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Wednesday, March 20, 2013

Commercial Property Owners in Malibu Civic Center Area Take Aim at Draft Formula Retail Ordinance Being Circulated by the City

• Group Sees Some of Its Concerns Reflected in October 2012 Memo to Council Members by City Attorney


Commercial property owners in the Malibu Civic Center area announced this week that they intend to respond to the City of Malibu draft formula retail ordinance that began circulation for public review on March 12 with wide-ranging legal and political counterattacks.
Attorney David Waite, the point man for the shopping center owners most directly affected should an FRO become law, fired the first volleys on Monday in a pair of letters to City of Malibu Senior Planner Joseph Smith who is overseeing the ordinance drafting and development process.
Waite joined partner and spokesperson for the Malibu Country Mart Michael Koss in a joint interview with the Malibu Surfside News this week. The coalition of commercial center owners perceives the draft FRO as a misguided effort and asserts that the “city council should have the courage to stand up to a small vocal minority of people who are asking them to do something against free enterprise and the best interests of the Malibu community.”
Waite told The News the group of commercial property owners thinks “the ordinance would substantially and impermissibly regulate and limit the presence of formula retail establishments in the broadly defined Civic Center area” to the detriment of the commercial property owners and local consumers alike. 
Koss said the draft FRO process is based on an erroneous perception of the makeup of the city’s commercial core where “no more than nine percent citywide and 16 percent in the Civic Center area is formula retail.” He said it is important to “understand that without these firms, there would be a “lot more vacancies and this would not only impact other tenants but begin to affect home values.”
The linchpin of the anti-FRO argument is that its “goal is protectionism” and any notion of rural character is “disingenuous.” Both men contend that the ordinance is predicated on discrimination against national retail chains.
Waite asks why Malibu consumers should not be allowed to decide where they want to do business with their pocketbooks. Instead, the attorney said, “City regulators would be given the power to pick the [local business] winners and losers.”
Concerns have been expressed that the system being explored by the city could lead to personal favoritism for campaign donors, friends and family members, and even create an atmosphere that encourages miscreant behavior.
Koss said that if there are business issues that need to be addressed, that need not be done with “a blunt instrument because there are incremental alternatives to this Draconian ordinance.”
Koss said the draft doesn’t include a definition for the “community character it is supposed to protect.” Waite added, “Let’s have a discussion about community character. We see no nexus between preserving rural character, or small town feel, and regulation of formula retail chains.”
In a letter to Smith dated March 18, Waite stated, “As currently constituted, the ordinance violates the dormant commerce clause [derived from the U.S. Constitution] and is therefore unconstitutional. Further, the ordinance will so inhibit the ability to lease retail space in substantial portions of existing retail centers that it will work a regulatory taking on property throughout the Civic Center.”
Waite added, “Finally, as a policy matter, the ordinance will not accomplish what it purports to achieve. Heretofore non-existent local businesses will not miraculously spring forth to fill new or vacant retail space. Rather, were the ordinance to take effect, it would create two results: (1) substantial retail vacancies in currently thriving retail centers and (2) a tremendous diminution in the value and desirability of these centers.”
The owners indicate that they intend to present “substantial evidence of the ordinance’s many detrimental effects, and detailed legal analysis of the ordinance’s specific legal flaws.”
As similarly noted by Malibu City Attorney Christi Hogin in an Oct. 12, 2012 memorandum to the city council members that they are treading in murky legal waters with a formula retail ordinance, “the dormant commerce clause prohibits economic protectionism—regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors.”
Waite contends that courts are particularly wary of laws that evince a protectionist purpose and sees the record as “replete with evidence from members of the public and Malibu officials demonstrating that the primary motivation behind the ordinance is the protection of local merchants.”
He wrote, “The city purports to want to maintain Malibu’s ‘relatively rural nature’ and ‘small-town feel’ and to avoid the ‘sameness and familiarity’ that formula retail allegedly brings. The most obvious way to address these concerns is to impose aesthetic standards on all retail in the city. The city could develop standards that maintained and enhanced its (allegedly unique) retail environment without arbitrarily singling out formula retail. There is no connection that demonstrates how placing substantial regulatory limits and barriers on formula retail will serve to preserve the city’s claimed rural, small town feel. Nondiscriminatory alternatives must be evaluated.”
The communication continued, “In addition to impermissibly favoring in-state local merchants, the ordinance would work a regulatory taking on property throughout the Civic Center. Thus the ordinance will dramatically reduce the value of affected centers (by tens of millions of dollars), while directly interfering with the owners’ reasonable investment-backed expectations, as all of the owners purchased, planned and developed their properties before the concept of a formula retail ordinance ever existed. Further, as discussed above, the character of the governmental action is highly suspect and almost certainly borne of an impermissible desire to protect local merchants.”
In addition, the assessment of the FRO asserts that “the entire structure of the ordinance suffers from deeply arbitrary and wholly unsupported definitions and distinctions. While the city has discretion to enact legislation, an ordinance that is arbitrary, capricious, or entirely lacking evidentiary support will be overturned.”
Waite emphasized that the ordinance does not apply to “the very areas of the city that are more rural, such as Pt. Dume and Trancas, despite stating that its entire purpose is to protect the city’s rural character. The Civic Center is in fact the most developed portion of the city. The Civic Center is the heart of the city’s civic life and the center of commercial activity and commerce, and is the most urbanized area of the city.”
Waite noted that what is seen as most incredible to the owners is that the “definition of formula retail itself is arbitrary. The ordinance presents no logical rationale behind its threshold of seven or more establishments. Why not ten, or twenty, or a hundred? The ordinance exempts grocery stores, presumably because the city recognizes that the grocery store market is almost completely dominated by formula outlets, but does not exempt drug stores, which are similarly dominated by formula chains. Each business provides essential staples that must be available locally. What is the rationale for the distinction?” 
However, more troubling for Waite are mandated Conditional Use Permit findings, which invest the city planning commission with “completely unfettered, standardless discretion. For example, the required finding that a “formula retail establishment will not be incompatible with surrounding uses” provides no basis for how “incompatible” will be determined, thus permitting the planning commission to deny a CUP for entirely protectionist purposes.”
The Civic Center commercial owners point to a market analysis submitted to the city by Stanley Hoffman Associates, Inc., confirming what Koss stated that formula retail comprises 15.9 percent of the retail square footage in the Civic Center area, which is perceived by the group as  “a very low percentage of formula retail, particularly in comparison to the percentages present in many other centers in surrounding areas.
The attorney overseeing the owners’ response also contends that ordinance proponents claim there has been “a specific increase in the number of formula retail establishments being introduced in the Civic Center  but offer no evidence for this claim. Rather, the empirical evidence reveals that absent regulation, the free hand of the market has created a diverse and healthy retail environment without an overabundance of formula retail.”
According to Hoffman’s analysis, “not a single covered shopping center in the Civic Center has more than 50 percent of its retail square footage rented to formula retailers. What, then, is the motivation for the ordinance?  Given the focused political effort by some Malibu residents who explicitly want protectionist legislation, coupled with the comments of sympathetic council members, it appears that all of the purported justifications for the ordinance amount to little more than a smoke screen to mask unlawful economic protectionism.”
The overall contention is that the draft ordinance’s “legal flaws are manifest [and the commercial property owners] strongly urge the city to rethink its approach and attempt to achieve its goals in a legally sustainable manner. [The owners indicate that they] remain hopeful that [they] can work cooperatively and constructively with the city in the coming weeks” to address what they perceive as the draft measure’s shortcomings.
Calls for more stringent Environmental Impact Reports are often anathema in the commercial development process, but Waite’s second communication to Smith this week indicates that the group of commercial property owners in the City of Malibu concerned with the city’s proposed formula retail ordinance sees the need for additional oversight on the measure now under public review.
 Waite wrote, “Based on a review of the scope and requirements of the ordinance undertaken by this office and leading real estate market research and planning firms retained by the law firm—Jeffer Mangels Butler & Mitchell LLP—on behalf of the owners, a fair argument can be made that the ordinance may have a significant effect on the environment, requiring preparation of an EIR.”
The concerns cited for this stance include transportation and traffic impact, economic impacts and “physical decay” (the ordinance’s likely impacts on the overall economic health and vitality of the Civic Center, and the attendant spillover effects on remaining retailers, especially smaller tenants), and land use conflicts (state mandates that cities not interfere with or create barriers to visitor-serving uses along the coast as called for by the California Coastal Commission and other issues related to the specific nature of a beachfront community.
Additionally, Waite’s call for an EIR is predicated on the potential for “causing what could turn out to be a substantial reduction in the value of the commercial properties in the area.” As a result, he wrote, “On behalf of the owners, we respectfully request that the city properly study the multiple potential environmental impacts the ordinance may cause.”

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