The Los Angeles Coalition for the Economy & Jobs – Weekly Report – January 22, 2018 – Maximizing the Value of Underutilized Publicly Owned Property in Los Angeles

At the heart of every great city, is a healthy government that provides its residents reliable public services, a job creating economy and thriving communities. In recent decades, growing populations and stretched budgets have place increasing demands on city leaders and public administrators to do more with less. That has lead to a realization​, ​by government, ​community and civic leaders, that government cannot meet these challenges alone.  
 
In the past few years, new innovative public private partnerships have been developed to bring together talent from the private and public sectors to transform the management of government operations to maximize efficiencies that generate cost savings and new revenues to the City’s general fund. These changes will in turn strengthen City government’s ability to implement more impactful economic and community development policies and programs.
 
The L.A. “Innovation Team” was one such model. Established in 2015 between the Mayor’s Office, the Mayor’s Fund for Los Angeles and the Los Angeles Coalition for the Economy & Jobs, this innovative partnership developed a platform for public and private skilled talent to work together, over a 18 month period, to gather data, implement best practices and bring new insights into the City’s governance structure.  
 
To date the L.A. Model has put City Hall in a better position to reduce workplace safety risks and their associated costs; streamline the city’s procurement process to increase competition and diversify the vendor pool; and improve the oversight and management of the City’s real estate assets. 
 
The defining success of this model will depend on the continued stewardship of the L.A. Coalition in advancing these recommendations. In the first of a series of follow-up actions for 2018, this document will provide further details on how best to proceed on the Real Estate initiative.
The Issue – L.A. is not Maximizing the Value of its Underutilized Publicly Owned Property
 
The City of Los Angeles owns a diversified portfolio of assets (8,000 parcels) including office, mixed-use, commercial, industrial, single family, multi-family properties and vacant land located throughout the State of California, as well as in the states of Arizona and Nevada. As an owner, operator, developer and consumer of real estate, the City had long been unable to provide a comprehensive listing (city staff had individual lists, but those lists provided insufficient and inaccurate data) of its real estate assets, which has long impeded city policymakers ability to strategically leverage its portfolio to better further its operational or economic goals. But the problem was not that simple.
 
The ​LA ​”Innovation Team” overall findings revealed that the City needed additional resources to help it:
  • Provide more accurate and current data regarding city-owned assets;
  • Execute real estate transactions in a timely manner;
  • Engage in sophisticated real estate transactions; and
  • Drive large scale projects.
In 2017 the Team played a strong role in resolving the first bullet point, by helping secure $2.5m from the City budget to develop a internal data base (for the first time in 20 years) to digitize and track all of the City’s real property. Then the Team successful built a external facing website that has begun to provide public access to data on city-owned property. 
 
Additionally, in July 2016 Mayor Garcetti was able to use the O-Team data to take a critical step in the City’s effort to combat homelessness, the Mayor invited affordable housing developers to submit proposals to develop City-owned properties for homeless residents. The City Administrative Officer released a Request for Qualifications and Proposals (RFQ/P) for eight City-owned sites, with multiple parcels, that will either be sold or developed. These sites represent at least $47 million of the City’s plan to invest $138 million towards homeless programs, services, and housing in Los Angeles during this fiscal year. ​​
 
The other challenges in the bullets above can be attributed to the issues below and need to be addressed in a more sustained effort (That is what this paper will address): 
  • City Government’s ownership of property is highly fragmented and balkanized, spreading out across its airports, port, convention center, Department of Water & Power and Public Works, to name a few.
  • The decision-making: policies, budgeting, management and operations and maintenance of assets, is dispersed among multiple departments and branches of City government.
  • There are multiple levels of government that oversee these entities (and the laws and regulations that govern them), which are complex, having been created over the past century in hopes of preventing corruption and enabling greater efficiency. For example, the Administrative Code prescribes certain decision making power when it comes to real estate and there have been business practices that have been adopted over time that limit the level of change that can be made immediately.
  • There are inconsistent policies and processes across the City, inadequate data standards, unmet expectations around the management of assets and the perpetual execution of one-off deals. This has resulted in minimal business intelligence around City-owned assets and real estate decisions.
  • The Civil Service rules regarding the hiring process limit the City’s ability to attract qualified talent from the private sector. And the Personnel department’s recruiting practices are limited when it comes to recruiting new and experienced talent.
  • Strategic Asset Management Plan and Programming – the City lacks a comprehensive strategic asset management plan for all of its assets, which results in a lack of innovative and creative programs to optimize city-owned facilities and land.
  • Management/operations/maintenance are out of sync with industry best practices – the City does align its real estate asset management practices (i.e. leasing and property management, disposition, acquisition) and maintenance operations with industry best practices, which results in limited output of financial and human resources and inefficiencies in the delivery of services.
  • City staff are reluctant to institute process and workflow changes to drive efficiency and cost saving strategies unless mandated. Departments work in silos and there is a lack of consistent collaboration.
  • Lack of strategic leadership – The City lacks a central authority on its real estate portfolio that works in partnership with the Mayor and City Council to serve as the primary advisor on the portfolio and its performance; and execute a long-term strategic comprehensive vision around real estate.
The Opportunity – Transforming the Los Angeles Development Fund
 
The big picture recommendation of the “Innovation Team” is the recalibration of Los Angeles Development Fund (LADF) into a strategic real estate center that would help the City develop a comprehensive strategic asset management plan for all of its assets, which would result in the creation and implementation of innovative and creative programs that optimize city-owned facilities and land. This effort would ​mitigate current costs and ​drive more ​revenue to the City budget, helping the City advance a more ​inclusive economic and community development​ strategy​, that includes the building of more affordable housing units, parks and mixed-use structures, to name a few. And it would help the City skillfully manage supply and demand and maximize long-term revenue, for itself and the public good. 
 
LADF is currently a California non-profit corporation (501 c 3), established by the City in September 2006, with the purpose of managing a New Markets Tax Credit program. City Council created a memorandum of understanding exists between the City and LADF to make sure the credits are used to generate private investment capital to carry out economic development programs and objectives that promote, develop, establish or expand industries and commerce throughout the city. 
 
The problem is these credits are just one of many financial tools that the city has to work with and without a Strategic Asset Management Plan in place, city government loses sight of its asset portfolio and is forced to make decisions in a piecemeal fashion. This has a negative impact on the city’s ability to raise capital for transformative urban development; and in some cases City investments only benefit individual property owners in a random way.
 
The new LADF model would better facilitate much needed interaction between City Hall and the private sector, non-profit sector, and the philanthropic community to help the City do the following:
  • Move the City towards utilizing real estate data analytics to derive insights and empower the City to make faster and more informed real estate decisions,
  • Challenge the City to manage its real estate holdings as a valuable portfolio that can be leveraged in a coordinated and strategic way to support municipal, civic and economic development initiatives,
  • To increase transparency around real estate for internal, external and industry stakeholders,
  • To implement industry best practices in facility management to improve the financial and functional performance of City facilities,
  • To leverage City-owned property to increase revenue for the City,
  • To institute a model of using City-owned property for community development and quality mixed income housing,
  • To increase the City’s business intelligence around real estate through implementation of AssetWorks; and
  • Design performance scorecard to analyze the performance of city-owned assets.
Ultimately, the new LADF governing arrangement will result in a stronger city government that is more technically proficient, accountable, and incentivized to cooperate, enabling it to be a stronger negotiator, partner, and investor in city-wide economic development initiatives. 
 
The Path Forward
 
In order to strengthen LADF’s ​role as a strategic real estate arm of the City of L.A., the following must occur: 
 
Step One: Secure City Leaders’ Support
​Securing the ​support of City leaders, including the Mayor, City Council President​, ​the Chair of the Budget Committee​ and City Attorney,​ is critical to the establishment of the new LADF model.  
 
Step Two: ​Recalibrate​ the LADF Governance Structure
 
​The current ​LADF ​board will need to enhance the ​current ​bylaws to expand the nonprofit’s ​mission and its ​governing board of directors​. Th​e​ ​new ​structure ​should ​combine the capacity of city government with the agility and effectiveness of private sector input to advance solutions that will leverage public assets and optimize​ ​market opportunities. ​Suggestions for doing this are below:​
 
Mission: ​The ​Los Angeles Development Fund is a not-for-profit that brings together ​public and private stakeholders ​to champion​ ​a broad range of initiatives designed to develop stronger neighborhoods, stimulate employment growth, and encourage investment throughout ​the City of Los Angeles​. 
 
Function(s): ​The ​role of the ​​Los Angeles Development Fund ​​is to ​serve as a ​strategic real estate center ​advancing the development of a comprehensive strategic asset management plan for all of ​the City’s​ assets, which would result in the creation and implementation of innovative and creative programs that optimize city-owned facilities and land.​ ​LADF ​will ​operate​s in a nimble manner, serving as a neutral party between the political and bureaucratic arenas, supporting the City’s goal of delivering sustainable economic development projects that support ​all of ​L.A.’s communities. This ​will support the City’s efforts ​to attract and retain smart and talented ​Angelenos​ – the key to our City’s future.
 
Governance/Board of Directors: LADF should be governed by a Board of Directors with significant expertise and leadership experience in large business management, real estate, finance, law, revitalization of underserved neighborhoods, community organizations, higher education, labor and small business operations. They should also be known for their collaboration, professionalism and public orientation. 
  • Board of Directors (​Expand from the five current members to a total of ​11 ​new ​members)
    • 5 Ex-Officio​ (current)​
    • General Manager, HCIDLA
    • General Manager, EWDD
    • Designee of the CLA
    • Designee of the CAO
    • Acting Chairperson, IDA
    • ​6 ​Private Sector (​Add 6 new appointees: ​Three Mayor and ​Three​ Council President)
  • Board Responsibilities
    • Strategy and Planning
    • Plan LADF expansion and transition
    • Advise LADF on citywide strategic planning and implementation
  • Organizational Oversight
    • Provide feedback on strategic plans and major LADF projects/programs
    • Oversee and approve annual budget and strategic plan updates
    • Approve major financing tools, asset management decisions, and LADF investments
  • External Representation
    • Promote the mission of the LADF through networks throughout the greater LA region
  • Leadership Positions​ (No changes needed)​
    • Chair
    • Vice Chair
    • Treasurer
    • Clerk
    • Secretary
  • Executive Committee: Comprised of five members serving on the Board
    • Will oversee decisions made by Board and issue time-sensitive decisions where necessary
    • Advise LADF on citywide strategic planning and implementation
    • Provide feedback on strategic plans and major LADF projects/programs
    • Oversee and approve annual budget and strategic plan updates
    • Approve major financing tools, asset management decisions, and LADF investment
  • Additional Committees: (as appropriate throughout LADF expansion)
    • Budget/Finance, Nominating, Governance, and Audit
  • Advisory Board
    • Provide the initial review on both citywide and LADF organizational strategic plans
    • Provide initial review on all potential major investments (e.g. applications for NMTC allocations)
Step Three: Re-Calibrate the Memorandum of Understanding Between the City and LADF
To be determined by the new Board of Directors ​
 
Step Four: Recruit and Hire New Staff
 
​LADF​ ​should ​consist of ​a ​teams of skilled and dedicated individuals with know​ ​how and expertise across many fields including community/neighborhood development, workforce development, real estate, industry and sector analysis, design, urban planning, marketing, engineering, financial analysis and more. The staff will provide support to city leaders and staff to advance public/private projects that align with the City’s economic development interests​ . Support will include advising municipal partners on transactions, asset utilization, strategic alignment and the coordination of large, cross-agency projects and public-private partnerships. ​
 
Executive Director:​ ​TBD
 
Management Analyst​(​s​)​: ​TBD​
 
Step Five – Strengthen Relationships with ​the City’s ​Strategic Planning ​Functions ​and Asset Database Partners
 
General Services Department​, ​City Council​, ​Housing and Community Investment Department​, ​Economic & Workforce Development Department​, ​Mayor’s Office​, ​Department of City Planning​, ​Chief Legislative Analyst​, ​City Administrative Officer​, ​Neighborhood Councils​, ​Los Angeles World Airports​, ​Port of L.A.​, and ​Department of Water and Power
 
Step Six: Develop a 18 Month​ Agenda ​that Cover Some of the Following Priority Areas and Initiatives
  • Develop performance metrics for the city’s individual real estate assets
    • Implement a centralized real estate asset management system
    • Establish performance metrics and information sharing capacity
  • Establish portfolio management structures and oversight
    • Operationalize the city’s real estate assets for municipal and public benefit
  • ​Create a plan to coordinate the City’s real estate portfolio programs and opportunities
    • Re-examine legislation for the management and disposition​ of properties​
    • Spur reinvestment in communities through disposition
    • Establish programs that leverage financing tools
    • Strengthen strategic investments and partnerships
    • ​Focus on three priority properties and secure private sector input for development​
  • Support and Capacity Building City
    • Secure support from leadership, departments, academic and private-sector partners
  • Operational
    • Mobility to capitalize on market changes in real time
    • Redirection of city resources from core responsibilities
​​Step Seven: ​Develop a Strategic Plan to Leverage all of the City’s ​Economic Development Tools and Programs
  • Real Estate & Property (Zoning options to maximize value of land – i.e. create mixed use to drive revenue for other property.)
  • Special Districts (tourism, BIDs, etc.)
  • P3/Project Delivery Methods
  • Grants/State/Federal Sources (EDA, CDBG, Cap and Trade Funds)
  • Rebate of taxes/revenues
  • Land Use/Zoning (Higher Density; DOR, Parking)
  • Property Assessed Clean energy Finance (PACE)
  • Community Revitalization & Inv. Authority (CRIA) & Industrial Development Authority
  • Enhanced Infrastructure Financing District (EIFD)​
​Step Eight: Secure Public/Private Funding to Establish the New LADF
 
​Finally, the new LADF ​is the right platform to support the City’s goal of facilitating a more customer- oriented environment while achieving the City goals of increasing jobs and stimulating business activity and thereby growing the tax base.