Judge: Mary H. Strobel, Case: 22STCP00646, Date: 2023-03-09 Tentative Ruling

Hon. Mary H. Strobel The clerk for Department 82 may be reached at (213) 893-0530.

Case Number: 22STCP00646    Hearing Date: March 9, 2023    Dept: 82

             Petitioner Westwood Neighbors for Sensible Growth (“Petitioner”) petitions for a writ of administrative mandate directing Respondents City of Los Angeles and the City Council of the City of Los Angeles (collectively “City” or “Respondents”) to set aside and vacate the land use entitlements City granted for the Belmont Village Senior Living Westwood II Project (the “Project”), which entails construction of a 12-story eldercare facility and 2-story childcare facility in the Westwood area of Los Angeles.  Petitioner also petitions for a writ directing City to set aside a Sustainable Communities Environmental Assessment (“SCEA”) issued under CEQA for the Project.  Respondents and Real Parties in Interest Belmont Village, L.P., Belmont Village Landlord 4, LLC, and Westwood Presbyterian Church of Los Angeles, CA (“Real Parties”; collectively “Respondents”) jointly oppose the petition. 

Judicial Notice

Petitioner’s Request for Judicial Notice (“RJN”) Exhibits 1-2 – Granted. 

Background

The Project

            In June 2018, Real Parties filed their applications for entitlements to develop the Project. (AR 10130-10210, 10399-10409.)  As stated by City, the Project would:

[C]onstruct a new 12-story, 176,580-square foot Eldercare Facility containing up to 53 Senior Independent Housing dwelling units, 77 Assisted Living Care Housing guest rooms, 46 Alzheimer’s/Dementia Care Housing guest rooms, and associated residential amenity and service areas within a single building located on the northern portion of the Project Site located at 10822 Wilshire Boulevard that is currently owned by the Westwood Presbyterian Church (Church). In addition, the Eldercare Facility would provide a new 2,520-square foot Fellowship Hall on the ground level fronting Wilshire Boulevard for use by the Church, and 2,923 square feet of shared space consisting of a multipurpose and toddler room, pantry, kitchen, and storage space all to be shared by both the Church and the residents of the Eldercare Facility. The Project would also construct a new two-story, 19,703-square foot Childcare Facility containing 10,238 square feet of classroom, administrative office space, and multipurpose/group space and 1,845 square feet of church-related administrative offices within a single building located on the southern portion of the Project Site at 10812 Ashton Avenue. A minimum of 184 parking spaces for the Project would be provided on the ground floor level adjacent to the Childcare Facility and within a three-level subterranean parking garage located below the Eldercare Facility. The Project would also provide up to 27 short-term and 43 long-term bicycle parking spaces. To allow for construction of the Project, the Church’s existing preschool, Fellowship Hall, administrative offices, and surface parking lot located at 10822 Wilshire Boulevard, and a Church-owned single-family residence located at 10812 Ashton Avenue would be demolished. The Church’s existing Sanctuary located on the northern portion of the Project Site fronting Wilshire Boulevard would remain.

            (AR 330.)

Sustainable Communities Environmental Assessment

“To encourage the development of transit priority projects, the Legislature in Senate Bill 375 limited the extent of environmental review that a local agency must perform under CEQA to approve them.”  (Sacramentans for Fair Planning v. City of Sacramento (2019) 37 Cal.App.5th 698, 719.)

Under CEQA and SB 375, a lead agency may prepare a Sustainable Communities Environmental Assessment (“SCEA”) in lieu of other CEQA documentation for a “transit priority project” (“TPP”) that is consistent with an adopted sustainable communities strategy. (Pub. Res. Code §§ 21155, 21155.2.)

“If a transit priority project (1) ‘is consistent with the general use designation, density, building intensity, and applicable policies specified for the project area’ in the strategy; and (2) incorporates all feasible mitigation measures, performance standards, and criteria set forth “in the prior applicable environmental impact reports” and which were adopted as findings, then the local agency may review the project's environmental effects in a streamlined manner using an SCEA.”  (Sacramentans for Fair Planning, supra, 37 Cal.App.5^th at 719.)

            In the instant case, City found that the Project qualifies as a TPP and analyzed the Project’s potential environmental impacts in a SCEA.  (AR 330-2426.)  

Relevant Administrative Proceedings

The SCEA was circulated for public review for over 30 days, from November 12, 2020 to December 14, 2020. (AR 2429.) The City prepared responses to comments received on the SCEA. (AR 2435-2530.)  In addition, the City prepared an erratum to the SCEA, which included minor changes and additional discussion of the Project’s consistency with the recently adopted 2020-2045 RTP/SCS. (AR 2531-2618.)

On May 4, 2021, the City’s Planning and Land Use Management (“PLUM”) Committee held a public hearing to consider the SCEA on behalf of the City Council. (AR 6-7.) After providing an opportunity for public comment, the PLUM Committee recommended approval of the SCEA, the Erratum, the mitigation monitoring program (“MMP”), and Environmental Findings for the Project to the City Council. (AR 7.) The City Council adopted the PLUM Committee’s recommendation on May 18, 2021. (AR 8.)

In addition to approving the SCEA, Council also approved Project entitlements that include an eldercare facility unified permit, a conductional use permit, a design review and project permit compliance, site plan review, and a vesting tentative tract map and associated haul route.  (AR 1.)  As relevant to this writ petition, City made findings under LAMC section 14.3.1 to grant the eldercare permit and multiple deviations from City’s zoning code and regulations.  (AR 283-305.)  Among other things, section 14.3.1.E states that “[t]he Zoning Administrator shall not grant the approval unless he or she finds that the strict application of the land use regulations on the subject property would result in practical difficulties or unnecessary hardships inconsistent with the general purpose and intent of the zoning regulations.”  (Pet. RJN Exh. 2.)

Under section 14.3.1, City approved deviations that include the following:

·         A maximum building height of 12 stories/153 feet, in lieu of the 6 story/75-foot height limit set forth in the Specific Plan; •

·         A building width of 100 feet 8 inches in lieu of the otherwise required maximum of 75 feet, pursuant to the Wilshire-Westwood Scenic Corridor Specific Plan.

·         Parking in compliance with the LAMC's Eldercare Facility requirements, in lieu of the 2.5 space per dwelling unit requirements of the Specific Plan;

·         An Eldercare Facility use in the R1 zone, which is otherwise not permitted, in conjunction with the Project's proposed subterranean garage being partially located in the R 1 zone;

·         Relief from the LAMC's residential and institutional setback requirements for the Eldercare Facility and Church sanctuary building;

o   Zero-foot side yard setbacks for the Eldercare Facility where it abuts the Sanctuary;

o   Zero-foot rear yard setback for the Eldercare Facility where it abuts the Project Site's R5/R1 zone boundary; and

o   Zero-foot side and rear yard setbacks for the Sanctuary Building where it abuts the Eldercare Facility.

·         Lot Area. Creation of an approximately 3,641 square foot R1-zoned portion of the Eldercare Facility development site in lieu of the minimum lot area standards of LAMC Section 12.08 C.4.

·         Relief from LAMC Section 12.21 G to allow interior common open space to comprise more than 25 percent of the Eldercare Facility's total common open space.

·         Location, utilization, and access between accessory and main buildings and uses on the RS- and R1-zoned portions of the Eldercare Facility development

(AR 284.)

Writ Proceedings

             On February 24, 2022, Petitioner filed its verified petition for writ of mandate.  The court found the action related to LASC Case No. 22STCP00655.  At the trial setting conference, the parties stipulated that the two actions are consolidated as to the administrative record and hearing date only.

            Respondents and Real Parties have answered the petition. 

            On November 3, 2022, the court entered the parties’ stipulation to increase the page limit for a joint opposition to 25 pages, and the page limit for the reply to 12 pages.

            On December 8, 2022, Petitioner filed its opening brief in support of the petition.  The court has received Respondents’ consolidated opposition, Petitioner’s reply, the administrative record, and the joint appendix. 

            In its opening brief, Petitioner “incorporates by reference as though fully set forth herein the California Environmental Quality Act arguments which briefed by Petitioner Dana Zinderman in related case 22STCP00655.”  (Opening Brief (“OB”) 4, fn. 1.)  In its writ briefs, Petitioner does not develop any CEQA arguments different from those made by Petitioner Zinderman.  Respondents object, but also incorporate their CEQA briefing from the Zinderman action.  (Oppo. 6, fn. 1.)  Because Respondents incorporate their opposition on the CEQA issues, Respondents are not prejudiced by Petitioner’s incorporation by reference. 

Standard of Review

City’s Approval of Eldercare Permit

Under CCP section 1094.5(b), the pertinent issues are whether the respondent has proceeded without jurisdiction, whether there was a fair trial, and whether there was a prejudicial abuse of discretion.  An abuse of discretion is established if the agency has not proceeded in the manner required by law, the decision is not supported by the findings, or the findings are not supported by the evidence.  (CCP § 1094.5(b).)

In administrative mandate proceedings, the trial court reviews land use decisions for substantial evidence.  (See Toigo v. Town of Ross (1998) 70 Cal.App.4th 309, 317.)  Substantial evidence is relevant evidence that a reasonable mind might accept as adequate to support a conclusion (California Youth Authority v. State Personnel Board (2002) 104 Cal. App. 4th 575, 584-85), or evidence of ponderable legal significance which is reasonable in nature, credible, and of solid value. (Mohilef v. Janovici (1996) 51 Cal. App. 4th 267, 305 n. 28.)  “Courts may reverse an [administrative] decision only if, based on the evidence …, a reasonable person could not reach the conclusion reached by the agency.”  (Sierra Club v. California Coastal Com. (1993) 12 Cal.App.4th 602, 610.)  

“[A] trial court must afford a strong presumption of correctness concerning the administrative findings.”  (Fukuda v. City of Angels (1999) 20 Cal. 4th 805, 817; see also Evid. Code § 664.)  Petitioner bears the burden of proof to demonstrate, by citation to the administrative record, that substantial evidence does not support the administrative findings.  (Strumsky v. San Diego County Employees Retirement Assn. (1974) 11 Cal.3d 28, 32; Steele v. Los Angeles County Civil Service Commission (1958) 166 Cal. App. 2d 129, 137; see Local Rule 3.231(i)(2).) A reviewing court “will not act as counsel for either party to an appeal and will not assume the task of initiating and prosecuting a search of the record for any purpose of discovering errors not pointed out in the briefs.” (Fox v. Erickson (1950) 99 Cal.App.2d 740, 742.)  When an appellant challenges “’the sufficiency of the evidence, all material evidence on the point must be set forth and not merely [his] own evidence.” (Toigo v. Town of Ross (1998) 70 Cal.App.4th 309, 317.) 

“‘On questions of law arising in mandate proceedings, [the court] exercise[s] independent judgment.’ …. Interpretation of a statute or regulation is a question of law.” (Christensen v. Lightbourne (2017) 15 Cal.App.5th 1239, 1251.)

CEQA

See discussion in tentative ruling for Zinderman v. City of Los Angeles, 22STCP00655, also on calendar March 9, 2023, in Department 82. 

Analysis

            In its writ briefing, Petitioner contends that substantial evidence does not support City’s finding under LAMC section 14.3.1 that strict application of the land use regulations on the Property would result in practical difficulties or unnecessary hardships inconsistent with the general purpose and intent of the zoning regulations.  (OB 8-17; see AR 283-291 [findings].)  These arguments relate to the first cause of action in the petition. 

Summary of Applicable Law

LAMC section 14.3.1.E states, in relevant part, that “[t]he Zoning Administrator shall not grant the approval unless he or she finds that the strict application of the land use regulations on the subject property would result in practical difficulties or unnecessary hardships inconsistent with the general purpose and intent of the zoning regulations.”  (Pet. RJN Exh. 2.)

“The requirement for a finding of ‘unnecessary hardship’ in section 14.3.1.E closely resembles the requirement ordinarily imposed on variances. Indeed, as discussed in Walnut Acres, the requirement in section 14.3.1.E is stated in terms identical to the analogous requirement in the City's provisions governing variances (§ 12.27.D.1).”  (Levi Family Partnership, L.P. v. City of Los Angeles (2015) 241 Cal.App.4th 123, 130-131.) 

“In Stolman v. City of Los Angeles, supra, 114 Cal.App.4th 916, 8 Cal.Rptr.3d 178, [the Court of Appeal] considered the requirement in section 12.27 that no variance may be granted unless the zoning administrator finds that ‘the strict application of the provisions of the zoning ordinance would result in practical difficulties or unnecessary hardships....’ Stolman involved a gasoline station operator who sought to extend services provided by the gas station to include auto detailing. The court assumed that a ‘financial hardship’ may constitute an ‘unnecessary hardship.’ (Stolman, at p. 926, 8 Cal.Rptr.3d 178.) But the court found no evidence of a financial hardship. There was no ‘information from which it [could] be determined whether the profit [was] so low as to amount to ‘unnecessary hardship.’ (Ibid.) There was no evidence the property could not be put to use as a gasoline station without the automobile detailing operation. (Ibid.) ‘If the property can be put to effective use, consistent with its existing zoning ... without the deviation sought, it is not significant that the variance[ ] sought would make the applicant's property more valuable, or that [it] would enable him to recover a greater income....’”  (Walnut Acres Neighborhood Assn. v. City of Los Angeles (2015) 235 Cal.App.4th 1303, 1314 [discussing Stolman v. City of Los Angeles].) 

In Walnut Acres, supra, the City of Los Angeles approved an eldercare permit under section 14.3.1 for a project that exceeded the building square footage and number of guest rooms allowed under zoning regulations.  The zoning administrator found, inter alia, that:

[T]he strict application of the FAR [floor area ratio] limitation of the RA Zone in this case would limit the proposed Eldercare facility to only 12,600 square feet and would reduce the building envelope to a level where only a maximum of 16 guest rooms would be feasible on the site because of the need to accommodate the required common areas needed to support the residents.

The strict application of the zoning regulations to the proposed elder care facility ... would limit the site's ability to provide needed on-site amenities and support services to the detriment of the project's occupants or would limit the site to only 16 guest rooms, which would result in significant underutilization of the site and would not permit the operator to achieve the economy of scale required to provide the level of on-site support services and amenities required for the eldercare facility's unique population. Denial of the request would therefore preclude the provision of much needed housing for the elderly population.

(Id. at 1309.)

In support of such findings on administrative appeal, the hearing officer for the zoning administrator testified as follows: “And yes, we granted relief from the zoning regulations to allow a 50,000 square foot facility when the maximum floor area is 12,600 square feet. We were allowed to do that under the eldercare provisions in order to facilitate these types of facilities, as long as we make the finding of practical difficulty, which I didn't get too much into that finding, but again, it's just a matter of logic and practicality that you really can't, if you were to limit the site to 12,600 square feet, you would end up with a maximum of 16 guest rooms. And with the level of support services that this type of facility needs, it really wouldn't be feasible.”  (Id. at 1310-11.)

            The trial court concluded that substantial evidence did not support the findings that restricting the eldercare facility to City’s zoning standards would result in practical difficulties or unnecessary hardships.  The Court of Appeal in Walnut Acres affirmed, reasoning as follows:

As in Stolman, we assume that financial hardship may be sufficient for purposes of obtaining a permit under section 14.3.1 to show unnecessary hardship, but find no evidence supporting the claimed financial hardship….[¶]

There was no substantial evidence of an unnecessary hardship. There was no evidence that a facility with 16 rooms could not be profitable. Eldercare homes apparently include small homes with four to 10 beds, according to the zoning administrator's report. There was no evidence that necessary support services demanded additional rooms in order to generate a profit. Just as in Stolman v. City of Los Angeles, supra, 114 Cal.App.4th at page 926, 8 Cal.Rptr.3d 178 there was no “information from which it [could] be determined whether the profit [was] so low as to amount to ‘unnecessary hardship.’ ”

We need not dwell on appellants' argument that we must give substantial deference to City planners or City staff because neither City planners nor City staff conclude 16 rooms would pose an unnecessary hardship or any hardship at all. No report presented either by appellants or by City staff documented the consequence of limiting the development to 16 rooms.

Appellants' argument that cases have granted variances without a showing of financial information is not persuasive because the cases they cite do not rely on a financial hardship to show unnecessary hardship. For example, Committee to Save Hollywoodland Specific Plan v. City of Los Angeles, supra, 161 Cal.App.4th 1168, 74 Cal.Rptr.3d 665 involved a setback requirement, and substantial evidence supported an unnecessary hardship because much of the yard was below grade “rendering enforcement of the three-foot setback problematic” and potentially hazardous. (Id. at p. 1184, 74 Cal.Rptr.3d 665.) Committee expressly distinguished its facts from a case involving economic hardship. (Id. at p. 1184, fn. 12, 74 Cal.Rptr.3d 665.) Similarly in Eskeland v. City of Del Mar (2014) 224 Cal.App.4th 936, 949, 169 Cal.Rptr.3d 112, the court found an unnecessary hardship for a setback because of the lot's shape, topography, location, and surroundings. The appellate court found substantial evidence supported the finding that the lot had unique characteristics. (Id. at p. 951, 169 Cal.Rptr.3d 112.) In contrast to those cases involving a question of whether the property had special features, here appellants seek to maximize their economy of scale—their only stated basis for an unnecessary hardship. Because financial hardship is their sole basis for unnecessary hardship, there must be some evidence supporting it.

(Id. at 1315-16.)

City’s Findings of Unnecessary Hardship

            City made detailed findings, over nine pages, to support the conclusion that strict application of land use regulations on the Project would result in practical difficulties and unnecessary hardships.  (AR 283-291.)  Among other findings, City stated:

Due to the site's zoning and development constraints, the required residential and non-residential floor area that is necessary for a functional eldercare facility cannot be accommodated in a six-story building that observes standard setback, parking, and open space requirements. Therefore, the requested height increase and associated deviations from the LAMC and Specific Plan are necessary to accommodate the facility's density and floor area, both of which conform to the Specific Plan's requirements, within a taller building. A facility that strictly complied with all LAMC and Specific Plan regulations, including the Specific Plan's building height limit, would necessarily contain far fewer units, and would not be able to successfully provide the necessary range of on-site services and amenities provided by the proposed Project while remaining financially feasible.

These findings are supported by a Financial Feasibility Analysis prepared by RCLCO Real Estate Advisors, dated March 25, 2021, which identifies standard development characteristics and associated costs of both conventional multifamily and eldercare facilities. It also analyzes the financial feasibility of four development scenarios encompassing these project types….[¶]

The financial model determined that multi-family development scenarios under byright zoning and Tier 3 TOC zoning are not financially feasible, and a by-right eldercare development scenario is not financially feasible, as the returns on total development cost fall below the minimum threshold that would attract investment capital. However, the proposed development scenario for an eldercare facility that can accommodate sufficient density and floor area is financially feasible, as it would produce a yield on cost of 6.95 percent, above the minimum feasibility threshold developers and investors expect. Therefore, the analysis concludes that without the requested LAMC and Specific Plan deviations, the project could not be built, and the requests are essential to enable the construction and viability of an eldercare facility at the subject property.

….[¶]

The Zoning Administrator finds that the analysis of the alternative development scenarios in the Financial Feasibility Analysis is reasonable and adequately demonstrates, as summarized above, that the development alternatives for a by-right eldercare facility is not viable …. The requested deviations are therefore consistent with the City Council's intent in adopting the Eldercare Ordinance, which authorizes the Zoning Administrator to grant relief from the zoning regulations to facilitate the development of these unique facilities.

(AR 288-291.)

Substantial Evidence Supports City’s Findings of Financial Hardship

Petitioner acknowledges that “[f]inancial hardship may be sufficient for purposes of obtaining a permit under LAMC §14.3.1.”  (OB 11; see Walnut Acres, supra.)  Walnut Acres and also Stolman, supra show that financial hardship may be found if strict compliance with zoning standards will make it financially infeasible to develop the land for the intended purpose.  (See Walnut Acres, supra, 235 Cal.App.4th at 1314.) 

Petitioner contends that the RCLCO Report discussed in City’s findings is not substantial evidence of financial hardship because it is conclusory, speculative, and based on assumptions that lack evidentiary support.  (OB 11-13.)  Petitioner also contends that the financial feasibility report of its own expert, The Concord Group (“TCG”), is more detailed and persuasive.  (OB 13-14; see AR 12973-12997 [TCG report].) 

Summary of RCLCO Report

The RCLCO Report states: “Since 1967, RCLCO has been the ‘first call’ for real estate developers, investors, the public sector, and non-real estate companies and organizations seeking strategic and tactical advice regarding property investment, planning, and development.”  (AR 2981.)

The Report states that “RCLCO was engaged to provide a third-party Financial Feasibility Analysis of four development scenarios, including traditional multifamily apartments and eldercare facilities.”  (AR 2982.)  In a section titled “Assumptions,” the Report outlines assumptions regarding: (1) zoning, historic resource, and lot configuration factors that constrain development of the Project site; (2) the development features of the four development scenarios analyzed in the Report; (3) special considerations for eldercare facilities; (4) the net rentable area (or “efficiency ratio”) for the four development scenarios; and (5) development costs and operational revenues and costs for the four scenarios.  (AR 2984-2988.)  The Assumptions describes the four scenarios, in relevant part, as follows:

·         Scenario 1 features a by-right apartment development which utilizes the current zoning….

·         Scenario 2 features an apartment development with TOC (Transit Oriented Community)Tier 3 zoning….

·         Scenario 3 features an eldercare development utilizing the current zoning….

·         Scenario 4 features an eldercare development utilizing the Belmont Village Senior Living proposed height increase, which would allow for the necessary scale (number of units and supporting areas) to support a project that would be feasible….

(AR 2985)

The Assumptions state: “[E]ldercare facilities require substantial additional common areas to support residents and staff. Included among these additional programmatic spaces that are common to virtually all eldercare facilities are a common dining room, commercial kitchen, public bathrooms, activity and socialization spaces for residents, and administrative space for staff. Furthermore, even elements that are common to both multifamily and eldercare facilities such as corridors and elevator shafts are oversized in eldercare facilities to accommodate wheelchairs, walkers, and gurneys.”  (AR 2985.)  Relatedly, a chart states that the net rentable area, i.e., efficiency ratios, are 80% for Scenarios 1 and 2 and 50% and 58%, respectively, for Scenarios 3 and 4.  That chart also states that Scenario 3 results in 93 new units, while Scenario 4 results in 176 new units.  (AR 2986.) 

The Assumptions state that Project Development costs include the land; hard costs, including “direct construction costs” and additional costs for “below grade parking”; and soft costs, such as architecture, engineering, and developer fees.  Operational revenues include rents and “other revenues.”  Operational costs include a long-term lease of the land; maintenance, utilities, and other common operating expenses; property taxes and insurance; and management fees.  (AR 2987-2988.)

In a section titled “Yield on Cost,” the Report states in pertinent part: “To assess the financial feasibility of each development scenario, we employed a commonly-used industry metric -yield on cost- to measure the return on total development cost in each scenario. Yield on cost is calculated by dividing the stabilized net operating income (gross rental and care income, less vacancy and operating expenses) by the total development cost (the sum of land acquisition costs, hard costs, and soft costs). Investors and lenders typically require a yield on cost equal to the market capitalization rate (‘cap rate’) plus a spread to reflect the developer's risk. The spread is typically 100 basis points for multifamily apartments and 150 basis points for eldercare projects, the higher spread reflecting the increased risk associated with an operationally intensive business. Based on recent transactions of comparable apartment communities in Los Angeles, the market cap rate for these product types in this location are assumed to be 4.25% for multifamily apartments and 5.25% for eldercare facilities. Given these cap rates, plus 100 basis points for multifamily and 150 basis points for eldercare, the target yield on cost for this project would be 5.25% and 6.75%, respectively. Refer to Exhibit 4 for comparable transactions and cap rate data.”  (AR 2989.)

Based on the Assumptions, “RCLCO arrived at Total Development Cost and Net Operating Income figures” for each of the four scenarios.  (AR 2989.)  RCLCO found that Scenarios 1 and 2 would produce “yield on cost” of 1.87% and 3.66% respectively, both below the 5.25% minimum threshold for multifamily apartment buildings.  RCLCO found that Scenarios 3 and 4 would produce yield on costs of 2.60% and 6.95%, respectively.  Only Scenario 4 exceeded the 6.75% minimum threshold for eldercare facilities.  RCLCO concluded, as follows: “[T]he proposed Scenario 4, which includes an eldercare development with an increase in height and other deviations to accommodate the permitted density and FAR, is the only financially feasible option of the four presented scenarios. The proposed Eldercare project exceeds the industry standard feasibility threshold by only 0.20%, which demonstrates that the deviations requested through the Eldercare Permit are necessary to produce a viable project. Without the requested deviations, the project could not be built.”  (AR 2989.)

The Appendix to the RCLCO Report includes six exhibits, titled as follows:

Exhibit 1         Summary of Financial Feasibility; Belmont Village of Westwood; Los Angeles, California

Exhibit 2         Static Financial Model; Belmont Village of Westwood; Los Angeles, California

Exhibit 3         Senior Living Operating Expenses; Belmont Village of Westwood; Los Angeles, California

Exhibit 4         Comparable Transactions; Market-Rate Multifamily and Seniors Housing; Los Angeles, California

Exhibit 5         Comparable Multifamily Communities; Los Angeles, California; January 2021

Exhibit 6         Comparable Land Transactions; Los Angeles, California

(See AR 2994-3003.)  RCLCO also provided a response (hereafter “Response”) to comments from Petitioner’s expert, TCG.  (See AR 13123-24.) 

The RCLCO Report Is Sufficiently Detailed and Supports City’s Findings

            As a preliminary matter, Petitioner has not challenged RCLCO’s expert qualifications.  Substantial evidence supports that RCLCO was qualified to provide an expert opinion regarding the financial feasibility of the Project.  (AR 2981.)

            Petitioner argues that the “RCLCO Report conclusions are not based upon any evidence.”  (OB 12-13.)  Petitioner contends that the Report is comprised of unsupported “Assumptions” and that the six exhibits are “are presented without a scintilla of evidence.”  (Ibid.)  Petitioner asks, “How were hard costs determined? What about costs, revenues, operating expenses?”  (Ibid.)  Relatedly, Petitioner argues that the RCLCO Report lacks support for assumptions that eldercare facilities have more expensive “infrastructure (e.g. commercial kitchens, etc.)” or for the “elevated staffing expenses” used for Scenarios 3 and 4.  Petitioner also states that “no contractor bids or engineer’s explanations were provided to substantiate the developer’s assumptions.”  (OB 13.)

            Under substantial evidence review, the court finds all of these arguments unconvincing.  The Report and exhibits show that RCLCO based its assumptions, in part, on information from Belmont Village Senior Living, the “Developer,” which operates an “existing [eldercare] facility just east of this site” and other eldercare facilities.  (AR 2984, 2995-3000, 13123-24.)  As an experienced operator of eldercare facilities, and also as the developer of the Project, Belmont could be reasonably viewed by RCLCO and by City as a credible source of information about zoning, the “project scope,” the additional infrastructure required for eldercare facilities, the “net rentable area,” the development costs, and the operating revenues and expenses for Scenarios 3 and 4, including management fees.  (AR 2984-85; see also 13123-24 [“The Report relies on operating expense assumptions provided by Applicant, one of the premier operators of eldercare facilities in the United States. Specifically, Belmont Village Senior Living currently manages 30 eldercare facilities and 4,000 units across the country, including the existing Belmont project on Wilshire Boulevard one half-mile east of the Site”].) The exhibits also show several other sources of information, including Real Capital Analytics, CoStar, Axiometrics, and RCLCO.  (AR 2998-3003.)  As an expert in “property investment, planning, and development” (AR 2981), and having cited several other sources of information, RCLCO could provide an expert opinion about development costs and operating revenues and expenses for the four scenarios, as well as the necessary yield on cost to attract investment and lending.  RCLCO sufficiently explained how it reached its conclusions and the evidence upon which it relied. 

Petitioner cites no authority that an expert report must include “contractor bids or engineer’s explanations” or similarly detailed source documents to be reliable evidence in an administrative proceeding.  Further, the record contains evidence that the construction cost estimates are based on actual construction cost estimates for the project prepared by CS Driver (AR13123).

            Petitioner contends that “the 6.75% minimum yield on investment, the crux of the ‘financial hardship’ argument, is utterly arbitrary” and is not supported by “construction bids” or similar evidence.  (OB 13.)  RCLCO, as an expert in property investment, opined that “Investors and lenders typically require a yield on cost equal to the market capitalization rate (‘cap rate’) plus a spread to reflect the developer's risk.”  (AR 2989.)  “The spread is typically 100 basis points for multifamily apartments and 150 basis points for eldercare projects, the higher spread reflecting the increased risk associated with an operationally intensive business. Based on recent transactions of comparable apartment communities in Los Angeles, the market cap rate for these product types in this location are assumed to be 4.25% for multifamily apartments and 5.25% for eldercare facilities.”  (Ibid.)  This opinion is supported by Exhibit 4 to the Report, which shows comparable transactions for multifamily and senior housing projects in the Southern California area and the “cap rate” for those projects.  (AR 3001.) 

Notably, Petitioner’s own expert, TCG, did not refute that some yield on cost is required to attract investment and lending for a real estate development.  TCG “concur[red] with the Report’s targeted 100 basis point spread between cap rate and return on cost” for Scenario 2.  (AR 12974-75.)  TCG did not appear to challenge the cap rate or 150 basis point spread assumption for eldercare facilities.  (See AR 12974-12997; see also AR 13123-24 [Response to TCG].)

Petitioner contends that “it is important to point out that Real Parties’ own RCLCO Report specifically found that a by-right, six story eldercare project would be profitable, yielding a positive return of 2.6%, a $3,589,958 ‘developer fee’ and an $831,974 annual management fee, all earned by the developer.”  Petitioner contends that “[t]he decision of the RCLCO Report to fail to include the multi-million dollar ‘developer fee’ and almost million dollar annual management fee in its conclusion is a smoke and mirrors attempt to keep the positive return figure low.”  (OB 12:2-9.)  The positive return of 2.6% is not dispositive evidence of financial feasibility, however, in light of RCLCO’s opinion concerning the yield on cost required by investors and lenders to develop an eldercare facility, as discussed above.  (See AR 2989.) 

Petitioner fails to address the Report’s assumptions about developer fees or management fees or show that the differences between these costs for Scenarios 3 and 4 are material to the financial feasibility analysis.  The Assumptions state that project development costs include developer fees, and operational costs include management fees.  (AR 2987-2988.)  Developer fees and management fees are factors in “total development costs” and “net operating income,” respectively, from which yield on cost is calculated.  (See AR 2989, 2995-2999.)  Petitioner has not shown it is unreasonable to include developer fees and management fees as part of the project costs. 

The legal brief did not provide much analysis of these issues concerning developer and management fees. Counsel should address these issues further at the hearing.  Subject to argument, Petitioner does not show that the inclusion of developer fees and management fees as part of costs renders the financial viability study arbitrary or the conclusions unsupported by substantial evidence. 

Petitioner highlights the following sentence in the RCLCO Report: “While current zoning allows a maximum FAR of 8:1, it also restricts height to six stories and 75 feet, and it is understood that this scale is not a financially feasible development for this product type ….”  (OB 11, citing AR 2982 [underline added by Petitioner].)  Petitioner contends that the phrase “it is understood” shows that the RCLCO Report was conclusory and based on unsupported assumptions.  Petitioner reads this sentence out of context.  The remainder of the Report includes expert analysis and evidentiary support for the conclusion that Scenarios 1-3 would not be financially feasible, as discussed above.

Citing the TCG Report, Petitioner contends that RCLCO’s analysis is “incorrect.”  Petitioner states that TCG found Scenario 3 to be financially feasible and that TCG “actually cited the transactions and eldercare projects upon which its models were premised.”  Petitioner states that TCG found the RCLCO Report to make “unsupported” assumptions about building costs, including the more extensive infrastructure for eldercare facilities; about “elevated staffing expenses at levels not found in other comparable eldercare projects in Southern California”; about “arbitrarily limiting the ‘by-right’ project to 93 units rather than 100 to argue lesser profits”; and “using a parking stall cost $114,503/parking space, higher than any developer pro-forma viewed by the Concord Group.”  (OB 13-14, citing AR 12980-81, 12998-13000.) 

As noted in opposition, RCLCO responded to TCG’s comments in the Response.  (Oppo. 23; see AR 13123-124.)  RCLCO explained, inter alia, that the Report relies on operating expense assumptions provided by Belmont and that “[t]he costs used in the Report are specific to this Site and sourced from actual construction cost estimates prepared by CW Driver for the Applicant for the proposed eldercare development at the Site.”  (AR 13123.)  With respect to parking costs, RCLCO stated: “Parking costs, particularly for multiple below-grade levels, can vary significantly from one project to another based on the specific characteristics of a site. This Site has unique conditions, such as its narrow shape, requirement for three below grade levels to accommodate both Project parking and replacement Church parking, and required preservation of the existing Church Sanctuary on-site, which drives up the parking construction costs. While the TCG analysis relies on a ‘cost consistent with that underwritten by developers active in greater urban Los Angeles,’ the Report relies on specific construction cost estimates Applicant received from a general contractor, CW Driver, who evaluated the actual costs that would be required to develop below-grade parking at this location.”  (AR 13123-124.)  RCLCO provided similar responses to concerns raised by TCG with respect to eldercare operating revenues, including net rentable area; operating expenses, including the appropriate management fee; and development costs.  (Ibid.) 

Under substantial evidence review, the TCG report does not show any prejudicial abuse of discretion in City’s financial hardship findings.  TCG disagreed with RCLCO on some, but not all, material points.  Notably, as discussed above, TCG did not challenge many aspects of the yield on cost analysis in the RCLCO Report. (See AR 12974-12997.)  While TCG opined that the RCLCO Report was incorrect in several respects, City was entitled to weigh the conflicting evidence.  “Disagreements among experts do not suggest an abuse of discretion on the part of the [agency].”  (Ebbetts Pass Forest Watch v. Dept. of Forestry & Fire Protection (2004)123 Cal.App.4th 1331, 1346.)  “When the evidence on an issue conflicts, the decisionmaker is ‘permitted to give more weight to some of the evidence ….’”  (Town of Atherton v. California High-Speed Rail Authority (2014) 228 Cal.App.4th 314, 349.)  Under substantial evidence review, “courts may reverse an [administrative] decision only if, based on the evidence …, a reasonable person could not reach the conclusion reached by the agency.”  (Sierra Club v. California Coastal Com. (1993) 12 Cal.App.4th 602, 610.)   “’[T]he court does not have the power to judge the intrinsic value of the evidence or to weigh it.’”  (California Oak Foundation v. Regents of University of California (2010) 188 Cal.App.4th 227, 247; accord Walnut Acres, supra, 235 Cal.App.4th at 1312-13 [“We may not substitute our judgment for the City's”].)  This same analysis applies to Petitioner’s reliance on the statements of a different developer who disagrees with the RCLCO conclusions.  (OB 14, citing AR 12999-13000.) 

The evidence in the record in this case distinguishes it from the facts in Walnut Acres .  In Walnut Acres, “[t]here was no evidence that necessary support services demanded additional rooms in order to generate a profit.”  (Walnut Acres, supra, 235 Cal.App.4th at 1316.)  The absence of evidence was exemplified by the following testimony on behalf of the zoning administrator: “I didn't get too much into that finding, but again, it's just a matter of logic and practicality that you really can't, if you were to limit the site to 12,600 square feet, you would end up with a maximum of 16 guest rooms.”  (Ibid.)  Here, in contrast, City considered the detailed RCLCO Report, the TCG report, and RCLCO’s Response, among other evidence in the record.  The RCLCO Report and Response were sufficiently detailed and provided sufficient support for the expert assumptions and conclusions.  The evidentiary record for City’s finding of financial hardship is markedly different from the absence of evidence in Walnut Acres.  

This case is also distinguishable from Topanga Assn. for a Scenic Community v. County of Los Angeles (1974) 11 Cal. 3d 506, 520.  (See OB 10.)  In Topanga, the county granted a variance to develop a mobile home park, which would otherwise not be permitted.  The Supreme Court held that there was insufficient evidence to support the necessary variance findings.  The Court reasoned as follows:

[Section 65906] permits variances “only when, because of special circumstances applicable to the property, ... the strict application of the zoning ordinance deprives such property of privileges enjoyed by other property in the vicinity and under identical zoning classification.” (Italics added.) (10) This language emphasizes disparities between properties, not treatment of the subject property's characteristics in the abstract….[¶]

The data contained in the planning commission's report focus almost exclusively on the qualities of the property for which the variance was sought. In the absence of comparative information about surrounding properties, these data lack legal significance. 

(Id. at 520.)

Topanga centered on a variance standard not applicable to the City’s required financial hardship finding in this case.   Moreover, unlike in Topanga, the City relied on a financial feasibility study that compared the Project to other scenarios, including an eldercare facility build pursuant to strict zoning standards.  Here, there was not an absence of “comparative information.” 

In reply, Petitioner argues for the first time that Table 4 of the RCLCO Report is deficient because “[n]ot one of such ‘comparable senior housing’ transactions is in the same neighborhood on the Wilshire Corridor or surrounding neighborhoods”; it did not include the Watermark at Westwood, located near the Project site; and it “fails to provide even one comparable development to support the 150 basis point premium.”  (Reply 4-6.)  “The salutary rule is that points raised in a reply brief for the first time will not be considered unless good cause is shown for the failure to present them before.”  (Balboa Ins. Co. v. Aguirre (1983) 149 Cal.App.3d 1002, 1010.)  Petitioner does not show good cause to raise these new arguments in reply.  Nonetheless, as the arguments appear relevant, the court will consider them.  Respondents should state their position on these reply arguments at the hearing. 

Subject to oral argument, Petitioner’s new arguments about Table 4 do not change the court’s conclusion.  Table 4 shows that RCLCO considered comparable sales transactions for three other senior housing projects in the Southern California area in 2018-2019.  (AR 3001.)  Under substantial evidence review, that TCG may have found other sales transactions to be more “comparable” is not dispositive.  Significantly, as discussed above, TCG did not challenge many aspects of the yield on cost analysis in the RCLCO Report. (See AR 12974-12997.)  TCG found Scenario 3 to be financially viable assuming a yield on cost threshold of 6.75%; TCG did not propose a different threshold for eldercare facilities.  (AR 12976.)  TCG’s Exhibit B5 appears to show comparable sales for eldercare properties and shows an average cap rate of 5.2%, similar to that found by RCLCO.  (AR 12994, 3001.) It also does not appear that TCG considered the Watermark facility in its analysis of comparable transactions.  (Ibid.) 

Based on the foregoing, substantial evidence supports City’s findings of financial hardship under section 14.3.1.  Specifically, City could reasonably conclude from the RCLCO Report and Response, as it did, that “the development alternatives for a by-right eldercare facility is not viable”; that Real Parties would suffer a financial hardship if the eldercare facility was not granted the requested deviations from the zoning standards; and that the Project would not be built if the zoning deviations were not granted.  (AR 288-291.)  Those findings support City’s decision to grant the eldercare permit pursuant to section 14.3.1. 

Unnecessary Hardship Based on Particulars of the Land

Compliance with Topanga

Petitioner argues that City’s finding of unnecessary hardship based on particulars of the land did not comply with Topanga.  (OB 17:10-12 [City failed to “bridge the analytical gap”]; Reply 8:4-16 [same].)

In Topanga Assn. for a Scenic Community v. County of Los Angeles, (1974) 11 Cal. 3d 506, the Supreme Court held that "implicit in [Code of Civil Procedure] section 1094.5 is a requirement that the agency which renders the challenged decision must set forth findings to bridge the analytic gap between the raw evidence and ultimate decision or order."  (11 Cal. 3d at 515-517.)  “Administrative agency findings are generally permitted considerable latitude with regard to their precision, formality, and matters reasonably implied therein.”  (Southern Pacific Transportation Co. v. State Bd. of Equalization (1987) 191 Cal.App.3d 938, 954.)  The agency's findings may “be determined to be sufficient if a court has no trouble under the circumstances discerning the analytic route the administrative agency traveled from evidence to action.”  (West Chandler Blvd. Neighborhood Ass’n vs. City of Los Angeles (2011) 198 Cal.App.4th 1506, 1521-22.)  “The nature of the statute, ordinance, or rule being applied by that agency is also relevant to the analysis of the adequacy of an administrative agency's findings.”  (Young v. City of Coronado (2017) 10 Cal.App.5th 408, 421.)  

Here, City made detailed findings to support the conclusion that strict application of land use regulations on the Project would result in practical difficulties and unnecessary hardships.  (AR 283-291.)  The findings are sufficient to show City’s “mode of analysis” and for judicial review.  Whether the findings support the decision or are supported by substantial evidence are separate issues than compliance with Topanga. 

Substantial Evidence Supports Finding that Particulars of the Land Caused the Financial Hardship

            Petitioner contends that City’s findings do not support the decision that irregularities in the land constitute an unnecessary hardship that required City to grant the deviations from the zoning standards.  Petitioner also contends that no substantial evidence supports these findings.  (OB 14-17; Reply 8-10.) 

            As a starting point, the relevant required finding under 14.3.1 was that “strict application of the land use regulations on the subject property would result in practical difficulties or unnecessary hardships inconsistent with the general purpose and intent of the zoning regulations.”  As opposed to the finding commonly required to grant a variance, City was not required to find that the property had unique characteristics not common to other properties with similar zoning. 

             City’s findings show that the characteristics of the land coupled with existing zoning requirements contributed to the financial hardship:

[T]he requested height increase and associated deviations from the LAMC and Specific Plan are necessary to accommodate the facility's density and floor area, both of which conform to the Specific Plan's requirements, within a taller building. A facility that strictly complied with all LAMC and Specific Plan regulations, including the Specific Plan's building height limit, would necessarily contain far fewer units, and would not be able to successfully provide the necessary range of on-site services and amenities provided by the proposed Project while remaining financially feasible….. [¶¶]

The aforementioned regulations pose a significant practical difficulty and an unnecessary hardship in that the ability to develop the irregular-shaped site with the density and floor area necessary to include the common area and facilities (including dining areas, recreational areas, patios/courtyards, kitchen, laundry, administrative offices, and lobby areas) needed to support the residential component of an eldercare facility is severely restricted. A significant portion of the proposed project's floor area is devoted to on-site support services, amenities and accessory uses that will provide an enhanced and enriched environment for the residents of the facility.

The deviations from height, building width, setback, and open space regulations to accommodate the allowable density and floor area are necessary to serve a citywide and area-wide demand for assisted living facilities for an aging-in-place population ….

(AR 288, 291 [bold italics added].)

Substantial evidence, including, but not limited to the RCLCO Report and Response, supports City’s findings that the characteristics of the land make it financially infeasible to develop an eldercare facility on the Project site that strictly complies with the zoning standards.  The record also contains other evidence of the impact of existing zoning requirements on the ability to construct a financially feasible eldercare facility.  For example, AR 2726 describes that an eldercare facility could be by right in the R5 zone if it otherwise complied with zoning, the same is not true of the R1 zoned portion of the site.  Further the record contains evidence of impracticality in providing the required parking without deviations for location in the R1 zone; that the intersection of Ashton Avenue and the subject site impacts the arrangement of uses on the site and requires turn-around space on the ground level further reducing the space needed to accommodate the eldercare facility and supporting additional height.  The record also contains evidence that maintaining the historic sanctuary is a unique characteristic of the site that reduces the available land and requires deviations to build a viable project.  (AR 2984 [Lot Configuration]; see also AR 2726.) 

The record supports the City’s finding that the eldercare facility was financially infeasible without the deviations.  The RCLCO study specifically analyzes an eldercare project built to code without any deviations and an eldercare project with the specific deviations sought by Belmont, and approved by City, to make the facility financially feasible.  (See AR 2984-85 [Site & Building Constraints and Project Scope].)  RCLCO concludes, as follows: “[T]he proposed Scenario 4, which includes an eldercare development with an increase in height and other deviations to accommodate the permitted density and FAR, is the only financially feasible option of the four presented scenarios. The proposed Eldercare project exceeds the industry standard feasibility threshold by only 0.20%, which demonstrates that the deviations requested through the Eldercare Permit are necessary to produce a viable project. Without the requested deviations, the project could not be built.”  (AR 2989 [bold italics added].)  Thus, RCLCO offered an expert opinion that the deviations sought by Belmont are necessary to make the Project financially feasible.  RCLCO’s report, including the finding that the proposed Project would exceed the yield on cost threshold by only 0.20%, is substantial evidence upon which City could reasonably rely in its approval of the deviations.  The various staff reports also adequately describe the characteristics of the site impacting the development of the project, and that information is reflected in the City’s findings.  Substantial evidence supports a finding that the characteristics of the land in conjunction with zoning requirements constitute an unnecessary hardship as applied to the Project. 

The court is not persuaded that each deviation from zoning standards required a discrete finding regarding unnecessary hardship, and a separate analysis of the project with or without the deviation.  Petitioner cites no authority for that proposition.  The City made sufficient findings to satisfy Topanga, as discussed above. 

            Petitioner does not challenge any of City’s other findings under section 14.3.1.  For the reasons discussed above, the first cause of action for writ of mandate is DENIED.

Second Cause of Action (CEQA); and Third Cause of Action (LAMC § 12.24.F)

            The second cause of action alleges violations of CEQA.  As noted, Petitioner incorporates by reference the CEQA arguments briefed by Petitioner Dana Zinderman in related case 22STCP00655.  OB 4, fn. 1.  In its writ briefs, Petitioner Westwood Neighbors does not develop any CEQA arguments different from those made by Petitioner Zinderman.  For the reasons stated in the court’s tentative ruling for Zinderman v. City of Los Angeles, 22STCP00655, also on calendar March 9, 2023, Petitioner’s second cause of action under CEQA is DENIED.

            The third cause of action alleges a violation of LAMC section 12.24.F related to City’s approval of a CUP.  Petitioner does not develop any argument with respect to this cause of action in its writ briefs.  Accordingly, the third cause of action is DENIED. (Nelson v. Avondale HOA (2009) 172 Cal.App.4th 857, 862-863 [“When an appellant fails to raise a point, or asserts it but fails to support it with reasoned argument and citations to authority, we treat the point as waived”].) 

Conclusion

The first, second, and third causes of action are DENIED.