Official reports approved by the Los Angeles City Council and accepted by Mayor Eric Garcetti carry the marks of a cover-up on a botched calculation of the lease rate for a warehouse slated to be converted into a homeless shelter on the industrial edge of Downtown.
City officials from Garcetti down have refused to respond to repeated requests from SullivanSaysSoCal for basic information about the deal for several months.
It seems they have been reacting among themselves to the inquiries, though.
Chief among various questionable aspects of the deal to develop a 120-bed homeless shelter at the warehouse at 1426 S. Paloma Street is the amount of rent the city has agreed to pay in a lease for 17,917 square feet of space at the facility.
SullivanSaysSoCal first raised questions in February about the $35,000-a-month lease for what was listed by the city as nearly 36,000 square feet on a three-year contract.
SullivanSaysSoCal initially noted that data from the real estate industry indicated the city’s proposed rate of 98 cents a square foot was near the high end of the market.
City officials had justified paying 98 cents per square foot in a report issued by their own Department of General Services on September 27, 2018.
The report cited a “Fair Market Rental Rate” range for similar properties in the area around the Paloma Street property of 85 cents to $2.00 per square foot. The report considered a list of nine properties, with one as far as 27th and Alameda streets, in compiling the range.
That made the deal sound good and the range seem sensible, except SullivanSaysSoCal discovered that the report had erred and the lease was actually for about half the space at the warehouse – 17,917 square feet.
The new total meant the rental rate was about twice the rate at $1.95 per square foot – about at the high end of its so-called fair market range.
Garcetti and the City Council had already signed off on the deal with the incorrect information on square footage and lease rate.
SullivanSaysSoCal continued to report, updating questions to reflect the lesser square footage, which effectively doubled the cost of the lease to taxpayers.
City officials continue their refusal to address those questions directly.
They recently, however, issued a new report that indicates they have considered these questions and taken steps to try to cover up their earlier decision to rubber stamp the Paloma Street deal that listed costs based on incorrect information. The new report also attempts to gloss over what looks to be a mistake at best – and at worst could be construed as the sort of behavior that has the FBI investigating City Hall for corruption.
The latest report – issued on April 17 by the same Department of General Services that submitted the prior report in September – cites a new “fair market” range of rental rates for the area of the Paloma Street warehouse.
It takes 33 properties into account, nearly three times the number of the September report. It also pushed the search as far as 36th and Hill streets, about two-and-a-half miles from the Paloma Street property.
The new “fair market” range falls between 88 cents and $2.95 per square foot – putting the price for the Paloma Street property about in the middle.
The new report mentions that “material terms of the lease were revised” from the September report but offers no details on the prior incorrect citation on square footage, or the new “fair-market” range, or any other specifics of any changes.
There was plenty of coverage of the Paloma Street deal by other media outlets that left the initial, incorrect calculations by the city unquestioned. 14th District City Councilmember Jose Huizar, the chief proponent of the Paloma Street plan, made several announcements lauding the deal under the original, faulty terms.
A check by SullivanSaysSoCal indicates that no media outlets or city officials or agencies have issued any corrections, clarifications, retractions or explanations of why and how the calculations and cost of the Paloma Street deal changed.
It’s clear, meanwhile, that neither the effective 100% increase in the lease rate for the facility nor the 48% hike of the cap of the “fair market range” cited in the new report squares with the latest data from the industry.
A separate, private-sector report on the recently concluded first quarter from Jones Lang Lasalle Inc. put the average asking lease rate for industrial space in Central LA at 80 cents per square foot, up less than 2% from the prior quarter and about 7% from a year earlier.
SullivanSaysSoCal went further in checking the market, visiting the area of the Paloma Street facility and tapping into sources with deep knowledge of Downtown’s warehouse sector specifically.
Nothing noted at street level suggested the leasing facility merits a premium price.
Commercial real estate brokers who specialize in warehouse space in the Downtown area scoffed at the $2 or so per square foot the city has agreed to pay on Paloma Street. Somewhere around half that price would be right, according to the sources.
Cut to Columnist’s View
Let’s go from reporting to offer some analysis and opinion, followed by a few updates:
I’ll be very clear on this for those who argue that any coverage that applies any critical thinking to any plans for homeless shelters is a form of NIMBYism and a roadblock to helping folks in need:
The city could build housing for twice as many individuals in need of emergency shelter – provide a real way to get twice as many folks off the street – if they weren’t concocting reasons to pay what seems to be about twice the market rate for space at the Paloma Street warehouse.
The terms of the deal on Paloma Street – whether a case of incompetence or corruption – will cost 120 homeless individuals the opportunity to get off the streets for a chance at rebuilding their lives.
It’s that simple.
The way city officials have used the emergency on homelessness – which has grown out of their own failed leadership – to justify what strangeness is behind the deal on Paloma Street is an insult to every Angeleno – taxpayer and homeless person, business owner and worker, child and elder.
There’s an old adage that you might be entitled to your own opinion but you aren’t entitled to your own facts. The actions taken, accepted and approved by city officials look to be a clumsy attempt by a bunch of entitled grifters to create their own facts to cover up mistakes and misdeeds.
Scandal(s) Addendum, Update
There are numerous other questions pending about the Paloma Street deal, and SullivanSaysSoCal will stay on them.
Please note also that Huizar faces a deadline of no later than May 10 for providing financial data on the Night on Broadway event in response to a California Public Records Act by SullivanSaysSoCal.
And note that a staff member of 1st District City Councilmember Gil Cedillo last week offered apologies for the lack of communication in response to queries about the $2 million “contribution” from the developer of an apartment complex in Chinatown.
New York-based developer Atlas Capital Group won’t have to include any “affordable” units in the College Station project in Chinatown. It will instead give Cedillo control of $2 million, ostensibly to help preserve or create affordable housing options in Chinatown.
The apology on the lack of response is duly noted and appreciated as a concession to the public’s right to know – as exercised by the press, in this case.
Still no answers from Cedillo or his staff, though – and that’s a problem.
Stay tuned for more on that – and whatever the feds might disclose about their investigation of LA City Hall.
Emile, Snoop & Nightlife in Irvine
FivePoint Holdings boss Emile Haddad has plenty of reason to talk Irvine up. His company is building the Great Park Neighborhoods, which has created its own place within the highly planned, highly regarded design that has been driven largely by the Irvine Company over the years and helped the city grow into a powerhouse that punches well above the weight of its population of 250,000 or so.
Haddad also favors straight talk – and he’s a student of the demographic changes that are reshaping Irvine and the rest of OC, SoCal and America. His reckoning includes the wave of millennials who are reshaping lots of things about their daily lives – and who might find nightlife in OC “boring as hell,” as Haddad put it a couple of months ago, during an Orange County Business Council panel discussion.
Haddad isn’t one to offer a critique without proposing a solution, and you can go online or visit the actual Great Park Neighborhoods for examples of how it plans to fill the gap on nightlife. (Full disclosure: FivePoint Holdings is a sponsor of SullivanSaysSoCal.com and has an advertisement in this column that will take you to the company’s website with a click).
Or you can check October 19 on the schedule of the FivePoint Ampitheatre – which is run by LA-based promoter Live Nation Inc. – for information on a hip-hop show called “How the West Was Won” with Snoop Dogg as a headliner.
That’s not boring as hell – even if Snoop Dogg has edged toward the mainstream these days.
Treasure the Moment
Speaking of Snoop Dogg: Proof that his image has softened came at last year’s Treasures of Los Angeles program held by the Central City Association, which featured recorded licks of walk-up music by the Long Beach rapper to accompany presenters and honorees at the business advocacy and lobbying organization’s annual luncheon.
Speaking of Treasures: It would be worth the price of a ticket to see whether the elephant in the ballroom – in this case an ongoing federal corruption investigation of City Hall – goes overlooked at this year’s event on May 9 at the JW Marriott at LA Live.
That will take some moxie, with City Council President Herb Wesson scheduled for emcee duties for the event, which traditionally showers applause on a full complement of elected and appointed officials who’ve made the trip from City Hall.
I’ll lay 7-5 odds that the subject doesn’t come up and the applause for the City Hall contingent is as polite as ever.
LB’s Other Stars
Back to Snoop Dogg’s hometown of Long Beach, where there doesn’t seem to be any hint of corruption at the highest levels of the local public power structure.
Long Beach Mayor Robert Garcia holds the highest elected post in the city of half a million.
Mario Cordero serves as executive director of the Port of Long Beach, the biggest single economic engine in the city.
Both were at their earnest best when attending the April 23 opening of the Center for Community & Industry Partnerships on a sparkling day at the well-maintained Liberal Arts Campus of Long Beach City College.
More than 50 businesses and organizations have signed up to provide mentoring and employment opportunities through the center, with an eye on matching LBCC students to skills and jobs with strong demand in the marketplace.
Here’s a video of Garcia telling the crowd why those efforts and the new center matter.
Cordero Socks It to ‘Em
Long Beach might be SoCal border territory – in some ways it orients toward OC as much as LA.
But Cordero made it clear which way he leans with his choice of socks – at least when it comes to baseball and the borderline between the Angels and the Dodgers.
Milken Global Brings Local Buzz
Look for more next week on the Milken Institute Global Conference, which was just getting its annual intellectual fire hose going at the Beverly Hilton when this edition of SullivanSaysSoCal went to press.
For now you can keep in mind that not all of the action is at the conference itself. You had to go to the evening kickoff reception hosted by Jen Prosek and her crew at Prosek Partners at the Mosaic Hotel on April 28 to pick up on word of a very LA scene. The buzz was that Bob Kraft was spotted exchanging warm greetings with Cindy Crawford at Nate ‘n Al Delicatessen on North Beverly Drive.
Seems the New England Patriots owner had planned to be a panelist before his recent legal difficulties led him to stick with a lower profile as an attendee.
Hugging Crawford wouldn’t quality as low profile in many places – but it wasn’t much more than usual for a Sunday morning at Nate ‘n Al.
Seems every mural around here has a champion except the commercial art on the south wall of the now-shuttered Dearden’s building at 7th & Main in Downtown LA.
Regarding the Paloma street lease…
Is the Landlord exempt from paying property taxes due to the property being leased to a non-profit? If they are still required to pay these property taxes that could be a reason as to why the City of Los Angeles is paying an over-market rate. Usually these costs would be passed on to the tenant as a triple-net cost. Being that the user is a non-profit the landlord may not be able to re-capture the property taxes in nets and that could be the reason as to why the rent is above market.
You’re right that gross rent would be more expensive than triple-net rent. This doesn’t, however, explain the change in what the city documents presented as range for a “fair market rental rate.” Officials changed the initially established fair market rental rate of 85 cents to $2 per square foot to a range of 88 cents to $2.95 per square foot in a second report.
There is no explanation why the change was made. The tax/insurance/maintenance terms — the three elements of triple-net — are the same in both reports. What did change was the total square footage to be leased, which went from 35,835 square feet to 17,917 square feet. The overall price remained the same in both instances, at $35,000 a month.
That effectively doubled the cost of the lease on a per-square foot basis, from 98 cents a square foot in September of 2018 to $1.95 per square foot in April of this year. There is no market data or any other indications that the market for commercial real estate in general or warehouse space in particular went up by that much.
Thank you for your thoughts–please feel free to forward any more you might have.