The Bond Buyer

No Property Fire Sales Anticipated in Next Phase of RDA Dissolution

by: Keeley Webster
Tuesday, April 16, 2013

LOS ANGELES — The next phase of the California redevelopment agency dissolution process is not likely to be any easier than the previous ones, according to panelists at an event Tuesday in downtown Los Angeles.

Over the next several months, successor agencies to the city’s and county’s redevelopment agencies will be drafting property management plans and making decisions about which properties to sell and which ones to retain, said speakers at the Urban Land Institute, Los Angeles District’s Urban Marketplace  event.

“The public sector is about to embark on a journey they never quite envisioned,” said Larry Kosmont, president and chief executive officer of Kosmont Cos., a Los Angeles-based  real estate and economic development  firm. “We are at the very beginning of the property management plans. It’s going to start to heat up over the next six months and it will work itself out over the next two years.”

The agencies were dissolved under the terms of a law passed in 2011, along with a companion bill that would have allowed RDAs to stay alive if they shared revenue with the state. The state Supreme Court struck down the companion bill in late 2011 while upholding the bill dissolving every single redevelopment  agency, which was something of an unexpected consequence.

Anyone interested in purchasing successor agency owned properties or partnering with cities on development  deals should act now, said Cecilia Estolano, a former Community Redevelopment Agency-Los Angeles head and partner with the consulting firm, Estolano LeSar Perez Advisors LLC.

“As Cecilia indicated, the time to approach cities about either purchasing properties or partnering with them to develop properties is now,” Kosmont said. “I view the property management plans as a down payment for cities to get back into the development  game.”

Kosmont described the dissolution as a “very detailed and labyrinthine process.”

“It’s like being turned upside down, with your feet in the air, so the state could shake out all the coins and dollar bills,” he said.

Kosmont Cos. has estimated that each of the 427 dissolving agencies owns on average 20 properties, which means that somewhere in the range of 8,000 properties could be sold.

“The key is how they will be sold and how do you buy them,” he said.

Some 90 cities have filed lawsuits against the state regarding earlier phases of the dissolution.

Until those issues are resolved, they are not going to receive their letters of completion needed from the state Department  of Finance to move forward in the process.

Up until now, properties that didn’t have development  agreements signed by June 7, 2011 — with small exceptions of certain types of uses — could not be moved, sold, or transferred, Estolano said.

“Nothing could be done until the DOF had cleaned all the cash out of the process,” Estolano said. “Until they had a finding of completion that the DOF conveys to a successor agency, the properties can’t move.”

It’s good for property investors to know that they can’t do a deal until an agency has issued a finding of completion, Estolano said.

Only four smaller cities in Los Angeles County have received finding of completion; and there are only 20 in state, Estolano said.

“More letters should be coming out in the next several weeks,” Estolano said. “If a city doesn’t have a dispute, they will be writing a check to the DOF.”

Issues being litigated have arisen from letters sent by the DOF to the cities saying, “here is how much cash you need to hand back to the auditor-controller,”  she said.

Only when DOF confirms the city has written the check will it issue the certificate of completion, she said.

Yesterday was the deadline for the DOF to go back to the auditor-controller  to ask which successor agencies have paid those bills, she said.

Other cities are in mediation because lot of money at stake, she said.

“Cities still need to do a long range property management plan and have approved by oversight board,” she said. “The cities have six months from when they received finding of completion to prepare that plan.”

Most successor agencies are already working on those plans.

She recommended  that real estate investors start working on deals with successor agencies before the long-range property plan is in place.

During the process, the city will be forced to disclose the value of the property.

The plan also will have to be approved by the successor agency’s oversight board and the DOF, so it saves real estate investors time if the deal they are trying to orchestrate  with the city is included in the successor agency’s property plan, she said.

She explained that one way people are putting deals together without redevelopment  tax increment dollars will be through unspent bond proceeds.

Once successor agencies receive a finding of completion, and receive that letter, they could start spending money on projects again, Estolano said.

“It is something you might want to ask the city manager about – if they have unspent bond proceeds that could help make the deal work,” she said.

“There is an entire industry around financing other than tax increment financing,” she said, citing hotel occupancy taxes, utility rebates, historic tax credits and a visa program for foreign investors.

Kosmont called those financing tools hand tools, while the now-dissolved  RDA’s were the power tools for economic development.

Both he and Estolano gave low odds that several bills to revive redevelopment  now being considered by the legislature will actually be approved.

“You will hear a lot from speakers on how opportunities  will emerge,” said David Waite, incoming chair of ULI-LA. “I don’t think this will be the opportunity for the private sector to swoop in and acquire assets on a fire sale basis that people have thought it might be.”