L.A. Says Developer Has Cut It Out of Share in Mall : Business: City expected eventual profits from Baldwin Hills Crenshaw Plaza. But firm says it was sold at a loss.

Alexander Haagen, a mall developer who has received millions in public funds to build shopping centers in financially risky areas, has cut the city of Los Angeles out of what it sees as its share in the Baldwin Hills Crenshaw Plaza.

The plaza, the first major U.S. mall built in a predominantly African American community, was constructed under a 1984 agreement between Haagen and the Community Redevelopment Agency in which the city was to receive half of any profits.

But Haagen angered CRA commissioners by selling the mall to a real estate investment trust that he controls and pulling the plug on his 10-year partnership with the city.

The city has spent $50 million in developing the gleaming, art deco shopping center. But because the mall was sold at a loss, Haagen company officials contend, there were no net proceeds to share with the city.

Haagen officials say the sale, conducted as part of a public stock offering, does not violate their agreement with the CRA. They insist that the city has already benefited from taxes, new jobs and increased economic activity in the Crenshaw community.

The mall has been losing money since it opened in 1988, but it is expected to begin turning a profit when a $12-million theater deal is completed with former Laker Earvin (Magic) Johnson.

City officials say Haagen used the sale as a way of maneuvering around his agreement with the city.

“It’s very troubling,” said Shelby Jean Kaplan Sloan, a CRA commissioner. “We put in so much money and now we are just stripped. It’s very distasteful.”

Councilman Mark Ridley-Thomas, whose district includes the mall, said the matter will have to be negotiated with Haagen. “They can say what they wish, but the final word has not been delivered on this,” he said. “The city’s interest will be protected without killing any projects, for example, the theater deal.”

The dispute revolves around interpretation of the agreement between the CRA and Haagen, a Manhattan Beach developer.

“It’s our position that what occurred was a legal sale,” said Fred Bruning, a vice president of the new Alexander Haagen Properties Inc. “If you look at the documents, it says in event of a sale, the city has no ongoing interest.”

Since the developer went public in late December, the CRA has been scrambling to determine how to interpret the move, which may eventually be settled in court.

“We are looking at it now to see if those rights (to the mall) can be transferred to a new entity,” Sloan said. “We’re trying to determine legally what our rights are. . . . This isn’t the end of this.”

Ironically, at the same time that Haagen was ending the partnership, he was also urging the CRA to approve a $1.5-million loan for Johnson’s 12-screen theater deal. The Johnson project would create the largest black-owned cinema in the nation.

But because of the dispute with Haagen, the agency has put the theater deal on hold. “Now why should the city invest in the theater if we no longer have a stake in the mall?” asked a CRA official who did not want to be named.

The theater deal is a separate arrangement, Bruning said. The city’s loan would be backed by an $8-million investment from Haagen and $2 million from Johnson. The project would include a multiplex theater and a parking garage. “Without the loan from the city,” Bruning said, “the deal is too thin to work.”

Before the 1984 deal was struck, then-Mayor Tom Bradley had to personally lobby the Broadway and May Co. not to close their Crenshaw stores, which were the anchors of the old Crenshaw Shopping Center, the nation’s first regional mall. Haagen, who has built three successful inner-city shopping centers in the Los Angeles area, was the only bidder to emerge after a national search for a developer of a larger, enclosed mall. In addition to keeping the May Co. and Broadway committed to the project, the developer brought in Sears, a Lucky supermarket and other stores and restaurants.

Both Haagen and the city invested millions in the project in an effort to assure its success. But the profits have yet to come.

When the shopping center opened, the developers were still seeking to attract tenants. National retailers were skittish at first about putting stores in a largely black, middle-class community.

In the last few years, the recession has been an added strain on Haagen, who like many shopping center developers has become burdened with debt and strapped for cash. Haagen refinanced his operation by selling the mall and most of his other holdings to a newly formed real estate investment trust, a publicly traded company that he controls.

At its initial public offering, Alexander Haagen Properties offered 10.8 million common shares at $18 a share. The trust is listed on the American Stock Exchange.

The move put Haagen among a growing list of real estate developers who have turned to the public marketplace to obtain capital to purchase property or make loans, typically investing in shopping centers, medical buildings, apartment buildings and mortgages on commercial properties.

Alexander Haagen Properties now owns the plaza, the Burbank Media City Center and 34 other Haagen properties. Haagen is the new company’s board chairman and chief executive officer. Bradley is one of the members of the board.

Haagen’s jump into the market has caused concerns in Burbank, where the developer also had a long-term joint partnership agreement for the mall, which still operates in the red. But under different contract language in its agreement with Haagen, Burbank retains its 50% interest in the Media City Center mall.

Bruning said no such protections were written into the agreement in Los Angeles.

Haagen turned to the real estate investment trust to raise money after traditional lending sources had soured. The developer expected to retire more than $200 million in debt and finance such projects as a new theater and parking structure at the plaza.

Bruning said it is wrong to think that the city has not received a fair return on its investment in the mall. In addition to increased tax revenues, the mall has generated more than 900 jobs and is home to 92 businesses, of which 25 are minority-owned.

He said there are still a lot of questions to be answered, but in the end everyone will be satisfied. “I believe when the dust settles and the smoke blows away everyone will agree that this is a good deal for the city, the project and a good deal for the community,” he said.

In the meantime, Commissioner Sloan said the city will try to determine what went wrong, if anything. No one currently on the board was serving when the documents were approved.

“If it’s because of a loophole, then perhaps we didn’t make certain that the document had the language that could have prevented the sale without our approval,” she said. “In the future we want to make sure that we are protected,” she said.

“There are things you can anticipate and things you can’t. It could have been a mistake, an oversight or just 20-20 hindsight.”