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Lack of Space Hampers Use of Tax-Incentive Zones

Real estate: Intended to alleviate unemployment and poverty, Pacoima's federal empowerment status, effective Jan. 1, has attracted no new business.


PACOIMA — More than a year after the federal government announced it was establishing an empowerment zone here, officials can't name a single business that has moved to the zone--or plans to do so--because of the federal incentives.

Los Angeles city officials, who fought hard to win the empowerment zone status, say the problem is the area's tight commercial real estate market, which has stood at 3% since 1997.

"We have this space problem," conceded Rocky Delgadillo, Los Angeles deputy mayor for economic development.

"We've been trying to encourage a number of developers to go in and create some space. Take down some of these older, smaller buildings and create state-of-the-art industrial parks," Delgadillo said. "We cannot as a city continue to sprawl out and take away environmentally rich land and grow an ever more significant dark hole in the doughnut, leaving blighted land."

Although the tax benefits don't actually kick in until Jan. 1, city officials acknowledge that they would likely have seen relocations to Pacoima by now, in anticipation of the benefits, if land had been available.

Case in point: Managers at the La Brea Bakery in West Los Angeles inquired about moving to the zone last year after Vice President Al Gore, at a widely publicized news conference in Pacoima, announced the granting of empowerment zone status to a 2.2-square-mile area of the northeast San Fernando Valley.

The bakery had outgrown its 20,000-square-foot facility and was looking to lease another 60,000 to 70,000 square feet in Oxnard. But the chance to locate in the Pacoima empowerment zone, where the bakery would be eligible for business expense deductions and hiring tax credits, was too attractive to ignore.

Company officials called Los Angeles City Hall, and Mayor Richard Riordan's aides scrambled to help. But a surprising thing happened on the way to Pacoima: There wasn't a suitable site to be found. The bakery ended up in Van Nuys instead.

"As much as we were interested [in Pacoima], we couldn't wait for space to become available," said Philip Shaw, La Brea Bakery's chief operating officer.


And La Brea Bakery isn't alone. Delgadillo says numerous companies have expressed interest in locating within the federal zone in the northeast San Fernando Valley, only to be forced elsewhere for lack of suitable warehouse or industrial sites.

Pacoima isn't unique.

"All around Los Angeles County we're finding good demand for blocks of space, say 50,000 square feet on up. That's in very, very short supply," said Jack Kyser, chief economist for Los Angeles' Economic Development Corp.

"All the areas that are covered by the empowerment zone are older areas and you're going to have this problem," he said.

Yet, despite the shortage of commercial space--which has stood at a tight 3% since 1997--Pacoima still has problems of poverty and unemployment that the federal empowerment zone--and a state zone in effect since 1986--were intended to address.

Delgadillo says one solution would be construction of an industrial park with space available in the 50,000-to-100,000-square-foot range that employers are demanding.

Los Angeles real estate consultant Larry Kosmont described the region's current commercial real estate marketplace as the tightest in a decade.

"I can't think of an industrial area that's running anything more than a 5% to 6% vacancy rate," he said.

In the early '90s, during the dark days of the recession, it was a different story. At that time, Pacoima's commercial vacancy rate was around 15% to 20%, according to Daniel Morales, program director, Valley Economic Development Center. That's how it was in 1994, when Los Angeles sought full empowerment zone status for Pacoima, and other struggling area communities.

Yet, even though the empowerment zones were developed in reaction to the 1992 Los Angeles riots, the Clinton administration rebuffed Los Angeles, saying its application for an empowerment zone was vague and incomplete compared with those of other cities.

Los Angeles didn't come up completely empty-handed, however. Although the Fed denied the city full empowerment zone benefits, it received a supplemental designation. That allowed for the formation of the Los Angeles Community Development Bank, a nonprofit lender that has provided capital to companies that might otherwise not be able to line up financing.

At least one Pacoima firm, Gold Graphics Manufacturing, a printer and fabricator with about 200 employees, says it owes its continuing existence to the $1-million loan it received from the nonprofit bank after the earthquake.

"It saved me," Gold said.


Oddly enough, it was an act of God, not the work of Uncle Sam or Sacramento, that helped pull Pacoima's commercial real estate scene out of its doldrums. The 1994 Northridge earthquake destroyed or severely damaged many older commercial buildings throughout the Valley, but with a few exceptions, most of Pacoima's then-empty warehouses came through in decent shape.

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