LOS ANGELES - Pershing Square, once a proud park in downtown Los Angeles and now a rundown haven for the homeless, is poised for a face-lift with funding from an unusual $8.9 million financing.
The tax-exempt certificates of participation issue, scheduled for competitive sale tomorrow with maturities ranging from 1994 to 2022, is insured by Financial Security Assurance.
"For such a small deal, it has an interesting story to tell," said John Thomas, principal and chairman of Saybrook Capital Group, financial adviser on the issue. "I don't know of anything like it."
Under a special financing structure, lease payments from the city's general fund will secure the $8.9 million COP issue. The city in turn will receive tax payments from 18 commercial property owners in a Mello-Roos Community Facilities District encompassing the park.
The district is the first and only Mello-Roos district in the city of Los Angeles.
Several California market participants expressed interest in the financing, citing the public-private partnership aspects. And they said the issue might mark the first time Mello-Roos special taxes were directly pledged to support rental payments for COPs.
City officials and local property owners parried for more than a decade over the best way to finance Pershing Square renovations. The park, one of the oldest in Los Angeles, is next to the historic Biltmore Hotel and borders the jewelry district.
Los Angeles considered selling a standard Mello-Roos bond issue backed by the special taxes, but found it easier to attract bond insurers ith the added security of the COP structure, Mr. Thomas said. Bond insurers "are not fond of Mello-Roos" issues on a standard basis, he added.
Financial Security Assurance also will provide an insurance policy for a debt-service reserve, which will free up bond proceeds from the reserve fund so more money can be used for park renovation, officials of the firm said.
Charles Silberstein, managing director of Financial Security in New York, said his firm is "comfortable" with the transaction because the special taxes and lease payments provide a "double-barrel security.
One Los Angeles bond attorney called the issue "unique" adding that "for inner-city, public type of projects, I could see more and more of these issues."
In a report on the Pershing Square plan, the city administrative office said it typically would recommend against lending the city's credit for a Mello-Roos project.
In this case, however, the city staffers said they made an exception because of the general public benefit that will be achieved.
Finance officials also said the deal provides the city with a large cushion; the total assessed value of property within the district is $810 million, or about 100 times the size of the certificate issue.
The renovation is considered an example of a successful public-private partnership because it involves large Los Angeles corporations and public agencies. In addition to special tax funding, the Los Angeles Community Redevelopment Agency in June signed an agreement to provide another $6 million for the project.
Private landowners in the district unanimously approved the special tax in February, allowing the city to levy annually a total of $659,644 in special taxes.
The district includes 15.8 acres of land in downtown Los Angeles and 17 different buildings. Three structure, the Biltmore Hotel, the Southern California Gas Tower, and the Pershing Square Center, bear about 56.4% of the tax burden.
"We've demonstrated that we're willing to step forward and tax ourselves. This is an affirmation of our city," said John T. McAlister, president of Maguire Thomas Partners and the Pershing Square Property Owners Association, a nonprofit corporation.
The association contracted with the city to help renovate the park and oversee construction. Maguire Thomas is the development manager.
"If a city a deteriorating place at its center, it does not speak well of the pride or sense of self-worth of the city," Mr. McAlister said. In the midst of a lot of bad publicity about Los Angeles," we're demonstrating we can make a change," he added.
Pershing Square covers an underground parking garage operated by a private company. The dilapidated park, besides providing refuge for the homeless, also contends with crime-related problems such as drug dealing.
Proceeds from the certificates will help fund an elevated aqueduct, lighting, a pavilion for food vendors, a bus stop shelter, and an art program.
Gerry Miller, a finance specialist for Los Angeles, said construction will begin immediately after the certificates are sold.
The homeless population in the park will be steered to social services organizations, he said.