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Monday, September 10, 2012

More for the Regents to Consider Before They Rubber Stamp the UCLA Hotel

Yesterday we posted a note suggesting that big projects largely dependent on future revenue streams can lead to big losses.  For those Regents who need a reminder from past history, the two excerpts below might be instructive:

UCLA Buys Land in Westchester for 90 Faculty Homes

July 20, 1989 | SPENCER S. HSU | Los Angeles Times

UCLA has bought a controversial, 57-acre site on the Westchester Bluffs for $15.25 million to build subsidized faculty housing. The 90-home development will be UCLA's fourth and largest housing project. Since 1986, in an effort to help its faculty members cope with the fierce housing prices in Los Angeles, the university has built two condominium projects in Westwood totaling 52 units, and a 58-unit townhouse complex in Beverly Glen, just north of campus. The Westchester site, located on the hills between Loyola Marymount University and the San Diego Freeway, has been the subject of dispute since 1986, when Howard Hughes Realty Inc. first sought city permission to build 205 homes on two separate tracts along the bluffs...


UCLA to Sell Part of Faculty Subdivision: Real estate: Westchester houses will be offered to the public. They were built to lure professors, but few have bought there.

March 11, 1994 | RALPH FRAMMOLINO | LA Times

UCLA officials announced Thursday they will allow the public to buy up to two dozen homes in a largely vacant Westchester subdivision originally built exclusively for professors, conceding it was the only way to keep from losing money on the project. The university built the $42-million subdivision of 86 homes--called The Bluffs for its hilltop views of the ocean--to help recruit senior faculty members who might be tempted to turn down job offers because they could not afford a home in Southern California. Conceived during the 1980s real estate boom, the idea was for the school to offer the three- to five-bedroom homes, located about 30 minutes from the Westwood campus, to incoming UCLA faculty at prices as much as 30% below market value. A 1987 housing survey suggested that nearly 60% of faculty recruits would buy such houses and that the mid-$400,000 to high-$600,000 prices would be within the reach of 129 new professors over three years. But by the time the project was completed last fall, UCLA couldn't find a single buyer. Housing prices had taken a 30% nose-dive, wiping out any bargain appeal, and state budget woes forced the university to curtail its hiring. School officials hoped to spur interest by dropping prices an average of $35,000 on each home and offering flooring and landscaping upgrades. But only seven faculty members have purchased homes, said Brad Erickson, UCLA's associate director of real estate. Two others have signed leases with options to buy--one family that was displaced by last fall's Malibu fire and another displaced by the Northridge earthquake.

At that rate, it would take UCLA more than three years to sell off all of the homes to its faculty--not fast enough to repay the First Interstate Bank construction loan and recover all the project's costs, Erickson said…  After selling off the first two dozen, Erickson said UCLA will re-examine its future faculty recruiting plans and may make more homes available to the public. "The world has changed and we did not foresee the extent the world would change, in terms of local real estate prices and what has happened to the state and university," Erickson said…


Of course, one can always argue that "this time it is different."  Alternatively, one can take seriously the objections raised about the business plan and about tax issues.

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