With L.A. City, County Approvals, Grand Avenue Project Proceeds

We do this interview days after both the Los Angeles City Council and the Los Angeles County Board of Supervisors voted to approve Related's Grand Avenue Project. What exactly did they approve?

They signed off on a series of documents, the most fundamental of which were the environmental impact report and the development and disposition agreement (DDA). They focus on the first of the project's three phases-although it covers, broadly, all three phases.

The first phase covers essentially one city block between Grand and Olive and First and Second streets opposite Disney Hall. It includes two towers with 400 market-rate condominiums, 100 low-income rental units (20 percent of the total), a 275-room five star hotel (which will be a Mandarin Oriental), roughly 250,000 square feet of retail and commercial space (which include a market, a book store, six or seven restaurants, a food court, and some additional retail space), a health club, a catering and events facility, and a 1,400-car parking garage, of which roughly 800 spaces will be available to the public.

The Grand Avenue Project will be built in phases. How does the city and county approvals affect Phases II and III?

While the second and third phases are still in formation and will ultimately be approved and vetted by various authorities, the overall scale of development is defined.

In addition, the basic business terms in the DDA for Phase One apply to Phases Two and Three. Those terms include the price we will pay for the land, which is defined not by square footage, but rather by use, with individual pricing for market-rate condominiums, market rate rentals, retail, hotel, and office space. The basic terms that govern the disposition of the site, as well as the 99-year lease (which we will be entering into first on Phase One and then ultimately on Phases Two and Three) are also described in the DDA.

Another significant component of this project are the community benefits. As in Phase One, 20 percent of all residential units must be affordable. That will mean low-income rental, defined as below 60 percent of the area median. The first phase also includes a commitment that 35 percent of those low-income units will serve families at 35 percent of the median and below. That remains to be determined for the second and third phase. Ambitious local job training and hiring programs are also outlined in this agreement.

There are also MBE/WBE requirements and all of the normal CRA requirements, and we will be consulting, per the agreement, on a regular basis with community benefits coalition members to make sure that they are apprised of our progress and the way we are approaching these requirements.

We have also agreed to fund, for ten years, up to $1.5 million in pre-development loans to qualified nonprofit developers to help develop transitional housing for the homeless. This piece acknowledges that though the homeless problem is acute Downtown, it is impractical to try to address it, as with the other affordable housing, on the site of the project itself.

In addition to all of those community benefits, a public park has also been planned to accompany the project. What is the status of the park?

The agreement with the joint powers authority stipulates that roughly $50 million in pre-paid ground rent for the first phase will help develop the 16-acre county mall into a new civic park. Related will provide the staffing and expertise to help plan, design, and ultimately construct the improvements for the park. While personnel working on the park would be paid for, we would get no fee or other compensation for doing that.

We have worked with Grand Avenue Committee Executive Director Martha Welbourne and a design and planning team of Mark Rios, the landscape architect; architect Brenda Levin; and Aaron Paley, who is a programmer and event coordinator, to come up with a vision for the park. There have been a number of community meetings. We've gotten a lot of input. Now we are poised to move into the schematic design phase for the park, which we envision will occur over the next four to six months. We expect that we will be ready to begin work on the park sometime in 2008, and it would be finished before we finish construction on Phase One.

Many issues were raised in the debate over this project. One was that it wasn't a big enough idea. Another one was that there wasn't enough public vetting. A third was that $60 million in public subsidies aren't justified for private development. How do you respond to these select criticisms?

We have alternately been accused of not making it a big enough idea, and, perhaps more frequently, that it's too big an idea. We have been accused of being elitist, and we have been accused of the opposite. We have been given a charge that cuts across virtually every planning and economic objective anyone in Downtown has ever contemplated.

Before I address those specifically, let me say that we were pleased to see the breadth and depth of support we had at both the L.A. City Council and the County Board of Supervisors. That accounts for the widespread support we had in the political arena. While we have heard somewhat isolated complaints, I think the majority of the public has been supportive.

Regarding public vetting, no other project in my lifetime in L.A., save possibly the Olympics, has had the public hearing and vetting that this project has had. We conducted two years of public hearings, not just Downtown but at venues all over the city. As Supervisor Yaroslavsky has noted, more sets of eyes have looked at this project, both from the public and in terms of financial advisors and others, than on anything anyone else can remember. So, that argument is completely specious.

Point two, that this isn't a big enough idea: I'm not sure where that criticism comes from. We have heard that this project might not be "L.A. enough" and might be too generic. We are not done with schematic design yet, although the plan is well along. Any project that involves L.A.'s first vertically integrated mixed-use project with Frank Gehry as the lead architect is going to pass that test.

I don't think anybody that has been close to this process, particularly those in the Downtown community who have seen how we have labored to create a plan to make all the components work, would take that notion seriously.

The subsidies: Three phases of the project encompass development with a cost of roughly $2 billion. We are talking about a subsidy package of about $90 million. Of that $90 million, $24–25 million is for affordable housing, public improvements, and street improvements-in other words, public benefits. The one that has drawn the most attention is the $60 million-plus in transient occupancy tax rebates over 20 years for the hotel and the $4.5 million parking tax rebates for the parking garage.

The only thing I can say to that is, first, put into perspective how much private funding this deal is leveraging. Second, without the hotel there would be no project. The hotel anchors this district; it anchors the place we are creating with 24-hour use. Number two, there is no five-star hotel in Downtown. A huge amount of business is hemorrhaged to Beverly Hills and the Westside. Everyone in the cultural district is eagerly anticipating the opening of not only the hotel, but also the whole project-as is the Visitors and Convention Bureau and, frankly, most of the other hotels Downtown. Thirdly, the parking is going to be publicly regulated and controlled, because there is a clear objective of affordable parking-not $27-an-hour parking, but affordable parking. That requires some assistance because this is an expensive garage to build. $4.5 million over ten years is a small number given that the garage will probably cost in excess of $60 million.

Lastly, the risk will be borne exclusively by us, the developer. By that I mean downside risk. If they don't perform up to par or up to pro forma, that is our problem, not the city's problem in any way, shape, or form.

No project-even one of Grand Avenue's scale-can turn around Downtown or the City of Los Angeles alone. You are part of a series of developments that have been taking place in Downtown over the last 10–25 years. How does your project fit in with the others?

In our view, Downtown has turned the corner and there is no turning back. As much as I applaud what the Anschutz Entertainment Group has done in creating a sports and entertainment district at LA Live, we look at this opportunity as a sub-market of Downtown, with its own persona, needs, and opportunities. We've tried to respond accordingly. It's not just developing for development's sake. It's development that we think fits into the character and needs of Bunker Hill. We think it is an opportunity to create the highest quality residential environment in Downtown.

The bones of Downtown have long been in place. With LA Live, Disney Hall, South Park, Little Tokyo, Chinatown, and now at Bunker Hill, that meat is being filled out on these bones, and we think we have a very specific story to tell. It alone is not going to change the face of Downtown. It never was intended to. Rather, it is a specific, and we think unique, component of Downtown and the whole region.

What does "turning the corner" mean for the economics of mixed-use, high rise development?

Vertically integrated mixed-use, where the whole is greater than the sum of the parts, is a concept that we have utilized in other cities. Based on our experience, we think that there will be an enormous "halo" effect, meaning that the area surrounding the site will continue to revitalize because of what we are doing.

The economics hinge very much on that mix of uses. For example, the ability to sell condominiums at the highest prices in the Downtown hinges on its proximity to MOCA, Disney Hall, the Cultural Center, and transportation networks. It also hinges on having condominiums atop a world-class hotel and having shopping and restaurants a stone's throw away. That has not yet been done Downtown.

The other thing that was relevant to the economics was that the first phase, by definition, is riskier at one level, but by controlling for the future development of the second and third phase, we can capitalize on what we think will happen in the area after we take this first step.

Elaborate on how the Grand Avenue project came into being-how it was catalyzed, managed, and schematically planned. In other words, what role did the Grand Avenue Committee and the joint powers authority play. How unique, valuable, or even cumbersome was the process that lead to the project's recent approval by the city and county?

The decision by the city and the county to form a joint powers authority, so that development sites that are owned by both the city through the CRA and the county could be planned and developed together, was essential. We may not have responded if the opportunity were only for the first phase. In order to do that there had to be cooperation on both sides.

Setting up a separate staff, run by Martha Welbourne-a person of exceptional talent-to focus full-time on this effort I think was also essential because of the complications and the need to coordinate. To simply say to a developer: "navigate among the existing multiplicity of agencies that have some jurisdiction over this area," would have been impossible. There are always going to be hiccups in something this complicated.

But despite the fact that we've been at this for two to three years now, for a project of this scope and size, I think this process has moved at warp speed. I've worked on smaller projects that took a lot longer. That tells you something about what can happen when agencies cooperate.

How will the development create an inviting urban fabric at the street level?

You touch on what has long been a significant objective of this project, which I would term to be "connectivity"-connecting existing Bunker Hill to the unfinished parts of Bunker Hill up to the cathedral, a new civic park, and knitting together L.A. from the east and the west, partly through expanded transit networks and partly through projects like this. The public will be engaged, as you suggest, not by the buildings, but by the public spaces and the streets.

We are charged with creating a new streetscape on Grand Avenue from Temple Street down to Second Street and below. That involves planning and urban design, and it involves engaging with other stakeholders along Grand Avenue, including MOCA, the Omni Hotel, Maguire Properties, and others.

But it's not just Grand Avenue-it's the park; it's the public space within the development site; it's what we hope to do by activating the streets with shopping, residential, hotel lobbies, and other uses along Second and Olive. Second Street, as you may know, will be broken through and will continue between Olive and Grand, where it is now closed off. It's no one of these things; it's all of them taken together.

On April 12 at the Biltmore Hotel, you and Related are being honored by the Shelter Partnership, a non-profit involved in the development and maintenance in short-term and transitional housing programs, permanent housing, and supportive services for the homeless and potentially homeless throughout Los Angeles County. Talk a little bit about this organization and your involvement with it.

I have been a passive supporter of the organization in the past, but as I got to know more about them a couple of things dawned on me. First of all, probably the most deeply entrenched problem facing the city and Downtown in particular is homelessness. Shelter Partnership has labored successfully for decades to meet the needs of the homeless population in L.A. They've done so with an almost unprecedented level of their resources going directly into programs rather than administration.

Because we are housing developers and, in another side of our business, act as affordable housing developers, their efforts resonate strongly with us. As I said earlier, the flip side of the Grand Avenues and LA Lives is making whole the other side of Downtown: the Skid Row area and dealing with these problems. They have done that quietly and successfully, with a private amount of private versus public dollars. They have done a heroic job.