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Grand Avenue developer might avoid penalties

The city-county board overseeing the downtown L.A. project will consider a request to waive impending fines over difficulties in arranging construction financing.

February 13, 2009|Cara Mia DiMassa and Molly Hennessy-Fiske

Moving to save what has been billed as a cornerstone of downtown L.A.'s revitalization, local officials are considering a proposal that would defer a $250,000-a-month penalty that the Grand Avenue project developer is supposed to start paying Sunday.

The hefty penalty was negotiated last year after numerous delays in construction of the $3-billion, Frank Gehry-designed complex. At the time, the developer promised to begin construction by Feb. 15 -- three years later than previously proposed -- or pay the fines.

On Thursday, Los Angeles County Supervisor Gloria Molina said that the developer, Related Cos., had asked to have those fines waived and that the city-county board overseeing the Grand Avenue project is considering the proposal.

Like many developers, Related has struggled to gather the construction financing needed to break ground amid the nation's financial meltdown.

"It's a matter of how they're going to pay for it," Molina said. "The reality is, there [are] no banks to pay for it."

Some financial experts said waiving the fees may well be necessary to keep the project alive because it could be months before Related can secure the sizable construction loan it needs. The firm might not be willing to pay what could be millions to keep the Grand Avenue project going, said economist Jack Kyser of the Los Angeles County Economic Development Corp.

"If they had to pay it now, that might be a break," he said. "It might cause them to reconsider the project."

Grand Avenue is the largest in a slew of downtown projects that have either been postponed or canceled amid the economic downturn. More than a third of the approximately 110 residential projects proposed for downtown are on hold. Another huge project -- the Park Fifth high-rise complex near Pershing Square -- also has been delayed for more than a year and a major investor recently filed for bankruptcy.

When the Grand Avenue project won approval in 2007, the developers, elected officials and other backers described the vote as a turning point for Los Angeles. Civic leaders had long struggled to establish a central cultural hub downtown that would serve as a magnet for people from throughout the region. The project includes a shopping center, hotel, condos and low-income housing built around a culturally rich area that already includes Disney Hall, the Music Center and the Museum of Contemporary Art.

Because the project would be built almost entirely on public land, the public-private partnership has required a series of complex financial negotiations, of which the proposed deal is only the latest.

Grand Avenue once was scheduled to be completed this year. But that date was shifted to 2011. Now, it is unclear when -- or if -- that will happen.

Several sources familiar with the negotiations confirmed the details of the developer's request and said that the deferment of the $250,000 payments was most likely.

They also said it was likely that the civic agencies would ask for a smaller payment, closer to $100,000, perhaps to be made annually, to defray some of the costs of ongoing work on the project by the civic committee that is overseeing the project.

Paul Novak, a planning deputy for county Supervisor Mike Antonovich, who has been a vocal critic of the Grand Avenue project, said the renegotiation of the penalty was being done with little or no public comment.

The members of the city-county board apparently discussed the deal in closed session Monday, but did not report anything about their discussion to the public.

The concern, Novak said, is that this is "very much a backroom deal. We would just like the developer to live up to the original deal. Every time something happens, they want to come in and change the deal, and it's not in the public limelight."

Negotiations are expected to be finalized by Monday.

Martha Welborne, managing director of the Grand Avenue Committee, said that the full details of the arrangement would not be made public until all of the parties have signed the documents.

Kyser said the Grand Avenue project remains feasible, in part, because of broad support among government officials, downtown boosters and civic leaders, including billionaire Eli Broad. But given the state of the financial sector, Kyser said getting the project going could take a while.

"There's a sense of disappointment we don't see steel coming out of the ground," he said. "And you have some choice pieces of land, right in the middle of downtown, just sitting there. You just have to shake your head."

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cara.dimassa@latimes.com

molly.hennessy-fiske@latimes.com

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