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Project Stalled at Blueprint Stage

CRA sinks millions in Hollywood Dream

January 7, 1996

BY CHIP JACOBS
Daily News Staff Writer 

When city officials unfurled blueprints in 1990 to transform a crime-riddled stretch of Hollywood Boulevard from an urban wasteland to a community showcase, they hoped a housing-shopping complex would spur a Main Street makeover.

Pushing to make that happen, the Los Angeles Community Redevelopment Agency ponied up a $4.4 million loan to a private developer who owned the land at Hollywood Boulevard and Western Avenue for what was to include the area’s largest senior citizen housing project, a supermarket and retail shops.

Six years later, the Hollywest project is still on the drawing board. When completed, it will deliver just half the low-income housing originally promised – at a cost of $134,000 per unit, up from $74,000 apiece.

In addition, the public’s total investment could spiral to $18.1 million, triple the original estimate.

By comparison, the CRA has earmarked $29 million for the entire North Hollywood redevelopment area over the next five years.

For some who have watched the deal unfold – and nearly unravel several times – it’s a textbook example of the CRA’s willingness to pour vast amounts of money into projects without fully establishing their public benefit.

“Once they make an initial investment, they make a commitment politically and economically and won’t give up, no matter what the cost,” said redevelopment Commissioner Bobbi Fiedler. “The cost-benefit ratio (on Hollywest) is outrageous.”

Driving the cost escalation have been multiple changes to the agreement between the CRA and developer Ira Smedra. In addition, the city housing department has been pulled into the deal, agreeing to make a $5 million loan, to be paid back over 30 years – but only if the project generates sufficient revenue.

Construction on the site, now a parking lot for Metro Rail workers, is slated to begin this year and conclude in 1998, roughly five years behind schedule.

Backers argue it is worth the wait – and the additional public cost – for a cornerstone development that could spur new investment and roll back the area’s persistent gang violence, drug trafficking and prostitution.

They say it is also expected to produce $600,000 in annual tax revenues and 300 jobs.

“It’s been a project that has taken a long time and many courses, but in the end it will be a win-win situation,” CRA Board Chairwoman Christine Essel said.

For the CRA, Hollywood has hardly been the Land of Oz. Litigation, fierce community infighting and recession have stalled a number of proposed deals.

That’s why Hollywest was considered so critical.

“It’s an important corner,” said CRA administrator John Molloy. “We have a lot to accomplish on Hollywood Boulevard.”

The original deal called for Smedra to build the entire complex and then sell the housing units to the CRA for $13.4 million.

The redevelopment agency then would turn around and immediately sell the senior units to a nonprofit operator.

The agency’s original investment was a $4.4 million loan. However, that commitment could now swell to $18.1 million or more:

The original $4.4 million loan has increased to $5.1 million. Just two years into the agreement, Smedra’s loan was boosted by $720,000 so he could demolish the blighted Rector Hotel on the site and fund additional architectural plans.

Smedra also won’t have to repay any of the interest that accrued on his CRA loan. Because of project delays, that amount is now at $2.5 million and will keep growing until construction is finished.

The cost of the city’s consulting contract with the Retirement Housing Foundation – the nonprofit that will own the senior housing – has grown more than 300 percent, from $95,000 to $425,000. Officials say the hike was needed to pay for design changes triggered in part by the smaller housing component.

Likewise, the cost of a city contract with the downtown law firm of O’Melveny & Myers for advice on the CRA’s Owner Participation Agreement with Smedra has gone up, from $25,000 to a maximum of $75,000.

The Los Angeles Housing Department agreed to lend the CRA up to $5 million under a long-term loan. The exact amount depends on the housing foundation’s ability to secure tax credits, city officials said.

Smedra is pursuing a separate $5 million loan from the city Community Development Department to help finance Hollywest’s commercial component, which is planned to cover 119,000 square feet.

Despite the escalating public costs, Smedra said the project will flourish and that his investors have made huge commitments of time and money to make it happen.

“The general public doesn’t recognize we’ve invested millions of dollars and patiently worked with the CRA to get this off the ground,” Smedra said.

Smedra is no neophyte to controversial projects.

In the early 1990s, he angered homeowners groups after he erected a 57,000-square-foot mall at the site of a landmark Studio City carwash. He also purchased land that included Chasen’s restaurant to make room for a shopping center.

Hollywest has survived, despite questions raised about its price tag.

“Activists think it’s a big rip-off,” said area businessman Don Lippman. “It’s taken millions of dollars, and nothing has happened.”

Two years ago, there was even talk in City Hall of killing the senior housing project outright because of its rising cost and the need for spending elsewhere.

But once the January 1994 Northridge Earthquake hit, officials decided so much senior housing was destroyed that Hollywest’s residential component had to materialize. So, in October 1994, CRA executives reported the housing foundation would apply for millions of dollars available under an AFL-CIO mortgage program.

However, that program was canceled, and two different state-run financial pools city officials had hoped to tap into dried up.

At that point, the city took over.

Gary Squier, general manager of the housing department, said he was first approached after a meeting with ex-Councilman Michael Woo, who championed Hollywest while in office.

“This project is more costly than most of the projects we or the CRA are involved in, but I can’t comment on the reasons why,” Squier said. “When you invest in distressed areas, you take more risk. You are pump-priming, and sometimes it takes more priming than you expected.”

Separately, Smedra asked the city’s Community Development Department for an economic development loan between $3 million and $5 million to help finance the shopping center, officials said.

CDD officials said they plan to discuss the issue with him in the next few weeks.

City Councilwoman Jackie Goldberg, who represents the Hollywood area, was on vacation and could not be reached for comment last week. Goldberg aide Mirta Ocana said the councilwoman supports development in the area, but not all aspects of the Hollywest project.

“The council office has always said we wouldn’t have done the project this way. (But) the train had already left the station when we came. It’s an area crying for something.”