L. A. Agencies Drafting Law on Air Rights : Planners, CRA Want to Streamline Way Transfers Are Made

Two local government agencies are putting finishing touches on a plan that would streamline the process for commercial developers hoping to build new downtown structures with transferable development rights.

Although the proposed ordinance itself isn’t expected to trigger a flood of new TDR deals, it establishes uniform procedures that the Community Redevelopment Agency and the Planning Commission must follow when processing a developer’s transfer application--a change that should make the process of building with TDRs less onerous for developers.

The ordinance would also close a loophole that allows builders to get a density increase from the CRA without having to go to the Planning Commission.

“From a planner’s point of view, (the proposed ordinance) is a better way for the city to grow,” says Dan Garcia, planning commission president.

Sell Unused Rights

In a transfer of development rights, a downtown property owner who hasn’t built as big a building as the law allows can sell the unused development rights to a developer who wants to build a project somewhere else. This keeps overall downtown density within limits prescribed by law.

TDRs, sometimes referred to as air rights, have played an important role in several downtown projects. Owners of the famed Bradbury Building and Embassy Hotel were able to sell their rights and use the funds to renovate their buildings, and part of the money needed to rehabilitate the Central Library is coming from the sale of its air rights to developer Maguire Thomas Partners.

The proposed ordinance generally pleases city preservationists, although two provisions suggested by the Los Angeles Conservancy probably won’t be incorporated into the measure’s final wording.

Ruthann Lehrer, executive director of the Conservancy, had hoped the ordinance would contain language that would discourage developers from transferring air rights to sites where historic buildings stand.

Help Older Buildings

She had also suggested that owners of old buildings be given first-right-of-refusal to sell their air rights to developers shopping for enough credits to build new structures. Both provisions would have afforded the city’s older structures with greater protection against the wrecker’s ball.

Garcia said those suggestions may be adopted as guidelines, but that actually incorporating them into the proposed ordinance could hurt the measure’s chances of City Council approval.

The CRA collects fees or gets builder concessions from each TDR deal to help finance redevelopment activities. Garcia said the proposed ordinance would require the agency to show the Planning Commission exactly how those proceeds will be used, which should help ensure that the CRA’s activities are aligned with the commission’s long-term plans.

Still, the proposed ordinance isn’t expected to create a flurry of TDR-involved deals, in part because such undertakings can be unusually complicated and risky.

Difficult to Evaluate

Some developers simply refuse to get involved in the deals. They fear paying millions of dollars to obtain the rights from a donor property, only to have their own project scuttled by changes in the zoning laws or by sudden passage of slow-growth initiatives such as Proposition U.

In addition, there’s no real way to determine how much air rights are really worth. “It is absolutely and 100% a matter of negotiation,” says Douglas Ring, an attorney who has been involved in TDR negotiations for developers. “I take my minimum level of greed and you take your maximum level of greed, and somehow we try to reach an agreement.”

Many property owners are reluctant to sell their rights because it would mean they could never expand their building, Ring said. In addition, the resale value of their property may be reduced because the buyer wouldn’t be able to expand, either.

As a result, most of the TDR deals done downtown have involved property owners who expect to hold their buildings for several years, or properties that won’t be significantly altered because of their historic nature.

Transferred Rights

For example, owners of the Bradbury Building, the Embassy Hotel and Auditorium, the Coldwell Banker building and the California Club all sold their air rights to Mitsui Fudosan (U.S.A.) Inc. a few years ago for a total of more than $4 million.

Mitsui then transferred those rights to a small lot the company owns on Figueroa Street, and can now build a 50-story office tower with about twice the floor space the building could have contained if the company hadn’t entered the air-rights marketplace.

Perhaps the best-known development project involving the use of air rights is Maguire Thomas Partners’ ambitious plan to build two new office towers, a park and a giant outdoor stairway near the site of the landmark Central Library.

The city had considered razing the library in the 1970s and building office towers on its 5th Street site. But the city backed down after preservationists and some business leaders protested that the building should be saved.

Instead, the CRA came up with a complex plan that would renovate the library at little cost to the city. As part of the plan, the city sold the library’s air rights to Maguire Thomas for nearly $50 million. It also allowed the company to transfer those rights to a site adjacent to the library, where the towers will be built. The CRA will use proceeds of the air-rights sale to partially finance the renovation and expansion of the 60-year-old library.

Virtually everyone agrees that the contract between the CRA and Maguire Thomas is innovative and workable. But so far, the deal has provided both organizations with too many headaches and too little progress--in part because Maguire Thomas has had trouble coming up with the money needed to pay for the air rights.