Grand Central Rescue Planned

The local government agencies that financed $44 million in bonds four years ago to help develop the privately owned Grand Central Square now plan to provide millions of additional dollars to rescue the struggling downtown Los Angeles project that includes a historic market, apartments and offices.

Although virtually all of its 121 new apartments are rented and office space is leased to the city attorney’s office, the project has fallen far behind in semiannual payments on the publicly issued bonds. Ira Yellin, the lead developer, said the problems have stemmed from the need to reduce rents to retain tenants in the depressed downtown economy and because of vacancies in the landmark Grand Central Market, the food bazaar that is the project’s centerpiece.

Rather than institute foreclosure proceedings, the Los Angeles Community Redevelopment Agency and the Metropolitan Transportation Authority took actions Thursday to cover some of those payments for up to 17 years. The CRA and MTA hope that Grand Central Square will eventually become profitable and pay them back with interest.

“I shudder to think what that block would be like without the project,” said Don Spivack, CRA deputy administrator. Spivack added that he is confident that the agency will eventually be fully repaid.

Backers of the three-building complex at Broadway and 3rd Street received CRA public bond financing in 1993 with a plan to attract more residents to downtown’s core by converting the floors above the 80-year-old market and in the adjacent 12-story Million Dollar office building into apartments, half of them rented at subsidized rates. The developers also renovated the Latino-flavored market, in an effort, they said, to boost sales at the 43 bustling stalls that sell all sorts of fresh produce and delicacies, such as hot chiles, cow brains and pine nuts.

MTA backing for the bonds was made available because the project is supposed to help ridership on the Red Line, which has a subway station less than a block away. In addition, developers said, the project’s 500-space parking garage would improve access to the market, new office space and the Million Dollar Theater, which is now rented by a church. Grand Central Square garnered national attention as an example of mixed-used planning and architectural preservation where low-income residents could rub shoulders with movie star Nicholas Cage, who leases a penthouse.

The social goals may have been accomplished, but not the financial ones, according to CRA and MTA documents. Analysts estimate that the development will pay only about $800,000 of the $2.4 million in bond debt due this year. The difference this year will come from a CRA reserve fund that will soon be depleted.

On Thursday night, the CRA board unanimously approved a complicated rescue agreement. Under the plan, the two public agencies at first will make up the difference between the debt and whatever the project can pay in coming years. The CRA is at particular risk, facing the likelihood of shelling out $14 million until its repayment starts in 2015. At that time, the downtown economy presumably will have improved and the market’s now-empty basement will have a supermarket or other tenant to boost revenues.

CRA Chairwoman Christine Essel said that keeping Grand Central alive “is a very, very important component of our downtown redevelopment.” Board member Juanita Chavez agreed, commenting that “we have to do everything we can to save it.”

The MTA has priority over the CRA in getting its money back. Furthermore, the proposed bailout will collapse and the project could go into default if the partnership that owns Grand Central Square falls more than $4 million behind in payments to the MTA. “In no way will the MTA carry more than $4 million,” said Los Angeles attorney and MTA consultant Fred Kessler, who helped arrange the new agreement.

Kessler said the new plan is worth the risk, given the alternatives--a financially tangled foreclosure and other problems if government entities try to operate or sell the complex.

Recent appraisals pegged the worth of Grand Central Square at about $18 million, less than a third of what was paid out to acquire and renovate the buildings and construct the garage, according to MTA official Robert Cashin. That, he said, is not out of line from the collapse in other real estate values in downtown.

The overall project cost about $64 million, including $22 million from private investors led by the Yellin Co. Under the plan, Yellin’s firm will continue to receive management fees but the investors will not get any return on their initial $22 million until the public agencies are reimbursed.

The MTA’s Planning and Programming Committee unanimously approved the deal Thursday afternoon with little discussion. Committee member Vivien Bonzo, who voted “reluctantly aye,” said she hoped the Grand Central Square experience would make the MTA more cautious about getting involved in any future joint projects. “This did not work out very well for us,” she said.

The full MTA board and the Los Angeles City Council are scheduled to consider the matter over the next few weeks.

Consultants hired by the two agencies have concluded that there is no need to replace the Yellin Co., which is also the general partner in the project, as Grand Central Square’s manager. An MTA report said the project “is operated in a prudent, effective manner notwithstanding the unusually high costs of operating this small, labor-intensive multi-business facility.” It noted high expenses for removing the trash, composed mainly of unsold and spoiled fruits and vegetables.

Still, the draft agreement calls for a reduction in management fees from the current 5% to 4% of gross revenues. The management fees for 1997 are expected to be about $150,000, according to the CRA.

An attorney with strong political connections in city and county government, Yellin also owns the 104-year-old Bradbury Building across Broadway from Grand Central. In addition, he has an option to buy the now-closed St. Vibiana’s Cathedral a few blocks away. Besides heading his own firm, Yellin is senior vice president for Southern California development for the Catellus Co., the firm that is developing the area around Union Station, including the MTA’s headquarters. Catellus is not involved in Grand Central.

After the CRA vote, Yellin thanked the public agencies for their support and predicted that taxpayers would not regret Thursday’s decisions. He said that the reopening last year of the Angels Flight railway just across Hill Street from the market already has helped sales, and future improvements to Hill Street will attract new stalls to that side of the market.

An estimated 78,000 people a week walk through or shop at the market and 43 of its 51 stalls are now occupied, according to the Yellin Co..

“I have every reason to believe that it will be increasingly strong and should be able to carry itself,” Yellin said.