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This Is Why the CRA Must Be Abolished — The Story of 1601 N. Vine St. As Told By Chris Essel

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?

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13 Responses to This Is Why the CRA Must Be Abolished — The Story of 1601 N. Vine St. As Told By Chris Essel

  1. Walter Moore says:

    Outstanding analysis, Ron.
    Boiling it down:
    1. The building appraised for $4.05 million.
    2. Villaraigosa’s CRA appointees spent $5.45 million to buy it.
    3. Now Villaraigosa’s CRA appointees want to “sell” it — i.e., give it away — for just $825,000.
    What a #$%^-ing rip-off.
    Here’s what should be done instead: sell it to the highest bidder.

  2. Poster 1 says:

    Walter, as usual, you & Ron make too much sense! What is logical to do in this instance is not in the best interest of the Hill Street Gang so that just won’t work. They will make up dozens of excuses to approve of their proposal regardless of the public comments.
    The only option may be to contact the state officials most interested in stopping the mayor & the gang from stealing the state money for their own best interests and distribute the gifts of public funds one more time. Didn’t the City of Bell do the same thing?
    It’s sounding like a broken record with these clowns. (No offense intended to all the great clowns that actually work for a living.)

  3. Anonymous says:

    I hope you have forwarded this story to Kamala Harris.

  4. Anonymous says:

    Thanks for keeping a vigilant light on these issues.

  5. It is nice to see that Chris Essel and the staff of the CRA have relied on the economic genius, Herb Wesson, in determining the true number of jobs that are being created.
    Nor does the CRA mention in its CYA report that the SEIU’s Amalgamated Bank, the proposed construction lender, took a $30 million hit in the Albuquerque Studios deal.
    And if this is such a fat deal, why not rely on an experienced and well capitalized developer that is not encumbered with all sorts of legal baggage.

  6. Anonymous says:

    I also hope Chris Essel got “advice” from Carmen The Clown Trutanich, that is assuming that he has the time to give “advice” considering he’s spending our tax dollar $350k salary running around campaigning to be District Attorney. But if Essel was stupid enough to take the Clown’s advice, she better rush to the nearest real attorney – even one fresh out of law school to get some sound legal advice and not the ranting of an egocentric maniac who managed to force through a medical marijuana ordinance that is unconstitutional. We were fools once to be taken in by Trutanich, it’s not going to happen a second time – even Steve Cooley has refused to support Trutanich’s power grab for the DA’s office. That says all that needs to be said about Nooooch.

  7. Anonymous says:

    In the onslaught of criticism from people like Tony V., where are the voices supporting Jerry Brown in his quest to get rid of the CRAs? The silence of GOP voices is overwhelming.

  8. Scott Zwartz says:

    Essel produces zero proof to defend against the charge that Garcetti and CRA fraudulently concealed the CRA’s appraisal of $4.07 M when advising the City Council in 2006 that there was only one appraisal and it was for $5.45 M. Thus, we have the admission of a fraud which cost the city $1.4 M in 2006, and has cost much more since that time, and not a single councilmember has asked for an FBI investigation.
    We know the City Attorney by law is prevented from investigating either the CRA or the City Council and we know that the DA is refusing to investigate Eric Garcetti, the son of the former DA. This blind eye approach to law enforcement is not new to corruption at city hall.
    When the same situation arose over David Rubin and the LA Dept of Housing, the FBI started an investigation as reported by the LA Times on April 8, 2010. As far we know know the FBI has had a hands-off policy on VineGate. While the FBI says that it does not discuss whether it has an on-going investigation, as far as the people who have gathered the information showing the corruption, none have been contacted by the FBI. So it is hard to see how the FBI could be conducting an investigation without interviewing the people with the information. Who knows?
    We do know that both Tony V and Eric G are golden boys of the Democratic Party and the US Atty Gen in LA won’t even acknowledge complaints of fraud perpetrated by Democratic councilmembers.
    Let’s see how far this protectionism of the golden boys extends now that Essel’s own comments shows that there is no defense to the prima facie case of a $1.4 M fraud.

  9. Jim O'Sullivan says:

    Why are we commenting on Dems and Repubs? For to long we have allowed ourselves to be separated into various groups. The wealthy don’t play that game. They exert power and influence on whoever is in office. Today Los Angeles and the State are pretty much in Democrat hands. Does anyone think that would change if tomorrow it all switched into Republican hands? Not a chance! We, the other City Family, the orphaned ones, the deserted ones are in this boat together and we had better figure that out real soon. As a friend told me recently, the CRA is socialism for the rich. This current deal sucks and is one more example of Wall Street exerting influence over those who curry favor from the rich and powerful to save their sorry asses. Thank you Ron for staying with this. None of us are perfect but you and a few others are walking the walk.

  10. Anonymous says:

    This is interesting tidbit. They are all in it together just like the Mafia thugs.
    CRA upping its investment in Eli Broad’s art museum from $30 million to more than $50 million?
    Who approved this and why isn’t anyone as livid as I am? Chris Essel is clueless about development. All she did at Paramount was organize parties. Helloooo. Antonio gave her the job because he’s friends with the clueless Sherry Lansing who ran the studio for years and friends with Essel. They are all one big group of corrupt individuals and we need the FEDS to come to town

  11. Anonymous says:

    At the risk of repeating myself, our Mayor, the City Council and their representatives behave the way they do, because they can. What is the punishment? Does anyone see the strong arm of law coming to grab one if not all of them and place them where they belong. NO. So why should they stop doing what they do. They have no shame, pride or desire for public good. They are all there for themselves and the moneys LA City jobs afford them. If we can’t even get the Mayor on something so obvious and blatant as Ticketgate, which did not require much detective work, where are the agencies that will spend the time for real investigation into their corruption. Next time just elect a grinning monkey than an idiot like our Mayor who won’t screw our city like Antonio has.

  12. Anonymous says:

    Jim O’Sullivan: I am commenting on dems and GOP because the only voices we are hearing are the entrenched democrats like Tony V. Brown needs groups of people both dem and GOP to be backing him in his quest. Rather than seizing the opportunity to really make something happen here, all we are hearing is the no new taxes pledge from the GOP. These are powerful forces allied against the governor and rather than giving him the real support he needs here, one more time the GOP is absent at the creation.

  13. P's and Q's says:

    When it comes to Eminent Domain the CRA-LA low-balls the property owners.
    I want to known what were the factors that deflated the proptery?
    What is Fair Re-Use Value?
    The value of a piece of property being sold by a redevelopment agency, reflecting additional conditions and limitations beyond those permitted by land use and zoning codes. These conditions result in a lower value because the “highest and best use” cannot be achieved under the limitations imposed.
    What is the definition of Market Value?
    The fair value of a piece of property, based on the “highest and the best use.” That is the use (and intensity of use) permitted by land use and zoning codes which result required by law to pay the fair market value for property it acquires, and must use independent private appraiser to set the values it offers to property owners.
    What is Property Tax?
    The amount of tax which a property owners pays on the value of his/her property. The tax is calculated by multiplying the assessed value of the property by the tax rate, which is one percent plus any voter approved increase. The tax is set by, and calculated by, the County.
    What is Eminent Domain?
    Authority of a government agency to acquire property when it can be shown that the property is acquired for a public purpose and for the public good and that the owner has received a just compensation. The power of eminent domain in a redevelopment project is given to the redevelopment agency through the redevelopment plan, which becomes an ordinance after the City Council’s approval following a public hearing.

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