The warnings came in a previously unpublicized report that was obtained by The Times.
Allan D. Kotin, who frequently advises the county on real estate ventures, suggested in a report last month that the county could benefit from a more detailed analysis of the estimated development costs, according to the report.
The Board of Supervisors voted 4-1 last week to give the go-ahead to the 25-acre development, which includes a public park, skyscrapers, shopping areas and a movie theater complex.
Much of the project is being built on land owned by the county, and Kotin's concerns underscore those of critics who have said the financing plan for Grand Avenue is vague on exactly how much the county would reap from the development.
Under the terms approved by the supervisors, the project's developer, Related Cos., and its investment partners are giving the government agencies $50 million up front as a down payment on the lease of the properties. But that money is expected to be poured back into the development, mostly to fund street improvements and the 16-acre public park between the Music Center and City Hall.
The plan calls for the county to get additional revenues in the future, based on rents for the apartments and stores.
Kotin, who was hired by the county to analyze the Grand Avenue economic plan, said the arrangement puts the county at risk if the project goes over budget or if the downtown real estate market cools. If the costs significantly increase, he wrote, the county could be required to provide subsidies — or the park might not be built.
"It's definitely not a revenue-maximizing plan for the landowner," he wrote in the report.
County Chief Administrative Officer David Janssen, whose office commissioned Kotin's report, defended the Grand Avenue deal, calling it "a good deal for the county." He said that it took almost five years of complex financial arrangements and political negotiations to get the project off the ground.
"So to say, 'Gee, if you did it a different way, you might make more money,' doesn't make sense to me," Janssen said. "It took us five years to get here. Why would we stop on the off chance that we might be able to do it differently?"
Many of the Grand Avenue plan's backers have said that providing downtown Los Angeles with a civic center it can be proud of is an important goal of the project — and should be part of the county's decision on how to use the land. And they have said that the current deal is finally one on which the three public agencies involved — the county, the city and the city's Community Redevelopment Agency — can all agree.
But critics have raised questions about the financial details, saying that the public needs a much clearer understanding of what public agencies would ultimately gain and give for the project before moving forward.
At a Board of Supervisors meeting last week, Supervisor Mike Antonovich, the only board member to vote no on the project, called the Grand Avenue plan one "that regrettably leaves many questions unanswered . There is relatively little information about the much-touted civic park, the primary selling point for the entire project."
Neither he nor Supervisor Gloria Molina, who serves with Janssen on the joint powers authority overseeing the Grand Avenue project, returned calls seeking comment.
The project seeks to add about 400,000 square feet of retail space, as many as 2,600 housing units and a 275-room hotel to the downtown area. Officials hope the project will tie together several downtown landmarks — including Disney Hall, the Music Center, MOCA and the Cathedral of Our Lady of the Angels — into a vibrant pedestrian space where people would live and shop.
The exact terms of the plan won't be complete until a final development agreement is signed by the developer and the public agencies. But, according to a term sheet detailing the terms of the deal, the government agencies and Related have agreed on so-called incentive rents, which would take effect if property values continue to climb after the deal is approved.
The reliance on that initial large payment and smaller incentive rents could mean less money for the county in the short run, Kotin wrote. "Prepaid lease revenue is always much less valuable on a present-value basis to the public entity than is ongoing ground rent."
But Bill Witte, president of the Related Cos. of California, told the supervisors last week that that arrangement was necessary "for a very simple reason: It is impossible to finance for-sale condominiums if there are ongoing lease payments."
Kotin acknowledged that the fact that civic leaders have insisted on not using general fund money for any part of the project, including the park, has made it necessary to accept smaller rents in the future to fund the park now. "Given this imperative," he wrote, the use of prepaid ground lease revenue becomes rational."
In general, Kotin wrote, most of the assumptions made in the committee's financial analysis are reasonable.
But he warned that higher costs — or a slowdown in the real estate market — could adversely affect the project.
"The possibility of higher costs is worth of some further investigation," Kotin wrote. "If the costs are understated and in fact become higher, then the need for public assistance and/or the possibility the project would not get built both loom larger."
As part of their approval of the deal, the supervisors ordered Janssen "to prepare an independent risk analysis that analyzes market risk, potential escalating construction costs and a thorough identification of all proposed and future city, CRA and county subsidies that would be committed to the project . "
Janssen said that he felt that the Kotin report showed that the county was getting a good value for the deal:
"We have a project here that does work. The property is going to be developed in a way that benefits the economy, the city, the county and the state, in terms of revenue."