City officials who have offered a Downtown 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 came up with the price after counting on a comparable deal that never took place, according to documents related to the purchase.
The appraisal used by city officials as a basis for determining the price of the land on Spring Street also lists the apparently cancelled comparable deal at 25% above its current asking price.
The use of the cancelled deal in the appraisal of the land on Spring Street raises further questions about whether the $5.6 million price tag — which has been touted as a 12.5% discount on the proposed park site — is actually a premium when viewed against the ongoing economic crisis and sagging condition of the local real estate market.
The appraisal took a number of comparable sales into consideration in figuring the price of the land on Spring Street, including a 0.73-acre parcel at 850 S. Hill Street, currently a parking lot behind the Eastern Columbia residential condominium complex. The land on Hill Street appears to be the closest of all the comparable deals listed in the appraisal in terms of its similarity to the parcel on Spring Street. The Hill Street and Spring Street parcels are nearly the same size, both are currently parking lots, and each is owned by a developer with a residential condominium complex next door — Kor Development owns the 0.73-acre parking lot on Hill Street and the Eastern Columbia, while Downtown Properties owns the 0.8-acre parking lot on Spring Street and the recently completed Rowan Lofts immediately to the south, on 5th Street.
Pasadena-based EastWest Bank commissioned the appraisal of the Spring Street parcel on behalf of Downtown Properties, a customer of the financial institution, according to city officials. The appraisal is dated September 23, 2008, and lists the Hill Street parcel as "under contract" for a price of $8.75 million at that time.
The parcel on Hill Street remains on the market at a much lower price, however. Mark Tarczynski, a senior vice president with real estate brokerage CB Richard Ellis, which represents Kor Development on the Hill Street land, recently told the Garment & Citizen that the current asking price is approximately $6.5 million.
"That's about right," said Tarczynski, confirming earlier public comments.
Tarczynski said that a sale of the Hill Street parcel might have been in place at the time of the appraisal of the Spring Street land, but added that any deal apparently fell through. Neither Tarczynski nor Kor Development is responsible for listing the Hill Street parcel in the appraisal for the Spring Street land. Representatives of real estate brokerage Cushman & Wakefield authored the appraisal.
In any case, the 25% difference between the amount listed for the Hill Street parcel in the appraisal and its current price offers an indication of the rugged real estate market Downtown. A similar discount applied to the parcel on Spring Street would peg its value at $4.8 million. That would bring a savings of $800,000 for the city from its current offer of $5.6 million, twice the discount that public officials claim to have gotten. And those projections assume that the land on Hill Street will be sold for its current asking price. Some industry professionals have said that the price could drop further amid the current economic uncertainty.
The Garment & Citizen has also learned that the offer of $5.6 million for the parcel of land on Spring Street came after public officials made a discretionary decision to depart from standard operating procedures and skip the use of an independent appraiser in favor of Cushman & Wakefield's report on behalf of EastWest Bank.
"Generally, the City's Department of General Services uses an independent appraiser retained by the City but, on occasion, it will use an appraisal from another source which the City has reviewed and done independent research to supplement and verify the value," according to Reginald Byron Jones-Sawyer, Sr., director of asset management for the Department of General Services. Jones-Sawyer replied via e-mail to some recent inquiries from the Garment & Citizen, adding that "a full appraisal [by the city] was not warranted [for the land on the 400 block of S. Spring Street] in the Department's opinion."
Neither Jones-Sawyer nor any other city officials had responded, as of presstime, to additional inquiries from the Garment & Citizen about why city officials decided to depart from their general practices on the appraisal of the Spring Street parcel — or who had the authority to exercise such discretion. Also left unanswered so far are inquiries about additional specifics of the appraisal process and the "independent research to supplement and verify the value" of the land.
The use of the Hill Street deal as a comparison has added to doubts among some area real estate professionals and others about the price of the land on Spring Street. 9th District Los Angeles City Councilmember Jan Perry announced the deal for the parcel on Spring Street in mid-January, citing the $5.6 million price as a 12.5% discount from the appraised value in September. Perry's timeline raised red flags among some observers because neither she nor other city officials mentioned the economic crisis that has led to steep declines in the real estate market, a wave of home foreclosures, and massive job losses in Los Angeles and throughout the U.S. in the months following September. Further questions have been prompted by recent reports in the Garment & Citizen, including confirmation by city officials that there were no other bidders for the land on Spring Street. Now it appears that the city had the benefit of a buyer's market with the land on Hill Street on the market — a situation that points to an opportunity to remain patient and see if market conditions might bring further decreases in the cost of that parcel or the one on Spring Street, both of which are desired as park sites by some residents of the Downtown area.
City officials instead appeared to hurry toward a deal for the Spring Street land, announcing the $5.6 million agreement on January 14, when Perry said that the transaction would likely close sometime in March.
The use of the uncompleted deal on the Hill Street land and the lack of other bidders aren't the only questionable circumstances surrounding the purchase agreement on Spring Street. The Garment & Citizen has also learned that the other comparable sales listed in the appraisal came between November of 2006 and June of 2008. That means that those deals occurred amid a stronger real estate market compared to September 2008 — and a much-stronger market compared to January of this year, which arrived on the heels of several months of the shakiest performance by the U.S. economy in 80 years. Appraisers typically adjust for such changes. But the listing of the $8.75 million price on the uncompleted deal for the Hill Street land calls any such adjustments in the appraisal for the Spring Street parcel into question, according to some local real estate professionals.
The deal to buy the land on Spring Street comes as the real estate slump has apparently hit the seller of the land, too. Downtown Properties recently conducted an auction for units in its nearby Rowan Building, 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, 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.
EastWest Bank, meanwhile, 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 Troubled Asset Relief Program (TARP), also known widely as the "bank bail-out."
City officials had not responded, as of presstime, to inquiries from the Garment & Citizen on whether the deal for the Spring Street parcel remains on track for completion in coming days or weeks or will face further review.
Jerry Sullivan is editor of the L.A. Garment & Citizen.
Related articles:
How Much is Too Much for Inner-City Park Land?
Spring Street Land Buy Calls for New Appraisal of City's Deals With Developers
Photo of South Spring Street in Downtown L.A. from Google Maps
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