Burbank scrambles for IKEA deal

Burbank has initiated a series of funding deals to keep IKEA — a top sales-tax revenue generator — within city limits.

The Swedish furniture retailer — a retail powerhouse in Burbank for more than two decades — has outgrown its current building has been looking for about a decade to expand its operations, said IKEA spokesman Joseph Roth.

“Parking is challenging, the loading zone is challenging, the store itself is too small,” he said.

The retailer already has its eye on a property — located at 805 South San Fernando Boulevard — that is twice the size of its current location, but it’s occupied by Western Studio Service and a number of office tenants.

The owners of Crown Realty and Development are willing to sell the property to the retailer provided it can acquire the current IKEA building.

“We are very excited about this opportunity and are optimistic about staying in Burbank for the long term,” Roth said, adding, “At this point, we haven’t committed to anything yet.”

But here’s where it gets tricky.

After redevelopment agencies were dissolved statewide, Burbank was left holding the bag for roughly $42.7 million in unpaid redevelopment-related loans and obligations.

In March 2011, the Redevelopment Agency transferred the current IKEA building, along with 20 other agency-owned properties, to the city as part of a debt pay-down plan. The 21 property transfers reduced the agency’s debt by $15.6 million.

The transfer of the IKEA building to Burbank would appear to leave city officials in a prime position to make the deal for the larger property happen, but last year the state invalidated all property transfers between redevelopment agencies and their respective cities made after Jan. 1, 2011.

The California Department of Finance isn’t slated to determine the validity of the property transfers until mid-2013, leaving the IKEA building deal in flux. But city officials say the potential damage from the loss of IKEA is too great to wait, so they’re taking a different approach.

The Burbank City Council this week voted unanimously to transfer the $1.3-million property to the so-called Successor Agency — a sort of middle-man agency set up to wind down redevelopment-related obligations and assets — while also increasing the debt owed to the city by the same amount.

On Monday, the Successor Agency’s oversight board will decide on whether to sell the property to another company controlled by Crown Realty owners. But even then, any decision would have to be approved by the state Department of Finance.

“In the end, we think the city will be made whole by the land transfer,” Assistant City Manager Joy Forbes said. “In the meantime, we think it’s most important to ensure IKEA’s success to stay in Burbank and expand in Burbank.”

Crown Realty Executive Vice President Jim O’Neil said in addition to the $1.3 million for the land, the company also has to buy out IKEA’s 72-year lease — requiring a “very large check” — which will be done privately with the retailer.

The council also unanimously approved an agreement with the Crown Realty-controlled company that gives IKEA at least 10 years to move, buying the company time to rebuild the larger property.

“We would have to build something from the ground up,” Roth said.

In addition, should IKEA stay put, the developer could make the city buy back the property for up to $1.69 million at any time over the next decade.

“We hope we never use it,” Forbes said of the agreement, calling it a “safety net.” “If somehow the deal goes south somewhere, we just want the ability to allow IKEA to remain in their current location.”

As for what would happen to the existing IKEA building if the retailer moved out, it likely would be overhauled.

“We’re looking to create something new and exciting,” O’Neil said. “We hope to be submitting something to the city within the next few months.”

Any development project at the site would have to be approved by the City Council.

Follow Alene Tchekmedyian on Google+ and on Twitter @atchek.

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