July 11, 2013 - From the July, 2013 issue

Plaintiff Yuval Bar-Zemer Challenged LA City ‘Arts District’ BID, and Judge Ordered Dissolution

Yuval Bar-Zemer is co-owner and developer of the 7+Bridge Lofts in the Arts District of Downtown LA. He was also a principal in the lawsuit against the Arts District Business Improvement District, which was recently decided in favor of the plaintiffs, resulting in the dissolution of the BID. Following a June TPR interview with Central City East’s Estela Lopez, Bar-Zemer discusses why he participated in the case, his reaction to the decision, and how the neighborhood will fair in the absence of the BID.


Yuval Bar-Zemer

“There’s no way the BID can represent everyone, so don’t pretend that you’re doing it for everyone’s benefit. That’s how the ruling came down, and I think it’s very appropriate.” -Yuval Bar-Zemer

Yuval, in May of this year, LA Superior Court Judge O’Brien ordered the City of Los Angeles’ Arts District Business Improvement District to dissolve as a result of a lawsuit that you, among other plaintiffs, brought. Share your reaction to “winning.” 

Yuval Bar-Zemer: Well, I alone, as you noted, didn’t bring the lawsuit. It was brought on by a number of entities of which I was one of the principal. I am a property owner in the Arts District, and Leonard Hill and myself own the project at 7+Bridge. Frank Novak owns a property across the street called Modernica, which is a larger property than ours. The lawsuit also included the two homeowners associations of the Toy Factory Lofts and Biscuit Company Lofts, representing a total of 225 homeowners. So it’s actually a pretty significant group of property owners in the neighborhood. Numerically, it’s about 25 percent of the voting members, not in weighted vote, but in the actual number of  property owners. 

As for my reaction, this group is obviously happy to be on the winning side things. We feel bad that due to what I would call the “stubbornness and arrogance” of the defendant, this matter was not resolved as early and as easily as it could have been—without wasting everyone’s time and energy. But, you know, every side makes their decisions, and this is what the end result looks like.  

Did you and the other plaintiffs anticipate that the judge’s order would result in the dissolution of the City of Los Angeles’ Arts District BID? 

When this entire thing started two and a half years ago, the initial complaint was basically that something was done wrong in the process of establishing the ADBID. We thought at that point that both the City and CCA would resolve it, and they chose not to. So what started as asking for an injunction and restraining order—which was granted—turned into a long litigation. We didn’t anticipate being drawn into this lengthy fight, but, unfortunately, we didn’t have a choice. It could have been resolved. We had to do whatever we had to do to defend our position. 

The court, ruling against plaintiffs, affirmed that voting in support of the Arts District BID was consistent with the state and city laws. However, the court did find in your favor regarding the BID’s unlawful allocation of special and general benefit—hence his decision to dissolve the BID. Can you elaborated on what should be the appropriate allocation of Arts District BID’s general and specific benefits? 

There were a number of complaints filed together (the special and general benefits being one of them), and oddly we actually expected to get a couple others ruled in our favor, but we didn’t. I still strongly believe that the court erred on that as well. 

In regards to special and general benefits, we went through three separate judges. The first judge did the restraining order; the second judge that made the initial decision; and Judge O’Brien made the final decision. They all got it right away: the Arts District is a very unique environment with a very eclectic constituency. 

If you had been at the court when the second judge talked about his decision, he asked, “Is this the area where there’s artists, some cold storage, some retail?” and so on, and I said, “Yes, that’s it.” He understood right away that there’s no way for this very diverse group of constituencies to have someone out there saying, “OK, we’re going to do business development.” How do you do business development that serves condo owners, the cold storage guy, and the guy with a vacant lot who recycles metals? It was clear that all these activities—business development, PR, promotion—did not really serve everyone. It’s different from Little Tokyo’s BID, which is a business BID, or Westwood, places where the constituency is pretty much the same—commercial/retail businesses—while in the Arts District is a mixed bag of uses. There’s no way the BID can represent everyone, so don’t pretend that you’re doing it for everyone’s benefit. That’s how the ruling came down, and I think it’s very appropriate. 

By the way, it’s not relevant to other BIDs. Everyone is asking if this is a precedent. It is not a precedent because in Westwood 80 percent of the people being taxed are retailers or commercial businesses. They can have a program that promotes the businesses, and so on. I don’t see a problem with that, and neither would a judge. 

Your personal opinion on judicial precedent is, you would agree, just your opinion. Might not other BIDs be anxious and concerned? 

Every neighborhood can challenge its BID, but this decision is specific to the Arts District, based on the evidence that we provided—it’s not a general opinion. The whole area has ten restaurants; it’s not a heavy retail area. It’s a very mixed area, and people recognize that, other than cleaning the sidewalk and keeping it safe, you cannot come in and say “I’m representing all of your interests by doing whatever I’m doing.”

You made a distinction that BIDs are one-of-a-kind and thus most, if not all, can escape the significance of Judge O’Brien’s decision. Elaborate? 

I think truth is going to show quickly. In other words, whether one likes the court’s decision or not, it clearly created a void. In other words, there was an organization that, in our opinion, imposed its theory of what a BID should be, and got pushed out. Something is going to fill that void; that something could be a BID, a community benefit organization, or some other group that would better reflect what the needs of the neighborhood are. 

I think other BIDs are going to look at what happens in the Arts District 18 months from now, and they’re going to see something new taking the old organization’s place. I don’t know exactly how to describe it; it’s not my responsibility. I can be part of it but not manage it. It would probably be managed by a nonprofit organization created by people in the neighborhood, and it would better reflect the changing nature of the neighborhood that obviously has an increasing loft component to it with more retail and commercial activities coming in because of that. As it changes, it’s going to change its goals, and I’m sure it will be more than just “clean the street,” but it probably won’t spend so much money on safety because safety won’t be an issue. 

Will you and your fellow condo and restaurant owners miss having the services of a BID? 

Personally, I don’t miss having a BID. I think property owners in Biscuit and Toy never got into the BID because they were delivering all the services of the BID themselves before the BID was in place—they were cleaning the street, had 24-hour security, etc. We don’t need anyone promoting business here, so that’s why when the vote came, out of 225 homeowners, I think 13 wanted a BID—less than 10 percent. 

In general, among the property owners in the district, I think there are definitely a lot of people who are going to ask, “Who’s cleaning the sidewalk now?” because the city is not doing its basic duties. I’m sure there’s going to be pressure to take care of this level of services. I don’t think anyone is going to be missing business development, marketing, branding, but I’m sure there will be some level of grass root organization that will at least try to take care of the janitorial aspect. 

To follow up, elaborate on how demand for space east of Alameda is and will change the Arts District over time. 

In the pipeline, the amount of units being built will close to triple the population here. So that’s obviously changing the balance. There used to be a guy who owned a warehouse and lived, say, in the Valley. Now the warehouse has been redeveloped, and instead of this one guy there’s 350 individuals, voters, who will change the demographic and political balance. Even though in total they represent 20 percent of the property valuation, they are a very vocal group, and I’m sure they’re going to organize and get what they want to get out of this neighborhood. 

Yuval, you and Leonard Hill were smart to convert industrial zoned properties in what we now call the Arts District into a quality residential environment, against, to be sure, the wishes of LA’s CRA and city planning leadership, who wanted to preserve the less than four percent of city zoned for manufacturing. Having overcome city opposition to any up-zoning, it’s curious that you now lead the charge to rid the Arts District of the BID, the insurance for those betting on the promise of a livability in an industrial zone.

I’m not clear on the connection between the BID and the first statement. 

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From reading prior TPR interviews, CRA and city planning opposition to up-zoning centered on their belief that conversion of industrial zones to residential would result both in industrial uses becoming uneconomic, and that a growing residential population’s demand for environmental quality and public services would in time undermine efforts to preserve manufacturing practices in LA. 

This is an old quotation that I used to hear from the late Mr. Kaiser about how residential development in the suburbs costs so much, and there’s never the tax revenue to support the infrastructure and what it creates. Infill and adaptive reuse inside the core of the city is a completely different story. Taking buildings that have lost their viable use and adapting it to a new viable use is the way the city improves. This is not displacement of a 250,000 sq. ft. Ford manufacturing plant to convert to residential. This is a building that stood half-empty, underutilized, with dangerous conditions. We made a mixed-use project that created 250 to 1000 percent more employment than what used to be here. So to say, “You’ve displaced the industrial”—I don’t buy that. I don’t think we’re talking about the same city. 

Is it that you don’t think the Arts District should still have been zoned for manufacturing? Or that you don’t believe in the need for zoning in Los Angeles? 

When you say manufacturing, industry to me is jobs of people creating something, and we’re doing that more successfully than any time in the past in this district. If you come and count how many jobs there are and what people are doing in the Biscuit and Toy Factory lofts, I would be able to show you that we added approximately 250 jobs that were never here. In its heyday, the Toy Factory had maybe 50 underpaid employees. 

Is an up-zone incentive for developers appropriate if the City’s desire is to assure land and workable regulations for manufacturing in its increasingly scarce industrial zones?  

Again, when you say you want to protect industrial zones, I think what you really want to check is what is the bottom-line benefit to the neighborhood and to the city. Let’s say you have a 10,000-square-foot industrial property and it’s a shipping and receiving and warehousing system, and they have 15 employees working there. I would say that’s about 80 percent of the industrial properties we have now. We have a lot of wholesalers... 

You’re comparing and contrasting what has been the condition for the last two decades in this East of Alameda under-developed, unmaintained, older industrial area. But if City wished to attract a logistical operation to service the port and expand exports and trade, which was the promise of a CRA proposal that was blocked, an entirely different set of uses would be at risk. 

You’re asking me to chose between theory A and theory B…

Los Angeles, simply put, now, like most zoned jurisdictions, has in place a set of land use rules that reward a developer who is able to up-zone industrial land to residential use. True? 

I know what you are saying, and you are trying to portray the entity that did the conversion as someone that is capturing value. 

Of course they are because no one would do anything unless they were capturing value. So if you want to create any type of development, the only way to do it is to capture value. No one would build an industrial building unless it could capture value. So nothing is going to work if we decided to subsidize or force something against the market forces. All I’m saying is, obviously, someone is capturing value; if not, nothing would happen. 

But what would be the end result from the city’s perspective? One would say ok if we’re not going to develop industrial properties then we won’t have jobs. I’m saying, you can create a new category of land use that is live-work, which legitimately allows people to run a business out of their residence and have a mixed-used component that makes it a very liveable and green environment. The city actually benefits out of it. 

If you look at what happens to the property taxes, which the city and county count on for revenues, and which sustain our school system—take an example like Toy and Biscuit—you take the combined assessed value that used to be about $3 million and you turn it into $120 million.  The tax being collected changed from $30,000 to $1,200,000 every year. A 4000 percent increase. That works to the benefit of the city. The 20 streetlights that were put in, the 15 trees that were planeted, and new sidewalks that were built, the actual safety that was created by the presence of people in the neighborhood, without the need of a BID, works to the benefit of the city. 

Up-zoning comes with a price tag for cities: the cost, for example, of adding residential city services such as bus lines, emergency services, public safety and  schools? Not so? 

Well if you show me a bus line or school that were added…

Candidly, won’t new Arts District residents seek and demand such public services, services more costly than those provided to the heretofore industrial zoned properties?  

I hope we see that because I pay a lot of school fees that I haven’t seen back…

The question is, people have to live somewhere. What is beneficial for the overall picture of the city? Bringing them to the center of the city or sending them to the suburbs? High-density, vertical growth is the right way for the city, and we can differ in our opinions.

To close what TPR hopes will be an ongoing conversation as the City of LA rewrites is zoning codes, is there any hope of all involved in the Arts District BID dispute finding common ground?

Again, I’m one of about 230 homeowners, so I can give you my opinion, but everyone may have a different version. Whatever happened is history; it’s done; there’s a void. I think it is up to the people of the community to get organized and decide how they are going to shape their interests and fate for the future. I’ll be a big supporter of that as long as it’s a grass roots representation of the neighborhood and not a firm body that is imposing its idea of what a business improvement district is, and I think that’s the basic expectation of the majority of the neighborhood.

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