Secession's Impact on Homes

By DIANE WEDNER

June 30, 2002 12 AM PT

TIMES STAFF WRITER

Optimists among San Fernando Valley secession proponents may be pinning their hopes on getting a quick boost in property values if a new city materializes, but real estate experts caution that any potential benefits from the separation will take time and probably will be minimal.

Tax revenue implications, zoning changes, a temporary diminution of public services and a hefty proposed “alimony” payment--perhaps as high as $288 million a year--to Los Angeles could temporarily dampen the enthusiasm of potential buyers considering a move to the proposed new Valley city, analysts say.

For the record:

12:00 a.m. July 3, 2002 For The Record
Los Angeles Times Wednesday July 03, 2002 Home Edition Main News Part A Page 2 ..CF: Y 10 inches; 361 words Type of Material: Correction
Valley secession--A story in Sunday’s Real Estate section about the impact of Valley secession on property values implied that a new Valley school district may result from secession. In fact, the Los Angeles Unified School District will remain intact even if the Valley secedes from the city of Los Angeles.
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For The Record
Los Angeles Times Sunday July 07, 2002 Home Edition Real Estate Part K Page 3 Features Desk 2 inches; 73 words Type of Material: Correction
Valley secession--A story June 30 about the impact of Valley secession on property values implied that a new Valley school district may result from secession. In fact, the Los Angeles Unified School District will remain intact even if the Valley secedes from Los Angeles.
For The Record
Los Angeles Times Sunday July 07, 2002 Home Edition Main News Part A Page 2 National Desk 4 inches; 170 words Type of Material: Correction
Secession--A story in the June 30 Real Estate section referred incorrectly to the “alimony” payments that a San Fernando Valley city would be required to pay if it becomes independent from Los Angeles. The payment is set at $127.1 million for the first year, and would gradually decline to zero over 20 years. The story also incorrectly suggested that a Valley city might experience a shortfall in revenue because it would not be allowed to levy a real estate transfer tax that currently generates about $30 million per year. Under the terms of secession, a Valley city would begin operations with a budget reserve. While a Valley city would not be able to levy the transfer tax as Los Angeles does, that amount has already been figured into the budget for the proposed city and would not create a revenue gap.

Under a new general plan, new building projects, improvements in city services and, especially, a new school district will take several years to be implemented, so establishing the Valley as a realty paradise probably will be a gradual process.

Emphasizing that it’s too early to speculate about the extent of the potential positive or negative ramifications of secession on Valley real estate, academicians, business leaders and Realtors agree that any spike in property values will be closely related to the perception of a high quality of life in the new city.

That positive perception depends on a drop in the Valley crime rate, on school and transportation improvements and on close proximity to jobs.

“If it’s perceived that the Valley, as a city, wants to improve the quality of life, enhance the desirability for its residents, home values should improve,” said Bob Scott, director of Civic Center Group, a public policy consulting firm in West Hills. “Changes will be slow, though. It will take a few years.”

High on the list of challenges is the issue of zoning, or land-use approval, said Larry Kosmont, president and chief executive of Kosmont Cos., a residential and commercial real estate consulting firm.

While new zoning regulations could dampen enthusiasm for residential development in the Valley for some time, he said, they could, in the short run, increase the value of existing residences.

The development process would be slowed while a new general plan, which includes policy decisions on issues such as transportation, housing and seismic safety, would be debated and subjected to an environmental plan review, Kosmont said.

“Nothing can put a damper on real estate projects more than political uncertainty,” he said.

Once in place, however, a new Valley city planning commission would be able to focus on local land-use issues and implement a vision that reflects the Valley’s needs, said Sandy Paris, owner of Paris Industrial Parks and past president of Valley Industry and Commerce Assn.

“When you focus on all of L.A. as a whole city, it’s like trying to apply a cookie-cutter approach to everyone,” Paris said. “The housing needs of San Pedro are different than the needs of Chatsworth. This is a chance for a community, albeit a large one, to refocus on its own needs.”

One concept Valley boosters are promoting for the new city is a master plan for the next two decades called Vision Twenty-Twenty.

The proposal, conceived by the Economic Alliance of the San Fernando Valley, envisions cooperation among the Valley and five adjacent cities, and focuses on town centers where retail stores and residential units coexist in close proximity to transportation hubs, entertainment centers, schools, police and fire stations and other local services.

Proponents of the plan, including Scott and Paris, believe it will be easier to implement such a vision if the Valley succeeds in breaking away from Los Angeles.

The authors of the plan are committed to implementing it whether or not the Valley secedes from Greater Los Angeles, said Bruce Ackerman, president of the alliance.

Opponents of secession point out that developers have more to gain than others in a new Valley city.

Documentary transfer taxes, which are added to the sale of properties, would be lower than those in Los Angeles, putting more money in big developers’ pockets, said Samantha Stevens, co-founder of One Los Angeles, an anti-secession group.

“We wonder why so many brokers and developers are supporting secession,” Stevens said. “Do they see profits for themselves?”

While not all developers are in favor of secession, it’s easy to see why those who do business in the Valley would favor a split from Los Angeles, said Steve Cauley, associate director of Ziman Center for Real Estate at UCLA’s Anderson School.

“They have a terrible time dealing with the bureaucracy in L.A.,” Cauley said. “It might be easier and less expensive to develop in a new Valley city, but it’s going to be hard to develop single-family homes.”

Under the new documentary transfer tax rules, the Valley would experience a shortfall of about $30 million in tax revenues, according to most estimates, and analysts predict that the shortfall will have to be made up by the imposition of additional taxes.

To generate quick additional revenue, the Valley might resort to the common sales tax-producing strategy of allowing big-box retail stores and other large commercial interests to gain a foothold, while residential projects, which generate fewer tax dollars, would take a back seat, said Stuart Gabriel, director of the USC Lusk Center for Real Estate.

“Look at the 101 corridor between Los Angeles and Santa Barbara,” Gabriel said of the stretch of highway that is lined with gigantic retail outlets. “If the Valley is bereft of funds, they’ll look for other ways of getting taxes, and commercial ventures historically have provided that.”

There is also the matter of the Valley paying up to $288 million a year in compensation to the city of Los Angeles, a bite that could further erode confidence in the ability of the Valley to support the services that experts say are essential to boosting real estate values in the new city.

“If it were a clean divorce, it would be favorable economically and for real estate in the Valley,” Cauley said. “But I think this will be a messy divorce.”

While the parties sort out their differences, real estate agents, business interests and policymakers take a sanguine view of the outcome.

“Will it be better?” Paris asked. “I don’t know. But it can’t be worse.”