Public Real Estate: The County As Developer

The County of Los Angeles - like most public agencies in California - faces a revenue squeeze that becomes more acute as time passes. Developing under-utilized County owned properties provides an increasingly important way to generate revenues to support County services.

In 1982, the County sought and obtained state legislation providing for the ground lease and development of land which would otherwise be sold. Under AB912, the County can enter into a ground lease with a developer while retaining title to the land. The ground lease spells out the project scope, the development schedule and the financial terms. The financial terms typically provide for the County to receive a guaranteed income stream as well as a share of the profits.

Ground leases are advantageous to the County because lease revenues return significantly more money over time than does income from fee sales. The County also takes over both the improvements and the land upon the termination of a lease. With the development scope specified in the ground lease, the County has an increased measure of land use control.

Yet the County of Los Angeles is not unlike any private developers in the development process. A bevy of staff and consultants work to identify feasible projects, formulate development scopes, negotiate contracts and seek development approvals from responsible jurisdictions.

By policy, the County subjects itself to the same review and approval process as must any private developers. This policy presents many challenges. While the County owns properties in prime locations, many of those same properties do not have the development rights associated with the highest and best use. Furthermore, local jurisdictions facing slow growth pressures are increasingly vigilant about their remaining open space and under-developed areas. Some jurisdictions are down-zoning publicly owned land as a way of preserving open space.

It is in this context of restricted development rights and down-zoning that the County seeks project approvals. Not all County land can be developed - even if it is located in a hot real estate market - due to local resistance. But there are many projects that have overcome zoning and plan restrictions because of the conditions specific to a site and its environment. What follows are two success stories: one because of the economic benefits that would accrue to the community and the other because of the environmental improvements that would result from the development.

Perez Industrial Park, a seven acre industrial park, is the result of cooperative efforts between the County and the City of Baldwin Park Redevelopment Agency. The project came about because the County identified a portion of a facility yard which could be used for industrial development. At the same time, the City was looking for ways to enhance its tax revenue base.

In order for the project to proceed, the portion of the property designated for open space in the City's General Plan and Zoning Map had to be changed to industrial use. In addition, a tract map was needed to legally separate the industrial development parcel from the rest of the County property and to eliminate property lines attendant to two adjacent remnant lots acquired as part of the development site.

With the assistance of the City, the County filed for and obtained a zone change, a General Plan amendment and a tract map necessary for the industrial development to take place. The approval process went forward with extreme ease because the County included the City as a partner very early on in the process. With the completion of the project, the City stands to gain 240 jobs and to increase the property tax base by six to seven million dollars.

Another example is Del Aire, the thirty acre office park located in an unincorporated area near LAX. The site was acquired by Caltrans as a construction staging area for the Century Freeway. It was zoned as a low density residential area. The County's Economic Development Corporation (EDC) bought the property from Caltrans in order to develop a one-million-square-foot-plus office park. 

Obtaining the development approval for the project was the first order of business and a formidable challenge. The EDC and its consultants were able to change the zoning from R-1 to MPD (manufacturing planned development zone). In addition, a conditional use permit and a parcel map were approved as part of the development approval package. In the end, the County's Planning Commission approved a maximum development of 1,500,000 building square feet.

This success story is due to the circumstances surrounding the site as well as the intelligent design responses to area residents' concerns. The site had been vacant for over a decade and was the scene of teenager beer parties and illegal dumpings. The surrounding neighbors were frankly relieved to hear that the site would be cleared for development. As the development concepts were introduced to the area residents, design changes were made to address the traffic and visual impacts that the project would have on the neighborhood. Several streets were closed from the main arterial to prevent business traffic in residential neighborhoods. A forty-five foot height restriction was imposed on buildings near residential properties. Due to the developer's willingness to respond to the resident's input, the project when completed will enhance the physical environment in the area. In addition, the County will receive significant amounts in ground lease revenues and property taxes.

In the face of growing fiscal constraints, the County of Los Angeles and other public agencies are looking to their under-utilized real estate assets for revenues. This concept is not without controversy, however, because it frequently pits the public landowners' right to realize profit from that ownership against the public desire for growth limits and open space. This tension of competing public goals may be alleviated by delivering desired public benefits along with the development, i.e., economic development, physical improvements, and social services can be included in the development package. In many cases, public development projects - sensitively planned - can enhance the communities in which they take place.