Councilmember Gleam Davis‚Äô metaphor of a snake swallowing and digesting a rat did not go far enough. Davis used the snake metaphor to illustrate how the 35 development agreements (the rat) in the pipeline would be digested by the snake (the city) and no longer be of concern.
Unfortunately, the end results of this digestive process is not simply a smaller bulge in the snake‚Äôs body, but huge, oversized buildings that dramatically change boulevards, neighborhoods and whole areas of the city.
Neighborhoods emerge, not based on good neighborhood planning or good design, but on the short-term profit potential for those who feed the snake.
By the time the buildings are built and the residents discover how poorly these new neighborhoods work and how much gridlock they create, the developers may be gone, having syndicated their projects, collected their profits and moved on.
Syndication is a vital part of development. Syndicators create a limited liability company (LLC), consisting of a general partner who manages the partnership and a number of limited partners who buy units in the restructured project and receive passive income from the net rents at a predetermined rate. They also receive capital gains (after expenses) when the property is sold. The units are priced to give the limited partners reasonable income, and to allow the developer to recoup his building costs and his profit.
The game for developers is not about building a project that will add value or enhance a community. It‚Äôs about getting their money out of the property as quickly as possible. That‚Äôs why syndication is so important. The faster you book your profit, the faster you can begin your next project. Developers typically have relationships with institutional investors who buy into real estate syndications (pension plan managers, hedge fund managers, asset managers) and can sometimes act as their own syndicator.
Commercial real estate, or income generating properties in general, are valued as a function of a cap rate that determines the value of the property based on the property‚Äôs net yearly income (after expenses.) The capitalization rate (or cap rate) is the ratio between the net operating income produced by the property and its value, or sales price. In other words, the more income a property generates, the higher the value of the property
Thus the real business of a developer is to increase the potential net income of a property through the development process. Since land is limited in Santa Monica, the developer‚Äôs biggest “tool” in increasing profits is to increase density.
Several factors have led to a bigger “tool box” being available to developers in Santa Monica. The adopted 2010 Land Use and Circulation Element, the Downtown and Bergamot specific plans (currently in the works), and the anticipated new zoning codes which are currently being hashed out at City Hall, are effectively providing this bigger and better “tool box” for developers. Add in a majority of City Council members, a city manager and a planning director whose actions and words are clearly pro-development, and Santa Monica residents are left high and dry.
Increased heights, bigger buildings, and increased densities bring developers higher profits at the expense of residents. Residential neighborhoods are left damaged. More traffic, less parking, less sun, less open space, infringing height, loss of views, and loss of open sky become the ultimate “community benefit” bestowed upon residents.
Do you wonder why Planning Director David Martin and his staff are regularly pushing for developer benefits? The following quote from Brad Cox, senior managing director of Trammell Crow, chairman of the Chamber of Commerce, and chair of the Santa Monica Alliance, may provide a clue. The quote was from a discussion with other developers, part of a conference sponsored by the International Council of Shopping Centers on July 12, 2012.
Cox said, “[W]hen Rod Gould came in as the new city manager ‚Ä¶ he said really two things to the city staff: He said, ‚ÄòI want you to be more business friendly, and I want you to have what I call a can-do attitude. I want you to look for solutions to problems.‚Äô And he came to us at the Santa Monica Chamber and says, ‚ÄòI want to work together in partnership to solve the issues of Santa Monica being a business unfriendly city.‚Äô
“Mixed use is tricky. So we formed a group called The Alliance, which is a partnership between the leadership of the chamber and the city department leaders ‚Ä¶ . And we have been meeting monthly over the last three years ‚Ä¶ .¬† [We] sit down and we talk about what are the issues, how do we work better to make Santa Monica a business-friendly city.”
Now, “mixed-use” is a form of development. It integrates several different types of activities (residential, commercial, cultural, institutional, or industrial) in one building, or complex. Brad Cox‚Äô use of this phrase tells us that the purpose of The Alliance is to facilitate mixed-use development. Mr. Cox further tells us that the partners are the city staff members and the Chamber of Commerce developers.
Bottom line: Gould, our city manager, made a choice three years ago to align with developers and instructed his staff to do the same. This pro-development alliance, together with the bigger “tool box” created by a pro-development majority City Council is allowing developers to reshape our town at the expense of the residents outside the professional development community.
On the other hand, it is becoming clear that there is a grass roots force in our town that is growing. That force is a force of will, the will to protect our town, our neighborhoods and our way of life. That force is gathering momentum and will likely continue to grow.
It will be interesting to see what residents have to say at the July 9 City Council meeting regarding the Downtown Specific Plan.
This column was authored by Ellen Brennan, a longtime resident and former board member and chair of the Pier Restoration Corporation, and Armen Melkonians, civil and environmental engineer and a grassroots advocate for resident democracy. The authors can be reached at firstname.lastname@example.org