Port of Los Angeles Updates Its Long-Term Waterfront Development Agenda

Michael, address the Port of LA’s development agenda for the LA Waterfront and the depth of its infrastructure investment.

Michael Galvin: Our investment in the LA Waterfront between 2004 and 2025 is projected to exceed $1 billion. That goes toward infrastructure, to improve public access to the water’s edge; programming and events, to create more value for private developers seeking to invest here; and maintenance of waterfront areas.

We have worked with the community and the Harbor Commission to create a long-term investment strategy that is predictable for private developers, transparent to the public, and sustainable economically. Private developers can now see clearly what we are going to build and when, and we’ve become more strategic about our investments.

We’ve also created a bridge between our core cargo business and the community’s interest in waterfront investment. Our Public Access Investment Plan is a 10-year budget guideline that devotes 10 percent of our annual operating income to public access infrastructure—which means that when our overall business at the port is more successful, we make increased investments in waterfront development. 

Describe your responsibilities at the Port of LA, and the opportunities you envision for waterfront and commercial real estate in San Pedro.

I’ve been with the Port since 2005 in different roles, including as Director of Real Estate, Director of Special Projects, and, since 2015, Director of Waterfront & Commercial Real Estate. In this new role, my focus is to develop the LA Waterfront into a unique, visitor-serving district that attracts private investors and blue economy industries.

To achieve these objectives, we created policies that encourage private sector investment, like the Public Access Investment Plan and new waterfront and commercial leasing guidelines. These policies make it clear to the development community that we understand their business and that we can enter into leases that are financeable. Our policies and organizational structure are now designed to promote large-scale private investment in various ground lease development sites, and to make sure that that investment continues to happen over the long term through creative leasing strategies. 

The Port recently released a prospectus for a commercial development site on Cabrillo Way Marina in San Pedro. What is the opportunity being proffered?

The development opportunity consists of 87 acres of land and water in the San Pedro area. It includes the marina, which was completed about five years ago with 700+ wet slips and a 325-space dry boat storage area with crane lift operations. There are also plans for future yacht club development within the marina area. Adjacent to the marina are 12 acres of developable land for retail, dining, and entertainment type uses.

We put out this prospectus to introduce developers to the LA Waterfront redevelopment and get them interested in the upcoming solicitation process for this development site. We intend to release a Request for Qualifications in October 2018 and select two or three development teams that are qualified for both marina operations and ground-up development. Following selection of qualified teams, we will release a Request for Proposal for qualified teams to propose their project concepts and proposed lease terms.

How does this marina project fit into the Port’s long-term vision for the 400-acre waterfront? 

It’s important for us to activate all the land on the waterfront in order to attract more visitors and economic activity, and this is another piece of that puzzle.

Right now, this marina is not activated on the landside, but it’s in a core area—adjacent to AltaSea, other marinas, DoubleTree Hotel, future outer harbor cruise terminal and across the street from the CRAFTED art warehouse, another adaptive reuse development. It’s in a very dense area of future development, which creates a great opportunity for a private investor to unlock its value.

We want to create a dense retail, dining, and entertainment development that will attract more visitors to the LA Waterfront. We also hope this development will be additive and distinct from the San Pedro Public Market. We don’t want everything to be the same; we want to see different attractions and offerings, so that all our visitor attractions can work harmoniously. That’s a hard thing to accomplish, but it is our aspiration.

You recently led an Urban Land Institute-LA boat tour of the harbor waterfront, which included 150 developers and investors. What captured their interest?

We’ve been doing investor promotional events similar to this for a decade and have worked closely with ULI, taking their guidance and advice. At first, participants would ask questions about the nuts and bolts: How do you deal with ground leasing? How do you make it financeable? We’ve now resolved those basic issues.

In the past three years, the questions have evolved: When are the properties going to be available? What is the Port going to do to make sure they’re ready for development? We’ve addressed these issues, too. We’ve laid out a clear outline for how our work will evolve over time and how the projects in our 2009 San Pedro Waterfront EIR will correlate to private investment. With our Public Access Investment Plan and leasing guidelines, we’ve laid a good foundation for development to happen.

Now, people are genuinely impressed with the unique backdrop of the cargo operations, coupled with what we have built in public access infrastructure, the large events we’re putting on, and the private investment opportunities arising as we prepare sites for development. As people see the San Pedro Public Market being prepared, older buildings removed from the waterfront, and a new streets project come in, they start to see the breadth of what we have here that is entirely unique from any other waterfront.

People don’t ask any more about the technicalities of how we will make projects work. Instead, they ask for more information on the next site or solicitation. There’s more buzz than there has ever been, and I think it’s because the Port has positioned itself to be ready for investment and created a strong foundation for partnerships.

Despite being 23 miles from Downtown LA, San Pedro and the Port are subject to the City of LA’s less than transparent regulations. How do these regulations and politics support or frustrate the Port’s efforts to redevelop the waterfront?

The City of Los Angeles helps us in many ways. Politically, our local councilmember Joe Buscaino is the biggest advocate for waterfront development, both at the LA City Council and throughout the region. He has been extremely vocal about the role his office will serve in doing everything they can to make the development process as efficient as possible.

We have co-branded ourselves with the city as the LA Waterfront. We market ourselves as a critical part of all the tourist attractions LA has to offer, and we work closely with Doane Liu at the Department of Convention and Tourism Development to market the LA Waterfront.

We’re also assisted by LA’s geography: 23 miles is not all that far from the city center, and we definitely use our connection to multiple freeways as a marketing pitch to developers. On top of that, the size of the city of Los Angeles and the region provides a large population base for us to draw from. 

Led by a globally lauded executive, Gene Seroka, address the Port’s challenges and progress to date of enticing and securing large-scale, private development along the waterfront.

Gene’s leadership in collaborating with other port districts and private industry has helped us get where we are today.

The San Pedro Public Market project showcases the Port’s evolution from learning how to be a public partner to becoming a high-functioning public partner. The Port has historically gone through several starts and stops on waterfront development before we really got our act together. When Gene took over as executive director, we developed a new organizational structure that included a group focused on waterfront development and established new policies to help us be more effective. We established a lease form that was financeable, as well as sustainable public investment tools like the Public Access Investment Plan.

It is critical to show our private partners that we are committed to making waterfront development work. Our new structure and new policies made it clear to the development community that we understand the complexities of ground lease development and the need to develop creative leasing practices to promote future development.

In the past, the biggest issue we’ve had on the waterfront is ground lease term decline and the related decline in developer reinvestment. When ground leases get into their last 30 years, there is very little motivation for developers to continue to invest in their projects. That’s what happened with Ports O’ Call, which for 30 years had been in a deteriorating physical condition because it wasn’t feasible for the developers to reinvest in it.

The motivation to reinvest needs to be created structurally through policies and guidelines. To that end, we created unique leasing guidelines that allow developers, when their project begins to require significant reinvestment, to approach the port with a mutually beneficial proposal. Then we can enter into a new lease that enables the developer to reinvest by refinancing their project. This gives waterfront developments a continuous life cycle and creates mutual benefits for the developer, the port, visitors and businesses within and adjacent to the LA Waterfront.

We’ve put the pieces together and learned from our experiences so that the next developers to work with us will not have to go through a prolonged negotiation process, so that all of us can enjoy the benefits of what they create sooner.

What are the economic impacts of securing SpaceX, Boeing, and AltaSea on the waterfront and on your redevelopment efforts?

The Port has opened our doors to bring innovative businesses to vacant spaces in the LA Waterfront and the larger Port district, and AltaSea has been critical in attracting those types of businesses.

AltaSea brought SpaceX to the Port, and their rocket recovery operations have generated a lot of attention to the LA Waterfront and its potential to be the center for innovative new industries in space and ocean exploration.  Now, they are going to assemble their Mars rocket on a new 19-acre development site at the Port as well. That’s going to translate into 700 new jobs initially, and perhaps many more later.

AltaSea also brought us Boeing and the Echo Voyager program, another operation looking at establishing an ocean exploration base at the LA Waterfront. We expect AltaSea’s blue tech and underwater robotics hub, which is anchored by the Echo Voyager program, to branch out into the larger community and create increased economic activity. That creates a need for services and amenities to support this new workforce, and an opportunity to develop vacant space in the San Pedro Historic Downtown District and beyond.

Companies like these add credibility to our goal to build a Blue Economy base at the LA Waterfront. We’re hoping that they will attract more businesses in their industry to locate here and spur economic growth within the San Pedro and Wilmington area.

Comment on the workforce and educational opportunities propelling the waterfront into an active economic sub-region of LA.

These opportunities are critical to the future success of building a diversified and sustainable LA Waterfront. The Port has a unique opportunity to become the center of the Blue Economy for the region and beyond with eight miles of waterfront land designated for non-cargo purposes situated on deep water channels within close proximity to the open ocean and with direct access to clean ocean water.

Leveraging our unique land and water assets to create this new economic sub-region is important for several reasons. First, it increases utilization of our scarce waterfront land by water-dependent users. Second, it creates new industries along the waterfront that can provide educational and workforce opportunities for the next generation of harbor area and regional residents. And lastly, Monday-through-Friday economic activity is essential for larger-scale private investment that will make the area more attractive to employers and residents.  

Job growth opportunities are also essential to help people see this area as a viable place to live, work, and play—rather than just one of those things. Nearby job growth in space and ocean exploration, aquaculture, underwater robotics, education, research and development, hospitality and entertainment provide a huge opportunity to increase economic activity seven days a week, which will result in more investment, more attractions and more amenities for those living and working nearby.

On top of all that, it is a core principle of the Port to give back to local communities by creating educational pathways for disadvantaged youth. Projects like AltaSea don’t pay rent to the Port in the form of financial payments; they pay rent in the form of public benefits—specifically educational opportunities, from kindergarten students to doctorate degree level programs.

This is an important part of our vision and of the value proposition we negotiate with many of our non-profit partners and tenants, including the Boys and Girls Club, Wilmington Youth Sailing Center, Los Angeles Maritime Institute, the Cabrillo Aquarium, the International Trade and Education Program and AltaSea. We provide land, water, and sponsorships, and our partners provide specific maritime-related educational opportunities that benefit the larger region.  

The Port of LA is one of the most significant goods movement operations in the world. Do those operations support or complicate your efforts to make San Pedro a charming, dynamic center of activity?

Having a seaport that moves a significant amount of cargo is a positive for waterfront development. First of all, it creates a unique setting—not every development has ships the size of the Empire State Building driving by on a daily basis! That has helped us.

Our financial strength on that side of the business has also been a significant asset to waterfront development. For one, we’ve structured our investment in the waterfront as a function of our operating income from all port operations. As that income has grown, so has our public access development funding.

That revenue is also what makes us a strong financial partner for private developers. Wall Street sees us as a good investment as reflected in our AA investment rating. Wall Street knows that if the Port says we’re going to do something, we will deliver and private developers should find security in this financial strength.  

Moreover, our Clean Air Action Plan and Clean Water Action Plan have helped create the right environment for successful waterfront development. Our progress in cleaning the air and water have made this area much more conducive to recreation and entertainment right on the water’s edge.

The Port’s cargo interests, business interests, and environmental interests all work very harmoniously together. Cargo operations provide the economic base and engine that makes everything possible, which has catapulted our vision for the LA Waterfront to a completely different place than where it was even 10 years ago. 

Lastly, where have you found valuable models of waterfront development to inform your efforts in San Pedro Bay?

We look all around the world at what other places have done successfully and how we might replicate that here. Within this country, we’ve looked on the East Coast at Baltimore and Washington, D.C.

However, it’s been most helpful to focus on port districts that are managed like ours. The Port of Los Angeles holds its land in trust from the State of California through the State Lands Commission, which comes with certain land-use restrictions and opportunities. So, we’ve looked to San Diego and San Francisco to see how they activated their waterfronts. One thing they’ve done successfully is forge a strong relationship with local communities and with the California State Lands Commission, and we have worked to follow those models.