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Speaking Out

CRA's Fee Bodes Ill for Healthy Downtown

October 15, 1989|JOHN C. CUSHMAN III | Cushman is president and chief executive officer of Cushman Realty Corp., a downtown commercial real estate company

The greater Los Angeles area has enjoyed extraordinary prosperity over the last 25 years, but we are now paying the price for that prosperity. The phenomenal growth has brought serious problems, including traffic congestion, lack of affordable housing, poor air and water quality, inadequate waste management facilities, homelessness and crime.

Given the demographic projections, it is clear that we cannot stop this growth; the challenge is to effectively manage it. Notwithstanding the significant commitments made by many organizations, the region is making little progress toward resolving its ills, and solutions will not be forthcoming if we depend solely on government, which, to a great extent, has been reactive and ineffective.

Solutions can only be achieved if we change the process in a fundamental way. There needs to be a private-public partnership, driven by a massive commitment of the private sector.

It is critical that the business community guide the long-term planning of downtown, committing the best of its leaders to take a hands-on role in formulating a process that can afford future generations a chance to enjoy the prosperity that we have enjoyed.

Part of the solution to the environmental and transportation problems facing Los Angeles will involve levying fees and exactions on developers of new downtown office buildings.

Developer Assessments

A developer of an office building in the central business district in the 1990s will have to budget for such fees, costs and assessments as:

--The proposed affordable-housing linkage fees, which will range from $2.50 to $7.50 per square foot.

--The public art fee, equal to 1% of total project cost, which on a project of $300 dollars per square foot would equate to $3 dollars per square foot.

--The South Park Open Space assessment, affecting developments south of 8th Street, which could be as much as 20 cents per square foot per year.

--The Metro Rail benefit assessment payments, which could be as much as 40 cents per square foot per year.

--The peripheral parking program, which includes the cost associated with purchasing land and the related costs of developing and operating an off-site parking structure.

I am a strong supporter of the development of affordable housing, the improvement of our transportation systems and the inclusion of open space and public art in downtown development projects. I also feel that the development community should bear some of the cost associated with instituting such programs as contemplated above.

Density Transfer Fees

However, I take strong exception to the structure of a recent proposal by the Los Angeles Community Redevelopment Agency (CRA) to levy a public-benefit payment (PBP) on downtown developers who elect to transfer density rights, also known as floor-area ratio (FAR).

It is important to state that much of the property in the central core of downtown Los Angeles has an "as of right" zoning density, or FAR, of 6 to 1. This means that a 100,000-square-foot parcel of land could be developed with a 600,000-square-foot building.

The TFAR (transfer floor-area ratio) policy provides the mechanism for a developer to transfer density from another parcel within the central core of downtown to his property. This enables a developer to increase the property's FAR to 10 to 1, allowing for the development of a 1-million-square-foot building on the 100,000-square-foot parcel.

The public-benefit payment is envisioned to become part of the TFAR policy. I would contend that the PBP as proposed by the CRA is ill conceived, illogical and may possibly be illegal.

The CRA proposal, if adopted, would require that a developer transferring FAR to his property pay a public benefit "tax" equal to 44% of the appraised land value of his property.

For example, if a property with a FAR of 6 to 1 is valued at $1,000 per square foot of land, its value converts to about $167 per FAR square foot. The CRA is proposing that the benefit payment be 44% of $167, or about $73 dollars for each FAR square foot transferred.

This public-benefit "tax" is in addition to the fee for actually transferring the FAR, which the CRA has already artificially inflated to a cost of $35 to $40 per FAR square foot.

Developers have often transferred density to reduce the average land cost of a major office development. Private FAR transfer transactions have never exceeded $20 per FAR square foot and typically have been $15 per FAR square foot.

The public-benefit payment bears no relationship to the public benefits and will dramatically increase the possibility that development in downtown Los Angeles will be significantly deterred. I would question whether the mayor, the City Council or the business community would find this acceptable.

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