West Hollywood, population 34,399 (2010), is located between Hollywood and Beverly Hills, five miles west of downtown Los Angeles. The City contains numerous architectural gems from the 1920s and 1930s. Consequently, the City’s general plan called for the preservation of cultural resources and implemented that goal with a historic preservation ordinance adopted in 1989.
Under West Hollywood’s Cultural Heritage Preservation Ordinance, a designated cultural resource cannot be altered or demolished without the approval of the City. The ordinance also allows the City to designate a property as a cultural resource with or without the consent of the property owner. Sometimes the City uses that authority and designates a property without the owner’s consent. However, the City would prefer to get the owner’s consent. Consequently, the transfer of development rights provision is considered as one of several incentives for property owners to consent to designation of their properties as historic structures and to rehabilitate those properties.
The original 1989 version of this ordinance provided few procedural details and the TDR program was not immediately used. In 1992, West Hollywood amended its historic preservation ordinance authorizing the City Council to adopt review and approval procedures for transfer of development rights. In 1994, the City Council adopted a TDR program designed to reduce excessive requirements so that TDR becomes a more attractive incentive for owners to rehabilitate their historic buildings.
In December 2011, Francisco Contreras, Senior Planner in the West Hollywood Community Development Department reported that the TDR program had not changed and had not seen activity in the prior decade. Consequently, the rest of this profile is identical to the one that appeared in the 2003 book Beyond Takings and Givings.
In the West Hollywood program, sending sites are properties containing City-designated cultural resources which have less density than the maximum allowed by the zoning code. The amount of residential density which can be transferred is simply the difference between the maximum permitted development and the existing number of dwelling units. In the case of non-residential cultural resources, the transferable development is the difference between the maximum code-permitted floor area and the actual floor area of the designated building.
Residential TDRs are converted to commercial TDRs at the rate of 1,000 square feet of commercial floor area per dwelling unit. For sending site dwelling units that are rent-controlled, a 25-percent bonus is added to the TDR conversion factor to acknowledge that the owners of these historic properties have higher maintenance costs but cannot independently adjust their rental income.
The owner of a designated cultural resource must comply with restoration requirements established by the Cultural Heritage Advisory Board in order to receive all the funds from a sale of development rights. If the sending site property needs rehabilitation, the owner initially receives only 25 percent of the TDR sale proceeds. The remaining 75 percent is placed in an escrow account for use in the rehabilitation of the sending site. The City requires a portion of the escrowed funds to be spent on a rehabilitation plan prepared by an accredited architect with demonstrated experience in the rehabilitation of historic structures. The rehabilitation plan must be based on the U.S. Secretary of the Interior’s Standards for Rehabilitation and the California State Historic Building Code.
The City’s Cultural Heritage Advisory Board approves the rehabilitation plan with a Certificate of Appropriateness. The escrowed funds can be used to finance the restoration work. The owner is not obligated to spend more on rehabilitation than the amount in the escrow account. If less than the amount in the escrow account is spent on the rehabilitation, these remaining funds are released to the sending site owner when the rehabilitation is completed.
Sending site owners can significantly streamline this process by completing all rehabilitation prior to selling their development rights. If the sending site property does not need rehabilitation, none of the sale proceeds are required to be placed in escrow; the owners of these properties can immediately receive all of the proceeds of the TDR sale.
Before selling development rights, the sending site owner must receive a verification from the City stating the number of dwelling units or amount of floor area available for sale and the minimum sales price. The minimum sales price is determined by the City Council based on staff recommendations. The current minimum TDR price is $15 per square foot of net rentable space.
Potential receiving sites include any properties zoned for medium to high-density commercial use which are not also cultural resources. Due to neighborhood opposition, density cannot be transferred into residential zones. The City purposely identified receiving areas rather than specific receiving sites in order to increase the options for TDR sellers and to make receiving site owners compete for TDRs.
On receiving sites, transferred development rights can be used to increase code-permitted
density by one half square foot for each square foot of land area (floor area ratio 0.5 or 0.5 FAR). However, the Planning Commission may permit an extra 0.5 FAR, or a total of 1.0 FAR above and beyond the density permitted by code, if the receiving site developer can demonstrate to the Planning Commission that the proposed receiving site possesses a unique ability to accommodate the additional density. The density allowed on receiving sites by base zoning is FAR 1.5 or FAR 2.0 for mixed use projects. Consequently, the bonus density allowed by TDR can range from a 25 percent to a 66 percent increase.
West Hollywood was concerned that developers would be reluctant to use TDR if they had to buy the rights prior to approval of the transfer. Consequently, the City allows developers to purchase an option on TDRs. The option must be recorded prior to adoption of the receiving site project.
Transferable rights can be purchased by anyone at anytime. These rights do not have to be earmarked for a particular receiving site or used at the time they are severed from the sending site. In allowing this flexibility, West Hollywood hopes to improve the market for TDRs by allowing investors to profit from these transactions. The City also sees this as a way to promote TDR transactions even during downturns in the real estate market. The City keeps a list of all TDR holders in order to assist potential receiving site developers.
The City promotes the TDR program by distributing information to real estate brokers, developers and owners of cultural resources.
The West Hollywood ordinance has most of the features found in successful TDR programs. The West Hollywood historic preservation ordinance allows the City to designate a property as a cultural resource with or without the owner’s consent. Once designated, a cultural resource cannot be altered or demolished without the City’s approval. Obviously, the owners of designated landmarks have a significant incentive to sell their unused density and, if necessary, use the proceeds to fund the rehabilitation of these properties. As in most TDR programs designed for historic preservation, the transfer ratio is generally one-to-one; however, West Hollywood offers a 25 percent bonus for transfers from rent-controlled residential sending sites.
The ordinance also offers a significant boost in density for receiving site projects using TDR. Through transfers, receiving site density can be increased as much as 66 percent higher than the density allowed by the base zoning. However, as observed by Associate Planner Tim Foy, developers often do not even use the density allowed by the base zoning. This weak demand for additional density obviously reduces the motivation to purchase TDRs.
To date, no transfers have occurred under this program.