Lawndale Considers Whether to Sell Interest in Mall
After months of negotiations, the Lawndale City Council is expected to decide tonight whether to sell the city’s interest in the Galleria at South Bay for $10 million.
Proponents say this is a unique opportunity for financially troubled Lawndale to secure a lump sum well in excess of its $7-million annual budget. Plans call for preserving the $10-million principal and using the income from interest to provide programs the city could not otherwise afford. At 8% interest, the $10 million would generate $800,000 a year.
But critics say the city would be better off to keep its interest in the upscale Galleria, which racked up more than $183 million in taxable retail sales in 1987, the most recent figures available.
Further, opponents question whether city officials have the financial expertise to manage the $10 million. They point to the city’s loss of $1.68 million in a speculative securities investment in 1987.
The City Council tonight will discuss whether to accept the $10-million offer from the mall developer, South Bay Associates, a division of Forest City Enterprises of Cleveland.
A financial analysis prepared by Natelson-Levander-Whitney Inc. said the most likely “total present value” of the city’s interest in the mall is $9,078,585.
$10 Million Highest Offer
“Based upon our negotiations, we believe that $10 million is the highest amount which will be offered by South Bay Associates,” said City Atty. David J. Aleshire, who participated in the buyout talks. The $10 million is $2,175,000 more than South Bay Associates offered at first, sources said.
In recommending that the city accept the offer, Aleshire said that in time the Galleria investment will be recognized as “the most significant undertaking in the history of the city of Lawndale.”
In a complex and unusual transaction, Lawndale in 1984 obtained an $8-million federal grant, which it then invested in the $70-million Galleria mall in adjacent Redondo Beach. Because it is a more affluent city than Lawndale, Redondo Beach itself could not have obtained the economic development grant funds.
Under the agreement, a special hiring program was set up to give Lawndale residents jobs at the mall. Some 500 to 600 residents got jobs, according to city officials.
Lawndale receives 6% interest on the loan, generating annual revenues of $576,000. Half of that amount can be spent on federally designated community development projects. The other half may be used for any purpose the city chooses. The loan must be paid off by 2004.
The agreement calls for Lawndale to receive a share of the developer’s profits once a certain level of profits is achieved. That right expires in 2004. The city has not yet shared in mall profits, partly because the developer’s capital investments have reduced profits.
Because of the likelihood that the developer will continue to make capital investments, it is uncertain whether Lawndale would ever be able to take advantage of this provision, according to the city’s legal and financial advisers.
Mayor Sarann Kruse and Councilman Larry Rudolph, who are often at odds on issues, agree that the buyout plan is an advantageous one for Lawndale.
Kruse said the $10 million “will provide dollars for many years to come to do some real strong capital development in Lawndale.” Projects such as updating Hawthorne Boulevard and repairing streets and sidewalks could be financed from the interest income without touching the $10-million principal, she said.
Rudolph said he plans to support the buyout plan because it would provide a predictable source of revenue for numerous projects.
Although Aleshire predicted that the entire community would come to appreciate the merit of the buyout, civic activists Nancy Marthens and Virginia Rhodes said they oppose the plan.
Request for Inquiry
They recently filed a formal request to the federal government for an inquiry, challenging Lawndale’s administration of the $8-million federal grant. That inquiry is still pending. The council, angered by what it viewed as a disloyal act, removed the two women from their posts on city advisory panels.
In an interview this week, Marthens said the city’s interest is worth much more than $10 million.
She said the Galleria is a prospering investment that would eventually yield Lawndale a share of profits. Meanwhile, the city would continue to receive yearly interest payments adding up to $9.7 million, plus a balloon payment of $5 million due in 2004, for a total of $14.7 million.
Aleshire has said that Marthens’ analysis does not account for inflation or for the value of money in hand today compared to money one might get at some date in the future.
Marthens insisted that this is no time to bail out of the Galleria, which has generated growing income for Redondo Beach. That city’s sales tax revenues increased from $3.8 million in 1984, before the mall opened, to $6.9 million in 1988, she said.
In the same period, she said, business license taxes in Redondo Beach increased from about $830,000 to more than $1 million.
Marthens added that if the City Council accepts the $10-million windfall, it may be tempted to indulge in extravagances. “The money will burn a hole in their pockets,” she said.
