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Wed, Feb

To Understand City Hall Politics, You Need to Understand LA’s Current Building Boom

LOS ANGELES

PLATKIN ON PLANNING-The column hopefully begins to examine the connections between City Hall and real estate investments pouring into Los Angeles. While this story gets to the foundation of municipal politics, the mainstream news media either ignores it completely or only reports small snippets of the big picture. 

Wall Street in My Back Yard (WIMBY): The story begins with the epithet WIMBY, an acronym for for Wall Street In My Backyard. WIMBY stands in sharp contrast to the term NIMBY (Not in My Backyard), a creation of the real estate industry to malign its critics. Since the real estate crowd views privately owned parcels as ideal profit-making commodities, they imagine that their detractors think the same way. They just can’t grasp the obvious, that those they smear as NIMBYs consider urban quality of life to be more important than real estate speculation. This is why these critics also turn to rigorous city planning, not the booms and busts of real estate markets, as the best instrument to maintain and improve cities.  

To understand what WIMBY means in Los Angeles, this is an answer to the first of five basic questions on the links between real estate speculation and City Hall’s politics, policies, programs, and practices. 

Question 1 of 5: How extensive is the current building boom in Los Angeles? 

Unless you have been glued to a couch the past few years, binging on streaming television, you must know that Los Angeles is in the midst of a record building boom. In some ways it is like previous building booms, with allied interest groups joining forces, all claiming that real estate speculation should be City Hall’s guiding north star.  

Like before, these interest groups – what Prof. Harvey Molotch calls the Urban Growth Machine -- include lenders and investors; realtors and property managers; construction companies and construction unions appended to them; public officials – mostly corporate Democrats; mainstream media; and local boosters, such as Chambers of Commerce and new astroturf groups. The latter have corporate money behind them, but present themselves as grass roots organizations celebrating every new real estate project. 

But, there is also a difference this time. First, Los Angeles has run out of raw land, so this building boom relies on infill development. Developers must first acquire parcels, in almost all cases level existing structures, pushing out reluctant tenants, and then pursuing zoning waivers. Second, in recent booms, such as the 1990s, planning and its implementation through zoning were embraced as helpful tools. In this boom, the revitalized urban growth machine considers planning, zoning, and environmental laws to be an albatross around its neck.  

Unlike before, whether Trump Republicans or Garcetti-type corporate Democrats, they are now died-in-the-wool, supply-side trickle-downers. Their new mantra is deregulation. Their business/political model is to remove state and local laws that regulate land use, such as Senator Scott Wiener’s proposed SB 827. If adopted, his bill would eliminate most zoning regulations in California’s cities, including Los Angeles. 

LA’s current building boom can be measured in many ways: Only one U.S. city, Seattle, has more construction cranes than Los Angeles. The last time Downtown Los Angeles had so many simultaneous construction projects was in the 1920s, over 90 years ago. 

This real estate boom is proceeding in at least four different categories, most of which are mapped and updated daily by Blake Alexander through his Los Angeles Development Map. This map covers the entire metropolitan area and breaks down projects into four color-coded categories: completed, under construction, proposed, and on-hold. In combination they reveal, “You ain’t seen nothin’ yet.” Many projects are in the wings, and this does not include those that have not yet made a public announcement. 

A quick glance at his map identifies three neighborhoods where the building boom is already roaring: Downtown LA, Hollywood, and Koreatown. As for smaller real estate boomlets: they are in the Miracle Mile, Century City, Beverly Grove-West Hollywood, Culver City, and USC. In the Valley the boomlet nodes are Warner Center, NoHo, and Glendale.   

Those who want to follow this real estate boom in more detail – including institutional funders -- can also turn to Urbanize LA. It enthusiastically describes every major project in the entire Los Angeles metropolitan as if it were an addition to the family, including photographs and birth announcements. While shopping centers, high rise office buildings, and major residential complexes show up on The Los Angeles Development Map and Urbanize LA, McMansions and smaller apartment houses do not. 

McMansions: Despite an uproar from many local communities for over a decade, the only Los Angeles neighborhoods protected from McMansions -- those large, boxy, quickly built houses that fill lots and tower over neighboring houses -- are LA’s 35 Historical Preservation Overlays Zones. Everywhere else, even those areas like Beverly Grove (where I live) that have Residential Floor Area Districts (RFA) are under siege.  

This is because existing zoning, even with RFAs and re:code LA’s new R-1 zones, is still permissive and/or filled with loopholes. Furthermore, the mansionizers have quickly figured out how to game the system. They fully understand that LA’s Department of Building and Safety (LADBS) – backed up by some City Council staff -- has little interest or capacity to stop mansionizers from flouting adopted laws. As a result, the mansionizers see nothing but a bright green light whose veiled message is clear. Demolish whatever you want, exceed size and height limits, and even build accessible rooms on rooftops. 

The only real measure we have of mansionization is demolitions, and in my neighborhood alone, Beverly Grove, there are about 200 McMansions, or about 10 percent of existing housing, with new demolitions appearing daily. About four years ago, according to the LAT, Los Angeles experienced 1,500 house demolitions in a one-year period, and since then the rate of mansionization has soared. 

Citywide, there must now be at least 15,000 house demolitions, with individual and pooled investors quickly piling in to make several million easy dollars from each new McMansion springing up on a short-lived “empty” lot. 

Another measure of mansionization is the cumulative amount of single-family home construction, almost entirely infill, in Los Angeles between 2005, when the mansionization trend began, through 2015: 57 million square feet.  By 2018 the figure is closer to 70 million square feet, which equates to approximately 17,000 McMansions. Considering that each McMansion nets investors between $1-2 million profit, it is obvious why so many speculators are individually and collectively pouring money into this end of the building boom. 

Single-family houses: We think of individual homes as the domain of small owner-occupants, but this changed with mansionization. Furthermore, before its recent swan dive, the LA Weekly published a truly revealing report, “When Wall Street is Your Landlord.”   The article described Invitation Homes, founded in 2008 by the Blackstone Group to manage the thousands of single-family homes it acquired when millions of over-extended owners were foreclosed on or walked away from their homes. 

Even though Invitation Homes is this country’s largest corporate owner of rental houses, the Westbridge Group of Companies found a niche to buy, rent, and flip luxury homes, such as the Owlwood estate in Holmby Hills, purchased at $90 million in 2016, and put on the market a year later for $180 million. They began this business model in 2014, focusing on homes in the $1-5 million category, compiling a portfolio of 138 homes. According to the Daily News, this was a great business model except for one minor flaw: it was a Ponzi scheme. The Security and Exchange Commission is now prosecuting the Westbridge Group’s CEO as a white-collar criminal. Maybe Bernie Madoff will soon have a new roommate at his Club Fed bungalow? 

Apartment buildings are the big brother of McMansions. Most, such as those of Wiseman Residential, are built by-right and do not require special zoning waivers. According to Co-Star the apartment building construction boom extends over all of Southern California. Their map of apartment projects shows locations, and it totally corroborates the Los Angeles Development Map. Co-Star concludes that this is the largest apartment construction boom in over three decades, with 40 percent of the region’s new apartment buildings located in a swath that extends from Downtown LA, through Hollywood, Koreatown, and Miracle Mile to the beach. 

The Wall Street Journal corroborates this story, describing many new condo projects in Los Angeles, especially in Downtown Los Angeles, mostly financed by Chinese investment groups. They also note that once completed, many Chinese investors will buy these units as a personal investment, even though they will not become permanent occupants. 

The extent of this current building boom is only the tip of the iceberg, and four other important questions remain, so please stay tuned or, better yet, help answer the following: 

Question 2 of 5.  Where is the money coming from for this real estate boom?  

Question 3 of 5.  How much money are these real estate investors making? 

Question 4 of 5.  What happens to these profits? 

Question 5 of 5. Who are their political enablers of this building boom? 

 

(Dick Platkin is a former LA city planner who reports on local planning controversies for CityWatchLA.  Please send any comments or corrections to [email protected].) Prepped for CityWatch by Linda Abrams.