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Developer asks city for another loan, of $19.2 million

CIM Group says it needs more money to complete Midtown Crossing, a long-delayed shopping center anchored by Lowe's. The loan would be repaid from various taxes generated by the project.

May 20, 2010|By David Zahniser, Los Angeles Times

Stung by the recession, one of the most prominent developers in Los Angeles is turning to the city for an additional $19.2 million to bring a long-delayed Lowe's Home Improvement store to Mid-City.

CIM Group — owner of the Hollywood & Highland mall, investors in renewable energy and a prospective bidder on 10 city-owned parking garages — has asked officials for a new 20-year loan to help it complete Midtown Crossing, a shopping center at the junction of Pico and San Vicente boulevards.

Under the proposed agreement, CIM Group would be allowed to pay off the loan by tapping property, sales, utility and business taxes that would be generated by the project once it opens.

The proposal would allow the city to keep at least 51% of the sales, utility and business taxes generated by the shopping center. Up to 49% of the remaining proceeds could be used by CIM Group to repay its loan.

That arrangement drew fire from one neighborhood activist who pointed out that sales, utility and business taxes normally go into the city's general fund, which pays for basic services such as police, parks and libraries. For months, city officials have been coping with a projected $485-million budget crisis by paring back both the workforce and city services that are supported by that fund.

The proposal for Midtown Crossing "should receive scrutiny even if there wasn't a budget crisis," said Jack Humphreville, who serves on the Greater Wilshire Neighborhood Council and frequently writes essays about the city's financial woes. "Given that the city is running a deficit, it deserves even more scrutiny."

City Councilman Herb Wesson, who represents Mid-City, voiced support for the latest loan, which would bring the total amount of public assistance for the project to nearly $34 million. Wesson said his constituents want the amenities that a finished shopping center would bring and have complained for years about the enormous pit that exists on the site.

"The community has been banging on all of us to get this done," he said. "When you have a project of this size, there's usually a faction against it. There's nobody against this."

The loan request comes less than a year after CIM Group secured a similar $30-million loan to stage Cirque du Soleil at Hollywood & Highland.

Wesson said the proposal for Midtown Crossing would come up for a council vote May 28, along with a separate request from CIM Group for an outright grant of $2 million to pay for sidewalks and other public improvements at the site.

Three years ago the city approved an $8.8-million loan for Midtown Crossing, which can also be repaid with tax revenue from the project. Both that loan and the new one would come from the federal Housing and Urban Development Department under a program that provides $35,000 for each job that is created.

Representatives of CIM Group said 80% of the project's financing would come from private sources. The new loan is needed to replace private financing that fell apart in 2008 the wake of the global recession.

"Since then, CIM has been working tirelessly in this difficult financial environment to find a construction lender to allow us to move forward with this exciting retail project that will benefit the community and the city as a whole," said Shaul Kuba, one of the company's founding principals.

If the latest loan is approved, the company would break ground next month, a spokesperson said.

Midtown Crossing's first phase opened in 2007, offering retailers such as Starbucks, Foot Locker and Panda Express. The second phase, which would include Lowe's, a second "big box" store and a three-level parking garage, has been delayed repeatedly.

At one point, CIM Group proposed the installation of 11 supergraphic advertisements on the 11.7-acre site. That idea disappeared after the council voted to ban such signs.

Ninoos Benjamin, director of the L.A. Community Development Department's economic development division, said the shopping center would lead to the creation of 802 permanent jobs. He said CIM Group would use its own money to repay its two loans if tax revenues from the project fall below projections.

CIM Group is already using some of its own funds to repay the first, $8.8 million loan, a spokesperson said.

Headquartered in Hollywood, CIM Group frequently turns to city, county and state pension funds for its financing. The California Public Employees' Retirement System, the nation's largest pension fund, has agreed to invest nearly $1.9 billion in funds managed by the company.

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