Los Angeles redevelopment officials took the unusual step Thursday of limiting taxpayer subsidies to a real estate project after learning that the developer had told another city agency it expected the work to deliver a sizable profit to investors.
Last year, the Community Redevelopment Agency agreed to provide millions of dollars in subsidies to Bond Cos. to develop Blossom Plaza, a seven-story residential and retail building planned next to an MTA Gold Line station in Chinatown.
Redevelopment officials said at the time that the $41 million in public assistance would allow the project to make an 11% return on its investment -- and that without the city's help, the project would not happen at all.
Last month, Bond officials offered a far more upbeat message about the project, telling a different city board that Blossom Plaza would probably give investors a return of 42.3%.
On Thursday, one redevelopment commissioner complained about that disparity, calling for greater restrictions on the amount of financial return Bond should earn from the project. Commissioner Madeline Janis also grilled the firm's lobbyist on its sales pitch for Blossom Plaza, saying she was "disturbed and distressed" by the company's marketing literature.
"It made me question not only the integrity of this developer, who I supported, but it also made me question other projects that are brought before us," said Janis, who sought the changes after The Times asked questions about the project and provided her with the firm's marketing booklet.
The redevelopment commission voted 4-0 to seek an agreement that will reduce the size of the city's subsidy to Bond if Blossom Plaza delivers a return of more than 10% to the company.
Bond lobbyist Jerold Neuman said the investment return calculation contained in the company's sales book, which was submitted to the city's primary pension board, was incorrect. Neuman said the 42.3% figure only applied to a small portion of the project's financing -- and that it would be closer to the low teens over a five- to seven-month investment period.
One city pension board voted to invest up to $10 million in Bond Cos. after receiving the higher profit projection for Blossom Plaza. A second city pension board voted to commit up to $20 million. Neuman said the latter board received the lower figure.
Neuman said the mistake was made, in part, because it was based on financial assumptions from two years ago, before the region's real estate market stalled. And he argued that his client would receive a 6.6% return on Blossom Plaza in the first year that it is fully leased -- a figure he called "dismal."
Bond Cos. provided the marketing booklet last month to the investment committee of the Los Angeles City Employment Retirement System, a pension fund that has a portfolio of roughly $11 billion. At the time, the firm was asking the pension system to invest $10 million in its Bond Companies Sustainability Fund, which the firm says is an entity committed to social responsibility and environmentally friendly construction.
In its sales booklet, Bond Cos. touted its success at receiving millions in subsidies for Blossom Plaza, a complex of restaurants, shops and homes planned at Broadway and College Street.
The company also provided information showing Blossom Plaza would provide a return greater than all but one of its upcoming real estate projects.
On Thursday, the redevelopment commission also voted to allow Bond Cos. to rework its project so that it contains 262 apartments. The original proposal called for 169 condominiums. Both the redevelopment agency and pension board changes must be approved by the City Council.
In January 2007, the redevelopment agency agreed to subsidize the project, in part, because Bond Cos. promised to earmark 20% of the units for low-income households. City officials also agreed to pay for 175 parking spaces at the site.
The subsidies will also help cover the cost of such expenses as a plaza and walkway between Blossom Plaza and the light rail station.
On Thursday, the commission voted for the new agreement with Bond Cos. in concept, then spent nearly an hour reviewing the deal points after it lost a quorum and had only three of its seven members.
After the meeting, Commissioner Joan Ling said the changes would ensure that the agency isn't providing "windfall profits for developers." Meanwhile, Janis said the experience would cause her to look at the numbers for each real estate deal much more closely. "They're welcome to make a 50% profit, just not on the CRA's dime," she said.