Corruption Case Sweeps Up Major West Coast CRE Players
In November 2018, FBI agents raided the home and offices of Los Angeles City Council Member Jose Huizar.
Roughly two years later, nine people and two corporate entities are facing an array of federal charges in a wide-ranging public corruption case, now centered on Huizar and a criminal enterprise he allegedly created and cultivated while in office.
The vast and ongoing case revolves around development in Downtown Los Angeles, an area that sprouted new projects under Huizar and shed its reputation as a neighborhood that closed up after office workers left at 5 p.m. It is playing out as the close relationship between local politicians and real estate figures comes under closer public scrutiny in Los Angeles and across the country.
“Powerful developers, operating through well-connected lobbyists, eagerly participated in the schemes to get preferential treatment for their downtown projects,” United States Attorney Nick Hanna said in a statement announcing additional details of the case in November.
Huizar, who is charged with conspiring to violate the Racketeer Influenced and Corrupt Organizations Act, pleaded not guilty to charges including bribery, money laundering, and wire and mail fraud in December.
He is also accused of receiving $1.5M in illicit financial benefits through his alleged actions. Federal prosecutors say the money took the form of donations to political action committees that were connected to Huizar and cash. When the FBI searched Huizar’s Boyle Heights home, its agents found $129K tucked into suit pockets, wrapped in T-shirts and hidden in red Chinese New Year envelopes.
Though he is, for many Angelenos, the most high-profile person indicted in the case so far, others who have been charged were very familiar to development watchers in LA.
On Thursday, San Francisco-based Carmel Partners agreed to pay $1.2M to resolve a federal criminal investigation into its relationship with Huizar. The payment was made as part of a three-year non-prosecution agreement. Carmel Partners’ 520 Mateo project in the Arts District came up in court documents alongside allegations that Huizar had helped resolve a union dispute over the project and helped lower the number of affordable units included in the project.
Carmel Partners had hired lobbyist Morris Goldman as a consultant on its Arts District project, and it admitted that Goldman “funneled a series of requests” from Huizar to the company, and that the company ultimately made $75K in political contributions to two Huizar PACs.
In August, Goldman, an industry veteran who worked on a Carmel Partners project in the Arts District and the billion-dollar Frank Gehry-designed The Grand project on the avenue of the same name in Downtown, was charged with conspiring to commit bribery and mail fraud.
Carmel Partners is the second developer to pay a fine and receive a non-prosecution agreement in this case. Jia Yuan USA Co., a subsidiary of the China-based Shenzhen Hazens that operated and would have redeveloped a Downtown hotel, agreed to pay $1.05M in October to resolve an investigation into the company’s interaction with city officials, “including bribery, honest services fraud, and foreign and conduit campaign contributions.”
The developer’s plan was to turn the Los Angeles Luxe City Center Hotel into a taller complex with two towers holding residential units and a W Hotel. To help, it had hired George Chiang, a consultant who was later charged with participating in Huizar’s criminal enterprise. Jia Yuan admitted to federal officials that, once connected via Chiang to Huizar, it gave a number of gifts to the then-council member, including tickets to a Katy Perry concert, and partially subsidized a trip to China that the council member took with his family.
After receiving all of these benefits, federal officials said, Huizar voted to approve the Luxe Hotel redevelopment project while on the city’s Planning and Land Use Management Committee. As part of its non-prosecution agreement, Jia Yuan also stated that Huizar, through Chiang, solicited a $100K donation from the company. While the donation was not ultimately made, federal officials say Chiang told Huizar that Hazens would make the donation, and that resulted in Huizar taking “additional official acts” that benefited Jia Yuan’s redevelopment project.
One of the developers included in a Nov. 30 indictment, Wei Huang, is the chairman of Shenzhen New World Group, a China-based company that owns the L.A. Downtown Hotel. Shenzhen New World Group had submitted plans to build a 77-story high-rise on the site of its hotel in Downtown and was allegedly seeking Huizar’s help moving the project through the planning process quickly.
The other developer named in that indictment, Dae Yong Lee, was seeking to gain approvals for a condo tower at 940 Hill St. Federal officials charge that in exchange for Lee providing a $500K cash bribe for Huizar and his then-special assistant, Huizar used his influence to resolve a labor dispute that would have potentially held up the planning process for Lee’s condo project.
“This detailed indictment, which lays bare these backroom deals, should prompt a serious discussion as to whether significant reforms are warranted in Los Angeles city government,” United States Attorney Nick Hanna said in a November statement announcing charges against two developers and their projects.
But the effectiveness of reforms aimed at increasing transparency and public trust after this might not deter someone looking to do what Huizar allegedly did, said Eric Sussman, an adjunct professor in real estate at UCLA’s Anderson School of Management at the Ziman Center for Real Estate.
“If someone wants to be corrupt, they probably know very well they are breaking the law and are just going to behave in that way, thinking that they can get away with it or that they are somehow different," Sussman said.
Some reforms surrounding campaign contributions in LA have been attempted. A battle to limit real estate developers’ contributions to LA political campaigns was reinvigorated by the 2018 raid on Huizar’s offices. But the legislation that was ultimately approved in late 2019 was criticized as toothless and “worse than not passing anything at all.”
City council members have focused for now on trying to figure out what becomes of the projects that are involved in the case. Some are further along than others: Carmel Partners’ Arts District site has been cleared but the existing hotel still stands on the Figueroa Street site where Shenzhen New World envisioned a 77-story skyscraper.
In June, Los Angeles City Council members Marqueece Harris-Dawson and Paul Krekorian submitted a motion that, if approved, would direct the city attorney to look into possible avenues for invalidating the development agreements and other approvals for some of the projects in Huizar’s district that have been embroiled in the corruption case. Many of those were allegedly the subject of cash bribes and gifts exchanged between developers and Huizar.
One route involves Government Code Section 1090, which refers to conflicts of interest involving public officials. Generally, it states that a public official can't make or participate in the making of a contract if they also have a financial interest in that contract. If this rule is violated, that contract is voided. This could potentially apply to development agreements made for some of the projects.
“An interesting question would be, if the development agreement were invalidated, what effect would that have on the other entitlements that were approved?” said Michael Jenkins, a lecturer at USC’s Gould School of Law.
Development agreements typically include additional benefits that have been specifically negotiated for a project and would not otherwise be included in the project, money directed to an affordable housing fund or adding affordable units to a project.
“If you lose those benefits but you’re still stuck with the project, then that’s a net loss for the city,” Jenkins said.
The city attorney didn't respond to requests for comment on the status of investigating the use of the GCS 1090. The city’s records database shows that the council’s motion has been pending in two committees since October.
The council is currently in recess, but a spokesperson for Krekorian told Bisnow that the council member is engaging with Harris-Dawson in his capacity as the chair of the Planning and Land Use Management Committee and City Council President Nury Martinez this month with the goal of getting the item before the full council.
A representative for Harris-Dawson did not respond to inquiries from Bisnow.