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PUBLIC/PRIVATE PARTNERSHIP

Genesis LA breathes new life into city

By Debra Hazel

Few who saw the images in April 1992 can forget them: a populace outraged by a controversial jury verdict in the Rodney King beating case rampaging through Los Angeles streets. A Fedco department store located at La Cienega and Jefferson boulevards was virtually destroyed during the unrest. Afterward, developers and retailers alike stayed away, reluctant to invest in these low-income areas.

Today, the Fedco store has been replaced by a brand-new Target and McDonald’s, part of a $100 million mixed-use redevelopment that is the initial retail success of Genesis LA, a uniquely structured government-initiated program designed to bring jobs and new life to blighted areas of the city.

Various administrations and developers have tried to bring retail to depressed Los Angeles neighborhoods for years with varying degrees of success. But the 21 projects now being created by Genesis LA differ from most public/private partnerships in several ways: While other cities are redeveloping projects on only a few blocks, Genesis LA is attempting to reduce sprawl by building in infill areas throughout the city’s 469.3 square miles. And unlike other public/private efforts, retail stores are not the main focus here — job creation is. But what really distinguishes Genesis LA is a three-part financing scheme that includes City Hall, a specially targeted private fund, and, unusually, contributions from a nonprofit organization dedicated to urban renewal.

If successful, this structure could become a model for other such efforts around the United States, its proponents say.

Genesis LA evolved from previous inner-city rehab projects such as Rebuild LA, which was created days after the riots. Mayor Richard J. Riordan, a former Rebuild LA board member whose business background led him to a different view of urban renewal, announced the current program in March 1999.

“Genesis LA fits into two policies: improving the quality of life in the inner cites and improving jobs,” Riordan told SCT during a recent interview.

Taking office in 1993 in the midst of the civic turmoil, Riordan saw what he called “a dire need for economic revitalization and quality jobs, particularly in our inner cities.” Believing that public/private partnerships were the key, he tapped one-time entertainment lawyer Rockard Delgadillo, deputy mayor of economic development, to take the reins of a project that would bring jobs to blighted areas of the city.

Genesis LA’s upcoming retail projects include: LaCienega and Jefferson: Creative office space will be part of the retail redevelopment of a former FedCo store. Anchors will be Target and McDonald’s. Chesterfield Square: The $47 million project is being developed by Capital Vision Equities and Katell Properties at Western and Slauson avenues in South Central Los Angeles. It will feature 320,000 square feet of retail, including The Home Depot and Ralph’s Food 4 Less. Sears Tower: The 75-year-old art deco building in East L.A. will undergo a mixed-use redevelopment. Sears will double the size of its store to 185,000 square feet (on two levels), and add an additional 250,000 square feet of discount retail, including a Super Kmart. Pico Plaza: The project, at Pico and San Vicente boulevards, will feature Genesis LA’s first retail condominium deal, with 151,000-square-foot anchor Costco owning its site, a long-shuttered former Sears. Adams and La Brea: The first phase of development, just off Interstate 10 on an 11.6-acre property, will hold facilities for Federal Express and a Super Kmart. Replacement housing for the residential buildings being torn down to clear the land also is part of the project. Taylor Yards: A former rail yard along the Los Angeles River at San Fernando Road is being developed in phases. Santa Barbara Plaza: Not far from Chesterfield Square at Martin Luther King Jr. Boulevard and Marlton Avenue, the redevelopment of a flea market building is going on adjacent to Baldwin Hills Crenshaw Mall, one of the pioneer projects in inner-city Los Angeles’ redevelopment. Watts Retail Center: At 103rd Street and Central Avenue, the 4-acre site is expected to hold a Bank of America, restaurant and retail. Goodyear: Food 4 Less will anchor a retail center on a 4-acre site at Central and Slauson Avenues. North Hollywood: Directly across from the new North Hollywood Metro station at Lankershim and Chandler boulevards, the project is expected to include offices, a cinema, specialty retail and restaurants. Vermont/Slauson: A retail center to be anchored by a supermarket and restaurant is proposed for a 4.5-acre site at these avenues in South Los Angeles.

It became clear to Delgadillo, a former Rebuild LA staffer who had served on Riordan’s Business Team, that many previous attempts at redevelopment had not had long-term benefits.

“The flaw we saw there was that it was oversubsidized — and they were [all] retail,” Delgadillo said.

Manufacturing brings more jobs than retail, and keeps money created by the projects in the community, he explained. While 11 of the 21 Genesis LA sites contain retail components, maximizing employment through office and industrial development became the organization’s top priority.

“The pride of a community is linked to a job,” said Joanne Carras Halbert, assistant deputy mayor and director of development for the Mayor’s Office of Economic Development. “If they have jobs, they can buy things.”

Genesis LA also may be benefiting from an overall interest in a return to city development, a process that has been picking up steam since the Carter Administration’s 1978 establishment of the Urban Development Action Grant (UDAG) program. UDAG grants were instrumental in the construction of such retail projects as Harborside in Baltimore, Columbus (Ohio) City Center and Circle Centre in Indianapolis, noted Jeff Finkle, president and CEO of the Council on Urban Economic Development, Washington, D.C.

“There has been an awakening on the public side that this can be done more systematically than in the past,” Finkle said.

Initially, Genesis LA found 15 sites around the city with a goal of creating 5,000 new jobs and generating $250 million in private-sector investments before the end of Riordan’s term this year. That goal was met in April 2000. As a result, the team added six new sites, representing 13,000 jobs and $680 million in private capital.

It’s really the financing that distinguishes Genesis LA from other efforts. Unlike most public/private initiatives, Genesis LA’s partners all expect to make money.

“We knew the only way to get investors in the inner city [was]: We knew they had to make a profit,” Halbert said.

Sites are selected by Genesis LA, which then looks for developers willing to invest their time and some equity in the inner city. The city also has created a real estate investment fund of $12 million, some of which comes from federal grants and loans, to put into the projects.

“In the past, the city would spend money, but get no return,” DelGadillo said. “This is not intended to be charity.”

Once the developers and city have made their contributions, Genesis LA goes to the Genesis LA Real Estate Investment Fund, managed by Burbank, Calif.-based Shamrock Holdings of California, owned by the family of Roy Disney, Walt’s nephew. Developed and then spun off by the Mayor’s Office of Economic Development and the Genesis LA nonprofit organization, the fund is a private-sector, for-profit investment vehicle financing projects in low- and moderate-income areas (as defined by the U.S. Department of Housing and Urban Development) in Los Angeles.

From blight to bright One of the most successful examples of urban redevelopment in Los Angeles, and a model for Genesis LA, was the mid-1990s redevelopment of a shuttered General Motors (GM) assembly plant in Van Nuys. The street across from the plant was one of the most crime-ridden in the city. “It was a brownfield. We had to tear down a pre-World War II building and create a deal,” said Los Angeles’ Deputy Mayor Rockard Delgadillo. GM donated a portion of the property to the city, which built public streets to improve access to the site. A private sector investment of $75 million helped create a mixed-use complex, including 340,000 square feet of retail anchored by The Home Depot, as well as office and industrial uses. “The retail development subsidized the industrial development. GM received a tax benefit, and gave us a clean piece of land,” Delgadillo said. Perhaps best of all for the local residents, crime was reduced by 60%. “It is now one of the safest streets in the city,” he said.

The fund closed in July, with $85 million in investments from Bank of America, Wells Fargo, Union Bank of California, Washington Mutual, US Bank Corp., Shamrock, Cal Fed, Nehemiah Corp., Far East National Corp., City National Bank, Sanwa Bank, California Community Foundation, Stewart Title and Citigroup. The fund has a 10-year life, and all monies must be invested within five years.

“We basically provide mezzanine financing for projects,” said Richard Gentilucci, Shamrock senior vice president of real estate. “We wanted to be really specific on the projects. We didn’t want limitations put on us, and we need to be able to act quickly,” he told SCT.

To qualify for consideration, a developer must have the property tied up and have either executed leases or letters of intent for other lenders and/or tenants. The developer also should have some of its own capital invested.

“We’re not going to fund concepts,” Gentilucci said. The fund cannot invest more than 20% of its monies in any one particular project or with any single developer. As of January, $13 million had been invested in two projects, one of which is a Genesis LA site.

Should a gap remain, Genesis LA turns to the nonprofit Genesis LA Economic Growth Corp., established to be the court of last resort for urban redevelopment projects.

“Joanne goes after city funds. The nonprofit goes in when nothing else is left. Our money comes from million-dollar sponsors,” including McDonald’s (the first retailer to sign up), Washington Mutual, Bank of America, the Los Angeles Department of Water and Power and Kmart, said Deborah J. LaFranchi, president and CEO of Genesis LA Economic Growth Corp.

Actually, $10 million sponsors is more like it.

“We ask our sponsors to make a commitment of $10 million in Genesis LA sites. It could be stores for a retailer; if it’s a telecommunications firm, it could be fiber optics. The second part is to donate $1 million, which helps us to market sites and funds the gap fund,” LaFranchi said. The donations are tax deductible for the sponsors.

The goal of the Economic Growth Corp. is to be quick and responsive, often giving Halbert and her team an answer in two days. Monies given by sponsors to projects, either as debt or equity, are expected to be repaid in five to six years.

“It thus becomes a revolving fund,” LaFranchi said.

Most of Genesis LA’s 21 projects will be under construction by 2002, with the remainder a year or two behind, Halbert said. And their influence might eventually extend beyond its own projects.

“I don’t know if there will be a direct impact on [our project], but I think Genesis LA is a great idea. It’s terrific when a city gets involved,” said David Malmuth, senior vice president of development of TrizecHahn, San Diego, which is constructing the Hollywood & Highland development around Mann’s Chinese Theatre.

Although not under the Genesis LA banner, the City of Los Angeles also has contributed to the TrizecHahn development, via bonds and funding.

“The city owns the parking garage, worth $60 million, and they own the Kodak Theater. It’s a $90 million total investment,” he said.

Redevelopment should continue beyond the life of the current administration: By law, Riordan is completing his second and final term this year. Delgadillo is running for city attorney. But the former entertainment attorney has ensured that Genesis LA will survive.

“One of the things that’s magical about this is that the structure is complicated. It will have a life beyond any administration,” Delgadillo said, adding that three of the six candidates running for mayor in January have already pledged support for Genesis LA.

Shamrock, too, is looking to expand its urban redevelopment efforts, even beyond Genesis LA. “It’s been a positive effort,” Gentilucci said. “Part of my goal is to do this again with Los Angeles, where we have a proven track record.” Expanding to other cities also is possible.

The nonprofit also will continue, LaFranchi said. A second investment fund, the Genesis LA Growth Capital Fund, is in the works. As before, it will originate within the nonprofit, then be spun off. At press time, negotiations were under way with potential fund managers.

And Riordan told SCT that he has high hopes as well.

“It is my hope that, five years from now, Genesis LA will be tackling its 100th site and will have brought even more quality jobs, private investment and goods and services to Angelenos in our underserved communities,” Riordan said.

In that respect, the entire Genesis LA program could expand across the country, Delgadillo said.

“I’m a big dreamer. I want poverty to be gone,” he said. “I don’t just want victory; I want to win the war. Is Genesis LA a model for the nation? Yes.”

 

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