For her sake, one can only hope that City Attorney Carmen Trutanich’s lawyers advised Chris Essel of her Fifth Amendment rights against self-incrimination before she put her name on this document as CEO of the Community Redevelopment Agency.
Twelve times last year, City Council President Eric Garcetti put on the agenda approval of the gift of $4 million in taxpayer money to Hal Katersky and Pacifica Ventures for an entertainment industry-related office building at 1601 N. Vine St. and 12 times he had to pull it because of questions about fraud, insider deals and fiscal irresponsibility.
The questions raised by residents of Hollywood were so serious that Garcetti finally ordered the CRA to answer each and every allegation of wrongdoing before he would bring it back to the full Council for approval.
Wednesday afternoon, in advance of the CRA Board meeting Thursday morning at 9:30 a.m., Essel released her “Report to CRA/LA Board of Commissioners on Vine Street Office Towers.”
Her defense of the CRA’s gift of $4 million in public money to a developer beset by lawsuits and bankruptcy over projects from Albuquerque to Czechoslovakia — all seeking to profit from from runaway film production — depends on critical documents that have disappeared, missing CRA staff members, new analysis based on flimsy assumptions, questionable representations of material facts and dubious logic.
Here’s how Essel defined the questions she needed to answer to finally get this dumb deal approved: “(1) appraisal process in connection with CRA/LA’s acquisition of the site in 2006; (2) disposition price in conveying the site to Pacific Ventures (“Developer); (3) due diligence during the initial underwriting of the Developer’s capacity and more recent business operating capabilities, and (4) project benefits to the City; and to address questions raised by Councilmembers … about the current market demand for office space in relation to current vacancy rates, including the
feasibility of the project $4.50 per square foot lease rates.”
Her answers start with going back to the sweeping justification for the Hollywood Redevelopment plan many years ago which included “”a shortage of available industrial space for entertainment related uses, a decline in residential investment, shifting commercial uses and a shortage of first-class office space” (her emphasis added.
Flash forward to 2006 when CRA staff were worried about the 4,600 new housing units being built in Hollywood and the need for a “better jobs/housing balance.”
As luck would have it, Ullman investments wanted to sell its parking lot Vine and Selma along with the adjacent Molly’s Burgers but it didn’t want to do business again with the CRA, presumably because a previous deal led to a highly critical audit.
But luck was with the CRA because former Paramount Studios executive Earl Lestz — the very same studio where Essel herself worked on development deals for most of her adult life — “was interested in promoting the development of office space for entertainment firms in Hollywood.”
This fit right into Garcetti’s vision to “bring Hollywood back to Hollywood” from Burbank, Glendale and Santa Monica where they had fled because of LA’s toxic business environment, a goal that has no meaningful impact on the regional economy since it doesn’t create new jobs, only moves them around.
Impressed by Pacifica Ventures track record, Lestz jumped right in and negotiated a deal for Ullman to sell the property for $5.45 million. A month later, Pacifica flipped the property to the CRA for the same amount and got an exclusive agreement to develop it.
It was Essel reports at the “height of a very fast-paced, dynamic and rising real estate market” but it’s hard to know what the CRA officials were thinking because “none of the staff directly involved in the initial acquisition are currently employed at the CRA/LA.”
Even worse, “some of the documentation is missing from the CRA/LA files.”
Essel does know that the CRA hired Pacific Real Estate to appraise the property and got an estimate of $4.07 million.
Katersky, and presumably Ullman wanted more, so Pacifica Ventures hired CB Richard Ellis to do a second appraisal and three days after the first appraisal got value put at $5.45 million.
Katersky’s luck was holding, Essel reports, because written CRA procedures allowed staff to pay 20 percent more than the appraised value, or $4.88 million, and even more if the Board of Commissioners approved it, which it did.
So Ullman was paid more than 35 percent more than the CRA’s appraised value, the $5.45 million price.
Before the deal was signed, the CRA’s former Senior Real Estate Officer sought a peer review of the differing appraisals.
“However, staff has not been able to locate a Review Report and cannot conclude as to whether or not a formal or informal review took place,” Essel reports..
“The CB Richard Ellis appraisal appears to be the appraisal referred to in the Board Memo dated September 7, 2006 in which the Board was asked to approve the acquisition of the property. The Board Memo would have been more informative if it had included an explanation about the outcome of the analysis of the difference in appraised value between the Pacific Real Estate and CB Richard Ellis appraisals.
“The written Board Memo simply says ‘The Agency will acquire the Vine Street Property for its fair market value (my emphasis added), supported by a certified independent appraiser using universal standards of professional appraisal standards (“USAP”)” (presumably referring to the CB Richard Ellis appraisal).”
Essel reports CRA staff has spent the “last several months” trying to sort out this mess and hired an “appraisal professional” who has determined that the original estimate of $4.05 million “was more accurate of the value at the time.”
She goes on to try to explain why the CRA wants to sell the property back to Katersky for $825.000 — $4.7 million less than they paid him for it — because the CRA has a “long-established policy” for “reuse value” that justifies the resale price.
Katersky and Pacifica Ventures seemed like a top developer in 2006 but the picture isn’t so clear today.
“In recent months, concerns have been raised about the Developer’s challenges with its other projects and properties,” Essel reports.
“The Developer reports that the lawsuits, have all been settled. It should also be noted that Albuquerque Studios, which was developed and owned by a Pacifica
Ventures partnership, has been in bankruptcy court and in the process of reorganization for approximately one year.
She adds: “The developer does not have a commitment of construction financing at this time. This is not unusual given the state of the lending industry.”
So there’s no financing and there’s no market with a 17 percent vacancy rate for Class A office space in Hollywood where this project just adds 108,000 square feet to the 2.2 million square feet that now exists and is renting for $3 a square foot while this new office apace will go for $4.50 a square foot.
You can take Chris Essel’s word for that.
If the CRA Board approves this yet again on Thursday, the actual cost to taxpayers if this goes through will be $7.86 million upon completion — not counting whatever portion of the CRA’s $50 million operating budget was involved.
But don’t worry, Katersky and company and retained another one of its experts who reports “that the interest level is strong … however no company will risk their planning time and costs until the Project is fully entitled.”
And the benefits to Los Angeles and its people are incredible, unbelievable, actually, if you trust the CRA staff.
“The immediate economic benefits of the project will be the 347 construction jobs and 483 permanent jobs,” Essel asserts.
“The nonprofit organization, Construction Industry Research Board has developed models and formulas for calculating the multiplier impact of construction jobs.
“It is estimated that the $56.7 million development will create have a multiplier of 19.659 jobs across all industries which translates to approximately 1,100 new indirect employment opportunities. In addition, minimally, the 415 annual average of these jobs will generate an additional $2,150,800 ($415x10x52) each year in sales for local businesses through these new employees’ expenditures on lunch and other goods and services.
“Other economic impact factors calculated through the year 2037 includes $20.3 million in additional property tax revenue (includes the $13 million discussed above that will flow to CRA/LA) , $24.6 million in gross (business revenue receipts of which the City will receive 1 %, and $1.2 million in utility user tax revenue “
Essel has made her case. What do you believe?