A cautionary tale: Village Trailer Park and Profit-making for Developers at Residents’ Expense
In 2013, the City Council approved construction of a large market rate residential project on property that housed a thriving mobile home park community known as Village Trailer Park (VTP). The developer who got the approval had bought VTP a few years earlier and had the property rezoned for its new project . After City approval, the residents, many of whom had lived in affordable trailers they owned for decades, were forced to move.
Significantly, under its development agreement with the City, the VTP developer could sell its valuable economic rights to build and profit from the project to someone else. And that’s exactly what it did. The developer purchased the property for $4.5 million and within a year of receiving the lucrative entitlements to build the units from the City, it sold the property to a major investment firm for $60 million. https://www.smdp.com/travesty-planning-proportions/148938
Now, we have another potential developer profit-making deal in the works – this time involving the biggest parcel of land in our downtown - on OUR public land; our 2.5 acres at 4th/5th and Arizona.
The developers are two real estate investment firms skilled in finding undervalued properties, getting approvals to develop them, and then selling their interests, profiting and moving on. DLJ Real Estate Capital Partners is based in New York and manages billions of dollars in real estate private equity funds. http://www2.dljrecp.com/
It’s other partner, Clarett West Development was formed in 2011 after its parent equity firm (Clarett Group) failed in a global market downturn. https://la.curbed.com/2011/3/14/10478058/whats-going-on-with-clarett-group https://www.latimes.com/business/la-xpm-2011-jun-10-la-fi-hollywood-project-20110610-story.html
As private equity investment firms, their loyalties are to their investors, not to our city or its residents. This means that the future of the Plaza project could be transferred to new, unknown buyers like VTP once the entitlements to build vest.
In this case, the property isn’t theirs – it’s ours but under the agreement with the City it would be controlled by them (or their successors). Under their proposed agreement, these developers want the right to develop and use our public land for a luxury hotel, office and retail project for up to 99 years under a ground lease. Yes, up to 99 years!
Moreover, our City is actually a partner in this arrangement because we, the public own the land. Likewise, we residents are a third partner because it is public land, so whether it remains a public asset, usable by the public, or privatized land, is a big deal.
If the City grants these developers the same rights it granted the developer of Village Trailer Park, they will have the right to not build anything for up to 10 years and also have the right to sell or assign their entire interest to some other entity – a new unknown partner with the City and us. And yes, those entitlements, as with Village Trailer Park, are worth a lot of money once the development agreement is signed.
Should our City be undertaking this level of risk with potentially short-term equity partners to develop our public land for up to 100 years? What if whoever ends up as the developer here can’t (or claims it can’t) build a revenue-generating project as the result of a changing economic reality? What if it’s simply no longer sufficiently profitable for them to build a luxury office/hotel project in Santa Monica? What happens then?
By that time it’s quite possible that these developers will be long gone, leaving our City on precarious footing with little or no control over our land and a new partner who wants something entirely different to make its project “pencil out.”
Village Trailer Park was an eye-opening experience for this City in how little the City got for the community in exchange for enriching a private developer under the deal it negotiated.
It would be unacceptable for it to happen again – on our public land. Residents will be watching this Tuesday night to see if the City Council votes to go forward despite the clear risks in partnering with these developers or whether it votes to end this project and retain the public land. Residents will hold the City accountable. Count on it.
Mary Marlow, Santa Monica resident
