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With California facing a $35-billion budget shortfall and local governments facing their worst fiscal condition since World War II, Southern California leaders will need to be very inventive to accommodate the 10 million new residents expected here by 2025. But if local governments are cash-strapped, who or what is going to tackle the towering problems of movie-length commutes, sky-high housing prices and shabby city centers? Enter the public-private partnership.
Downtown redevelopment has always been a mixed affair, but governments are getting creative in leveraging private resources to get the job done. Indeed, Kevin Palmer, economic development manager for the City of Riverside, says, "It's hard to see any major projects getting built anywhere in Southern California without a public component." The cost of land and development are simply too high to make projects pencil out otherwise, he notes. "Where is the stadium, the major mall, the redeveloped downtown that does not have a public component?"
Moving People, Moving Goods
Surely the most visible problem afflicting Southern California is traffic congestion. "We are a major port city," warns Al Perdon, a consultant to the LA-based Southern California Association of Governments. "We have a major airport. We have to move goods and people or we will choke."
Traditionally, building infrastructure has fallen within the government's province. But Dina Gartland, a principal with the Leighton Group, an Irvine-based geotechnical engineering firm, suggests that private money can still be had. Gartland advocates building light rail as a relatively low-cost solution to the region's transportation needs.
The private component of light-rail construction costs could be crucial to getting it built. "Say you put a light rail stop inside a shopping mall," she says. "Suddenly, the mall will be glad to build the station-thanks to the captive audience of commuters." Stations, like stadiums, could be named for the entity paying the bill, suggests Gartland. |
| use of transit villages to both reduce construction costs and increase ridership. The Gold Line, the section of rail extending from the Metro Station in Downtown Los Angeles to Pasadena, has included in its design three transit villages in Chinatown, at Del Mar Station in Pasadena and Sierra Madre Villa. "Approximately 5% of the total construction budget will come from the sale of land for development," notes Freilich.
Rail may be fine for people, but what about trucks? According to Jeff Lustgarten, a SCAG spokesperson, tollgates may be in the future of 18-wheelers, especially those who ply the ports. Under consideration are special truck-only toll lanes, either elevated or gained by widening freeways leading from the Ports of Los Angeles and Long Beach to Downtown.
And though it may sound fanciful, high-speed "mag lev" (magnetic levitation) trains also may be in Southern California's future and privately built at that, according to SCAG's Al Perdon. "Mag lev is relatively low-cost at about $100 million to $110 million per mile," he says.
What the state and local governments need to do is give right of way along freeway medians to a major contractor, such as Lockheed Martin Corp. "There have been four feasibility studies done on the mag lev for the Los Angeles region, and all four said it could be done," notes Perdon.
Housing Affordability
Anyone who follows Southern California real estate knows that residential is the hottest sector among investors. They sell quickly and fill up fast. Consequently, every city and county in the Southland is trying to get more housing built.
"Traditionally, we have been a builder of affordable housing, but now we are looking more at workforce housing, which is housing for the schoolteachers, firefighters--the people that make our economy work," says G. Allen Kingston, president of Culver City-based Century Housing. Century has joined forces with the Rancho Cucamonga-based National Housing Development Corp. and the City of Los Angeles in a program called LA WIN (workforce initiative network). Century and NHDC are putting up $17.5 million in seed money, and the city is throwing in another $5 million.
The plan is to raise $200 million from investors to form a fund and then start building. The city's role will be to help identify housing sites, permit them quickly and if necessary use eminent domain to acquire land parcels. Larry Kosmont, president of Los Angeles-based Kosmont Cos., advocates both urban hubs of mixed-use development and more housing inland. Kosmont is building workforce housing in Palm Desert and La Habra with assistance from those cities. "There is typically a public component in these projects," he says. "The city helps us buy the land-that's pretty common." He adds that inland areas, such as Ontario and San Bernardino, plan to develop new housing over the next 10 years, a large portion of which will be condos or apartments. The hope is that jobs will follow the population.
Residential land has become so scarce and thus valuable that developers are turning to unprecedented deals, such as swapping land and building new structures, in exchange for public property. Fred Wallitsch, project executive with Manhattan Beach-based developer Snyder Langston, recently headed up an effort to rebuild a 50-year-old US Air Force facility in El Segundo. In exchange for building the Air Force 560,000 sf of new office space, Snyder Langston, along with partners Kearny Real Estate and Catellus Real Estate Development, received 59 acres of surplus Air Force land, including four acres in the Sun Valley section of Los Angeles, and 55 acres in Hawthorne. The two Hawthorne parcels will be converted to medium-density housing, with about 20 units on the larger parcels and 30 per acre on the smaller parcel. |
| reluctance of cities to embrace high-density housing." Since passage of Proposition 13, which limits property taxes to 2% of the assessed value, cities have preferred retail development over residential because it generates tax revenue, notes Wallitsch. But, "high-density housing is expensive for cities," Wallitsch adds, suggesting that some sort of review of Proposition 13 may be order to whip the Southland's housing crunch. Urban Core Redevelopment
Southern California cities have been attempting to redevelop their urban cores since the 1960s, when urban renewal began catching on. Early urban-renewal efforts involved bulldozing everything in sight, but more recently, efforts have shifted to redevelopment projects that incorporate residential and retail components, with the ultimate goal of revitalizing urban centers as a place where people live, work and play.
These more sophisticated efforts invariably involve public-private partnerships. One good example is the Pike at Rainbow Harbor, a 370,000-sf retail and entertainment project in Long Beach. The 18-acre site had languished for years until the city made a $43-million commitment to jumpstart development there. The city provided funding for infrastructure improvements and a parking structure, notes Karl Kreutziger, project manager with Snyder Langston, which is building the Pike with Developers Diversified Realty Corp.
Piggy-backing on upscale development in Downtown Long Beach, Newport Beach-based Intracorp is building two high-rise residential towers with 246 luxury condos near the Pike. The project could not have happened without the City of Long Beach floating a $43-million bond to get the ball rolling. "Without the parking structure and other public involvement, these sorts of projects just don't pencil out," Kreutziger explains.
Similar mixed approaches are being tried in many Southland cities, from Pasadena to LA. Santa Ana and Riverside are two cities with especially aggressive public-private partnering arrangements, in which private developers are lured into the city's core by free land, favorable zoning or even flat out grants of money. In Downtown Santa Ana, the restaurant Memphis received a $450,000 grant to build a dining spot in the city's budding artist district. "Was there some flak about that?" asks Gil Marrero, VP and broker with Voit Commercial Brokerage. "Sure, but now people are buying lots Downtown and putting in housing."
Despite municipal and county budget woes and the proliferation of public-private partnerships, not everybody is a fan of such arrangements. Many have long denounced such arrangements as "socialized free enterprise."
Other critics contend that by building parking structures, Long Beach and Riverside caused property values to escalate, which will make development more costly. Others suggest that cities could accomplish more by just simplifying their regulatory processes.
But, the bottom line remains that, with California facing an unprecedented budget deficit, local governments can expect less help with projects than in years past. Consequently, municipalities are likely to turn more to public-private partnerships to address urban growth issues.
One thing that seems clear is that it will take continued cooperation between the public and private sectors to make it all happen. "You can fight an uphill battle or take what's needed in a community and provide it," says John Hvrovat, Urban Partners' executive in charge of building the $90-million Del Mar Station urban village project in Pasadena. "I don't see there is much of a choice."
Benjamin Cole is a Los Angeles-based freelance writer. |
