February 1, 2002 - From the February, 2002 issue

George Mihlsten On Development: Art Of The Possible

Can the current development climate in L.A. be blamed on 9/11? According to George Mihlsten, a Partner at the law firm of Latham & Watkins, it cannot. Mihlsten's assertion is that a rigorous and disjointed approval process continues to be the underlying factor hindering development and will continue to slow the region's economic development until it is addressed. However according to Mihlsten, that fact has the possibility of changing as L.A.'s Mayor begins to flesh out his agenda and make some key appointments. TPR is pleased to present the following interview.

George, September 11th clearly exacerbated the effects of a slow down in the national as well as regional economy. What are you hearing from the commercial, residential and industrial marketplace re: the impacts of this recesssionary climate on their plans going forward?

There are really only two kinds of developers in L.A.: 1) Those who have land interests in the city and have no choice but to spend the requisite time to develop a project in L.A.; and 2) Developers who have looked for opportunities to develop but are reticent due to the complexities of the L.A. approval system. Because of that, we simply haven't seen any significant projects in the pipeline over the last six or nine months.

That lack of development, compounded by the events of 9/11, will most likely continue through the first, second and perhaps even third quarters of 2002. The only major projects that we've seen progress are those that have a two to five year timeframe.

When Dick Riordan came into office more than eight years ago, it was to turn the Los Angeles around and make it friendly for economic development. What, in your opinion, is the essential message of the new Hahn Administration, especially re: real estate development?

The Hahn Administration is currently putting together their game plan for economic development. And according to the recently released report from the Mayor's Economic Task Force, one of those goals will be to streamline the development process. That item is critical to the success of development in the future.

But in order to implement such a plan, a Director of Economic Development is a necessary appointment. And hopefully that item will be taken up by the Administration in the next several months. That will go a long way to proving to the private sector that economic development is a priority to this administration and the city.

Another key position will be the Mayor's choice to succeed Frankie Banerjee as the new GM of the Dept. of Transportation. If he appoints someone with vision-someone who can address traffic, yet see the larger picture of mobility-he will go a long way toward setting the tone for economic development in Los Angeles. Those two appointments will be very significant as the Mayor's agenda unfolds.

Regardless of how he fared re: implementation, Mayor Riordan always tried to send a very consistent and clear business friendly message. What's the essential L.A.message emanating from City Hall today?

The message hasn't really been quantified yet. But again we can take cues from the recommendations that came out of the Task Force's Report as to where the administration will be headed.

Unfortunately, there really haven't been any development projects on the horizon for the Mayor to key off of. However, I do see some projects coming down the pipeline which could offer the Mayor a chance to demonstrate the importance of economic development to his agenda.

One of those projects will be the new ABC Entertainment Center in Century City. It is a $250,000 investment in Century City; it will represent several thousand new construction jobs; and it will translate into a major new employer for Los Angeles.

That project-combined with the Mayor's continued support of Playa Vista-is just the beginning of what could be a watershed of opportunities for the Mayor to demonstrate the importance of economic development in the City. What happens with those projects should be an important signal for what the future will hold for the City of L.A.'s economic development agenda.

More housing production was part of Mayor Hahn's campaign for Mayor. Small quantities of housing are now being built, yet the demand for housing is in the hundreds of thousands of units. What do you foresee happening on the housing front, given the fiscal challenges to the state and localities as a result of 9/11?

Housing is one of the critical issues that we face in the city. But I don't think the problems of that market will be solved by a trust fund. In fact, I personally believe that a housing trust fund will be counterproductive to the economic viability of the city and may drive out more economic development than it produces. I'm not convinced that it will end up doing much to support housing in the City.

Remember that we have to produce 100,000-200,000 housing units over the next five years. That's not going to happen in 16- and 32-unit complexes or by small developers. It is going to happen because large-scale housing developers want to build here. Right now, we need to find out what the real impediments are to development within the City, find ways to get large market developers here and then find out how we keep them here. That's what will make a real difference in how we address the housing crisis.

For the last eight years development opportunities have been discussed as merely economic transactions-one project at a time. The notion of integrated city planning appears to be without a champion. What needs to happen to encourage leadership to move beyond a transaction by transaction discussion and begin to see how development projects might be leveraged to result in building more livable neighborhoods & communities?

Term limits have encouraged a real lack of long-term vision and getting past that will be critical for this municipality. There have been efforts in the past to find a long-term vision, but they simply floundered.

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Unfortunately housing economics, land prices and the entitlement process continue to be major impediments to development. And the development community is reluctantly caught in a Catch-22 where many residents within the city do not want to see increased density. At the same time, when you go out to the outlying areas, the environmentalists don't want to see development. The result is a net zero sum of housing development in the City. Until we address that fundamental issue, it is going to be very difficult to see any significant change in the dynamics of the housing market in Los Angeles.

What we need is leadership-leadership from the Mayor, the Council and even the Neighborhood Councils. They need to define a long-term vision for communities. They need to educate people so that they understand the importance of economic development, housing development and transportation planning. And once they've done that, once they've solidified that vision, they must translate that exercise into implementable action.

Your firm represents clients who do economic development, housing and urban planning. Give our readers a sense of what that vision should include, especially regarding infill.

Infill projects are difficult. Only those who are not faint of heart are willing to even go through that process. First, developers must be sure that the economics of the project can support spending anywhere from two to five years going through the development process. Not to mention that if they don't satisfy every constituency they're going to spend and additional one to three years in court. That paradigm doesn't bode well for the future of L.A.

Somebody's going to have to tackle that issue and shorten the current approval process. If we're going to create jobs for the citizens of L.A., we're going to have to recognize that it's going to take streamlining the development process, giving certainty to the developers and protecting communities. That means not merely finding a way to streamline large-scale projects but all projects from transportation to parks and schools.

And that last issue is probably the greatest looming issue for L.A. It impacts not merely our children, but the viability of our neighborhoods. If people aren't able to find quality educational opportunities for their kids, they will move to places where they can find them. And that will further degrade the employment base in the region.

The largest developer in the Los Angeles basin is LAUSD, with a mandate to build more than 100 schools. If you were writing a memo to Superintendent Romer on what they might do better to both fulfill their mandate and improve the livability of the neighborhoods in which they serve, what would it say? What would be in that memo?

We need to take a serious look at why the school district is even in the business of building schools. If you look at the history of school construction-particularly here in L.A.-the District's ability to develop schools is poor. In order to build more schools, perhaps a new model should be explored.

One idea would be the creation of a school development corporation with the overarching goal of creating new schools and looking for opportunities to help school construction standards evolve. To continually follow the same cookie cutter model for the development of urban schools simply doesn't recognize the realities of land and the dynamics of urban vs. rural areas.

Educators are not in the best position to be developers. And they're definitely not equipped to maximize opportunities. Because of those reasons the school construction function should be separated from their mission.

What can we learn from the other jurisdictions that make-up the Southern California region? Which municipalities and local jurisdictions are doing the best job of partnering with development interests to improve both economic vitality and liveability?

I've worked in Riverside, San Bernardino, Orange, L.A. and Ventura Counties. And while every area has its own unique issues and problems to grapple with, each city must begin to look towards public-private partnerships. The city of Anaheim is a fabulous example of the endless possibilities of what partnerships can offer. They were able to leverage the economics of the Disneyland area, create a completely new urbanscape and provide new parks and infrastructure for the entire city. Those kinds of economic development partnerships will be critical as we look back to our urban core for development.

Last question. George, people have talked about the advantages of public-private partnerships for decades. But they seem to be exceptionally difficult to make work. What gets in the way of the fulfillment of the vision of these public-private partnerships?

One of the things that Anaheim, Pasadena and others have shown is that you've got to be a bit of a risk-taker. You've got to be entrepreneurial. And you've got to be streamlined. That risk is something that the Council and Mayor usually avoid in the City of L.A.

If we hope to reinvest and reinvigorate this City, the Council and the Mayor must take a hard look at those kinds of opportunities, even if they are risky. Without them, we'll unfortunately be stuck with a growing population and no job base to support them. It's going to be a challenge for the Council to find a common vision with the Mayor. But that vision will mark the beginning or the end of this City.

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