Trammell Crow Finally Acquires LA City’s Old Crown Coach Site

Let’s begin with plans by Trammell Crow to buy a 20-acre site downtown from the old CRA/LA and the status of those plans around the cleantech manufacturing site. 

Brad Cox: We’re pleased to say that we’re closing on the acquisition of the property today after a long, challenging, but opportunistic process. It’s not been an easy transaction by any means, but we worked very closely with the designated local authority, the surviving entity of the CRA, with David Riccitiello, Christine Essel, and in particular Jenny Scanlin, who has really just been outstanding during this very complicated process. 

Describe the project that has enticed Trammell Crow all these years. 

It’s a 20-acre property that has historically been referred to as the Crown Coach Site, and surprisingly the Crown Coach Bus manufacturing company never operated on the site. They operated a facility that was near the existing site, but never actually on this site. It was a property acquired by the State of California back in the 80s with the intent of developing a medium security prison. As a result of opposition from the local community, the state ended up selling the site to the Community Redevelopment Agency to develop a cleantech manufacturing center. 

The original plan by the CRA called for a high-density, multiple-story, vertical cleantech manufacturing center. The original certified EIR approved in 2002 anticipated 1,400,000 square feet of vertical density on the property. Subsequently, the CRA went through multiple attempts to sell the site, the most visible and controversial was the attempt to sell to AnsaldoBreda Company to build a rail car manufacturing facility. The sale ultimately fell apart at the last minute. 

Next, the CRA went through a public RFP process, and there were a number of developers that responded. On the first round there were two finalists selected both offering the same price one was Genton Properties and the other was Trammell Crow Company. Genton Properties was first selected and was unable to close on the property and fell out of escrow after six months of due diligence and attempts to close on the property.

The CRA reissued in early 2011 a supplemental RFP to a select group of developers who had originally responded to the first RFP. Trammell Crow was selected as the one most likely to acquire the property and close on the property in a reasonable amount of time. The selection took place in June of 2011, and we finalized documentation and execution of the purchase and sale agreement in October of 2011, which unfortunately was past the June 30th 2011 cutoff date under the state bill. We received full approval from the CRA board to acquire the property in November of 2011. 

In late December of 2011, when the Supreme Court validated the state legislation terminating the redevelopment agencies, our acquisition of the property was obviously thrown into limbo. We worked very closely with the successor agency to continue to move forward and revived the transaction with the intent to seek approval from the Designated Local Authority and the Oversight Board which was approved by the DLA in late March of 2012. We received approval from the County Oversight Board in April of 2012 as well. Over the last couple of months we have worked through the final revisions of the documentation including the ongoing environmental remediation obligations for the property and a number of issues related to receiving title of the property. 

Today we are officially closing on the acquisition. It has been a financing challenge because you have an environmentally challenged property with the Community Redevelopment Agency/Designated Local Authority responsible for the ongoing mediation and cleanup of the property. When they acquired the property, there was an escrow hold back account of about $2 million received from the State of California that was specifically designated for the cleanup of the property. In our negotiation we are paying $15.4 million for the property. There is an existing note with East West Bank of approximately $13.5 million, the CRA/LA is paying off the note with our proceeds and the difference between our purchase price and the pay off of the note will be held in an escrow hold back account as an additional reserve fund designated for the clean up of the property. In total, about $4 million will be held in two escrow accounts, targeted towards the ongoing clean up of the property. 

As part of acquisition, one of the challenges was the environmental condition of the property due to the fact we have institutional capital partners. We have worked very diligently over the last couple of months to make sure we have an environmental insurance policy in place that would provide additional protection in the event that the CRA/LA failed to perform the cleanup of the property. We also faced the challenge of underwriting and receiving a title policy on the property because of the supplemental trailer bill to the state legislation, which allows the Department of Finance to claw back the sale of properties effectively anytime within sixty days of the sale. 

We’re intending to develop 375,000 square feet of state-of-the-art industrial buildings that will be in three buildings approximately of 233,000, 107,000, and 34,000 square feet. 

This has obviously been a long and challenging process that required immense patience. What was the attraction for Trammell Crow that would keep you in this for so long? 

It’s a combination of two things. First, we obviously think it is an outstanding piece of real estate. It sits in the downtown Los Angeles industrial market, which is a 200 million square foot market with basically a one percent vacancy. There is no available space in the downtown LA market, and most buildings are obsolete and old. There are very few state of the art buildings that would accommodate people in the manufacturing businesses, whether it’s in clean tech or other related manufacturing businesses. Obviously the garment business continues to thrive in the downtown area. The food wholesale business is also one of the strong demand drivers in that market place. 

The second reason is that we have a very deep experience in working with environmentally challenged properties. We are one of the best developers in executing vertical development on complicated environmental sites and this one falls into that category. We were recently successful on the 33-acre Sunquest property in Sun Valley, and this property had a similar environmental challenge. 

There is ongoing environmental remediation that needs to be performed by the CRA/DLA. The contamination on the property requires the nuances of an experienced developer to be able to locate buildings on a site that has an ongoing vapor extraction system that will need to operate for another two to four years before the department of toxic substance control will issue a ‘no further action’ on the property. We work very closely with the CRA/DLA and the DTSC in order to formulate a development plan for the property as well as an ongoing clean up plan that will be safe for the occupants of the building. We will take an unproductive piece of property and put it to productive use. 

When you say vertical buildings, elaborate for our readers what you mean and what you plan for the site. 

The plan features three state-of-the-art buildings that will be at minimum LEED Silver. We’ll be integrating bio swells, environmentally sensitive materials into the project, looking at implementing alternative renewable energy sources on the project. The buildings will have a minimum 32-foot clear height, ESFR sprinkler systems, and state-of-the-art energy efficiency controls. Most of the downtown industrial inventory was built back in the 70’s and early 80s and doesn’t have the high clearances that the users require today. 

Who do you expect to attract to this project? 

We’ll be focused over the next six to twelve months on attracting clean tech manufacturing to the City of Los Angeles. We’re going to spend a minimum of $100,000 for marketing through our CBRE brokerage network to attract companies in energy efficiency, renewable energy, electric car manufacturing, and battery manufacturing. We’re going to be working in collaboration with the Mayor’s economic development office, with Matt Karatz and his team, and the Council office to make sure that we’re reaching all of the touch points for potential occupants. 

I was just on the phone with Mary Leslie and we’re collaborating with the LA Business Council on inviting  some of the forward-thinking clean tech thought leaders from across the United States to a symposium here in Los Angeles. We hope to host the event sometime in November to discuss the state-of-the-art technologies, where the opportunities are in the space, and how we collaborate with the city to bring those leaders and their firms here to Los Angeles. It’s not an easy task, but we are committed to try and attract clean tech manufacturing. 

There has been a tension in the City of LA for more than a decade around what to do in the industrial zones downtown in the battle between residential, commercial, and industrial uses. Have you weighed in on that battle from Trammell Crow’s position, given this project, as the Arts District flourishes and as the context for industrial land is challenged? 

We have because of the past environmental history of this site. The highest and best use for this property is industrial, so it really isn’t fit for conversion into residential. Yes, the industrial sector is a very important component of the Los Angeles economy, and in particular for downtown. For example, if you look at the food wholesale distribution business, downtown is a conduit for the food distribution for the entire west coast. 

Then look at the growth of the garment business. It’s exploded downtown with Forever 21 and American Apparel having their world headquarters here, and the growth in that industry is quite phenomenal. Along with New York, Los Angeles is a major design center, so the business has continued to evolve and change. We have a concentration of designers graduating from the Fashion Institute of Design, and the school has been a huge factor in providing talent to the local garment manufacturers. The garment users before were 90 percent warehouse and 10 percent office, and that component has now changed to probably 30-40 percent office and 60 percent open space and manufacturing. Downtown is very dynamic in in the garment industry. 

One more question on that: Cecilia Estolano, who headed CRA, and Gail Goldberg drew a draw and then subsequently had lost in that battle to preserve the small footprint of industrial space in downtown LA. Is there an argument that could turn the tide here that Trammell Crow could make to help city leaders better appreciate industrial land? 

Industrial land is a critical component to the success of our economy and a lot of our industrial users continue to consolidate their space. A lot of the users downtown have grown to the point where they need much larger space under one roof, and a lot of the building inventory in Downtown are individual buildings under 25,000 square feet, you can’t find the larger facilities that are needed by the garment manufacturers and designers today. Unfortunately, they’ve looked to some of the surrounding cities, and moved their business into Torrance, Vernon or Commerce because of the lack of large contiguous industrial buildings in the downtown corridor. 

What are the lessons from other Trammell Crow projects around the country that inform your plans for this site in downtown LA? 

Companies are seeking state-of-the-art facilities to occupy and operate their business. Downtown industrial users have a higher percentage of office space than you would find in a traditional industrial distribution area like the Inland Empire. The occupiers of industrial buildings have complimentary office uses because of the nature of their business downtown, so we’ll be incorporating more office space into the design of the projects to accommodate the prospective users. We recognize the importance of building green and will be focused on the design of the building materials—the roofing materials, providing for solar, potential for co-generation, and other alternative energy sources. We’ll be evaluating those types of technologies for the project. 

This project has been significantly impacted by the rapid demise of redevelopment in California. What is your appraisal of the Governor’s action ending redevelopment and the transition period now underway in terms of making it easier or more difficult to develop the kind of project Trammell Crow does?

I’m one of those who are really disappointed to lose the redevelopment agencies. I think the agencies made a significant and positive contribution to the success of some our most challenged areas within the urban core. In our case, the agency bought this environmentally challenged property and have undertaken the challenge of the environmental clean up. The loss of tax increment financing, ability to help drive local job training, and the support for a lot of local public agencies will have a long term negative impact on the urban fabric of economically challenged areas of our city.