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( o 11 uni y te r, " Agency oft be CI TY OF LOS ANGEL ES

CRA/LA DATE I JAN 2 1 2010 Building communities

354 South Spnng Street Suite BOO Los Angeles 1 California 9001 3-1258

T 213 977 1600 ' F 213 977 1665 www.crala.org

Honorable Council of the City of Los Angeles John Ferraro Council Chamber 200 N. Spring Street Room 340, City Hall Los Angeles, CA. 90012

Attention: Alan Alietti, Office of the City Clerk

COUNCIL TRANSMITTAL:

CRAFileNo. ~ Council District: ~ Contact Person: David Riccitiello

Jenny Scanlin Christine Kalamaros (213) 977-1710

Transmitted herewith, is a Board Memorandum adopted by the Agency Board on January 21, 201 OCity Council review and approval in accordance with the "Community Redevelopment Agency Oversight Ordinance" entitled:

VARIOUS ACTIONS RELATED TO:

PUBLIC HEARING AND AUTHORIZATION TO EXECUTE A DISPOSITION AND DEVELOPMENT AGREEMENT WITH PACIFIC CENTER PLACE, LLC FOR DISPOSITION AT NO COST AND DEVELOPMENT OF A VACANT MANUFACTURING SITE LOCATED AT 812 EAST 59TH AND PROVIDE UP TO $750,000 FOR REHABILITATION OF THE IMPROVEMENTS IN THE COUNCIL DISTRICT NINE CORRIDORS SOUTH OF THE SANTA MONICA FREEWAY RECOVERY REDEVELOPMENT PROJECT AREA DOWNTOWN REGION (CD9)

RECOMMENDATION That City Council approves recommendation on the attached Board Memorandum.

ENVIRONMENTAL REVIEW

The recommended action is categorically exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15301 (a) and (d) and Section 15330 of the CRA/LA CEQA Guidelines.

FISCAL IMPACT STATEMENT There is no fiscal impact to the City's General Fund, as a result of this action.

Calvin E. Hollis, Interim Chief Executive Officer

CRA 'LA Building communities

Page 2 Council Transmittal

cc: Alan Alietti, Office of the City Clerk (Original & 3 Copies on 3-hole punch) Lisa Johnson Smith, Office of the CAO lvania Sobalvarro, Office of the CLA Bud Ovrom, Office of the Mayor Larry Frank, Office of the Mayor Steve Ongele, Office of the Mayor Helmi Hisserich, Office of the Mayor Noreen Vincent, City Attorney's Office Jan Perry, Councilmember

THE COMMUNITY REDEVELO. ENT AGENCY OF THE CITY OF LO~ j\JGELES, CALIFORNIA

Ill. MEMORANDUM ·

REVISED RE Section as underlined Background Section as underlined

DATE: JANUARY 21, 2010 C92170

TO: CRA/LA BOARD OF COMMISSIONERS

FROM: CALVIN E. HOLLIS, INTERIM CHIEF EXECUTIVE OFFICER

RESPONSIBLE PARTIES:

SUBJECT:

COMMITTEE REVIEW:

DAVID RICCITIELLO, REGIONAL ADMINISTRATOR JENNY SCANLIN, PROJECT MANAGER CHRISTINE KALAMAROS, SR. REAL ESTATE DEVELOPMENT AGENT

PUBLIC HEARING AND . AUTHORIZATION TO EXECUTE A DISPOSITION AND DEVELOPMENT AGREEMENT WITH PACIFIC CENTER PLACE, LLC FOR DISPOSITION AT NO COST AND . DEVELOPMENT OF A VACANT MANUFACTURING SITE LOCATED AT 812 EAST 59TH AND PROVIDE UP TO $750,000 FOR REHABILITATION OF THE IMPROVEMENTS IN THE COUNCIL DISTRICT NINE CORRIDORS SOUTH OF THE SANTA MONICA FREEWAY RECOVERY REDEVELOPMENT PROJECT AREA DOWNTOWN REGION (CD9)

LOAN COMMITTEE, NOVEMBER 24, 2009

RECOMMENDATIONS

That the CRA/LA Board of Commissioners:

1. Hold a Public Hearing as required by Health and Safety Code Sections 33433, 33431 and 33444.6 regarding the proposed disposition of 812 E. 591

h Street (the "Property") at no cost and the proposed financing of-facilities or capital equipment in connection with the proposed rehabilitation of the Property;

2. Request that the City Council hold a public hearing pursuant to California Health and Safety Code Section 33433 regarding the proposed disposition of the Property;

3. Find, based on the information set forth in the Section 33444.6 Findings Report attached to this Board Memorandum, that the rehabilitation of the facility is necessary for the economic feasibility of the Pacific Center Place Project and that the assistance cannot be obtained on economically feasible terms in the private market;

4. Adopt, and request that the City Council adopt, a Joint Resolution authorizing the sale of Property and making certain findings pursuant to Health and Safety Code Section 33433, and find that: (i) the proposed Pacific Center Place development ("the Project") will assist in eliminating blight; (ii) the Community Redevelopment Agency

PACIFIC CENTER PLAC, _LC 2

of the City of Los Angeles ("CRA/LA") sale of that property is consistent with the FivE! Year Implementation Plan for the Council District Nine Corridors South of the Santa Monica Freeway Recovery Redevelopment Project; {iii) the consideration to be received by the CRA/LA is not less than the fair re-use value of the Property in keeping with Health and Safety Code Section 33433 and request that the City Council adopt the Joint Resolution; and

5. Authorize the subordination of the CRA/LA Deed of Trust and Covenants to the Community Development Department's Section i 08 Loan of $2.2 million.

That the CRAILA Board of Commissioners, subject to City Council review and approval:

6. Authorize the Chief Executive Officer or designee to execute a Disposition and Development Agreement with Pacific Center Place, LLC for development of the Property and to take such other actions as may be necessary to carry out the transaction; and

7. Authorize the Chief Executive Officer or designee to execute a revised Implementation Agreement with the Community Development Department granting $2,566,271 for the acquisition costs related to the original purchase of the Property located at 812 E. 59th Street, Los Angeles CAin July 2007.

SUMMARY

The recommended actions will allow for the execution of a Disposition and Development Agreement ("DDA") between CRAJLA and Pacific Center Place, LLC, a California Limited Liability Company ("the Developer"), for the remediation, rehabilitation, management and leasing of a 47,500 square foot vacant light manufacturing facility located at 8'12 East 591

h Street (the "Project", See Attachment A). This Project will further the CD9 Project Area's goals of attracting private investment and cultivating industrial manufacturing activities and jobs in the Goodyear Industrial Tract. The Developer will engage in a $3.2 million rehabilitation and remediation of the property to develop the site into a first class sewing and garment manufacturing facility. The Developer has executed a letter of Intent with D & J Sportswear Corporation for a ten year lease to relocate and expand their cutting and finishing facility currently located in Southgate to the City of Los Angeles. D&J Sportswear Corporation will begin operations with 30 employees but anticipates employing up to 7 4 full-time staff on site within the next five years.

The Property, zoned M2-1, is 47,500 square feet in size and is improved with two single-story industrial buildings that include shared front offices and a loading dock. The existing structure is in very poo1· condition and was previously owned and occupied by Plastopan, a manufacturer of plastic refuse and recycling containers, with approximately five employees. Due to economic hardship the company had chosen to close down their operations at this Property and sell the site. In July 2007, CRA/LA acquired the Property with $2,566,270 in CDBG funds and $'142,000 in tax increment as part of a larger effort to address economic and physical blight in the Goodyear Industrial Tract. A Phase I and ll Environmental Site Assessment of the brownfield conditions of the Property found that contamination exists under the buildings. As part of the rehabilitation of the property the Developer intends to remediate the contaminated conditions on site.

ThEf economics. of the Project are analyzed in the Health and Safety Code Section 33433 Summary Report provided as Attachment C to this Board Memorandum and include: a reduction in land value since the original purchase of the property evidenced by a recent fair

PACIFIC CENTER PLACE, _C 3

market value appraisal; an estimated $400,000 remediation ·effort to clean the Property; extensive rehabilitation and building systems development due to lack of prior investment on behalf of the prior owner and recent vandalism; an NOI based on $.58 rent per square foot; and a Section 108 Loan of $2.2 million with a 6.25% interest rate lock. The Fair Reuse Value of the Project at $0 or negative $523,000 is based on the difference between the Project's estimated development costs (including an appropriate Developer profit recognizing the risks anticipated for the Project) and the Project's anticipated revenue. In addition to the fact that the required investment necessary to make the Property leasable is much higher than the potential improved value of the Project once fully rehabilitated, the DDA imposes extraordinary public benefit obligations on the Project. Specifically, the Developer must pay prevailing wage to all contractors and subcontractors employed to rehabilitate and construct the Project, repayment of a $2.2 million Section 108 Loan, hold the Property for a minimum of five years, require the tenant to pay living wages for 50% of their employees and to make a good faith effort to provide living wages on 70% of the total jobs on site, utilize a hiring practice that includes a method for ensuring local hire for permanent jobs, and provide for repayment of a portion of the CRA/LA loan and. profit-sharing if the property is sold before meeting their service repayment requirement on job production. The extraordinary public benefit provisions reduce the value of the Project Site from $2,600,000 at the highest use allowed by the Site's zoning and the requirements imposed by the Redevelopment Plan, to establish the Fair Reuse Value of negative $523,000.

Prior to entering into the DDA, which provides up to $750,000 in funding for the Project, the CRA/LA must make certain findings pursuant to Section 33444.6 of the California Health and Safety Code/Community Redevelopment Law (CRL) found in Attachment D to this Board Memorandum. The goals for the development of the Goodyear Industrial Tract are to expand businesses and create new ones, generate and retain jobs, stabilize and expand the industrial area and repair infrastructure. The proposed Pacific Center Place Project will assist in fulfilling the economic development goals of the CD9 Project Area in the achievement of a balanced business base, developing job opportunities for local residents and removing blight found in the condition of buildings and properties within the industrial areas. A financial analysis of the Project found the net operating income for the Project is estimated at $265,000. Given that the Participant is providing $2.42 million in investment, the resulting return on investment (ROI) is close to 10%. This ROI is at the low end of the typical range for industrial projects. In addition, the debt coverage ratio for the Project is 1.20 which is aggressive for this product type. Therefore it is concluded that obtaining additional funding sources at commercial lending rates from the private market is not feasible and the CRA/LA assistance is necessary for the economic feasibility of the Project.

The original 2007 Implementation Agreement between COD and CRA/LA anticipated a return of the $2.6 million investment in land acquisition within 30 months of the disbursement of funds. However, the Master Agreement under which the Implementation Agreement was executed allows the City Council to instruct COD to provide the funding as a grant instead of a loan. Given the economics of this Project, it has been determined that the Project cannot support this debt and therefore the CDBG funds must be granted in order for the Project to be feasible. The CRA/LA will still be responsible for all HUD CDBG compliance and reporting requirements and will ensure that these requirements are also transferred to the Developer in the DDA. The CRAILA Service Hepayment Loan of $750,000 will be combined with a Housing and Urban Development (HUD) Section 108 loan of $2.2 million and $221,000 developer equity to complete the transaction. In order to meet the HUD guaranty and underwriting requirements of COD, the CRA/LA loan will be secured with a Second Deed of Trust behind CDD. Once all

PACIFIC CENTER PLAC ... LC 4

funding is in place, ttle DE~veloper anticipates completing the remediation and rehabilitation wittlin nine months.

December 19, 2009 - Authorization to enter into a Disposition and Development Agreement with Pacific Center Place LLC for property located at 812 E. 591

h Street (No action taken)

March 15, 2007 - Authorization to Negotiate and Execute a Note and deed of trust for the amount of $100,000 plus closing costs in favor of Double E Investments, LLC as part of purchase price for property located at 812 E. 59th Street

March 16, 2007- Council Approval of Above Actions

November 16, 2006 - Various actions related to reprogramming of Community Development Block Grant Funds for Property Acquisition and Related Development Activities

December 20, 2006- Council Approval of Above Actions

SOURCE OF FUNDS

CD9 Project Area Tax Increment

PROGRAM AND BUDGET IMPACT

The recommended actions are consistent with the FY1 0 Budget and Work Program for the CD9 Project Area. There is no impact on the City's General Fund. Sufficient funds exist to fund this project and make any required SERAF payments.

ENVIRONMENTAL REVIEW

The recommended action is categorically exempt from the California Environmental Quality Act {CEQA) pursuant to Section 15301 (a) and (d) and Section 15330 of the CRAILA CEQA Guidelines.

BACKGROUND

The Project is located at 812 E. 59th Street, between Avalon Boulevard and South Central Avenue, within the CD9 Project Area. In addition, the Project is located within the Goodyear Industrial Tract (Goodyear Tract), the largest contiguous and self-contained industrial area in the City of Los Angeles, the 208-acre Goodyear Tract contains 281 industrial parcels that are owned by approximately 145 property owners, with at least 267 businesses currently operating. The neighborhood around the Goodyear Tract is for the most part residential in nature, with the larger east-west and north-south streets containing a mix of commercial and light industrial uses. The Goodyear Tract is with % mile of the Slauson Avenue Metro Blue Line stop and is served by two MTA bus lines. Revitalization of the Goodyear Tract is one of the primary redevelopment strategies for the CD9 Project Area. The Project is part of the Goodyear Industria! Tract Acquisition Program (Goodyear Program). The purpose of the Goodyear Program is to purchase, rehabilitate and re··tenant available properties within the Goodyear ~ndustrial Tract to revitalize a bli~Jhtecl industrial 81rea, assist in business expansion, Greate new jobs and bring new investment to the area. This project meets all of the goals of the Goodyear Tract Program.

PACIFIC CENTER PLACE, 5

In early 2007, the CRA/LA acquired the Site for $2.7 million from Plastoplan California Realty corporation (Piastoplan) through an assignment of escrow on the property held by Double E Investments, LLC (Double E). The CRA/LA utilized a loan of approximately $2.6 million in Community Development Block Grant funds (CDBG Loan) for Site acquisition. Double E funded the remaining balance of $100,000 as well as closing costs totaling approximately $32,000. Consequently, Double E held a second trust deed and promissory note in the amount of $132,890 with the intent of negotiating and executing a Disposition and Development Agreement (DDA)/Owner Participation Agreement (OPA) for the reuse of the Property. Over the next two years the CRA/LA and Double E attempted to negotiate a DDA; however, as a result of the economic downturn the model proposed by Double E for rehabilitation and tenanting of the Property did not ¥JOrk. In May 2009, the CRA/LA paid off Double E's promissory note, as well as the accrued interest, totaling $142,000, and became the sole owner of the Site. Upon release of the Property by Double E, the CRA/LA began negotiations to enter into a DDA with the Developer, who was a partner in the Double E project. The Developer came to the CRAILA with a tenant in hand interested in the Site for expansion purposes. The proposed Project is the result of those negotiations.

The Developer, Pacific Center Place, LLC, is a single purpose entity established just for the purchase, rehabilitation, lease and management of this project. Pacific Center Place, LLC has two equal shared partners, Ruth and Sam Eshaghian, each owns 50% of the partnership. Mr. Eshaghian is in the garment manufacturing business (a family business operating over the last 100 years), as well as the real estate and construction business for industrial/manufacturing facilities for garment manufacturing (for the last 20 years). His garment manufacturing business is ECEG and his real estate and construction business is EBC Group. In addition, the EBC Group provides green building products such as panels for doors, walls., etc. for construction purposes. Mr. Eshaghian's real estate development business focuses on industrial and manufacturing developments for garment manufacturers and is centralized in the downtown Los Angeles area. Mr. Eshaghian's property investments have either been with him and his family trust, or in recent years, with Mrs. Eshaghian. Mr. Eshaghian's past real estate experience includes the American Central Plaza, which was a rehabilitation of an 111 ,000 square foot industrial building in the Goodyear Industrial Tract for the American Apparel Company.

The proposed master tenant D&J Sportswear, is a familv-run company currently located in the City of Southgate. They have been in the garment business for over 30 years. perl'orming cutting and fusing services for manufacturers such as Byer of California. Rampage, Briggs of New York. Gap, J.C. Penney and Disney Apparel. D&J Sportswear is audited quarterly by Apparel Resources Incorporated ensuring that at all times their operation is in compliance with the State of California and Federal labor and safety standards. CRA/LA staff has also verified their good standing in labor and safety practice with the State of California's Department of Industrial Relations. There is no record of any claims against the company. In fact, D&J Sportswear is well-respected by their clients and suppliers for providing excellent service and products. The new facility would provide the company with an opportunity to expand their facility to provide full finishing and distribution services to their existing clients and gain new accounts through their full-service approach.

The DDA provides a Service Repayment Loan for the $750,000 with an interest rate of 5% per annum for a term of ten years. As a Service Repayment Loan the principal and interest will be reduced for every year the primary tenant and/or other tenants can provide the required number of jobs on the Property. The loan will be secured with a second deed of trust and assi~1nment of rents and security. The Developer has agreed to require the tenants on Site meet local hiring requirements for new hires during the ten-year term of service of the Service Repayment Loan

PACIFIC CENTER PLAC ~LC 6

and that no fewer than 50% of the 74 total .iobs provided will be living wage. The Service Repayment Loan requires that the tenant and/or tenants produce no fewer than 30 FTE jobs -in year one and no fewer than 7 4 FTE jobs at the end of year five. No fewer than 7 4 FTE jobs will be on the Property during years six to ten. The DDA restricts the sale and transfer of the Site and requires repayment of any remaining balance on the Service Repayment Loan and an equity share in any profit made on the sale of the Site if the Developer sells anytime prior to end of the loan term. The transfer of the Property to the Developer will also be subject to the recording of an Agreement Containing Covenants that will include all of the job and sale/transfer restrictions on the Property found in the DDA for a period of ten years.

Project Description

The Developer proposes to rehabilitate two existing contiguous industrial buildings. The facility will be completely refurbished and the design will meet as many LEED standards as possible. The building will be modified to include a new favade design, energy saving glass, ADA compliance features and new landscaping. The proposed Project will incorporate the following improvements:

m Necessary structural upgrades and repairs; e An abundance of natural and artificial light; • New electrical systems; • New heating and cooling systems; • A large dining facility with a full kitchen; o Administrative offices; and • New bathrooms, inclusive of showers.

In addition, the Developer will complete soil remediation on the Property. It is the Developer's intent to create a state of the art, modern manufacturing facility. The proposed Project will eliminate one of the major blighting influences in the area, as well as attract new businesses. Upon completion of the Project, the Developer will lease the Site to D&J Sportswear. The tenant is in the process of executing a 10-year lease with the Developer. The facility will be used to manufacture clothing, with portions of the building dedicated to cutting of fabric-related trim accessories, sewing and administrative/employee common space.

The recommended actions will allow the CRA/LA to utilize this acquisition opportunity to help an existing strong business expand and relocate to the City of Los Angeles, bring a new credit tenant to the Goodyear Tract, ensure owner/operator investment and quality jobs that meet the skill levels of local residents for the South Los Angeles area.

Calvin E. Hollis Interim Chief Executive Officer By

There is no conflict of interest known to me which exists with regard to any CRAILA officer or employee concerning this action.

PACIFIC CENTER PLACE .C

Attfichment A - location Map Attacliment B - Resolution Authorizing Sale and Findings pursuant to H8lS 33433 Attachment C - 33433 Summary Report Attachment D- 33444.6 Summary Report and Findings Attachment E - CBRE Market Research for Goodyear Tract

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812 E. 59th Street (APN 6007-005-010)

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LEGEI\ID ! D CD 9 Redevelopment

Project Area

ATTACHMENT B

THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA

THE LOS ANGELES CITY COUNCIL

CRAILA RESOLUTION NO. ____ _

CITY RESOLUTION NO. _____ _

A JOINT RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LOS ANGELES AND THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA AUTHORIZING SALE OF CERTAIN PROPERTY BY THE COMMUNITY REDEVELOPMENT AGENCY, AND MAKING CERTAIN FINDINGS PURSUANT TO HEALTH AND SAFETY CODE SECTION 33433 REGARDING THE TRANSFER OF PROPERTY AND DEVELOPMENT OF AN INDUSTRIAL/MANUFACTURING USE

WHEREAS, the City Council ("City Council") of the City of Los Angeles ("City") has adopted a redevelopment plan (the "Redevelopment Plan"), for redevelopment of the Council District Nine Corridors South of the Santa Monica Freeway Recovery Redevelopment Project Area ("Project Area"); and

WHEREAS, the Community Redevelopment Agency of the City of Los Angeles ("CRA/LA") is responsible for administering the Redevelopment Plan to cause redevelopment of the Project Area; and

WHEREAS, the CRAILA has acquired 812 E. 59th Street, Los Angeles, CA 90001 within the Project Area, located within the Goodyear Industrial Tract ("Site"); and

WHEREAS, the CRA/LA has expended approximately $142,000 in tax increment on acquisition related expenses along with $2.6 million in CDBG Funds;

WHEREAS, the CRAILA desires to cause redevelopment of the Site through rehabilitation of an industrial building to provide 42,100 square feet of leasable space for a garment-related, manufacturing tenant providing 7 4 jobs, 50% of which will be at or above Living Wage and locally hired("Project"); and

WHERIEAS, the CRA/LA has selected Pacific Center Place, LLC ("Developer") to develop the Project on the Site; and

WHEREAS, the CRAILA desires to approve a Disposition and Development Agreement ("DDA") with the Developer, substantially in the form on file with the City Clerk and the CRA/LA Secretary, under which the CRA/LA would transfer the Site to the Developer, and the Developer would develop the Project on the Site; and

WHEREAS;, the Profect will benefit the Project Area and serve mc:~jo1~ F~edevelopment Plan goals and objectives by alleviating blight in the Project Area by remediating a contaminated site; significantly improving the Site for reuse by an industrial tenant relocating from outside the City of Los Angeles; by providing an

ATTACHMENT B

opportunity for new business to come into the Project Area; by providing employment opportunities in the Project Area; and by serving as the catalyst for the revitalization of the South Los Angeles area; and

WHEREAS, the CRA/LA has placed on file a copy of the DDA and the Summary Report as required by Health and Safety Code Section 33433 ("Section 33433 Summary Report"), and has made the DDA and the Section 33433 Summary Report available for public inspection and copying pursuant to that Section, which is incorporated in this Resolution by this reference; and

WHEREAS, the City Councfl and the CRA/LA shall have conducted duly noticed public hearings on the DDA pursuant to Health and Safety Code Section 33431 and 33433 for the purpose of receiving the input and comments of the public on the Section 33433 Summary Report and the DDA; and

WHEREAS, by the CRA/LA staff report accompanying this Resolution and incorporated into this Resolution by this reference ("Staff Report"), the City Council and the CRA/LA have been provided with additional information upon which the findings and actions set forth in this Resolution are based.

NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF LOS ANGELES AND THE COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF LOS ANGELES, CALIFORNIA DO HEREBY RESOLVE AS FOLLOWS:

1. The City Council and CRA/LA find that the above Recitals are accurate.

2. Pursuant to Health and Safety Code Section 33433, the City Council and CRA/LA hereby find that the consideration to be paid by the Developer under the DDA is not less than the fair reuse value of the Site at the use and with the covenants, conditions, and development costs required by the DDA. This finding is based on the facts and analysis set forth in the Staff Report and the Section 33433 Summary Report accompanying this Resolution.

3. Pursuant to Health and Safety Code Section 33433, the City Council and CRA/LA hereby find that the conveyance of the Site pursuant to the DDA will assist in eliminating blight in the Project Area, and is consistent with the Implementation Plan adopted pursuant to Health and Safety Code Section 33490. These findings are based on the facts and analysis set forth in the Section 33433 Summary Report and the Staff Report accompanying this Resolution.

ATTACHMENT B

I HEREBY CERTIFY :that the foregoing Resolution was introduced at a regular meeting of The Community Redevelopment Agency of the City of Los Angeles held on January 21, 20i 0, by who moved its adoption and passage by the following vote:

AYES:

NOES:

ABSENT:

SECONDED:

APPROVED

ATTEST:

I HEREBY CERTIFY that the foregoing Resolution was introduced at a regular meeting of the Los Angeles City Council held 2010, by ______ _ who moved its adoption and passage by the following vote:

AYES:

NOES:

ABSENT:

SECONDED:

APPROVED

ATTEST:

SUMIVIARY REPORT PURSUANT TO

SECTION 33433 OF TI-llE

CALIFORNIA HEALTH AND SAFETY CODE

ONA

DISPOSITION AND DEVELOPMENT AGREEMENT

BY AND BETWEEN

ATTACHMENT C

THE COMMUNiTY REDEVELOPMENT AGENCY OF THE CITY Of LOS ANGELES AND

PACIFIC CENTER PLACE, LLC., A CALIFORNIA LIMITED LIABILITY COMPANY

The following Summary Report has been prepared pursuant to Section 33433 of the California

Health and Safety Code. The report sets forth certain details of the proposed Disposition and

Development Agreement (Agreement) between the following parties:

1. The Community Redevelopment Agency of the City of Los Angeles (CRAILA); and

2. Pacific Center Place, LLC., a California Limited Liability Company (Developer).

The purpose of the Agreement is to effectuate the Council District Nine Corridors South of

Santa Monica Freeway Recovery Redevelopment Project Area Plan (Redevelopment Plan).

The basic disposition terms embodied in the Agreement can be summarized as follows:

1. The CRAILA will convey the 47,500 square foot site at 812 East 591h Street (Site) along

with the existing 42, i 00 square foot industrial building located on the Site to the

Developer at no cost.

2. The CRAILA shall provide up to $750,000 as a forgivable loan (CRAJLA Loan) for the

purposes of rehabilitating the existing structure to provide for a first-class garment

manufacturing facility.

3. The Developer is required to fulfill the following obligations, which along with the

conveyance constitute the project (Project):

a. Rehabilitate the existing structure.

b. Provide $220,769 in equity to the Project

c. Conform to applicable Davis Bacon and prevailing wage requirements.

d. Ensure that its tenant provides seventy-four (7"4) jobs within five years of the

close of escrow and maintains these jobs for the remaining five years of the loan

term. The jobs must meet tile following requirements:

091 10i2.CRA!lA:JAR:TB:gbd 15856.075.003111117/09

ATTACHMENT C i. Fifty percent (50%) of these jobs are required to meet Living Wage

standards; and

ii. The remaining fifty percent (50%) of these jobs are required to meet at least Minimum Wage standards.

e. The Developer, as well as the tenant, must comply with the CRA/LA Local Hire

Provision as outlined in the Agreement.

The following Summary Report is based upon information contained within the Agreement, and is organized into the following eight sections:

I. Salient Points of the Agreement: This section summarizes the major responsibilities imposed on the Developer and the CRA/LA by the Agreement.

II. Cost of the Agreement to the CRA/LA: This section details the total cost to the CRA/LA associated with implementing the Agreement.

Ill. Estimated Value of the Interests to be Conveyed Determined at the Highest Use Permitted under the Redevelopment Plan: This section estimates the value of the interests to be conveyed determined at the highest use permitted under the Site's existing zoning and the requirements imposed by the Redevelopment Plan for the Council District Nine Corridors South of Santa Monica Freeway Recovery Redevelopment Project Area (Project Area).

IV. Estimated Reuse Value of the Interests to be Conveyed: This section summarizes the valuation estimate for the Site based on the required scope of development, and the other conditions and covenants required by the Agreement.

V. Consideration Received and Comparison with the Established Vaiue: This section describes the compensation to be received by the CRA!LA, and explains any difference between the compensation to be received and the established value of the Site.

VI. Blight Elimination: This section explains how the Agreement will assist in alleviating blight in the Project Area.

VII. Conformance with the AB1290 Implementation Plan: This section describes how the Agreement achieves goals identified in the CRA/LA's adopted AB1290 Implementation Plan.

VIII. Section 33444.6: Industrial Facilities Findings: This section describes why the Project cannot obtain financing on economically feasible terms from the private sector.

2 0911 012.CRAILA:JAR:TB:gb<1

16856.075.003111117109

ATTACHMENT C This report and the Agreement are to be made available for public inspection prior to the

approval of the Agreement.

I. SALIENT POINTS OF THE AGREEMENT

A. Project Description

The CRAILA owns a 47,500 square foot site at 812 E. 59th Street, which is improved with a

42,1 00 square foot industrial building. The Site was acquired i!l July 2007 with a loan of

$2,566,270.68 in Community Development Block Grant (CDBG) funds.

The CRAILA will convey the Site to Developer at no cost to facilitate the proposed Project. The

Developer will rehabilitate the existing structure for reuse by a single tenant, D & J Sportswear

(Tenant). The Tenant, a family-owned business which provides garment cutting and finishing services, will be relocating to the Site from the City of South Gate. Locating in the Project at the

Site will allow the Tenant to expand, providing an estimated 74 jobs on the Site within five years.

Upon completion of the Project, the Developer will remain the owner and operator of the Site.

B. Developer Responsibilities

The Agreement requires the Developer to accept the following responsibilities:

1. The Developer must have obtained sufficient equity and/or debt capital to undertake the

development of the Project prior to the conveyance of the Site, which includes providing

$220,769 in equity to the Project.

2. The Developer must develop the Site in accordance with the Agreement's Scope of

Development.

3. The Developer must fund all Project costs, except the costs expressly defined in the

Agreement as the CRAILA's responsibility. The Developer must pay Davis Bacon or

prevailing wages, whichever is higher, to all the contractors and subcontractors engaged to construct the Project, if required by applicable laws governing the payment of these

wages.

4. The Developer will ensure that the Tenant provides seventy-·four (74) jobs within five

years of the close of escrow and maintains these jobs for the remaining five years of the

loan term. The jobs must meet the following requirements:

i. Fifty percent (50%) of these jobs are required to meet Living Wage

standards, which is currently set at $'1 '1.55 per hour; ancl

3 OB11012.CRAILA:JAR:TB:gbd

15856. 075.003111/17/()9

ATTACHMENT C ii. The remaining fifty percent (50%) of these jobs are required to meet at

least IVlinimum Wage standards, which is currently set at $8.00 per hour.

5. The Developer, as well as the tenant, must comply with the CRA/LA Local Hire Provision

as outlined in the Agreement.

6. The Developer is prohibited from selling the Site within five years after the close of

escrow. If the Developer decides to sell the Site within five years, the full loan balance

plus accrued interest must be repaid. In addition, after satisfying all debt obligations and

repaying the Developer equity, the Developer is required to share 50% of the sale

proceeds with the CRAILA and the Community Development Department (COD) of the

City of Los Angeles which will be split on a prorated basis.

7. If the Developer sells the Site between Years 6 and 10, the Developer is required to pay the remaining balance of the loan plus interest. In addition, after satisfying all debt

obligations and repaying the Developer equity, the Developer is required to share 25%

of the sale proceeds with the CRA/LA and COD, which will be split on a prorated basis.

8. The Developer must conform to all requirements of the CRA/LA's Art Policy.

CRA/lA Responsibilities

The Agreement imposes the following responsibilities on the CRA/LA:

1. The CRAILA must convey the Site to the Developer at no cost ($0).

2. The CRA/LA must provide up to $750,000 as a forgivable loan to the Developer.

3. The CRAILA will forgive the CRA/LA Loan based on the following Loan Forgiveness

Schedule:

Loan Forgiveness Schedule Principal Interest Total Principal Principal Forgiven Forgiven Forgiven Amount

Year i $40,000 5% $40,000 $750,000 Year 2 40,000 5% 80,000 710,000 Year3 40,000 5% 120,000 670,000 Year4 40,000 5% 160,000 630,000 YearS 98,333 5% 258,333 590,000 Year6 98,333 5% 356,667 491,667 Year? 98,333 5% 455,000 393,333 YearS 98,333 5% 553,333 295,000 Year9 98,333 5% 651,667 196,667 Year '10 98,333 50ft, 750,000 98,333

4

Interest $37,500 39,375 37,469 35,373 33,269 24,583 19,667 14,750 9,833 4,917

Total Repayment $787,500 749,375 707,469 665,373 623,269 516,250 413,000 309,750 206,500 103,250

0911012.CRAILA:JAR:TB:gbd 15855. 075c003/11117/09

ATTACHMENT C II. COST OF THE AGREEMENT TO THE CRAILA

The costs incurred by the CRAILA to implement the Agreement are estimated as follows:

Site Acquisition Cost1

Security Assessments (BID) Maintenance

Total Agency Cost

$2,708,020.34

51,558 3,628.52

10,380

~~2,773,586.86

Given the nature of the Project, it is not anticipated that the CRAILA will receive significant revenues to off-set the CRA/LA costs.

Ill. ESTIMATED VALUE OF THE INTERESTS TO BE CONVEYED DETERMINED AT THE HIGHEST USE PERMITTED UNDER THE REDEVELOPMENT PLAN

Section 33433 of the California Health and Safety Code requires the CRA/LA to identify the value of the interests being conveyed at the highest use allowed by the Site's zoning and the requirements imposed by the Redevelopment Plan. The valuation must be based on the assumption that near-term development is required, but the valuation does not take into consideration any extraordinary use, quality and/or income restrictions that are being imposed on the development by the CRA/LA.

The CRA/LA obtained a highest and best use appraisal of the Site dated June 10, 2009 prepared by Cummings Appraisal Group, Inc. that set the fair market value of the Site at $2,400,000, or approximately $57 per square foot of gross building area (GBA). Therefore, the fair market value of the Site to be conveyed to the Developer at the highest use permitted by zoning and the Redevelopment Plan is set at $2,400,000.

IV. ESTIMATED REUSE VALUE OF THE INTERESTS TO BE CONVEYED

Keyser Marston Associates, Inc. (KMA) prepared a reuse valuation analysis of the Project based on the financial terms and conditions imposed by the Agreement. The KMA analysis concluded that the fair reuse value of the Site is negative $523,000. This means that the Site would have to be donated to the Project and at least $523,000 in direct financial assistance provided, to make the Project financially feasible.

1 The Site Acquisition Costs include $2,r166,271 in CDBG tunds provided by the Community Development

Department of the City of Los Angeles.

5 0911012 .CRNLA:JAR:TB:gbd

15856.075.003111117109

ATTACHMENT C V. CONSIDERATION RECEIVED AND COMPARISON WHt-1 THE ESTABLISHED

VALUE

The Agreement imposes extraordinary controls on the Project. Specifically, the Developer must ensure that the Tenant provides at least 74 jobs within five years, .of which fifty percent (50%) must meet Living Wage standards; and pay Davis Bacon and prevailing wages, as applicable, to all the contractors and subcontractors employed to rehabilitate and redevelop the Project. In addition, the Developer must comply with the CRA/LA's Local Hire Provision and Art Policy. The impacts created by these requirements reduces the $2,400,000 value of the Site at the highest use allowed by the Site's zoning and the requirements imposed by the Redevelopment Plan, to the established fair reuse value of negative $523,000.

The Agreement requires the Agency to convey the Site to the Developer at no cost. Thus, it can be concluded that the consideration being received by the CRA/LA for the Site being conveyed to the Developer is greater than the established fair reuse value of negative $523,000.

VI. BLIGHT ELIMINATION

The Agreement requires the Developer to rehabilitate an existing dilapidated industrial building and provide 7 4 jobs on-site. The Project assists in the Redevelopment Plan's objectives to stabilize and expand the industrial area and allows for job retention and generation by attracting new employers to the Project Area. In terms of addressing physical blight, the Project will rehabilitate a building of substandard design, which is dilapidated and deteriorated. Furthermore, the Project will reduce economic blight in the Project Area by decreasing business vacancy rates and increasing lease rates. Thus, the Project fulfills the blight elimination requirement.

VII. CONFORMANCE WITH THE AB1290 IMPLEMENTATION PLAN

The anticipated Project is not specifically included in the Project Area's Implementation Plan for 2005- 2010 (Plan). However, the Plan generally discussed an industrial development strategy which proposed to:

1. Encourage the retention of existing industrial businesses, as well as attract new business to the Project Area; and

2. Utilize loans and/or grants to attract and/or assist with restoration, modernization, improvement and/or new construction of industrial facilities.

The Project meets both of these objectives and is therefore in conformance with the CRAILA's AB1290 Implementation Plan.

6 0911012.CR.AJLA:JAR:TB:gbd

"1585£. 075c003111117/09

ATTACHMENT C VIII. SECTION 33444.6: INDUSTRIAL FACIUTIES FINDINGS

California Health and Safety Code Section (Section) 33444.6 provides for the development or

rehabilitation of property that will be used for industrial or manufacturing purposes. A

redevelopment agency may assist with the financing of facilities or capital equipment, including,

but not limited to pollution control devices. Prior to entering into an agreement for a

development that will be assisted pursuant to this Section, the redevelopment agency, after a

public hearing, shall find:

1. That the assistance is necessary for the economic feasibility of the development; and

2. That the assistance cannot be obtained through economically feasible terms in the

private market.

As outlined above, the Project has a reuse value of negative $523,000 under the assumption

that private debt/equity will be available. However, the Borrower was not able to obtain

financing in the private market. The Borrower provided letters from Pacific Alliance Bank and

Mega Bank denying the Borrower's request for a $2.6 million conventional loan. As such, the

CDD Section 108 Loan and the Borrower equity were utilized to replace the lack of conventional financing available to the Project. The CRAILA Loan is needed to fill the $750,000 funding gap

exhibited by the Project. Thus, the CRAILA finds that the $750,000 in financial assistance is

necessary for the economic feasibility of the Project and that the financial assistance cannot be

obtained in the private market.

7 0911 012.CRNLA:JAR:TB:gbd

15856,075.003111117109

TABLE'IIA

ESTIMATED CONSTRUCTION COSTS DEVELOPER VERSION 59th STREET REHABILITATION LOS ANGELES, CALIFORNIA

i. ()trect Costs Remediation On-Site & Demolition Industrial Rehabilitation Contractor Fees/General Requirements Contingency Allowance Total Direct Costs

ID, lndirecj Costs

Arch, Eng, Consulllng & PermitsiFees Art Fee Development Management Total Indirect Costs

Ill. Financing Costs City 1 08 loan Interest Reserve 1

City 108 Loan Fee< Escrow Closing Toial Financing Costs

I IV. Total Rehabilitation Costs

47,500 Sf Land 42,1 00 Sf GBA

14.7% Construction Costs 8.4% Other Direct Costs

42,100 Sf GBA

11.4% Direct Costs

$4.04 fSf Land $35 /SfGBA

$62 /SfGBA

1.0% Other Rehabilitation Costs 4.5% Direct Costs

$2,200,000 Loan Amount . 1.25% Loan Fee

42,100 SfGBA $75 /SfGBA =

$400,000 192,000

1,494,000 306,000 200,000

$2,592,000

$296,000

$31,000 117,000

$444,000

$107,000 28,000

0 $136,000

::: $3;17·1 ,ooo I

1 The interest reserve is a requirement of the City 1 08 Loan. The amount is calculated based on interest-only obligations of the City 108 Loan in the course of the Variab!e Interest Rate period.

2 Required by the City 1 08 Loan.

Prepared by: Keyser Marston Associates, Inc. Filename: 59th Street Rehab_11 5 09; DEV; trb

lfABLE2A

!ESTIMATED NET REVENUE & STABiliZED NIETOPERA.TING INCOME DEVELOPER VERSION 59th STREET REHABILITATION LOS ANGELES, CALIFORNIA

I. Rentallncome Industrial Rent 1

ReimbuiSable Expenses Gross Rental income

(Less): Vacancy & Collection Effective Gross Income

II. Operating Expen!!eS

42:,100 Sf GLA

42,100 SfGLA

3.0% Gross Rental Income

$6.96 /SfGtA!Year

$3.25 ISfiGLNYear

General Operating E<penses Management Fee

42,100 Sf GLA ($1.56) /Sf GLAIYear

4.0% Effective Gross Income Property Reserves 42,100 Sf GBA (0.25) /Sf GBANear Property Taxes

Total Expenses 42,100 Sf GlA (3.62) /Sf GLAIYear

@1. Net Operating Income

1 Based on the August 15, 2009 Letter of Intent to Lease between D&J Sportswear and the Owner.

Prepared by: Keyser Marston Associates, Inc. Filename: 59th Street Rehab_ 11 5 09; DEV; trb

$293,000 137,000

$430,000

($12,900) $417,100

($65,700)

(16,700)

(10,500) (59,400)

($152,300)

$264,soo I

1i'AI!liLE3A

RESIDUAL LAND VALUIE CALCULATION

. DEVELOPER VERSION

59th STREET REHABILITATION

LOS ANGELES, CALIFORNIA

L ~ortabla investmena Net Operating Income Threshold Retum on Investment Supportable Debt/Equity Investment

II. Total Rehabilitation Costs

m.{Residualland Value 47,500 Sfland

Prepared by: Keyser Marston AssoCiates, Inc. Filename: 59th Street Rehab_11 5 09; DEV; trb

($11) /Sf Land

$264,800 10.0%

$2,643,00()

($3,171,000}

($523,000)1

TABlE 36

FINANCIAL FEASIBILITY CALCULATION DEVELOPER VERSION 59th STREET REHABILITATION

LOS ANGELES, CALIFORNIA

t Available Funding Sources

City 1 08 loan

Developer Equity

Total Funding Sources.

II. (Less) Total Rehabilitation Costs

IV. Warranted Agency Assistanoo Financial Gap Land Value

v.ITotal Warranted Agency Assistance

42,100 Sf GBA

Prepared by: Keyser Marston Associates, Inc. Filename: 59th Street Rehab_11 5 09; DEV; trb

$2,200,000

$221.000

== ($18) fSrGBA

$2,421,000

($3,17"1,00;:.;0:!.) ___ _

($750,000)

(2,566,000)

($750,0~

($3,316,000}1

FINDINGS PURSUANT TO . SECTIONS 33444.6 OIF THE

CAliFORNIA COMMUNITY REDEVElOPMENTlAW ON THE

PACIFIC CENTER PLACE SITE 812 E. 59TH STREET, LOS ANGELES, CA 90001

ATTACHMENT D

THE LOS ANGELES COMMUNITY REDEVELOPMENT AGENCY

INTRODUCTION

The Community Redevelopment Agency of the City of Los Angeles (CRA/LA) is proposing to

enter into a Disposition and Development Agreement (Agreement) with Pacific Center Place

LLC (Participant) pursuant to which the CRA/LA will provide financial assistance to the

Participant for the rehabilitation of the two buildings located at 812 E. 591h Street (the Site) in the

Goodyear Tract within Council District Nine Corridors South of the Santa Monica Freeway

Recovery Redevelopment Project Area (CD9 Project Area). The primary lessee of the Site will

be O&J Sportswear (Primary Lessee). The rehabilitation of the property is necessary to meet

the power and space needs of the Primary Lessee who intends to use the Site for the

manufacturing and distribution of clothing.

Prior to entering into the Agreement the CRA/LA must make certain findings pursuant to Section

33444.6 of the California Health and Safety Code/Community Redevelopment Law (CRL).

These findings and supporting evidence are provided below.

LEGISLATIVE REQUIREMENTS

Section 33444.6(a) of the CRL states within a project area and as part of an agreement that

provides for the development or rehabilitation of property that will be used for industrial or

manufacturing purposes, an agency may assist with the financing of the facilities or capital

equipment, including, but not necessarily limited to, pollution control devices. Furthermore,

Section 33444.6 (b) of the CRL states that before a redevelopment agency enters into an

agreement for a development that will be assisted pursuant to this section, the agency shall find,

after a public hearing, that the assistance is necessary for the economic feasibility of the

development and that the assistance cannot be obtained on economically feasible terms in the

private market.

Page 1 December 3, 2009

Pacific Center Place 33444.6 Repart

ORGANIZATION AND CONTENT OF FINDINGS

The findings are organized into the following four sections:

I. Background and Project Description: This section describes the proposed Project

and its relationship to CD9 Project Area.

II. Estimate of Tax Increment Financing: This section details the total cost to the

CRA/LA associated with implementing the Project, which is proposed to be paid with tax

increment financing.

Ill. Benefit to the Project Area: This section describes how the Project will benefit

residents in the vicinity of the CD9 Project Area.

IV. Necessity of Agency Financial Assistance: This section reviews Project costs and

potential funding sources. This section further demonstrates that CRA/LA assistance is

necessary for the economic feasibility of the Project and that the assistance cannot be

obtained on economically feasible terms in the private market.

I. BACKGROUND AND PROJECT DESCRIPTION

BACKGROUND

The Recovery Redevelopment Plan for the Council District Nine Corridors South of the

Santa Monica Freeway was adopted by the Los Angeles City Council on December 13,

1995. The Project Area encompasses 2,817 acres and covers commercial and industrial

corriqors within its boundaries. All residentially designated neighborhoods were

excluded. A high priority is to develop job-producing programs and to revitalize the major

commercial and industrial corridors in the area. Project objectives include job retention

and attracting new businesses to the area; industrial area expansion and stabilization;

providing consumer retail, shopping and entertainment facilities; providing affordable

housing; expanding job training programs; and providing improved transportation and

services to the City of Los Angeles (City).

Conditions of blight identified in the Project Area at the time of Redevelopment Plan

adoption included, unsafe and unhealthy buildings, conditions that inhibit a viable use of

land, a persistence of incompatible land uses, irregular shaped and inadequate sized

lots that are in multiple ownership, stagnant property values, a high occurrence of vacant

lots and buildings, lack of commercial facilities, residential overcrowding and an Elxcess

of bars and liquor stores, and a high crime rate.

Page2 December 3, 2009

Pacific Center Place 33444.6 Report

The development of the Pacific Center Place LLC Site is the third project among a number of strategic acquisition and development projects in the Goodyear Industrial Tract focused on brownfield reduction and reuse of underutilized sites. The Goodyear Industrial Tract is the largest contiguous and self-contained industrial area in the City. It consists of 208 acres, incorporating 281 industrial parcels that are owned by 160 property owners, with approximately 120 businesses currently operating. The Site currently contains two buildings totaling 42,100 square feet of building space, a loading dock area and ten parking stalls. D&J Sportswear plans to occupy 1 00% of the space for their cutting, trim and sewing factory.

The building proposed to be occupied by D&J Sportswear was previously owned and occupied by a manufacturer of plastic refuse and recycling containers, which had operated on site for close to 20 years. The business was not able to compete with other larger manufacturers and products from abroad. Operating with only five employees, the owner/operator decided to sell the Site in 2007 and closed their business in Fall 2008.

Prior to leasing the space to any tenants, the Participant will remove all extraneous industrial equipment left behind by prior users, clean up the interior and exterior of the Site, upgrade utility service to accommodate the tenant's sewing and cutting equipment, remediation of soil contamination under the buildings, re-stripe the parking spaces, add new heating/cooling systems, bathrooms and administrative offices, and create a new fac;ade on the exterior of the building.

The CRA/LA acquired the Site on July 15, 2007 for $2.7 million and intends to dispose of it to the Participant at the cost of $0. The overall Project entails the acquisition and renovation of two light industrial buildings on a little over an acre of land. The total Project cost, if land value is included is estimated at $5.8 million. With the assistance of a U.S. Department of Housing and Urban Development (HUD) Community Development Block Grant Program (CDBG) Section 108 loan, a HUD CDBG grant and tax increment gap financing, the Participant will be able to complete the remediation and clean up of the existing buildings.

PROJECT DESCRIPTION

The Agreement defines the Project as the remediation and rehabilitation of the Site. The manufacturing facility once ready for tenant occupancy will employ not less than 30 people to begin with but is required to have 7 4 full-time employees within five years of the start of operation. The $750,000 CRA/LA loan is being given as a Service Repayment Loan and will be used to reimburse labor and material costs related to the remediation and rehabilitation of the Site.

Page 3 December 3, 2009

Pacific Center ·p;~ce 33444.6 Report

The Participant must ensure that the property is well-maintained and that the Primary

Lessee, or a substitute Lessee will maintain their lease agreement for the full ·1 0-year

term of the CRA!LA Loan and that among all the Lessees on Site, they can provide a

payroll of 7 4 jobs (50% of which need to be Living Wage) on-site by the end of the fifth

year of tenancy. The CRA/LA will forgive 10% of the Agency Loan principal plus interest

for every year that the Primary Lessee fulfills the maintenance, operating and

employment requirements.

II. COST OIF THE PROJECT INCLUDING ESTIMATE OF TAX INCREMENT !FINANCING

The following summarizes the estimated Project costs:

Acquisition Costs

Rehabilitation Costs

Financing Costs

Developer Fee

TOTAL PROJECT COSTS

$2,708,271

2,919,249

134,750

116,770

$5,879,040

The overall Project underwriting is completed. As noted above, a CDBG Grant was

made available to the CRAILA for the original purchase of the site and the City has

made a Section 108 loan available to cover the remaining construction costs. The

Participant is also contributing equity to the Project. The following summarizes the

available funding sources:

CRA/LA Tl for acquisition

Section 1 08 Loan

Equity

CDBG Grant

CRA/LA Loan

Total Funding Sources

142,000

2,200,000

220,769

2,566,271

750,000

$5,879,040

Page4 December 3, 2009

Pacific: Center Place 33444.6 Report

Ill. BE~lEFIT TO THE PROJECT AREA

The goals for the development of the Goodyear Industrial Tract are to e><pand

businesses and create new ones, generate and retain jobs, stabilize and e><pand the

industrial area and repair infrastructure. The proposed Pacific Center Place LLC Project

will assist in fulfilling the economic development goals of the C09 Project Area by

assisting in the achievement of a balanced business base, developing job opportunities

for local residents and removing blight found in the condition of buildings and properties

within the business and industrial districts.

The Project will provide a location for D&J Sportswear to site and expand their cutting

facility in South Los Angeles. Of the 7 4 jobs on Site, at least 50% will pay at or above the

City's current living wage rates and the tenant will be required to hire locally. Because

the Project will be receiving a Section 1 08 loan and CDBG grant funds it is required that

51% of the jobs be made available to low and moderate-income persons, residents that

actually live within a 1 0-mile radius of the Project.

In addition to the benefits of stabilizing business in the area and providing new jobs,

there will be a security system on-site and full-time maintenance of the facility to ensure

the safety of the employees and operations on Site. The Participant was previously on

the Board of the South Los Angeles Industrial Tract's Business Improvement District.

They will work with the local Business Improvement District and pay property

assessment fees to hire additional security and maintenance crews to ensure that the

entire Goodyear Tract is kept clean and secure.

Lastly, Pacific Center Place LLC has agreed that the clean up of the Site will follow State

Department of Toxic and Substance Control procedures to investigate and remediate

any contamination found in the soils.

IV. NECESSITY OF AGENCY FINANCIAL ASSISTANCE

The net operating income for the Project is estimated at $265,000. Given that the Participant is

providing $2.42 million in investment, the resulting return on investment (ROI) is close to 10%.1 In

addition, the debt coverage ratio for the Project is 1.20 and the return on cost is 8.4% based on an

8% capitalization rate, which are both aggressive for this product type. Therefore, it is concluded

that obtaining additional funding sources at commercial lending rates from the private market is not

feasible. The Borrower provided letters from Pacific Alliance Bank and Mega Bank denying the

1 The Participant's investment includes the $2.20 million Section 108 loan and $220,000 in equity.

Page 5 December 3, 2009

Pacific Center Place 33444.6 Report

Borrower's request for a $2.6 million conventional loan. As such, the Section 108 Loan and the

Borrower equity were utilized to replace the lack of conventional financing available to the

Project. .

Since the Project costs total an estimated $5.8 million and approximately $5.05 million of

investment has been identified, the Project exhibits a $750,000 financial gap. Since the Project has

already utilized City and Federal resources to fund the Project, tax increment funds are considered

to be the last resort funding source.

It is therefore concluded that the $750,000 in CRAILA assistance to remediate and construct

improvements is necessary for the economic feasibility of the Project and that the assistance

cannot be obtained on economically feasible terms in the private market.

Page 6 December 3, 2009

Pacific Center Place 33444.6 Reporl

ATTACHMENT E

CB CB RICHARD ELLIS

January 7, 2010

Jenny Scanlin Community Redevelopment Agency 354 S Spring St 3rd Floor Los Angeles, CA 900 13

RE: Overview of Goodyear Tract Real Estate and Occupancy

Dear Jenny,

500 Citadel Drive Suite 30 l Commerce, CA 90040 T 323 838 3181 F 323 838 3155

brandon .burn s@cbre.com www .cbre .. com

Brandon Burns

Thank you for yom inquiry with regard to CBRE's market information on leasing and sales as well as the economic position of the Goodyear Tract area in the Los Angeles industrial market. As you are aware, I have worked in the Central Los Angeles area for over 15 years with a primary focus on industrial real estate. I am very familiar with the migration trends within the City of Los Angeles, the surrounding areas and the Goodyear Tract. In addition, our firm, CBRE has represented hundreds of clients looking for space in the area and is well aware of those client's needs and constraints.

It is well documented that the approximately 300 buildings on 208 acres are functionally obsolete with low clear heights and poor loading conditions. Buildings average over 60 years old, are usually brick or metal construction, and rarely have a clear height of more than 14 to 16 ft. The rehabilitation of these properties to make them move-in ready for modern industrial businesses is cost-prohibitive. Additionally, the greater Los Angeles area consists of over 600 million square feet of product (30 million of which is available) that is move-in ready and directly competes with the Goodyear Tract. Banks are not able to fund the construction values for rehabilitating these sites because the property values are too low to meet the loan to value ratios, and many tenants do not have the personal credit or cash to contribute. There is no landscaping or amenities to speak of and the area gives an impression of safety issues and neglect. The Goodyear Tract has always been treated as an economic alternative to more expensive property located closer to the downtown Garment, Produce and International trade areas. Companies that migrate to this part of town are generally moving out of downtown looking for larger expansion quarters at an economical price.

Industries looking to expand and relocate often face a choice between the Goodyear Tract and other adjacent sub-markets in the Los Angeles region, including Vernon and Commerce nearby, the San Gabriel Valley to the East, and the South Bay. Combined, these markets consist of approximately 600 million square feet of higher quality, concrete tilt-up buildings with landscaping,. 24 til clearance,. on-site truck loading, private: parking and other amenities. Most of these municipahties generally have their own po1i,ee and

Jenny Scanlin 1/11/2010

ATTACHMENT E

fire departments, and are generally cooperative and involved with the industrial occupants in their city.

With all this mind, the Goodyear Tract does not compete in attracting a mid to large size company shopping for a location on a regional basis. However, it does have plenty of qualities that attract a certain "pool" of viable industries. The heavy M2 zoning is suited for many uses that are not welcome in adjacent cities and don't want the level of attention that comes with locating there. The proximity to the central core also helps retain industries that are reliant on downtown business won't move further away.

CB Richard Ellis is the largest commercial brokerage company in the world. We have either worked with, or are aware of almost every requirement to move a clean tech related business into Southern California. We are very familiar with their needs for space, labor, amenities and all other costs that are considered for relocation in that industry. As you will notice in the local garment, produce, seafood, general merchandising, and international trade industries, similar companies tend to cluster near each other and feed off one another. Given the overall conditions in the Goodyear Tract, there is no reason to believe that a clean tech firm would be a pioneer and relocate to this area. There are no other similar industries in the area, and no obvious white collar labor pools to draw upon.

I believe the CRA's Clean Tech Corridor is a much more viable possibility to attract clean tech business and give them an area to congregate. The Goodyear Tract is much more suited to remain positioned as an economic alternative to expensive properties closer to the central core, and a safe haven for some of the heavier uses that would struggle to meet occupancy and zoning requirements in other municipalities.

I hope this narrative is helpful, please do not hesitate to call with any questions.

Sincerely

CB Richard Ellis, Inc.

·7_o-~-

~:nli~?t~ Vice President