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Monday, Apr 22, 2024

Prime, Yet Problematic, Parcel

After a protracted bankruptcy proceeding, a choice, four-acre property in Burbank has finally been sold to a New York investment group for about $42 million, well under the $60 million appraisal value. But the purchase price may not turn out to be much of a bargain after all. The property, along the 3400 block of West Olive Avenue at West Alameda Ave. in the prestigious Burbank Media District, is a site designated for redevelopment by the city of Burbank. And some of the terms of the development agreement could create real headaches for anyone wishing to develop the property. The market for condominiums has changed since the agreement was first struck, a possible relocation of the church that sits on the property has yet to be resolved, and there is a new Burbank city council that may or may not entertain different ideas for the development. “There are too many unanswered questions for someone to put up that kind of money,” said John Battle, a principal with real estate brokerage Lee & Associates who, with Duncan Lemmon, represented the trustee in the bankruptcy sale proceedings. “There’s a lot of money out there for real estate investments, but they’re not stupid.” As the Burbank Media District evolved into a prestigious address with some of the most expensive office buildings in the Valley, the project area, characterized by older, mom-and-pop businesses including a local landmark Dimples, had become increasingly incongruous, and the city of Burbank earmarked it for redevelopment. In 2005 the city reached an agreement with Platt Co. to redevelop the Burbank Media District property into a mixed-use site with 30,000 square feet of office space and 220 condominium units. But in 2006, with foreclosure looming, Platt filed bankruptcy and the future of the property fell into the hands of the bankruptcy court. Last week, the court resolved a final wrinkle allowing an agreement to sell the property to DB Burbank LLC, a unit of Platt’s lender, Fortress Investment Group LLC, in New York, to proceed. The sale is contingent on closing by June 15, according to the court order. The purchase price was essentially the amount Platt owed Fortress on the land acquisition, well under the $60 million the parcel had been appraised at last year, according to court documents. Despite the attractiveness of the parcel, only three other bids were received, all of them lower than even the DB offer. The second highest bid was $25,250,000; next a $23 million bid and a third ranging from $11.2 million to $19 million each with its own set of conditions. All the offers had contingencies of at least 30 days, the court documents revealed. (Bidders names were removed from the documents and could not be determined.) Officials at DB did not return phone calls seeking comment for this story. The low bids in part reflected problems associated with bankruptcy court sales, which typically require that transactions be cash deals with no contingencies, meaning buyers don’t have an opportunity to conduct due diligence before committing to the purchase. At the same time, several critical elements surrounding the project have yet to be ironed out, and with greater risk of problems down the road, buyers were not willing to pay top dollar for the site. In particular, the development agreement with the city of Burbank includes a provision to rebuild International Church of the Foursquare Gospel, which sits on the property. Because churches require especially large amounts of parking, a developer would prefer to move the church to another location, but church officials have yet to agree to the proposal. Added to those potential problems, a deadline for the original development agreement is looming, and if it is not met, the new developer would have to start from scratch, working with the city to carve out a new agreement based on current market conditions. “If they don’t perform, the development agreement could terminate in February, 2009,” said Joseph McDougall, senior assistant city attorney in Burbank, adding that the contract is somewhat more complex than the 2009 deadline date. Several milestones must be met along the way. The project still must be submitted for design approval and a traffic study and there are issues surrounding public rights of way, among other requirements that have yet to unfold. Meanwhile, changes have occurred in the marketplace since Platt determined that the condominiums, which in the current design make up the lion’s share of the redevelopment plan, would be the highest and best use for the land. These days developers are finding it more difficult to secure condominium financing, and when they do the terms are far less attractive. “I have talked to several fund managers, and they’re underwriting criteria has become a little more stringent,” said Richard Gentilucci, president of BTG Advisors LLC a land use and planning consultancy. “They’re looking more at the market today versus the future market.”

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