The city's offer to pay a developer $5.6 million for a 0.8-acre parcel of land to be turned into a park on the 400 block of S. Spring Street is based on comparable sales that start before the current economic crisis and stretch back to the recent Downtown real estate boom.
The timing of the appraisal indicates that city officials might have agreed to pay a premium price for the land despite the current slump in the local real estate market.
City officials touted the deal as a bargain when 9th District Los Angeles City Councilmember Jan Perry — who represents much of Downtown and parts of South Los Angeles — announced an agreement to buy the land from a development firm called Downtown Properties in January of this year.
Perry said that the price represented a 12.5% discount from the land's appraised value in September of 2008. Perry and other city officials did not mention the economic meltdown that has taken place in Los Angeles and across the U.S. since September. Nor did they disclose the specifics of the timing on the appraisal of the land's value.
Inquiries from the Garment & Citizen recently led city officials to disclose some specifics of the appraisal, including information that calls into question the initial price comparison that Perry made to September of 2008.
"The comparable sales [used in the appraisal] were dated from November 2006 to July 2008," according to a recent e-mail from Reginald Byron Jones-Sawyer, director of asset management for the city's Department of General Services, and David Roberts, a property manager with the same agency.
The e-mail indicated that city officials took six comparable sales into account, and considered the market conditions surrounding those transactions in only one instance.
"The November 2006 was given little weight by the City's reviewer," according to the e-mail.
The e-mail offered no explanation of the decision to give "little weight" to the comparable sale in November of 2006 without any similar consideration for any of the other transactions. City officials have also declined, so far, to disclose any further specifics about the timing, locations and prices of the other comparable sales used for the appraisal, offering only that the six transactions "were in close proximity of the subject property."
Several real estate professionals told the Garment & Citizen that comparable sales prior to September of 2008 would likely benefit the seller of the land on Spring Street, reflecting stronger periods for the Downtown real estate market.
The current real estate slump, meanwhile, has apparently hit the seller of the parcel on Spring Street. Downtown Properties recently conducted an auction for units in the Rowan Building, a residential loft development the company owns at 5th and Spring streets, just south of the proposed site of the park. Those units were advertised at discounts of 45%, and while that does not amount to a perfectly even comparison to the land for the proposed park — currently a parking lot — it does offer an indication of the severity of the downturn in the real estate market. So does an earlier decision by Downtown Properties executives to cancel plans for a hotel on the proposed park site.
Also raising questions about the deal is the decision by city officials to accept the appraisal on the Spring Street parcel of land as offered by Pasadena-based EastWest Bank on behalf of Downtown Properties. EastWest Bank offers its own example of the severity of the current economic slump. The bank has received more than $300 million in taxpayer assistance since September under the federal government's Trouble Asset Relief Program (TARP), also known widely as the "bank bail-out."
Additional questions about the deal stem from information from the Los Angeles City Attorney's office and the Department of General Services, indicating that both EastWest Bank and the city relied on the same appraiser for the deal.
"The City's two private sector outside appraisers (a certified general appraiser and an MAI) from Cushman & Wakefield deemed the data reliable to develop a report to the City on the estimated fair market value of the property," according to the e-mail from the representatives of the Department of General Services.
Frank Meteljan, a spokesperson for City Attorney Rocky Delgadillo, earlier told the Garment & Citizen via an e-mail that "the appraisal on the property was done by Cushman & Wakefield for the East West Bank," adding that "[The Department of General Services] says that their internal appraiser reviewed the [comparable sales] and appraisal and concurred with it."
City officials had not responded, as of press time, to an inquiry on whether the city or the bank — or both — paid Cushman & Wakefield for the appraisal. It also remained unclear whether a Cushman & Wakefield employee served as the "internal appraiser" cited by the City Attorney's office.
Local real estate professionals have told the Garment & Citizen that the dramatic downturn of the economy makes it advisable for city officials to obtain a fresh and independent appraisal of the parcel on Spring Street. They added that it's always advisable for a buyer to perform an independent appraisal, especially in cases where a bank or other lender might have a vested interest in ensuring their customer — the seller of the land in the case on Spring Street, for example — obtains a sufficient price to meet loan obligations.
City officials have said that the deal for the land is not yet in escrow, and remains under review.
Jerry Sullivan is editor of L.A. Garment & Citizen.
Photo of Jan Perry, Los Angeles City Councilwoman, Ninth District from www.lacity.org and map of South Spring Street, Downtown L.A. from Google Maps
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