Taking L.A. in a New Direction

For the last three decades, through riots, recessions, building booms and busts, Richard Meruelo and his parents have held an irrepressible faith in the potential of downtown Los Angeles.

Beginning with the dress shop Meruelo’s mother owned at 3rd Street and Broadway, the family quietly bought up parcel after parcel, and Meruelo managed the portfolio.

Now, with the central city on the cusp of a development renaissance, Meruelo is the biggest owner of downtown acreage, with more than 100 properties in or just beyond the urban core. And that empire -- built partly on an innovative and controversial use of public pension money -- has made him a new force in Los Angeles politics.

Yet, some in the city’s traditional business community don’t quite know what to make of Meruelo; a few are remarkably disdainful of his development aspirations -- although none would speak on the record.

That may be because Meruelo’s vision for downtown is “not the view from the California Club or Disney Hall,” said Sam Hall Kaplan, a retired design critic for The Times who is Meruelo’s planning director. Instead of clinging to the proven Figueroa corridor, Meruelo is gambling on land east of Broadway, the grittier part of downtown marked by railroad tracks, worn industrial buildings and loading docks that come alive when most of the city still sleeps.

Meruelo is convinced that the development wave will soon sweep in that direction.

“We take ... risks that other developers won’t,” Meruelo said. “I see tremendous opportunity here.... It goes all the way to the [Los Angeles] River and beyond. To the extent that everybody else doesn’t see it yet, it gives me an opportunity.”

“As the city grows and prospers,” Meruelo said, “I grow and prosper.”

But his critics still have plenty of questions:

Sure, the 41-year-old businessman has a team of architects drawing bold plans for glitzy skyscrapers, but so far he has built only a few warehouse and cold-storage structures. Will he be able to follow through?

Does Meruelo have an edge at City Hall, they ask, because he spent more money than anyone else to elect Mayor Antonio Villaraigosa?

Did his political contributions in Sacramento help him win financial backing from the nation’s largest public pension fund? Because pension loans allowed him to buy land that the Los Angeles Unified School District is now fighting to get, critics wonder if Meruelo will wind up using money from one public entity to leverage profit from another.

And if he is really committed to “socially responsible” development, as his business website declares, why did he recently tear down four old buildings near Union Station without getting the required city permits?

Daniel D. Villanueva, a friend and longtime business associate, said all anyone needs to understand is that Meruelo is “absolutely fair, absolutely straight” and driven to succeed.

But a prototypical Los Angeles developer Meruelo is not: They tend to be button-down establishment types who labor to smooth even frivolous controversies, knowing every delay costs money.

Meruelo is open-collared, Latino and unafraid to sue anyone who stands in his way. “If I get attacked,” Meruelo acknowledged in one of a series of interviews, “I will fight back.”

In the demolition near the station, for example, Meruelo admitted making “a mistake” but immediately appealed to lift what city inspectors call their “scorched earth” penalty, a five-year ban against building on the property. City building inspectors had warned that the structures were a haven for drug users and prostitutes and, Meruelo said, he wanted to take care of those problems “quickly.” So he did.

If Meruelo has a fault, Villanueva said, it is an occasional “impatience” and a “rambunctiousness” that can rapidly propel him from one big idea to the next without slowing to weigh the trickier details of execution.

At times, he displays a bravado that makes people wonder how seriously to take him, as when he spoke recently about pressing ahead with a high-rise condominium project even if interest rates rise.

“I cannot retreat,” Meruelo said. “I am going forward no matter what the interest rate environment is, no matter what the construction cost environment is.”

Most of the downtown buzz focuses on the proposed Frank Gehry-designed Grand Avenue project on Bunker Hill and billionaire Philip Anschutz’s L.A. Live hotel and entertainment complex next to Staples Center.

But Meruelo holds some prime sites too. In the hot South Park district near Staples Center, he and John Charles Maddux, a longtime Southern California real estate attorney who is president of MerueloMaddux Properties, plan to break ground soon on a 34-story residential building -- across from a coming Ralphs supermarket. Three other high-rises are planned near the former Transamerica Center.

However, his only downtown residential project under construction involves converting the 1920s-era Union Bank and Trust building into condominiums. And Meruelo’s largest block of land -- bought with the help of an $8-million loan from the Los Angeles Community Development Bank -- surrounds his headquarters above the Alameda Produce Market, in the city’s produce district to the east.

A big part of Meruelo’s persona revolves around his Latino heritage. His parents, Homero and Belinda, were born in Cuba but fled to the United States after Castro assumed power in 1959. Although Meruelo has never been to Cuba, an antique map of the island hangs on his office wall; a frame containing pre-Castro Cuban money and stamps hangs nearby.

Meruelo’s parents spent years in Los Angeles, where Meruelo was born. But they now live in Miami, where his wife and young children also reside. The businessman jets back to see them weekly.

When in Southern California, Meruelo lives in the family home in Whittier, across from where he is building the city’s largest residence -- an 18,000-square-foot mansion set one story into the ground so that it doesn’t loom over neighbors.

He is especially proud of the advances Latinos have made in business and politics.

“There has always been a very large population of Latinos in the city of Los Angeles,” he said. “What has caught some people off guard is they are finally starting to see them in positions of power instead of just their gardeners.”

An old stigma is slowly fading, Meruelo said. “If you were Hispanic and had accumulated some wealth, the first question was always ‘Was it ill-gotten wealth?’ ... Every time we had a Miami connection or a Cuban connection, a lot of people’s first thought was ‘Oh no, how did these guys get here?’ There’s a little bit of that still left, but it’s come down a lot.”

Although a political contributor to President Bush and the Republican Party, Meruelo says he also gives to Democratic candidates, some simply because they are Latinos: “I’m a Latino first. I’m a Republican second.”

In fact, his largest contributions have gone to Democrats: Meruelo gave to both Phil Angelides and Steve Westly, who competed in last spring’s Democratic gubernatorial primary, and to Cruz Bustamante, who ran for governor in the 2003 recall election. But the $197,311 he spent in support of Villaraigosa’s successful run for mayor last year dwarfs his other political giving. “I felt personally compelled on that one,” the developer said.

True, the mayor -- a strong supporter of downtown development -- appoints the Planning Commission, which holds sway over all construction projects. But Meruelo insists that buying influence was not the reason for his generosity.

“I am very proud of a Latino being elected mayor,” Meruelo said. “Antonio is great for this city.... I think he understands how to make people get along and grow. I think he knows how to help business, because business ends up helping workers and the whole society.”

Villaraigosa says the campaign support does not affect his judgment about Meruelo’s projects: “While he is my friend, I have voted against friends on a regular basis when I disagree with them.”

The two apparently do not disagree on whether Meruelo should be able to develop property he owns directly across 7th Street from his headquarters. For five years, Meruelo has been locked in a fight with the Metropolitan Transportation Authority, which wants to park buses on the land because it is next to an existing MTA yard.

As a city councilman and MTA board member in early 2004, Villaraigosa pushed a compromise that would allow the transit agency and the developer to jointly use the property -- Meruelo would let the MTA park buses on the ground floor of a building he would erect.

Villaraigosa acted even though a state law says that no MTA board member may “make or participate in, or use his or her official position to influence a contract decision” involving an individual or business that had given the official at least $10 in campaign contributions over the previous four years. Meruelo had made the maximum $500 contribution to Villaraigosa when he ran for the City Council in 2003.

MTA records show that because Villaraigosa had that conflict of interest, he did not vote when the board agreed to condemn Meruelo’s land. But records filed in connection with the agency’s eminent domain case show he was working behind the scenes.

In an e-mail to MTA officials on March 16, 2004 -- nine days before the board vote -- Jim Bickhart, a transportation deputy to Villaraigosa, wrote that the councilman was “interested in pursuing a joint development strategy.”

In a separate court declaration, Tim Lindholm, an MTA project manager, said MTA staff showed Meruelo a drawing at a meeting that April: “This drawing was prepared at the request of City Councilman Antonio Villaraigosa, who asked that [MTA] staff prepare a conceptual drawing to show what a joint development could look like.”

The mayor’s legal counsel, Thomas Saenz, denied that any ethical line was crossed by Villaraigosa, who continues to serve on the MTA board.

“He did not influence any contractual decision with Meruelo,” Saenz said. “His interest is in a particular use of a site in his district, not who does it, who develops it, not who participates in it.”

Big-time developments, of course, require big-time financial backing. Meruelo got much of his in Sacramento with help from two lobbyists: Darius Anderson, the former chief fundraiser for Gov. Gray Davis, and Fernando Guerra, a political science professor at Loyola Marymount who also represents a Latino firm that underwrites state bonds.

In mid-2004, working on Meruelo’s behalf, they contacted the California Public Employees’ Retirement System -- the nation’s largest public pension fund, with $215 billion to invest -- and urged that Meruelo be included in a program to spur inner-city development.

Both Angelides, as state treasurer, and Westly, as state controller, sit on the CalPERS board, but it was Angelides who championed the California Urban Real Estate program.

Angelides “saw that institutional capital was not reaching the urban areas, primarily ethnic urban areas,” Meruelo said.

In August 2004, CalPERS’ investment committee voted to give Meruelo a revolving credit line of up to $150 million. Initially, Meruelo is required to pay 6.5% interest on the debt. But because interest on the outstanding balance also accrues at 11.5%, CalPERS could end up getting close to a 20% compounded return.

Jose McNeill, a CalPERS real estate portfolio manager at the time, described Meruelo as an aggressive developer who “operates in a marketplace we like.”

CalPERS has lent money to other Los Angeles developers, but the pension fund traditionally invests in specific projects. The revolving credit line given Meruelo was structured differently.

“It is unique, I’ll give you that,” said McNeill, who has since left CalPERS.

Like other CalPERS transactions -- which pension officials contend could be damaged if not kept confidential -- the credit line agreement is not a public record, and CalPERS officials refuse to discuss it.

Not quite two years before he obtained the credit line, Meruelo made a $2,500 contribution to Angelides’ reelection campaign for treasurer. Since then, he has given Angelides $22,300 for the governor’s race. Westly received $15,000.

Since getting the CalPERS money, Meruelo also has contributed $5,600 to the reelection campaign of another board member, Charles Valdes, chairman of the fund’s investment committee.

“Chuck Valdes is a Latino that was challenged on his nomination to that board, and I wanted to support him,” Meruelo said. “I had never met Chuck Valdes.... I never asked him for anything.”

Valdes declined to comment.

Meruelo said he made the donation because “a friend of mine, [former] Sen. [Richard] Polanco, came to me and said, ‘I’m holding a fundraiser for him, could you please help him.’ ”

“That’s correct,” Polanco said. “I recommended [Valdes] because he has represented the best interests” of retired state workers.

In March 2005, after tapping the CalPERS credit line, Meruelo immediately sparked controversy. He paid $30 million for 23 acres of a former railroad yard along the Los Angeles River, north of downtown. The Taylor Yards purchase incensed Los Angeles school officials and leaders of the surrounding Glassell Park and Cypress Park neighborhoods because they wanted the site for a high school.

Members of the L.A. school board accused Meruelo of swooping in and buying the land while they were still negotiating and testing the soil for toxic contamination. Meruelo countered that school officials had been dragging their feet for years and that the frustrated owner was eager to sell.

Nevertheless, David Tokofsky, the school board member whose district includes Taylor Yards, was furious and charged that L.A. Unified had “lost the property to a hostile takeover.”

Tokofsky was also outraged that the purchase was made with the retirement money of public employees -- including non-classroom workers at L.A. Unified whose savings are managed by CalPERS.

“At best, it’s an irony,” Tokofsky said. “At worst, it’s scandalous that public pension money from people who work in the school system is used to take away a school that would relieve overcrowding.”

In place of the proposed high school, Meruelo’s design team drew plans for Riveredge Village, a densely packed, multilevel residential, office and retail project. The proposed high school, designers suggested, could be built on a smaller site nearby.

The school board rejected that idea and voted unanimously in April to file an eminent domain lawsuit to acquire the land. Meruelo has been fighting back in court ever since.

But the financial dynamics have changed since the school board first showed interest in the property. Now, even if they win in court and get the land, school officials will be legally required to pay Meruelo the land’s fair market value based on what a judge or jury determines to be what planners call its highest and best use.

The value of land beneath a residential, office and retail complex would probably be higher than the value of land beneath a high school.

“I am not interested in one dime from LAUSD,” Meruelo said. “I’ve got a better development that includes a school.... Unfortunately, LAUSD only looks at their very narrow focus.”

Meruelo says he has a broader vision for not only Taylor Yards but for all of downtown. Los Angeles’ growth and diversity in population will require more housing closer to jobs and mass transit, he believes.

“People don’t want to drive two hours anymore,” Meruelo said. “They are realizing that there was a reason why downtown was picked for the founding of the city. It’s because it’s centrally located.... With residential coming back, downtown is going to see a tremendous, tremendous change.”

Whether Meruelo succeeds in putting his stamp on the Los Angeles skyline or not, business associates like Dov Charney say he has already left an indelible mark on the city’s working class. Charney founded youth-oriented clothing maker American Apparel Inc.

When he went to Meruelo in 1999 looking for a factory site, “I didn’t have a financial statement” or the “ability to make a security deposit,” Charney said. Yet Meruelo gave him space, and Charney built what is now the largest garment plant in the nation, with $250 million in annual sales last year and about 4,000 downtown workers, most of them Latino.

“If [Meruelo] was a more traditional business person,” Charney said, “there would have been a certain mental block” against giving him a chance.

Meruelo recalled being impressed by Charney’s “tremendous work ethic.”

“I said, ‘How about some rent?’ He said, ‘Well, later. We’ll get there later.’ Today, he is my biggest tenant.”

jeff.rabin@latimes.com

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Developer’s downtown reach

With more than 100 properties, Richard Meruelo is the largest landowner in downtown Los Angeles. Most developers have focused on the area west of downtown, but Meruelo is betting on the value of land he holds east of Broadway.

Meruelo properties near downtown Los Angeles

Holdings include:

Land in the booming Staples Center area

Parking lots around SBC Tower

Large properties in the produce district

Cold-storage warehouses south of the Santa Monica Freeway

The old Santa Fe Railway freight depot, which houses the Southern California Institute of Architecture

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Taylor Yards dispute: Meruelo and the Los Angeles Unified School District are battling over 23 acres at the former rail yard.

STAPLES CENTER AREA: Meruelo’s parents own a site near the arena. His planned condo tower is close to billionaire Philip Anschutz’s L.A. Live project. SOUTH PARK AREA: Meruelo is planning three residential towers on parking lots near the former Transamerica Center, now SBC Tower.

PRODUCE DISTRICT: The developer owns the Alameda Produce Market. He is fighting with the MTA over land across 7th Street.

Sources: Google Earth, Los Angeles County assessor’s office, MerueloMaddux Properties

Graphics reporting by Maloy Moore and Jeffrey Rabin

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Political campaign contributorRichard Meruelo supports both Democrats and Republicans for political office. Here are his contributions of $5,000 or more in partisan and nonpartisan races:

*--* Candidate/Party Office Year Amount Antonio Villaraigosa (D) Mayor of L.A.** 2004-05 $197,311* Phil Angelides (D) Governor 2006 22,300 Steve Westly (D) Governor 2006 15,000 Abel Maldonado (R) Controller 2005 11,200 Cruz Bustamante (D) Governor 2003 10,000 Dan Lungren (R) Governor 1998 10,000 Kevin de Leon (D) Assembly 2005-06 6,600 Frank Quintero (D) Assembly 2005 6,600 Charles Valdes (D) CalPERS Board** 2005 5,600 Dario Frommer (D) Controller 2005 5,600 Chuck Poochigian (R) Attorney General 2006 5,000 Florida Republican Party n/a 2005 5,000

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*Includes contributions directly to the candidate and to an independent campaign on the candidate’s behalf.

**Nonpartisan

Sources: California secretary of state’s office, L.A. City Ethics Commission, Federal Election Commission. Graphics reporting by Jeffrey Rabin and Maloy Moore