Huge Housing Project Draws Fire Over Bond Issue ‘Irregularities’ : Officials Doubt That Woodland Hills Plan Gives Taxpayers Enough for Their Money

An acute shortage of affordable housing prompted the Los Angeles City Council several years ago to create a bond program to stimulate construction of apartments for low- and moderate-income families.

Now, after subsidizing a scattering of small apartment buildings, the city has finalized what has been called the largest housing bond issue of its kind ever in the United States--a $190-million project with developer Alan I. Casden of Beverly Hills to build 1,916 apartments.

But some of the city officials who approved the bond issue are now questioning it.

The Municipal Housing Finance Fund administrator, Alfred Osborne, whose recommendation of the project helped move it through the city bureaucracy, held a special meeting the day after the bonds were sold “to clear the air . . . about what we could call some of the irregularities associated with this particular transaction.”

Councilman Ernani Bernardi, after consulting with private attorneys and building industry experts, is threatening to sue over what he calls the “excessive costs of the development that represent a gross misuse and abuse of housing bond dollars.”

Lack of Expertise

Councilman Marvin Braude has complained that city staff lacked the expertise to answer his fundamental question: “whether public benefits (of the bond issue) were sufficient to outweigh the public cost.”

Without answers, Braude said, it is hard to tell “whether Casden is getting too good a deal . . . but I suspect we (the city) could have done better.”

Under the housing bond program, builders receive low-interest loans to construct apartments, on the condition that at least 20% of the units be set side for low- and moderate-income families. The city raises the money through tax-exempt bonds sold to the public.

Similar programs have been adopted throughout the country, costing the federal and state treasuries millions of dollars in lost tax revenue and sparking a congressional debate over the program’s value.

The city’s record $190-million bond issue has come under attack not only from city councilmen but also from state Assemblywoman Maxine Waters (D-Los Angeles), who believes that taxpayers are not getting “the best bang for their bond” and that the poor are not getting the new housing they need.

The questions center on several points:

- While the city’s bond program was designed to stimulate housing construction in the inner city, where the need is greatest, the vast majority of Casden’s apartments will not be built there. Mostly, they will be garden apartments with high rents clustered around tennis courts and swimming pools in a prosperous section of Woodland Hills called Warner Center, envisioned as “the new Century City North.”

- While the cost of building new apartments under the city’s previous bond issues has averaged about $40,000 of bond money per unit, the cost for Casden’s development will be about $99,000 per unit, with the Warner Center apartments running about $112,000 each.

- While the developers of more than 100 small projects funded through the bond program since 1982 have had to compete for a limited pool of bond dollars and to wait months for approval, Casden’s proposal was not subjected to a competitive screening process. His project moved through the bureaucracy so quickly that the staff of the chief legislative analyst issued a report stating they had “not been able to thoroughly review the relative cost” of the project and therefore could offer no recommendation on the bond issue.

- While other developers were required to plan their projects around program rules that give priority to building in the inner-city target area, the City Council waived the rules to accommodate Casden’s plans, even though city staff opposed this action.

- While the bond program was designed to create new apartments, a 55-unit complex in Canoga Park that Casden pledged to build under this bond issue was already open for rent before the bonds even sold. And all the apartments Casden plans to build will be specially constructed to meet condominium standards, adding to their cost and raising speculation that he eventually plans to make money by selling the units as condos.

- While the city requires other, smaller, developers to demonstrate that their new units will have a positive cash flow, Casden’s 1,916 units will have an overall negative cash flow, according to his cost breakdown. Casden is putting up about 6% of the money for his project, while banks have usually required a minimum of 15% from smaller developers.

- While for the smaller builders the city has selected a bank to scrutinize their projects and provide a check on costs, Casden chose the financial institution that evaluated his project’s feasibility. He picked Coast Savings & Loan--where he “is responsible for all real estate activities,” according to a press release from Casden’s publicist. Together Casden and Coast Savings & Loan are partners in CoastFed Properties, one of the nation’s largest diversified real estate development and syndication companies.

Casden said that his financing arrangement with Coast Savings & Loan is “fairly commonplace” and emphasized that all aspects of the bond issue were carefully examined and approved, not only by city officials but by city-hired underwriters and bond counsel. Also, an audit will be done after the apartments are built to ensure the legitimacy of all costs.

The director of the Department of Community Development, Douglas Ford, said Casden’s project was unlike the 100 or more smaller projects his department has processed. It qualified as a so-called “special project,” he said, mainly because of its size. (Casden’s was the fourth “special project” the city has approved. The other three amounted to a total of about $55 million in bonds, compared to Casden’s $190 million.)

“Special projects” by big developers have special rules--including no competitive bidding and unique financing arrangements.

However, one important restriction on “special projects” is that the developers must build companion housing projects in the inner city as a trade-off for building in outlying areas, such as Warner Center. Casden is required to build at least 334 apartments in the inner city, in return for building 1,334 in Warner Center and Canoga Park.

Councilman Has Question

Councilman Bernardi has questioned whether Casden has legitimately met this goal. But Casden countered, “We have volunteered and have obligated ourselves to do almost twice what the City of Los Angeles requires.”

As for Bernardi’s criticisms of Casden’s high costs and his financing arrangement with Coast Savings & Loan, Casden defended his costs as “within the mainstream of industry standards.” He said that “because of the financial strength of this organization, we are able to secure better competitive financing than perhaps other developers.”

Casden, 39, has been a pioneer in housing bond programs offered by communities throughout California. He said he helped structure the Los Angeles housing bond program. “Without my help the City of Los Angeles would have never done a bond issue,” he declared.

As chairman of CoastFed Properties during the last several years, Casden claims to have secured about $1 billion in public funding for residential and commercial projects.

Cites Successes

“We enjoy a premier place in the industry,” he said. “In 25 years and 30,000 apartments, this company has never defaulted on any obligation and we have never required an additional advance for construction funds. We’ve never failed to timely complete construction of a project when due. We’ve never failed to rent out a project on a timely routine basis and we’ve never had a project that ever failed to produce a timely payment of principal and interest when due.”

A generous contributor to politicians, Casden donated more than $50,000 to various state and local political campaigns during the first six months of this year. Records of his contributions since June are not yet available.

“We regularly give money to all the City Council people,” typically in amounts of about $2,500 or $5,000, Casden said. But he added that his political contributions are “minor” compared to what he gives to charity.

Still Some Reservations

Casden’s $190-million bond project was approved June 21 by the City Council on a 12-2 vote, but some officials have continued to voice reservations.

The Municipal Finance Advisory Committee, a group of private sector mayoral appointees who review the city’s bond issues, considered holding up the bond sale at the last minute.

Casden allegedly threatened to sue the committee, raising the hackles of several members.

“I don’t like to be threatened to be sued and I was,” said committee chairman Osborne, who also serves as associate dean of the UCLA School of Management. “And I don’t like people calling my office and intimidating my staff.”

Casden denied intimidating anyone when he called Osborne’s office before the bond issue was finalized and left a message saying he was “disturbed” about an unscheduled committee meeting in which he had been criticized without an opportunity to respond.

‘We Didn’t Convey That’

He said he never threatened to sue: “My personal opinion is that we didn’t convey that impression. If we did, it was a mistake on our part and we offer our apology to anybody who feels that they may have been offended.”

A “good-will” dinner party at Chasen’s after the bonds sold attracted only one committee member. But about 35 other city officials or their spouses flocked to the celebration--including Councilmen David Cunningham and John Ferraro, Treasurer Robert Odell, several lawyers in the city attorney’s office and employees of the Community Development Department who had worked on the matter. The dinner’s $5,000 tab was picked up by the bond underwriters, who will make about $1.9 million off the bond offering, said Mark Adler at Drexel, Burnham, Lambert.

In an effort “to be nice,” Casden said he also also sent wine to his most outspoken critic on the committee, Harvey Rosen, who returned it.

Concerned From the Start

Rosen said he has been concerned “from day one” about Casden’s project. He said his chief worry is Casden’s high costs, which he calculated to be $120 a square foot.

This is “a sizable amount of money . . . for city-financed housing,” Rosen said.

“Is this going to embarrass the city? Is this going to embarrass the Grants Committee (of the City Council, which approved the project)? Is this going to . . . embarrass the mayor who appointed all of us?”

Casden said in an interview that his project is “more costly” because his developments offer a better life style for the residents, including good recreational facilities, subterranean parking and quality construction.

“The reason we cost more,” he said, “is we build a better project and nobody disputes that.”

Meeting Condo Standards

All the apartments, for example, will be upgraded to meet condominium construction standards, he said, while adding that is not his intent at this time to sell the units as condos.

The high cost of land also has run up his expenses. The 29-acre Warner Center site cost $40 million, Casden said, or $31,000 a unit.

Bernardi has called Casden’s costs “grossly inflated.”

But Anton Calleia, chief administrative assistant to Mayor Bradley who approved the bond issue, said that figuring out whether Casden’s costs are overstated is a “largely imponderable question” because “we do not have the expertise in the city to determine that.”

The housing director in the Community Development Department, Craig Avery, defended Casden’s costs as reasonable, but said, “the land costs are higher than we’ve ever seen before” and the financing arrangement is something “we’ve never done before.”

Ford, the department head, said, “It’s true that apartments can be built for considerably less. But that’s if you don’t pick such a good neighborhood and don’t build as good a unit.” Given the kind of project Casden has proposed, Ford said, nobody is “pocketing unreasonable profits.”

Casden’s Costs Reviewed

Ford said his staff reviewed Casden’s costs but did not do “a line-by-line construction budget analysis.”

“We defer to the lender,” Ford said. “They’re in the business of making that kind of judgment.”

The lender, usually chosen by the city, evaluates projects submitted by small developers. Convinced that a project is viable, the lender then puts its own assets on the line, posting collateral to secure the bonds against default.

But as the developer of a “special project,” Casden selected the lender to evaluate his development plans.

“Some developers have the ability because of their size to get credit relationship with a lender that a smaller developer doesn’t have,” Ford said.

Casden’s selection of the lender, however, concerned some members of the Municipal Finance Advisory Committee. Before approving the bond issue in June, chairman Osborne pointed out that Casden’s choice of a lender created the appearance that a thorough cost analysis of his project may not have been done. The day after the bonds sold, Osborne called a committee meeting to clear the air about possible “irregularities,” which he said in an interview had been reported to the city attorney and bond counsel.

Relationship Unclear

At that Aug. 2 meeting, Rosen complained that Casden’s relationship with the lender, Coast Savings & Loan, was never made clear.

“I don’t think we had a full disclosure here of the relationship between Casden Co. and Coast. I really don’t,” he said at a recent meeting.

“Nobody hid it,” Casden countered. “It’s fully disclosed in all the information we submitted to the Community Development Department.”

Asked what the relationship is, department chief Ford said, “I’m not sure. Casden had indicated there was no relationship. But we have always assumed there is not an arms-length relationship.”

The general counsel to Coast Savings & Loan, Robert Scott, said Casden is not an officer or director of the S&L;, but is “closely involved with Coast in its real estate development projects” and is a partner with Coast in CoastFed Properties.

Scott explained that the role of Coast Savings & Loan in the bond issue has been to review the financial feasibility of the projects, to post about $300-million collateral to secure the bonds against default and to monitor disbursement of the funds to the general contractor during construction.

General Contractor

The general contractor on the projects will be CoastFed Properties, Casden said.

Looking beyond the unique financing arrangements, Ford said, “The real underlying issue here is that these are a bit more expensive units than average being built in an upper-end neighborhood.”

Viewing the package as a whole, however, Calleia said, “The mayor and the council both feel it’s a good bargain for the city.”

The benefit for low- and moderate-income families, Ford pointed out, is that all of Casden’s developments, including those in Warner Center, must include a minimum 20% of the units at affordable rents. Those rents are now pegged at $461 for a one-bedroom apartment.

(Councilmen Braude and Bernardi tried unsuccessfully to increase that percentage to 35% “in order to adjust the gross discrepancy between the benefits accrued to the developer as compared to that of the tenants.”)

‘Companion’ Projects

Moreover, as a trade-off for building so many apartments outside the inner-city target area, Casden was required to build “companion” housing projects in the inner city--or contribute money to a special city housing construction fund.

This trade-off is required for all “special projects.”

In Casden’s case, he was allowed to use $147.6 million--or 77% of the low-interest bond money--to finance the 1,279-unit Warner Center complex, as well as a new 55-unit development on Independence Avenue in Canoga Park, which opened for renting several days before the bonds sold.

In return, Casden was required to use the rest of the bond money to build at least 334 apartments in the city’s housing priority area, again setting aside 20% of the units for low- and moderate-income families.

Casden said he plans to go beyond the requirement and build six different apartment complexes in the inner city with a total of 582 apartments.

Ford said, “I feel very good about the six companion projects.”

Suspicious of Units

But Bernardi charged that most of those 582 units are “phonies.”

Many of them will be built by developers other than Casden, are located outside the city’s inner-city housing priority area or are tied up in legal challenges.

- Two of the projects--210 units on South Gramercy Place and South Irolo Street in the Mid-Wilshire area--are jeopardized by a recent court ruling that prompted city planners to evaluate the proposed construction and find the projects to be inconsistent with city planning rules. But Casden said that at worst he will have to scale down the number of units in the developments to win city approval.

- Another 200 units that Casden has slated for construction in Harbor City are located outside the inner-city priority housing area, which is bounded by Wilshire Boulevard and the Pasadena Freeway on the north, La Cienega Boulevard on the west, 120th Street on the south, and the eastern boundary of the city on the east.

City Councilwoman Joan Milke Flores urged that these 200 apartments, located near Pacific Coast Highway in Harbor City, which she represents, also be counted toward Casden’s priority-area housing requirement. She argued, over the objections of city staff, that the area is economically depressed, even though census figures show that more than 40% of the households in the area have incomes over $25,000, compared to 5% for a representative sample of Watts.

Not Casden Projects

- About 135 units of proposed new housing in Chinatown and East Los Angeles, which Casden counts toward fulfillment of his inner-city housing requirement, are not being developed by Casden. He acknowledged that he approached other developers who were awaiting bond financing for these projects “to wrap them into our project.”

Casden said that in scouting for other developers to help him meet his inner-city target goal, he sought the assistance of various council members, including Arthur K. Snyder, to whom he gave a $5,000 campaign contribution in May. He said Snyder referred him to Gary Almas, the developer of an East Los Angeles apartment building on Marengo Drive.

Almas described his relationship with Casden: “I’m the builder and the developer. . . . Casden needed a certain number of units in the target area. I agreed to add my units to his to give him the units he needed so he could build his project in the valley.”

Almas said his project had been on hold while his application for bond funds was being processed by the city. Then Casden came along and Almas’ project zipped through. “It took 10 days for approval,” he said.

Times staff writer Tom Furlong contributed to this story.