at $47.9 million in the spring of 1990, and the district deposited $48 million with the court. But James Colbert, an attorney in charge of litigating the case for the school district, said the district revised its appraisal to $46.25 million last fall.

Colbert said the reduced appraisal is in no way tied to L.A.'s plummeting real estate values. The school district and Trump Wilshire Associates are both bound by state law to adhere to the appraised value as of the condemnation date, which is Aug. 2, 1990, according to Trump Wilshire Associates attorney Kevin Brogan.

Colbert said the district's revised appraisal was "a minor refinement, based on a review of the original appraisal," but it is still based on values at the time the school district condemned the property in August 1990.

Colbert explained that the state's eminent domain law, last rewritten in 1975, specifies that the price a public entity pays for a property acquired through condemnation must be based on the prevailing value at the time the entity deposits funds with the court.

Colbert said that only the 1975 California Legislature would know for sure why it wrote the law the way it did. But he surmised that the law was designed to protect public entities from rising property values of that time. The law "was predicated upon the notion that the real estate market is almost always inflationary in California, which it usually is," he said.

"The eminent domain law really isn't very well designed to deal with this problem. What we have been going through in the real estate market in the past few years is something the Legislature didn't anticipate when it adopted the law."

Brogan argued that, regardless of what the Legislature intended, the eminent domain law -- by establishing a valuation date -- actually protects both property owners and public entities from fluctuations in price. He said there were many cases in the 1980s in which the law protected public entities from paying "significantly greater" prices as real estate values climbed.

However, the law has turned around and bitten public entities, including the school district, during the recessionary 1990s. Los Angeles property values have plummeted as much as 30, 40, 50 percent or more since 1990.

Colbert said the court proceedings to determine the property's actual value, as of August 1990, will probably take two to three weeks, and those proceedings may begin this fall. But he said the trial date could be later, depending on the availability of witnesses and other factors.

Whether the Ambassador price dispute will delay the building of the new high school depends on whether the lawsuit is settled before funds become available to build the school.

Doug Brown, deputy business manager for the district, said no construction funds will be available for the site until some time in 1994 at the earliest. Brown said the district wants to build the school as soon as possible because it has 3,000 students within a nine-block area of the Ambassador site who are now being bused to other locations.