A piece of prime real estate near Disney Concert Hall downtown went on sale this week — and the price is likely to be dirt cheap.
The catch: the current tenant, the Colburn School for performing arts, has an ironclad deal to remain there rent-free for eight decades.
That parcel is part of an unusual group of 50 properties that went on the auction block Wednesday, with bidding to continue through mid-September. Among the offerings were a few properties with substantial annual income — but also an eclectic group of hard-to-value offerings, including transferable “air rights” to allow developers to construct higher buildings and, in one case, the corner of a sidewalk.
The properties, with a total value estimated at $300 million, are remnants of the now-defunct Community Redevelopment Agency of Los Angeles, which is being unwound as part of cost-cutting initiatives launched by Gov. Jerry Brown during the 2011 budget crisis.
The properties for sale include a collection of oddly shaped and awkwardly encumbered lots acquired during decades of efforts to help developers build in blighted neighborhoods. A few of the parcels, though, are under name-brand Los Angeles institutions, such as the ground under the historic Angels Flight funicular railway on Bunker Hill and the land occupied by the Dolby Theatre in Hollywood, site of the Academy Awards.
Both parcels also come with long rent-free arrangements, which make it difficult to speculate on what they are worth — according to county records, they have no assessed value. Prime downtown land that can be used for new development has recently sold for more than $600 per square foot, which would make the Colburn site worth more than $13.5 million if it was vacant.
The sale was set in motion when the state eliminated 400 redevelopment agencies in California and shifted billions of dollars in tax revenues to state, city and county agencies. In 2012, the Los Angeles City Council pulled the plug on the city’s redevelopment entity that had spent decades revitalizing downtown, Hollywood, North Hollywood and other parts of the city.
For more than 50 years, cities had used state redevelopment money to encourage developers to invest in down-market areas. To keep fueling that activity, billions of dollars in property taxes that resulted from the new developments were diverted from other services, such as schools and public safety, and plowed back into redevelopment.
Some of the money collected from the sale will be used to pay off the redevelopment agency’s financial obligations, but most will go to city, county and state coffers, according to Nelson Rising, a prominent L.A. developer who is chairman of the CRA/LA governing board.
“This takes us one step closer to unwinding the affairs of the CRA,” Rising said.
This offering holds the bulk of CRA properties that will be sold. Some land under the massive California Plaza office complex on Bunker Hill will be sold at a later date, and other prime parcels, including a valuable empty lot at the complex, will be sold directly by the city.
A few of the CRA properties on sale now promise to produce substantial revenue in the near term. For example, a garage next to the old Cinerama Dome theater on Sunset Boulevard pulls in nearly $5 million a year in parking fees that will flow to its next owner.
That’s the type of income-generating property sought by pension funds and other big, wealthy institutions looking for relatively safe investments. At the other end of the scale in the CRA portfolio are tiny bits of land that were left over from big real estate developments, set aside like scraps of cloth cut from a garment.
“These are small pieces, like a corner of sidewalk,” said property broker Jimmy Chai of Cushman & Wakefield, the real estate firm tasked with selling the portfolio. “The CRA did developments and kept the remnant pieces that didn’t fit.”
Who might buy a sliver of sidewalk? Adjacent property owners, Chai said, or perhaps an aspiring Donald Trump type who is interested in self-promotion.
“If someone wants to put their name on it, it might be a fun way of doing a little advertising,” he said.
The only way to determine its worth may be to actually sell it.
Land in prime locations, with occupants holding rent-free 99-year leases from the CRA, might appeal to more serious buyers willing to wait a very long time to cash in.
“I think anybody who wants to own a piece of history or a piece of downtown, but is priced out, would be interested,” Chai said. “Or perhaps a foundation or trust that wants to make a super-long-term investment that would pass to a generation in the future.”
It’s an eclectic cross-section of desirable and “challenging” properties, said Steven Norris, a Pasadena real estate consultant who is not involved in the property sales. Typically, commercial real estate offered for sale in bulk commonly involves collections of similar properties, such as office buildings or shopping centers.
“It’s fascinating because you have a mix of investment-grade properties along with ... a lot of small, very neighborhood-specific properties,” said Norris, head of Norris Realty Advisors.
Among the more esoteric offerings are “air rights” that allow developers to build higher projects than would normally be allowed by the city. Such rights can be transferred from one property to another.
The timing to sell such peculiar real estate is good, Norris said, as developers look for places in Los Angeles to build and investors seek to ride the current upswing in property values.
“The market is in a really good place,” Norris said. “We don’t see any big potholes in the road.”