A boastful sales brochure distributed by developer The Bond Companies resulted in a minor hullabaloo in the Los Angeles last week and increased circumspection of subsidized development by the city’s Community Redevelopment Agency.
Bond is the developer of Blossom Plaza, a subsidized mixed-use residential and retail development in L.A.’s Chinatown redevelopment district. The project was originally planned as a 169-unit condominium structure but is now slated as a 262-unit rental development. In addition to market rate and affordable housing, the development includes 40,000 square feet of commercial space, a cultural plaza, and an improved transit-rider facility.
The public price tag? The CRA tells me that Bond stands to receive $47.8 million. This includes an $8 million TIF deal, $16.2 million in Proposition 1C Funds (state-funded public improvements), $2.4 million in low-income housing subsidies, and $1 million for the construction of a public plaza. The city is also purchasing a parking garage constructed by Bond for $21.1 million.
The suspect brochure, aimed at equity investors, landed Bond in trouble for two reasons. First, the company bragged in writing that getting subsidized financing is central to its business strategy, and further, that it has an entire team dedicated to “mining” subsidies in Los Angeles and elsewhere. Redevelopment Commissioner Madeline Janis told the LA Times last week that she was “disturbed and distressed” by the firm’s marketing pitch. Note: Janis is the co-founder and executive director of the Los Angeles Alliance for a New Economy (LAANE) and serves on the board of directors of Good Jobs First.
The second issue of contention was Bond’s projected 42.3 percent rate of return for equity investors advertised in the brochure. The developer itself expects to earn less than ten percent but the higher number nonetheless raised some eyebrows at the CRA. Wary of subsidizing super-profits, the Redevelopment Commission voted unanimously last week to reduce the amount of the city’s subsidies if the venture provides a return in excess of ten percent to Bond.
Kudos to the CRA for its bold move to limit subsidies on high profit developments, as well as its admonishment of developers who regard public dollars as an entitlement.