Bankruptcy Judge OKs Concord Sale to Pay Creditors
Despite objections by federal housing officials, a U.S. Bankruptcy Court judge has approved the sale of the Concord senior citizens apartment complex in Pasadena for $5.5 million to pay off creditors.
The 150-unit building at 275 Cordova St. is owned by the Concord Senior Housing Foundation, which is selling the property to satisfy hundreds of creditors, including the U.S. Department of Housing and Urban Development (HUD). The agency holds a $2.6-million mortgage on the building.
At a four-hour hearing last Friday in the U.S. Bankruptcy Court in Los Angeles, Judge William J. Lasarow approved the foundation’s request to sell the Concord to SHB Financial Corp., a North Hollywood-based real estate investment firm.
Tenants Filed Class Action Suit
The foundation, which was established in 1979 by the Rev. William Steuart McBirnie to purchase the Concord, filed last summer for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code.
Concord tenants made national headlines in 1982 when they filed a successful class action lawsuit to stop a previous attempt by the foundation to sell the building.
The housing foundation is part of a multimillion-dollar network of church-related organizations McBirnie built, based on his charismatic presence and nationally syndicated radio program on which he preached anti-communist sermons. But in recent years, his empire has run into legal and financial trouble.
The housing foundation is one of four McBirnie-affiliated organizations to file for protection with the bankruptcy court in the past year. The others are Community Churches of America, California Graduate School of Theology and United Community Church in Glendale.
In opposing the Concord sale, HUD attorneys insisted that the agency should have been allowed to audit the foundation’s books before the sale was approved. Joseph Gelletich claimed that the complex is “throwing off a $125,000 annual surplus,” or profit, which the foundation is not entitled to as a nonprofit corporation.
HUD officials alleged that the Concord has been mismanaged and that they have been denied permission to conduct a financial audit as required by law. “There are indications that assets have been diverted, and that is one reason we’d like an audit,” Gelletich said.
Phillip McNutt, a Maryland attorney representing the foundation, acknowledged that the Concord has generated a $200,000 surplus, but said that is because debts to two other McBirnie-founded organizations, Community Churches of America and California Graduate School of Theology, have not been paid during the bankruptcy proceedings.
McNutt said the foundation’s books have been made available for inspection on numerous occasions. “As far as I know there have been no assets diverted . . . . HUD is on a witch hunt because of the adverse publicity,” he said. McNutt added that because no other buyers have come forward, SHB’s offer is the only way to pay creditors.
HUD has established the fair market monthly rent at the Concord as between $316 and $386. Tenants pay about 30% of their income on a sliding scale and the housing agency subsidizes the balance. HUD attorneys argued that the profits should be used to reduce rent subsidies.
Five-Year Freeze on Rent Hikes
“We’re not happy,” HUD lawyer Samuel Rothman said in an interview. “The project is carrying too much subsidy, too much for a nonprofit operator. We’re concerned that the sale would mean higher subsidies.”
Addressing concerns expressed by HUD, Judge Lasarow ruled that SHB cannot ask for increases in rent or HUD subsidies for five years to “make sure the U.S. government won’t be financing this plan (to repay creditors).”
The sale of the Concord to SHB is ironic because Seymour Braverman, secretary-treasurer of the company, was one of the prospective buyers in 1982, when the foundation tried to pay off the HUD mortgage, doubled rents and attempted to sell the building. Concord tenants went to court to block the sale and obtained an agreement guaranteeing a federal rent subsidy to allow them to remain in the building.
Moreover, Braverman has had difficulties in the past with HUD. In 1976, he and two partners of Subsidized Housing Corp. of America were convicted of engaging in a kickback scheme involving contracts with HUD to rehabilitate four low-income housing projects, according to HUD officials. Braverman spent six months in federal prison.
Rothman said that Braverman has since been “rehabilitated” and has been allowed to resume doing business with HUD. Braverman said SHB owns and operates buildings in Boyle Heights, East Los Angeles and South Gate that are occupied mostly by seniors citizens on federal rent subsidy programs.
Lasarow said he did not know of Braverman’s criminal record when he ruled to permit the sale. “If it had been brought up to me it might have made a difference,” Lasarow said, adding, “I don’t really think it’s proper to even get into some of these things.”
Silent on Criminal Record
HUD attorneys did not raise Braverman’s criminal record as an issue at the bankruptcy hearing last week because the fact that he is already doing business with the agency seriously weakened the argument against selling the Concord to him, Rothman said.
Lasarow ruled that SHB would make a $3.8-million down payment on the Concord that would be used to immediately repay creditors of the foundation and Community Churches of America, many of whom are the same. The balance of the $5.5 million would be paid to creditors over a 15-year period. The foundation’s bankruptcy petition listed $579,000 in debts and $5 million in assets, primarily the 14-story Concord.
Braverman said in an interview he believes that his firm can make a profit at existing rent rates by operating the building more efficiently than its current management, Charter Pacific Management Co. However, SHB’s attorney, Mark Young, testified at the hearing that reducing current subsidies would make the purchase economically unfeasible.
About 50 elderly creditors attended the hearing and several said they were pleased with the sale. One man said the sale “is absolutely essential in the face of the ages of the creditors. . . . Many of these people will not live to see that money. Many of them are desperate.”
Christ Troupis, an attorney representing 24 creditors with judgments totaling more than $1.2 million against the foundation and the other McBirnie organizations, said he was generally pleased with the ruling, although he plans to ask Lasarow to ensure that his clients are completely repaid in less than 15 years. Troupis also represents another group of 29 creditors who have claims totaling $500,000 against the organizations.
Pay-Off Plan Proposed
Details of how the proceeds of the Concord sale will be disbursed among the creditors have not been determined.
Under a payment plan proposed by the foundation, HUD, which is owed $2.6 million, would be paid first. Attorneys’ fees estimated at between $25,000 and $40,000, would be paid next. Another 200 or so smaller creditors are owed a total of $2.3 million. Of those, about 130 of whom have claims of under $1,000 would be next in line, followed by the others in the group, including Troupis’ clients.
Last to be paid would be the two McBirnie affiliates, Community Churches of America and the California Graduate School of Theology, which are owed about $600,000, according to McNutt.
McNutt said the Concord sale would provide enough money to pay most creditors with interest, but would cover only $200,000 of the $1.2 million in damages awarded to Troupis’ clients last year by a Glendale Court Commissioner. McNutt said the other $1 million in punitive damages is being appealed by the foundation and would not be paid.
Attorneys say they expect the bankruptcy court to set a hearing date within two months to review the reorganization plan. Under Chapter 11 of the federal bankruptcy law, companies are allowed to reorganize their operations to restore solvency and repay creditors rather than liquidate assets.
Other Cases Pending
Meanwhile, the bankruptcy cases involving California Graduate School of Theology and United Community Church are pending.
The graduate school listed assets of $1.7 million and liabilities of $4.6 million in its bankruptcy petition. United Community Church, in its 1985 annual report, claimed $3.8 million in assets and $907,000 in liabilities. A spokesman said last month that the church is solvent, but filed for protection from creditors.
McBirnie’s empire started to crumble several years ago when former parishioners began suing him and his organizations, claiming he had failed to repay loans. McBirnie has said that he was unable to repay the money because of bad investments, rising interest rates and poor financial advice.
He remains as president of Community Churches of America, but has stepped down from his positions with the other groups. In late April, citing ill health, the 66-year-old McBirnie relinquished the pulpit he had held for 25 years at United Community Church in Glendale.
The church, a massive Spanish-style building on Colorado Street, is under investigation by the FBI in connection with allegations by former parishioners that they were defrauded by McBirnie and his organizations, an FBI spokesman said.
