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LA WATCHDOG - Mayor Karen Bass announced last week that graffiti removal and blight abatement will begin following the U.S. Bankruptcy Court’s confirmation of the sale of Oceanwide Plaza / Graffiti Towers to a joint venture between KPC Group and Australian based Lendlease, the original contractor. The buyer has committed to begin comprehensive remediation work that is expected to be completed within three months.
While this represents progress for the remediation of this internationally recognizable eyesore located on South Flower Street across from the Convention Center, this is just the beginning of a multiyear redevelopment of the two million square foot structure that will consist of 504 condominiums, a luxury hotel, and shopping center.
The first steps are to clean up the graffiti on the three towers and pull back the barriers around the perimeter of the 4.6 acre property and restore the streets and sidewalks for use by residents and tourists. This work has already started.
But the real question is: How do the buyers intend to finance their plan that is estimated to cost $800 million. The answer: with great difficulty.
There is also the high probability of cost overruns. Knowledgeable sources believe that this redevelopment will cost north of $1 billion. And this may be a low estimate given the need to work with aggressive trade unions, City Hall rules and regulations, and the condition of the three towers that have been exposed to the elements for seven years.
There are also questions as to the ultimate value of Oceanside Plaza / Graffiti Towers given the condition of the DTLA market that is experiencing high vacancy rates, unacceptable levels of crime, an uncertain retail environment, a competitive hotel market, and the 5.5% mansion tax. This may be the reason why the KPC led joint venture was the only potential buyer, another indication of why this project may not be worthy of an investment. Or put another way, where is all the smart money?
There is also the issue of management. KPC, founded by Dr. Kali P. Chaudhuri, owns and develops real estate in Southern California and India, and does not appear to have the experience to handle a project of this magnitude and complexity. Who is going to invest $800 million (or more) in a developer who with a limited track record in Los Angeles?
Lendlease does not appear to be a viable source of capital as it undergoing a “high risk turnaround” that includes the sale of assets to pay down debt.
KPC is reportedly investing $70 million in this project. This is progress. But the City, the Convention Center, and the surrounding business and property owners need to be vigilant to make sure that the redevelopment is progressing according to schedule.
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[Note: Another issue is what will happen to all the signage revenues and parking revenues before the project is completed? Will they be put into a lock box to help pay for the development?]
(Jack Humphreville writes the LA Watchdog column for CityWatch, where he covers city finances, utilities, and accountability at City Hall. He is President of the DWP Advocacy Committee, serves as the Budget and DWP representative for the Greater Wilshire Neighborhood Council, and is a longtime Neighborhood Council Budget Advocate. With a sharp focus on fiscal responsibility and transparency, Jack brings an informed and independent voice to Los Angeles civic affairs. He can be reached at [email protected].)
