School District Drops Bid for Ambassador Site : Education: Officials have been at an impasse with Donald Trump over the value of land sought for a high school. The developer may sue district for backing out.

Caught between its own cash crunch and the dramatic decline in real estate values, the Los Angeles Board of Education voted Monday to drop its bid to purchase the historic Ambassador Hotel--a move that could spur legal action by its owner, millionaire developer Donald Trump.

The district had planned to build a high school on the site to relieve overcrowding at mid-Wilshire area schools, but because of protracted legal battles with Trump over the parcel’s value, it faced the prospect of having to pay far more than the $50 million the state has allocated for the project.

Instead, the board will consider purchasing a cheaper site--a 24-acre vacant lot at Temple Street and Beaudry Avenue--to build a 3,000-student campus that will help lessen the classroom shortage at schools in the Downtown area. On Wednesday the school district will seek state approval to use money earmarked for the Ambassador project on the purchase of this site.

School board member Jeff Horton called the 7-0 vote to abandon the Ambassador site “a setback for the mid-Wilshire area,” which buses 5,000 children out to San Fernando Valley campuses each day.

Before voting to withdraw from the fight over the Ambassador, the school board bitterly criticized the Trump organization and commiserated over the money spent during the three-year legal battle.

The district’s quest for one of Los Angeles’ most widely known landmarks has cost it more than $8 million--primarily in interest payments on the $48 million the district needed to place on deposit to begin eminent domain proceedings.

“I’m struggling with this idea of walking away and holding the bag for $8 million that’s just gone,” said board member Mark Slavkin.

District lawyer Rich Mason said that when the court battle ends, the district will continue to explore development options in the mid-Wilshire area, including the Ambassador site. “We believe the Ambassador was, has been and continues to be the best site for the school,” he said.

“We’re absolutely committed and need a high school in the mid-Wilshire area,” he said. “We just got beat on this property, at this time.”

Horton said the district also may begin searching for a new mid-Wilshire site.

But Trump attorney Kevin Brogan said that if the district tries to back out now--after tying up the property for years while its value plummeted--Trump plans to sue the cash-strapped school system “for substantial damages.”

The hotel has been virtually empty--save for a few permanent residents--since Trump purchased it in 1990 for $63 million. In the past three years, it has been used primarily as a backdrop for movies, said Trump spokeswoman Barbara Res.

Res said Trump-Wilshire Associates has spent millions of dollars on upkeep and taxes for the property during the time it has been tied up in legal wrangling with the district.

“They’re going to be paying us money, and whether it’s tens of millions of dollars or hundreds of millions of dollars, it’s money spent for nothing and it’s too bad,” she said. “We told them from the start they were going to wind up years down the road with no school for those kids, and that’s exactly how it’s working out,” she said. “You tell me, who’s the winner here?”

When the aging Ambassador Hotel closed its doors in January, 1989, district officials believed they had finally found a school site that would not require the demolition of low-income housing.

But Trump bought the property before the district could get the necessary state approval to negotiate for the land, and announced plans to build a 125-story office and retail complex, launching an intense battle with the school district.

District officials tried to buy from Trump the 17 acres at the rear of the 23.5-acre parcel, leaving a strip along Wilshire Boulevard clear for commercial development. But the two sides could not agree on a price: Trump set its value at more than $110 million; the district offered $45 million.

A trial on that issue was to start in November. But with a jury legally bound to set the price at what was market value three years ago--when the district began eminent domain proceedings--the district faced the likelihood of paying far more than the land is worth in today’s depressed commercial real estate market.

“The value set would be unreasonably high in light of today’s market,” said James W. Colbert III, the attorney representing the district in the case. “The property today is worth significantly less than when we made our offer.”

The Ambassador site has probably lost approximately 40% of its value--or $18 million of the district’s offering price--in the last three years, Colbert said.

The Trump organization conceded its claim to the land when it accepted the $48 million the district placed on deposit to begin eminent domain proceedings. Once the district withdraws from the case, Trump has one year to repay that $48 million--plus interest, but minus legal fees and court-assessed damages, Colbert said.

The State Allocation Board, which distributes school construction funds, agreed three years ago to give the district $50 million to buy the Ambassador, but district officials will go to Sacramento on Wednesday to ask permission to use $30 million of that money to buy the Temple-Beaudry site. The remaining $20 million would be set aside for the district to purchase an alternate site in the mid-Wilshire area.

The Temple-Beaudry parcel lies along the Harbor Freeway, just north of downtown. The district purchased adjacent 11 acres last year to build a middle school.

The new high school would help relieve overcrowding at nearby Belmont High, which has more than 4,000 students. Thousands more students from the area are bused to schools in the Valley. The land is owned by a subsidiary of the giant Japanese development firm, Shimizu Corp., which had planned to construct an office complex until the recent downtown in commercial real estate fortunes, said district asset manager Dominic Shambra.