Is Playa Vista Getting a Sweetheart Deal in Wetlands Sale to State?

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Is Playa Vista Getting a Sweetheart Deal in Wetlands Sale to State?

Land Valuation "Green Paper"

Ballona Wetlands Green Paper - Page 1

Published Fall 2003, Ballona Wetlands Land Trust

Introduction

The Ballona Wetlands ecosystem is the largest coastal wetlands ecosystem left in the County of Los Angeles, and includes 1087 acres of salt marsh, freshwater wetlands, riparian areas, dunes, and upland habitat. About 100 of these acres have been built upon. Approximately 827 acres is owned by Playa Capital, L.L.C., the investment consortium which owns the Playa Vista development company. Approximately 130 acres is owned by the State of California. The remaining balance of the acreage is owned by Playa Vista, but includes Ballona Creek and the sheer bluff faces of the Westchester bluffs which are already preserved as open space.1 In 1997, Playa Capital, L.L.C., ("Playa Capital") purchased 957 acres of the Ballona Wetlands ecosystem for $120.9 million (See *Exhibit A, January 1998 Playa Vista Business Plan). In 2000, Playa Capital announced its willingness to sell Areas A & B of the Ballona Wetlands to the state of California so it can be dedicated as open space for perpetuity. The appraisal on this potential sale was initially scheduled to be released to the public in July, 2001.

This public appraisal release date has been postponed repeatedly and the interested parties such as environmental and community organizations have been left in the dark. Due to the extraordinary secrecy surrounding the appraisal, this report has been produced to answer some of the questions that the public and government officials have been asking about the fair market value of the land and what the public should pay for land at Ballona Wetlands if the acquisition is commenced. This potential acquisition is very high profile and potentially precedent-setting.

It is absolutely critical that we get this land in state hands. However, we must not engage in a corporate bail-out to achieve that goal. Most importantly, it is essential that any acquisition price paid reflects the lands' true fair market value. Paying over-market value would artificially inflate the value of other coastal wetlands in California. Many bird and marine species that use the Ballona Wetlands are dependent on other coastal wetlands ecosystems along the Pacific Coast.

Therefore, we must consider the impact that any public acquisition of the Ballona Wetlands has on the ability for other public or private conservation entities to acquire and preserve those ecosystems.

Ballona Wetlands Ecosystem: 1087 acres

I. Areas A & B (Unentitled)

Ballona Wetlands Green Paper - Page 2

Areas A & B encompass approximately 475 acres, of which 415 acres are privately owned by Playa Vista and 60 acres publicly owned by the State. Of the 415 privately-owned acres, at least 277 acres are jurisdictional wetlands according to the United States Fish & Wildlife Service. Based on comparable recent coastal land purchases in California, the approximate fair market value of the privately owned acreage is $16 million. According to the Los Angeles County Tax Assessor, the assessed value of the privately-owned acreage is approximately $21.8 million. (See Exhibit B for detailed assessor maps and parcel descriptions). Therefore, the fair market value of the 415 acres privately owned by Playa Capital in Areas A & B is between $16 million and $21.8 million.

A. US Fish & Wildlife Service Wetland Delineation (1983 Ballona Land Use Plan)2

The wetland delineation that found the most jurisdictional wetland acreage was conducted in 1983 by the US Fish & Wildlife Service.3 This wetland delineation is reflected in the table below.

Parcel total acreage private land Acreage of delineated wetlands (approximate)
Area A (139 acres) 37 acres
Area B total (276 acres)4 240 acres
B saltmarsh (222 acres) 218 acres
B residential (54 acres) 22 acres
TOTAL JURISDICTIONAL WETLANDS 277 acres
TOTAL UNENTITLED NON-WETLAND 138 acres
________
TOTAL PRIVATE ACREAGE 415 acres

B. Approximate Land Values

Area A is zoned agricultural and is unentitled. Area B's salt marsh ("Area B Salt") is zoned open space. The rest of Area B is zoned residential ("Area B Residential"). All of Area B is unentitled. About 87% of Area B is jurisdictional wetlands. According to research conducted for this report, wetlands are sold on the market for anywhere between $15,187 per acre and $36,059 per acre. (See chart named "Recent Comparable Coastal Land Purchases" below). Unentitled non-wetland is generally worth approximately $43,560 per acre (generally less than a dollar per foot). The price for unentitled land has not changed much even with the real estate market’s many rises and drops. The price is generally standard across the board, and has remained generally constant over the past ten years.

RECENT COMPARABLE COASTAL LAND PURCHASES

Ballona Wetlands Green Paper - Page 3

Range: $15,187 - $36,059 per acre for wetland associated parcels Ormond Beach: Ventura (unentitled)5

industrial use with agriculture land surrounding
includes subsurface rights (fee simple ownership)
165 acres degraded wetlands (never delineated); 100 acres tank farm (industrial use)
269 acres for $9.7 million = $36,059 per acre

Cargill: South San Francisco (unentitled)6

contaminated (no requirement that Cargill responsible for remediation)
residential and industrial uses surrounding
almost all jurisdictional wetlands; 400-500 acres under water, so arguably public land 16,500 acres for $243 million ($100 million cash and $143 in charitable tax deduction) = $15,187 per acre

Hellman Ranch: Seal Beach (unentitled)7

surface rights only; Edison still controls mineral rights
Road and powerline right of way (zoned industrial)
no delineated wetlands

7.9 acres at $235,000 = $30,000 per acre Topanga Canyon: Malibu (some unentitled/some entitled)8

approximately 200 acres residential/commercial zoned development
approx 2.1 acre lagoon wetland
majority of property was too steep to build on
required resident and business relocation
LCP called for development in the planning documents, so would have had minimal difficulty

obtaining permits

1640 acres for $43 million = $26,219 per acre

Based on comparable public land purchases of wetlands and uplands, the value of Areas A & B is somewhere between $15,187 and $43,560 per acre. Giving the landowner the benefit of the doubt, Area A is worth approximately $5.8 million, and Area B is worth approximately $10.7 million. Based on recent comparable coastal land purchases, together these parcels are worth $15,999,623. This is comparable to the assessed value of the land, which is $21,793,611 as stated above.

Table 2 A B Res B Salt Total Comp Value $5,777,303 2,187,218 8,035,102 15,999,623

Assessed Value
$16,215,242 5,575,132 3,237 21,793,611
This analysis takes into account that Playa Vista does not have, and will not be able to Ballona Wetlands Green Paper - Page 4 secure, entitlements to develop Areas A & B. Any valuation that treats the land as entitled, or that wrongly assumes that entitlements can be secured, should be dismissed. However, for the purposes of "what if" analysis only, this report concludes that even if the land were fully entitled, its value would not exceed $80 million (based upon a $500,000 per acre value; see Section IIIA below). It is worth noting that even this inflated figure, which is almost four times greater than the unentitled valuation, is still substantially less (about one-third less) than unofficial asking prices that have been recently circulating in political circles.

C. Political and Legal Realities

In 1999, the California Supreme Court let stand a California Court of Appeals decision clarifying that the California Coastal Act prohibits state delineated wetlands from being filled for residential or commercial development. Bolsa Chica Land Trust v. Superior Court, 71 Cal. App. 4th 493; 83 Cal. Rptr. 2d 850 (1999). Therefore, the Coastal Act makes it very difficult for Playa Vista to obtain entitlements for their project in Areas A & B. Furthermore, even if Playa Vista were to build only water dependent development in Areas A & B, such as a new marina, it would be very difficult for the developer to do so, given water dependent development. The Coastal Commission generally requires 4 to 1 mitigation for destruction of wetland acreage.11 Filling or dredging Area A’s 37 acres would require like-kind mitigation of 148 acres of wetlands created and/or restored elsewhere on Playa Vista private property. Similarly, filling or dredging of Area residential B's 36 acres would require 144 acres of like-kind wetlands created and/or restored elsewhere on Playa Vista private property, bringing the total mitigation requirement to 292 acres. This is a significant amount of acreage that would have to be set aside for mitigation, resulting in a reduction of the acreage available for building.

The political realities that must be considered with regard to the fair market value of Areas A & B include, among other things, the fact that the parcels are 1) located over the Southern California Gas Company gas storage field (See Exhibit G); and 2) located within the Coastal Zone. Both factors substantially impact the ability of Playa Vista to develop this area. Securing building entitlements would require extra regulatory oversight and approval from agencies such as State Department of Oil and Gas and the California Coastal Commission. Moreover, the City of Los Angeles Department of Building and Safety’s independent peer reviewer has stated that no buildings should be built over the gas storage reservoir.i

Finally, the Playa Vista project has minimal community support, at best. The Playa Vista developer knows that public opposition translates into a lower probability that all entitlements will be obtained. At the very least, public opposition always results in pushing the receipt of entitlements farther into the future. The longer the developer must wait for entitlements, the more expensive the project becomes, making it that more difficult for the developer to justify the project financially to its investors. Ultimately, these legal & political realities should be factored into the land value equation.

Ballona Wetlands Green Paper - Page 5

II. Area C (Publicly Owned)

Area C encompasses about 70 acres and is publicly owned, held in trust on behalf of the State of California under the jurisdiction of the State Controller. At one time Howard Hughes owned the entire 1087-acre Ballona Wetlands ecosystem. When Hughes died, his heirs gave the State of California the 70-acre parcel now known as Ballona Northeast in lieu of paying cash for estate taxes. In 1990, State Controller Gray Davis gave the Playa Vista developers a five year option to purchase Area C. This option to purchase, if exercised by Playa Vista, would have required the State to sell the parcel to Playa Vista. In 1995 the option was extended until December 31st, 2000. Playa Capital failed to exercise their option by the December 31st, 2000 deadline and thus the option expired. While Playa Capital, maintains a Right of First Purchase/Refusal until December 31, 2005 on Area C, it is clear that this right does not hold any value in regard to the ability for the State to transfer this land into another State agency. (See Exhibit C, accompanying legal memorandum addressing the issue of whether the transfer of Area C into a conservation-minded state agency would trigger Playa Capital’s Right of First Purchase/Refusal). Thus, in the context of the State’s interest in transferring this land into another agency, or in selling the land after 2005, Playa’s Right of First Purchase/Refusal has no value.

III. Area D

Area D encompasses approximately 412 acres and is divided up into project phases.

Phase One includes areas D-1 and D-3. Phase One is entitled. Phase Two includes area D-2. Phase Two is unentitled. (See Exhibit D, Playa Vista Master Plan Map).

A. Area D Phase One (Entitled)

1) D-1: Currently, Playa Vista is building in Area D-1.

2) D-3: No new buildings have been developed in Area D-3. The parcel is approximately 137 acres and includes the site of the old Howard Hughes industrial plant. This is the area where one time anchor tenant Dreamworks was to build their studio. Dreamworks pulled out of the Playa Vista project in 1999. Three years later with no new anchor tenant, coupled with problems of toxic contamination, Playa Vista has not commenced building in D-3. ("Hughes Property at Playa Vista Might Go Back on Block," Los Angeles Business Journal, August 26, 2002, p3).

Playa Capital recently reorganized the subdivisions in D3 so that it consists of two large parcels instead of dozens. Presumably, this reorganization will serve to assist Playa in selling D-3.

Indeed, recently Playa Vista President Steve Soboroff publicly stated that Playa Capital will put D-3 back on the market at the end of 2002 if no anchor tenant is found. Mr. Soboroff stated he believed the land in D-3 was worth $45 million. (Id., p.52) The assessed value of D-3 according to the Los Angeles County Tax Assessor is $52.2 million. (Exhibit B).

Generally, entitled land in the region sells for about $500,000 per acre, depending on the size and location of the parcel. For example, recent sales of entitled land near the Watergarden Ballona Wetlands Green Paper - Page 6 and Arboretum in Santa Monica, and entitled land in Vista, California (San Diego area) recently priced at about $500,000 per acre. Similarly, the Vista Pacifica property, located in the Baldwin Hills area about 3 miles from the Playa Vista site, recently sold for $610,294 per acre. This 68 acres was completely entitled, and bulldozers were rolling when the State of California stepped in to buy the land. The land holds expansive views of the San GabrielSanta Monica Mountains, and is an integral part of the Baldwin Hills Recreation Area and Nature Preserve. Based upon these recent comparable entitled land sales, the value of Area D-3 is somewhere between the assessed value and the comparable land sale value. The range of Area D-3 values are interpreted by the table below.

Table 4 Type of Valuation Per acre price Total value Comparable entitled land value 137 acres x $500,000 per acre $68,500,000 County Tax Assessor value 137 acres x 381,292 per acre $52,237,006 B. Area D Phase Two (Unentitled) Area D-2 is approximately 98 acres. The land is zoned industrial/residential but is unentitled and has no infrastructure in place. The range of Area D-2 values are demonstrated in the table below.

As stated above, the value of unentitled land is generally $43,560 per acre. However, given that the parcel does not have substantial wetland acreage, and is located between two entitled parcels, this value is likely on the very low side. By way of contrast, the County Tax Assessor found the land to be worth approximately $128,000 per acre. The County Tax Assessor has valued Area D-2 at $12.6 million, which is arguably a more accurate value. (Exhibit B).

Table 3

Type of Valuation Per acre price Total value

Comparable unentitled
land value 98 acres x $43,560 per acre $4,268,880

County Tax Assessor
value 98 acres x $128,842 per acre $12,626,536

Community organizations have shown interest in purchasing this land for future public use as a wildlife refuge and public park, preserving the old Howard Hughes Hangar as a cultural and historical resource, while restoring the wetlands that the developers filled. Eventually D-3 could Ballona Wetlands Green Paper - Page 7 be reconnected with the Ballona saltmarsh via Centinela Creek which runs along the bottom of the southerly bluff. (See Exhibit D).

IV. Conclusion

This report is intended to assist government decision makers and the public about the fair market value of the Ballona Wetlands in the context of a prospective public purchase of the land. Whether looking at recent coastal land acquisition prices or the tax assessed value, it is clear that the fair market value of the 415 acres privately owned by Playa Capital in Areas A & B is below $22 million.

With regard to the question of whether acquisition of all the undeveloped privatelyowned parcels of the entire Ballona Wetlands ecosystem (Areas A, B, D-2 and D-3) is feasible, one should consider that both the tax-assessed value and the comparable land sales value demonstrate that these parcels are collectively worth approximately $87 million.

Table 5
0
1 0 ,0 0 0 , 0 0 0

2 0 ,0 0 0 , 0 0 0

3 0 ,0 0 0 , 0 0 0

4 0 ,0 0 0 , 0 0 0

5 0 ,0 0 0 , 0 0 0

6 0 ,0 0 0 , 0 0 0

7 0 ,0 0 0 , 0 0 0

8 0 ,0 0 0 , 0 0 0

9 0 ,0 0 0 , 0 0 0

Dollar Value

Parcel

Ballona Fair Market Value
Comp Value 5,777,303 10,222,320 4,268,880 68,500,000 88,768,503

Assessed Value 16,215,242 5,578,369 12,626,536 52,237,006 86,657,153
A (139 acres)

B ( 276 acres)
D - 2 ( 9 8 acres)
D - 3 ( 1 3 7 acres)
T o t a l ( 6 5 0 acres)

By passing Proposition 50, Californians expressed their recognition of the value of sensitive ecosystems and their impact on our quality of life. Keeping land acquisition payments within fair market values will allow many more acres of critical open space and wildlife habitat to be preserved both now and in the future. It will also protect tax payers by ensuring the money that they have nobly allocated is spent wisely and in their best interest. 1Although Ballona Creek (82 acres) and the sheer bluff faces (48 acres) are integral parts of the entire Ballona Wetlands ecosystem, because they cannot be developed, they will not be discussed further in this report.

Ballona Wetlands Green Paper - Page 8
2Taken from 1983 Coastal Commission Staff Report on Marina del Rey/Ballona Land Use Plan pp. 4-5 and accompanying map (Exhibit F).
3 This wetland delineation was conducted based upon the California Coastal Act definition of wetlands.
4 Area B's pollution detention basin (60 acres) is publicly owned and so not considered in calculations herein. Conversation with State Controller’s office, November, 2002.
5 Discussion with Peter Brand, Project Manager, California Coastal Conservancy, September, 2002.
6 Discussion with Florence La Riviere, Citizens Committee to Complete the Refuge, September, 2002.
7 Discussion with Don May, Los Cerritos Wetlands Land Trust, September, 2002.
8 Discussion with Rosie Dagget, Resource Conservation District, October, 2002.
11 Conversation with Pam Emerson, Senior Staff, California Coastal Commission at Long Beach Office, May 2002.

However, note that while staff favors like-kind mitigation, nothing in the Coastal Act, Regulations or Guidelines require that mitigation be like-kind. Also note that the law does not require landowners to necessarily conduct the required mitigation on their own property; however, staff and current Coastal Commission prefer mitigation to be conducted on the applicant’s own property. i Exploration Technologies, Inc., Executive Summary; Recommendations, from "Regional Geochemical Assessment of Methane, BTEX, CO2, and H2S Gas Occurrences, Playa Vista Development," prepared for City of Los Angeles, Department of Building and Safety, July 10, 2001. *EXHIBITS CAN BE FOUND ONLINE AT www.ballona.org/greenpaperexhibits.html

Ballona Wetlands Land Trust
Box 5623
Playa del Rey, CA 90296
Tel: (310) 264-9468
landtrust@ballona.org
www.ballona.org

Archives—News Articles Bibliography

1. "An Appeal to the Principals of DreamWorks SKG to Halt the Massive Development of the Ballona Wetlands Ecosystem." Los Angeles Times, Tuesday July 30, 1996.

2. "3 Held in Protest at Playa Vista Project."

3. "MVCC vs Playa Vista." On the Local Front, a George Chung Realtors Publication.

4. "DreamJerks: Steven Spielberg and his Billionaire Partners Would Bulldoze E.T. to Get the Playa Vista Megadevelopment Built on L.A.’s Last Surviving Wetlands. But Outraged Citizens May Topple These Giants." NewTimes LA, June3-9 1999.

5. "Assembly Bill Includes $25 Million for Ballona." Mirror, Sept 15-21, 1999.

6. "Ballona Wetlands: Hayden ‘very excited’ $25 Million in State Bond Measure Earmarked for Ballona Wetlands." The Argonaut, October 28, 1999.

7. "Playa Vista is Issued First Building Permits." Mirror, December 22-28, 1999.

8. "Monitoring Methane at Playa Vista." Los Angeles Times, January 6, 20003.

9. "Commission Approves Final Playa Vista Project." Daily Breeze, July 9, 2004.

10. "South Bay Tribe’s Goal: Reclaim the Past." Daily Breeze, July 19, 2004.

11.

12. "Says Playa Vista use of ‘Village’ Theme for Phase II Development Plan ‘Deceptive." The Argonaut, July 22, 2004.

13. "Community Council Traffic Study Claims Impact of Playa Vista Traffic in Mar Vista Will Worsen." The Argonaut, August 5, 2004.

14. "Venice: Grass Roots Venice Votes to Oppose Playa Vista II." The Argonaut, September 2, 2004.

15. "My Ballona Has a First Name, It’s B-U-I-L-D: Native Americans and Environmentalists Vow to Fight Second Phase of Contentious Playa Vista Project." Citybeat, September 29-October 6, 2004.

16. "Playa Vista: More than 1,200 turned out at Venice High to oppose Playa Vista." The Argonaut, September 30, 2004.

17. "Playa Vista Phase II wins City Council approval in 10-1 vote; foes vow lawsuits." The Argonaut, September 30, 2004.

18. "Lawsuits say Playa Vista Village project fails area." DailyBreeze, November 23, 2004.

19. "Playa Vista: Lincoln (Car) Park." Los Angeles CityBeat, November 25-December 1, 2004.

20. "Playa Vista: Lawsuit filed against Playa Vista Phase II EIR." The Argonaut December 2, 2004.

21. "Suit Seeks to Block Playa Vista Development: Santa Monica officials, environmentalists and a tribe question report on project’s second phase over traffic, wastewater and Indian burial sites." Lose Angeles Times, December 19, 2004.

22. "Ballona Update." Whole Life Times, February 2005.

23. "City set for fight to block out Vista." Santa Monica Daily Press, May 18, 2005.

24.

25. "Bubbling Trouble: What is the truth about methane gas leakage into the buildings of Playa Vista?" CityBeat June 16-22, 2005.

26. "Passing Judgment, Passing Gas: Residents join with developers to debunk KNBC reports on the threat of explosive methane gas to Playa Vista." CityBeat June 30-July 6, 2005.

27. "Playa Vista: Appelate judges overturn city okay of Playa Vista Phase I methane mitigation." The Argonaut, October 27, 2005.

28. "Playa Vista Loses Major Lawsuit." Free Venice Beachhaead, November 4, 2005.

29. "Judge rejects Playa Vista burial suit." Daily Breeze, November 22, 2005.

30. "Judge Clears Way for Last Phase of Playa Vista Project." January 10, 2006.

31. "City Council votes against Playa Vista SEIR." Los Angeles Times, January 12, 2006.

32. "Playa Vista to build without new EIR." Daily Breeze, January 12, 2006.

33. "The Inside Scoop on the Playa Vista Phase 1 Vote," Tom Ponton.