Another chapter in the confusing and convoluted Saga of Ocean Avenue Housing was written this week introducing new characters and additional plot twists to what has already become a Byzantine epic of confusion and contradiction.
At Tuesday’s meeting of the Santa Monica City Council, officials heard a closed session item pertaining to the sale of property at 419 and 1616 Ocean Avenue. Affordable housing provider Community Corporation of Santa Monica has control of the properties and was said to be negotiating their sale with developer Leo Pustilnikov. A proposed sale requires city consent because 419 Ocean Avenue was deeded to CCSM by the city in 2016 along with 1616 Ocean Avenue and the City retains the rights to reacquire the property.
Following the private discussions, Mayor Caroline Torosis said the Council had waived its confidentiality rules to provide an update. She said the City had been asked to evaluate a potential deal by both CCSM and Pustilnikov.
“The city discussed the potential real estate transaction in closed session, given that Mr. Pustilnikov is considering other interim / transitional housing uses at 413 Ocean, including a possible project with the Office of Diversion and Reentry for what has been described to the city as ‘prisoner housing.’ CCSM has shared that they need the funds that they would accrue from selling 419 Ocean Avenue to help stabilize their operations. Also, Mr. Pustilnikov has indicated that if the city signed off on the transaction, he would forgo any proposed interim / transitional housing use at 413 Ocean Avenue. We are aware that CCSM is also considering selling other properties they own to Mr. Pustilnikov. We have been made aware that CCSM and Mr. Pustilnikov are still negotiating potential deal terms for a possible transaction.”
Council took no action on the item that night other than providing the update.
However, that statement was disputed shortly after the meeting.
CCSM Executive Director Tara Barauskas was the first to respond to the City’s statement.
“Community Corp. of Santa Monica is not in negotiations with Leo Pustilnikov to purchase any of our properties,” she said in a statement. “On Monday, Jan. 12, the Community Corp. board voted not to engage in any discussions or negotiations with Leo Pustilnikov. Remarks from any other parties suggesting otherwise are inaccurate.”
CCSM said it did receive a letter from Pustilnikov regarding the purchase and evaluated it out of due diligence. However, they chose not to go forward with any deals, the organization did not need to sell properties to maintain operations and that it was not interested in selling any other property to Pustilnikov. CCSM also disputed the assertion that they had asked the city council to discuss the matter.
Pustilnikov said he has been engaged in conversation with CCSM for months over the potential purchase of 419 Ocean Ave. and that he knew the city had to be involved in any purchase due to the past ownership structure. He said he began discussions when he acquired the rights to the neighboring property and while other CCSM properties were part of the larger conversation they did not come to an agreement on terms.
He said he would be willing to forgo reopening his two buildings at 413 and 825 Ocean if he were able to expand his holdings on the street in anticipation of a larger redevelopment down the line. However, without that option, he said he needs to put something into the 413/825 properties but he has not limited the choice to so-called “prisoner housing.”
“I need to generate a use to hopefully come close to breaking even,” he said. “There are a number of uses that are permitted due to the unique nature of the property and within what is allowed … I’ve given the city five uses and tell me what’s least offensive.”
Housing options connected to the Office of Diversion and Reentry (ODR) in Los Angeles County provide support for individuals with serious mental/physical health needs, diverting them from jail into treatment.
While that concept is among the five, he said he hasn’t explicitly linked that option to any action by the city and that he would be happy with the city picking any of the available uses that could include recuperative care, mental health facilities, drug/alcohol rehabilitation or transitional housing.
He said he’s asking the city for its preference on the use but regardless, he’d absorb the cost of keeping the buildings vacant if he could purchase more adjacent property.
“I’ve said if I can acquire the adjacent site, I don’t mind leaving it vacant for the rest of the term,” he said.
Pustilnikov's previous attempts at occupying the property ended in disaster. The first would have opened housing for the mentally ill under a collaboration with County programs. However, Los Angeles County Supervisor Lindsey Horvath terminated that proposal, citing broken community trust following resident opposition.
Additional controversy erupted over Thanksgiving when city officials discovered people had been moved into the building without proper permits, a certificate of occupancy or a business license as part of a rehabilitation program. City staff found an unpermitted residential facility with room divisions that raised concerns about electrical work and fire safety.
The city issued a notice to vacate and an administrative citation. Pustilnikov said he had been out of town at the time and wasn’t aware the service provider had tried to occupy the buildings.
Pustilnikov said fallout from those incidents has left him hesitant to move forward without partnership with the city and he is still working with the County on a mental health project to be located somewhere on the Westside.
Pustilnikov has also made headlines for other reasons in the past year. He and partners Ely Dromy and Eli Taban are past due on approximately $39 million for property at 1315 Third Street Promenade, which houses Holey Moley, a mini golf and cocktail bar. The default on the $37.5 million loan was recorded in Los Angeles County records.
He is also part of a lawsuit against the city. In September, he and Jon Farzam filed a lawsuit challenging the City Council's removal of six directors from Downtown Santa Monica Inc., the nonprofit managing the downtown business improvement district.
The lawsuit argues the council violated the organization's bylaws and California nonprofit law when it removed board members and installed interim appointees in July. The removals followed concerns about transparency and accountability raised by council members.
Editor's Note: After this story went to press, the Daily Press received additional information from the City of Santa Monica included below.
During the past few weeks, the City participated in several discussions with Community Corporation of Santa Monica (CCSM) and Leo Pustilnikov regarding a potential real estate transaction related to 419 Ocean Avenue. At our January 13 meeting, the City Council discussed the potential transaction in closed session for two primary reasons. First, given the status of the property at 419 Ocean Avenue, the sale of the property would have required the City’s consent. In addition, Mr. Pustilnikov had indicated that he would consider forgoing any interim housing use at 413 Ocean Avenue, if a deal regarding 419 Ocean Avenue were to be consummated.
The City was informed late on January 12 that CCSM had declined to pursue the transaction with Mr. Pustilnikov. However, the broker that CCSM invited into discussions regarding 419 Ocean Avenue contacted the City on January 13. At that time, the broker represented that CCSM was still interested in the possible deal. Mr. Pustilnikov also indicated to the City on January 13 that he was still engaged in discussions with the CCSM broker as well.
The City relied on those representations as part of our report out of Closed Session at our January 13 meeting. We have subsequently been informed by CCSM that the broker misrepresented his involvement in the deal, and that the broker was not representing CCSM in any formal capacity. Further, the City has been informed that the broker was never formally engaged by CCSM to represent them in the transaction related to 419 Ocean Avenue. To that end, we can confirm that CCSM is no longer interested in the real estate transaction which contemplated the sale of 419 Ocean Avenue.