Commercial Scene : Downtown Developers Await Air Rights Ruling : Acquisitions: L.A. City Council studying ways to change the rules for trading densities in the central business district.

Up in the air.

That’s how developers and attorneys describe proposals to regulate the transfer of air rights in downtown Los Angeles.

Zoning in the central business district essentially limits buildings to about 12 stories. That makes it imperative for high-rise developers to collect extra development rights--usually from a low-rise property owner with rights to spare and no plans to build a taller building.

If all this sounds like an exercise in creative accounting--it is. Dozens of rules exist to control transferable floor area ratio (TFAR)--all designed to facilitate the buying and selling of air.

Simply put, however, the system allows low-rise building owners to sell their excess air rights to a nearby owner. The buyer gets to add the acquired density rights to his or her own proposed high-rise development.

Obtaining these air rights costs developers lots of time and money in Los Angeles and other major U.S. cities, but it’s a process that they’ve reluctantly grown accustomed to. Locally, the City Council, Community Redevelopment Agency and Planning Commission all have to sign off on these transfers. If one of the three says no, even the best-laid plans are for naught.

And that’s where the controversy begins.

Three years have passed since the last time developers in Los Angeles heard “yes” to any transfer of FAR within the city.

Nearly a dozen major builders--along with a small army of lawyers and consultants--are eagerly awaiting approval by the City Council of new TFAR rules--whatever they turn out to be. Developers waiting for new rules include the Macklowe Group, Ahmanson Commercial Development, Mitsui Fudosan, USA Pacific Atlas and others.

In the meantime, the City Council and its Community Redevelopment Agency are at odds over just about everything related to development policy in the city. Air rights are not likely to be an exception.

Last month, the CRA’s board approved rules that would levy the equivalent of a 44% fee on developers in exchange for its blessing on any density transfers. The surcharge, say CRA officials, will be used to fund restoration of historic buildings, day-care centers, low-cost housing and other public benefits.

At today’s market rates, the fee translates into about $35 for every square foot of density transferred. The CRA recommends charging a flat $35-a-square-foot fee on density transfers over a two-year period, followed by final implementation of the 44% formula. Predictably, developers are accusing the CRA of “extortion.”

Within the next several weeks, it will be up to the City Council and its Community Redevelopment and Housing Committee to decide. Council members ordered the CRA nearly 18 months ago to come up with a better way to facilitate density transfers. Now that the CRA and its private sector advisory panel have completed their recommendations, the issue returns to the City Council.

“There are strong feelings on all sides of this issue,” said Douglas Ring, senior partner at the Century City law firm Gold, Marks, Ring & Pepper. “I don’t think at this point anyone knows how the issue will be resolved.”

Complicating matters, says Latham & Watkins partner George Mihlsten, are questions about the legality of the new proposals based on the Sherman Antitrust Act and California development laws. The CRA wants to act as both a fee collector and air bank at the same time, Mihlsten said. Such a dual role, he said, has prompted many private landowners to cry foul over unfair competition.

The CRA has a half-interest in more than 6 million square feet of excess development rights unused by the one-story Convention Center expansion. Downtown building owners worry that developers will get muscled into buying only from the CRA and exhausting its bank of air rights before any private transactions are allowed.

Last month, the CRA agreed to acquire 65,000 square feet in excess development rights for resale at its discretion.

Ira Yellin, owner of the historic Million Dollar Theater and low-rise Grand Central Market on Broadway will soon receive a check for $2.6 million, or the equivalent of $40 for every square foot of air sold.

In reality, said David R. Garcia, a deputy administrator at the CRA, Yellin is getting $5 a square foot for the density. Because Yellin plans to restore his properties, however, the CRA is kicking back to him the public benefit surcharge it plans to levy on any developer who wants to buy the excess density.

“We don’t envision doing this in the future,” Garcia was quick to add. “This transaction was a unique one.”

As to the CRA’s dual role as a broker and fee collector, Garcia sees no problem.

City law forbids transfer of density rights over an imaginary line drawn along 8th Street. This, he says, means that air rights appurtenant to the Convention Center could only be used south of 8th Street, and developers looking to build to the north would have to find a private seller anyway.

Such an arrangement, he added, eliminates any conflict of interest for the agency north of 8th and allows planners to engineer the revitalization of the Convention Center area, better known as South Park.

Further, Garcia said, projects south of 8th Street will end up paying less for development rights and less of a fee to the CRA. That, he reasons, will work to ensure that development does not get concentrated in the city’s already congested financial center. Land in South Park currently sells for $100 to $120 a square foot, or about one-fifth of the current price for land just a few blocks to the north.

Other features of the proposed CRA plan include exempting density transfers of less than 50,000 square feet and the transfer of density between commonly owned parcels. If approved, the proposal would also provide historic building bonuses to encourage rehabilitation.

Such carrots, says Lillick & McHose senior real estate partner John Whitaker, are “essential to the viability of historic buildings in Los Angeles.”

City Councilman Ernani Bernardi remains unconvinced, however, “I would like to see density transfers completely banned,” he said. “I’m unalterably opposed.”

Air rights just provide an excuse for over-development, Bernardi charges. And, he said, “It will bring lots of money to the CRA but not to the city.”

While unwilling to suggest any compromise, Bernardi predicted that his City Council colleagues will “rubber stamp” the current proposal when it comes up for a vote this fall.

LOCAL LEASES Tokio Marine Office Moving to Pasadena Local leases: Tokio Marine Management Inc.--the U.S. manager for Japan-based Tokio Marine & Fire Insurance Co. Ltd.--will relocate next spring from downtown Los Angeles to 61,000 square feet of leased space at Pasadena Towers.

Tony Acerra of Jones, Lang, Wooton Realty Group represented the lessee, while Pasadena Towers owner Ahmanson Commercial Development was represented by Adrienne Lang. The 10-year deal is worth an estimated $18 million.

Along the Miracle Mile, Thompson Recruitment Advertising is leasing 28,000 square feet of office space in the 28-story, 6500 Wilshire building for 15 years in a transaction worth up to about $14 million.

Toshiba America Information Systems Inc. signed a 12-year lease valued at $14 million for a just-completed 126,500-square-foot office building in Irvine’s O’Donnell Business Complex. Craig Lyon of the Seely Co. represented Toshiba in its lease negotiations, while developer O’Donnell, Armstrong & Partners Inc. represented itself.

The State Bar of California signed a $13.5-million lease for office space at Security Beaudry Center--just west of the Harbor Freeway in downtown Los Angeles. The group plans to ultimately occupy 120,000 square feet during its seven-year lease. Eugene F. Page III and William H. Atha of the Faulkner Co. represented master landlord Security Pacific Bank. Grubb & Ellis Commercial Real Estate Services represented the State Bar.

Architecture firm Chaix/Johnson signed leases recently for two Westside venues for a total of $6.67 million. The firm is leasing 15,000 square feet at 1850 Sawtelle Blvd. for five years and another 15,000 square feet at 1850 Sepulveda Blvd. for 10 years. Chaix/Johnson is designing a new building to replace a 4-Day Tire Store now at 1850 Sepulveda. CitiPacific Commercial Real Estate Services represented the tenant, while Coldwell Banker represented landlord, L.A. Land Co.

L.A. Gear Inc. signed a five-year, $4.5 million lease for a 250,000-square-foot facility adjacent to the Ontario airport. The Marina del Rey-based maker of athletic footwear and apparel plans to use the space as a warehouse and distribution center. Steve Glusker of The Klabin Co. represented L.A. Gear, while Bill Heim of Cushman & Wakefield of California represented landlord SDC Development of Newport Beach.

Costa Mesa Mall Sells to Illinois Teacher Fund

Sale of The Costa Mesa Courtyards shopping center for $38.75 million was announced by Bonutto-Hofer Investments and Dover Investment Properties of Newport Beach. Buyer of the 170,000-square-foot center is the Teachers Retirement System of the State of Illinois.

Also sold recently was a 189,000-square foot multi-tenant industrial building at Gardena’s Lincoln Business Center. Buying was Grubb & Ellis Realty Advisors; selling was Lincoln Property Co. of Irvine.

Alton Square Mall Under Construction

Alton Square Shopping Center is now under construction on an 11.5-acre site at Jeffrey Road and Alton Parkway in Irvine. Responsible for the 120,000-square-foot, $18 million project are The Irvine Co. and SDC Development. Occupancy is set for summer 1990.

Another new shopping center reports completion: Foothill Village Shopping Center in Rancho Cucamonga. Nu West Cos. of West Los Angeles is developing the 87,500-square-foot, $15 million project.