So AES has made public their claim to have a pending $200 million sale of their 51-acre coastal power plant property in Redondo Beach to a buyer who has “No contingencies”. Given that this lake/wetland area has hosted coal-fired, unrefined oil-burning, refined oil-burning and natural gas-fired steam and power plants for 100 years, this seems incredible (or a not-credible claim). The remediation (cleanup of pollution) costs are unknown, but inevitable – it could be a SuperFund site with all manner of toxins soaking the soil. The costs could be anywhere from a few million to a billion dollars.
Also, it is zoned as “Park“. Any development of the property, other than as a park, would require the vote of the residents of Redondo Beach to approve a proposed rezoning – and the residents are drowning in traffic congestion, and in no mood to approve any residential or commercial development there.
Also, the Coastal Commission will require wetland restoration there, but the amount has not been determined – it could be anywhere from 6 to 24 acres of the property. Who the heck would throw down $200 million on a property that will not be developed, and which could end up almost half wetland?
One answer could be a real-estate venture fund. Why? Well, real-estate venture funds are paid by their investors based on their Assets Under Management (“AUM”), commonly 2% of AUM. So, if the fund Manager can slip this very risky (read: doomed) investment past their unwitting investors (usually institutional investors like insurance companies or pension funds), the Manager can collect $4 million a year in fees from the investors for it while letting the property sit idle.
Sometimes the fund investors and their advisors do a little of their own due diligence on large fund investments, just to check up on things (as is their fiduciary duty, frankly). This message is to them:
- The AES Redondo Beach property is zoned as a park – your venture fund was misled by the agent who misrepresented the zoning (see our May 24, 2018 post). You will be paying $200 million and $4 million in annual AUM fees for an undeveloped park, maybe half wetland.
- Any development on the property requires a rezoning approved by the majority of voters in Redondo Beach, who have already defeated two such proposals recently. Redondo residents are drowning in traffic, and in no mood to allow anything to be built on that property that will put more cars on the roads. We don’t care how pretty your condo ideas are.
- The very residents you are seeking approval from are in the process of putting together a deal to buy the property themselves (through state, county and other funds) to use as open space and parkland. Good luck on that rezoning vote.
- If you think your venture fund can try to “wait out” the political climate, perhaps by letting the property become blighted for years, be aware that we are already drawing up the eminent domain papers, and we have good recent experience successfully doing this. Also, we will only pay you a per-acre price that reflects the current zoning – as parkland, which is a small fraction of the $200 million you are proposing to pay. We have the money. I’m not sure we even have to pay for the protected wetland that will exist by the time we do the eminent domain…hmmm, this could be good… Go ahead: make our day.
- As a fiduciary, you are now aware of this, and allowing this deal to go through with the money you oversee constitutes a breach of your fiduciary duty. You can’t un-see this. Have a nice day!
Your Friends and Neighbors in Redondo Beach