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Friday, Mar 29, 2024

REAL ESTATE—Long-Idled Warner Center Land Goes Residential

A large Warner Center parcel planned for commercial redevelopment will likely become a luxury housing complex instead, the latest casualty of the restrictions and fees a city ordinance imposes on office development in the area. The Morgan Group Inc., a multi-family residential developer, is in escrow to acquire the property, at 6150 Canoga Ave., for its first Los Angeles-area complex. The Houston-based company, which claims to be among the top 10 multi-family developers in the nation, was one of 140 initial bidders for the property, many of whom were interested in the site for commercial use. But trip fees and other restrictions imposed by the Warner Center Specific Plan on building in the area put office developers at a competitive disadvantage. “We went through two rounds of bidding, and the highest and best use for that property was what we were trying to determine,” said Dick Aronoff, the owner of the property. “There were commercial people and, when they run their pro-formas, they can’t afford the same price.” Neither Aronoff nor Morgan would disclose the purchase price for the property. If escrow closes as planned, The Morgan Group will build a complex of 154 luxury apartments. The company anticipates a four-story project, but is still working out the details of the design and rental prices, said Louis Kuntz, regional partner for The Morgan Group. The property currently houses the remains of a small office complex severely damaged in the Northridge Earthquake. It remained in a state of disrepair while Aronoff disputed an insurance company settlement on the damage and later considered redeveloping the parcel himself. Once he decided to put the property on the market, Aronoff anticipated that it would go to an office developer. Office development is allowed on the property and vacancy rates in the Warner Center area are hovering in single digits, an indication that the demand for office space is strong. But Warner Center is governed by a specific plan that imposes a number of development fees on commercial properties. A development of 150,000 square feet, the size of the structure allowed on the site, would require an additional payment of $1.5 million in so-called “trip fees,” the cost developers incur for the additional traffic anticipated with the development, according to Aronoff. “Remember, a person buying the property has to pay this before they ever get a tenant,” Aronoff said. A group of business tenants and real estate developers late last year mobilized to revise the specific plan and lift some of the restrictions it imposes on commercial developers. The plan levies fees that are among the highest in the city, and the group charges that such costs threaten the economic health and development potential of a community that was designed as a major business hub for the San Fernando Valley. The Los Angeles Planning Department held a public hearing Jan. 23 to consider revisions to the ordinance. Another hearing is planned before the area planning commission in March, after which the proposal will be submitted to the Los Angeles Planning Commission and, ultimately, the Los Angeles City Council. Until the proposal is adopted, however, a commercial developer must factor in the cost of the additional fees to the offer price. By contrast, an apartment complex of the same size would not require any additional trip fees; as a result, those eyeing the property for residential use submitted higher bids. At the same time, Aronoff believed that even those commercial bidders who seemed willing to pay the additional freight were likely to back out of the project once they understood the full scope of the expense and restrictions involved. “The other thing we discovered was there was a six-month learning curve with the Warner Center Specific Plan for a developer to decide what to do with it,” Aronoff said. “So what I tried to do in my qualification (of bidders) was to find those people I thought would make it through that period and not just disappear because it costs a bunch of money every time you do that.” The Morgan Group, a runner-up bidder for the Warner Ridge residential complex currently under development by Legacy Partners, chose the parcel because of the perceived demand for luxury housing in the area. “With the apartment vacancy rate around 1 or 2 percent, we felt there’s a need for new apartments,” said Kuntz. “All we do is build Class A apartments, and we feel Warner Center is a location that would be a Class A rental.” The company, which builds between 2,500 and 3,000 units a year, moved into the California market in 1996, and has developed three projects in San Diego since then. Two more projects are under construction in San Diego and another one is slated there. The company is also developing multi-family residences in Fullerton and Chino Hills. Ironically, there are other permitting restrictions in the area that could delay or even derail the plan for residential development. The tract on which the property stands is zoned for commercial, not residential, development, and requires the approval of three-quarters of the other landowners on the tract to change the zoning. Because Aronoff owns other properties on the tract, which runs from Canoga Avenue to DeSoto Avenue, he wants to remove the restrictions from the whole tract, not just the parcel Morgan is seeking to acquire.

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