Big Gain for Slum Traders in Coliseum Deal Revealed

While the Los Angeles city attorney was secretly investigating slum traders last year, another public agency, the Los Angeles Memorial Coliseum Commission, paid some of the same traders $1.6 million for a dilapidated, fire-damaged apartment house, according to records.

The rationale for the May, 1988, purchase was expansion of parking facilities near the Coliseum, but officials say they primarily wanted to get rid of gang members who inhabited the building.

The Coliseum Commission, anxious to raze the building at 3981 S. Menlo Ave., did not order a written appraisal and may have paid more than market value for the property, The Times found. At the end of 1985, when the property was legally habitable, it sold for about $1.1 million--about a third less than the $1.6-million sale price.

“I couldn’t believe the price when I heard it, I was so flabbergasted,” said insurance broker Benton O. Shannon, who handled insurance for the building until the former owner, fugitive slumlord V. J. Sharma, stopped paying his bills. “It just wasn’t worth that. I heard about it from (one of Sharma’s associates) and he just smiled. It was one of those sly, shake-your-head smiles.”

Coliseum officials said that they have no regrets about purchasing the building, which has been torn down and converted into a parking lot. “If we’d paid $3 million for it, we would have thought it was a bargain,” Joel Ralph, general manager of the Coliseum and Sports Arena, said last week in an interview. “We had parking lots no one would park on because they were scared to death to walk by that building.”

Almost all the principals involved in the building over the previous three years--including the real estate firm that got a $97,500 commission from the sellers in the deal--are now defendants in a civil racketeering suit filed March 28 by the city attorney, the Legal Aid Foundation of Los Angeles, and Litt & Stormer, a private firm representing tenants.

The lesson to be learned from the deal, according to Kim Savage, an attorney with the Legal Aid Foundation, is that the slumlords “won.”

“They run it (a building) down until someone is willing to just knock it down,” Savage said. “They win. They get what they are interested in, which is profit from real estate. Then there is the most obvious loss: the loss of affordable housing.”

Alleges Conspiracy

The lawsuit alleges that 142 financiers, investors and companies conspired to drain 11 sample slum buildings of thousands of dollars in cash rents through sham sales and inflated loans while leaving the buildings to fall into disrepair.

The 3981 S. Menlo Ave. building was to have been the 12th example in the lawsuit, and will still be used as evidence at trial, according to Deputy City Atty. Stephanie Sautner, who heads the city’s slum task force.

“This building fits the pattern of all the others with respect to the same players, the same rapid transfers, the same slum housing violations and the same lenders and brokers involved,” she said. “Many of the sham transfers are aimed at falsely inflating the value of the property.”

Sautner said she could not comment on whether the $1.6-million sales price was appropriate.

The story of 3981 S. Menlo Ave. shows how closely the management of a building can be tied to crime in a neighborhood, and how costly a building’s decline can be in both human and financial terms.

Housed Immigrants

The building, called the El Portal Apartments, was erected in 1926 across the street from what is now the Los Angeles Swimming Stadium in Exposition Park. In recent years, the building housed immigrant families and other low-income tenants.

In December, 1985, the building was purchased by Los Angeles real estate agent William Leyton’s Interreal Pacific Properties for about $1.1 million.

Recorded documents and interviews indicate the paper value of the property rose steadily as its physical condition deteriorated. They also show how critical a role lenders played in establishing that paper value.

On Dec. 30, 1985, records show, Interreal Pacific Properties got virtually 100% financing on his purchase from A & B Loan Co. of Inglewood, which issued three separate loans for about $1.1 million on the property--loans that would ultimately be paid off in the Coliseum sale.

“They got this highly questionable loan,” said Harold Gibbons, one of the sellers. “And the place was just like a jungle within a matter of weeks after we sold it. It just turned my stomach even to drive by it.”

Generally, lenders require 20% down, and often much more for apartment buildings or old structures. Therefore, anyone looking at the recorded loans against the property would think it was worth considerably more than its actual market value. That impression would be enhanced by the fact that the loans were transferred--one seven times in 24 months--to different loan companies apparently eager to buy them. And new loans would be added.

However, Sautner alleged, such deals are not “arm’s length transactions.” Many of the transactions on this and the other slum buildings listed in the city’s lawsuit were among close associates.

Leyton, according to his resume, appraised “major loan applicants” for A & B. And most of the loan companies that bought the notes on the properties have corporate ties to A & B, most sharing the same address. Attorneys representing Alexander Spitzer, owner of A & B, declined to discuss the company’s loan transactions.

A holding company for A & B recently filed for reorganization under Chapter 11 bankruptcy proceedings, listing more than $130 million in debts.

On his resume, Leyton lists the building as a “restoration” project “completed” in 1986. However, records show the building not up to code during his ownership.

Leyton deeded the property four months after its purchase to V. J. Sharma, an occasional business associate.

Sharma Convicted

By November, 1987, Sharma was convicted of 112 criminal slum violations on five of his buildings--the largest criminal conviction of a slumlord ever in Los Angeles. That same month, he was also cited by the Los Angeles Fire Department for 48 “life-threatening” code violations at the Menlo building. Dozens of plumbing, electrical and building code violations also accumulated. One city inspector called it the worst building he had ever entered.

During Sharma’s ownership, some tenants moved out as gang members moved in, squatting in empty units. The Coliseum Commission began placing an armed guard outside the building on event nights after a spectator was murdered in 1986 behind the building.

Before dawn on Dec. 1, 1987, an arson fire broke out in an empty unit in the Menlo building. Five units were destroyed and several others damaged. No one was injured, but officials estimated the damage at about $230,000 and ordered the building evacuated.

“That was our opportunity,” said Margaret Farnum, commission secretary and acting chief administrative officer. But, she said, the commission was unaware that the building was a target of the city’s slum task force--even though City Atty. James K. Hahn held a press conference outside it the day after the fire.

Richard Ullman, general manager of Five Star Parking, which operates the Coliseum’s parking lots, negotiated the deal. “The parking was secondary compared to (getting rid of) the problems the gang created,” he said.

Ullman said he had difficulty even contacting the owners. Sharma, sentenced to 20 months in jail, had fled the country. Leyton, the former owner, emerged as the real estate agent representing the new owner, an Encino-based company called Ty Properties that is also a defendant in the city’s civil racketeering suit.

Leyton’s attorney said in an interview that his client’s involvement in this deal was strictly that of a real estate agent contacted by the Coliseum officials. He declined to allow Leyton--a defendant in the city attorney’s suit--to be interviewed directly.

Once a price of about $1.6 million was negotiated, Paul Conn, a partner in the Charles Dunn Co. who specializes in low-income real estate, was asked to advise the commission on whether to go ahead with the sale. He provided his services without charge.

Conn said he did no written appraisal, and was not aware of the extent of fire damage or of the code violations outstanding on the vacant building.

He said he assessed the building on the basis of a per-unit value to a potential investor who could operate it as an apartment building. “I said, ‘That’s a good value, jump on it.’ ”

No Written Appraisal

Since there was no written appraisal outlining the condition of the building, it is debatable whether the price was appropriate. Records show that three other lots, one already a parking lot, sold for $300,000 a block away, but outside the area identified for public use in Exposition Park’s master plan.

Gibbons, the co-owner of the apartment building until December, 1985, said he was amazed to learn what the property later sold for after it had deteriorated.

“We would have expected the property to be worth maybe $1.5 million by then . . . in decent shape, with paying tenants in it,” he said.

The final sales price of $1,625,000 was financed primarily by parking fees. The property went into escrow on March 24, 1988.

The commission’s negotiator, Ullman, said he told Leyton that the Coliseum wanted all encumbrances on the property removed. “The only thing the Coliseum was interested in,” Ullman said, “was that they deliver clear title without liens or anything against the property. How they cleaned everything up, they did all that through escrow.”

It was cleaned up through an unusual foreclosure auction in the middle of the escrow, according to records. The effect of the sale was to transfer the property from one corporate name to another in the same office while wiping out nearly $100,000 in liens to more than a dozen creditors.

The sale transferred ownership of the property from Ty Properties to Canadian Pacific Inc., both of which occupy the same Encino office. According to the city attorney’s office, the companies are run by the same people, including Mordehai Ben-Horin and Dan Tepper, both defendants in the city lawsuit.

Proposed Price

Records suggest that the proposed purchase price was about $100,000 less than the $1,625,000 the Coliseum had agreed to pay.

At the time of the foreclosure sale, according to the preliminary title report, there were 31 liens, mortgages and court judgments against the property, including many debts incurred by Sharma.

Several lien-holders contacted by The Times, ranging from a fire sprinkler company to the city of Inglewood, lost their money. “I finally wrote it off on my taxes,” said Kami Boudai, president of California Technology Systems Inc., a sprinkler company to which Sharma owed $11,000.

No State Record

The new owner, Canadian Pacific, agreed to Ty Properties’ original terms of sale to the Coliseum and the deal closed May 11, 1988. The deed was signed over to the Coliseum by a “vice president” and a corporate “secretary” who Sautner said were, in fact, clerical workers in the office of Tepper and Ben-Horin.

“The way this transfer took place and the manner in which they’ve placed minor clerical workers as officers of the corporation is similar to all the . . . transfers” in the slumlords lawsuit, Sautner said.

Two weeks after the building was sold, the same two clerical workers signed notes for more than $500,000 using the Menlo building as collateral. The notes were made out to “N. V. Boehmite, a California corporation.” The secretary of state’s office says it has no record of such a company.

Tepper did not return a reporter’s phone calls. Ben-Horin declined comment on his financial transactions on the Menlo building. “This is business and it’s none of your business,” he said.

Asked whether the sales price was fair, Ben-Horin said: “It doesn’t matter to me if somebody overpaid. . . . I didn’t force anybody to pay.”

The property was the first ever purchased by the Coliseum. Commission secretary Margaret Farnum said the commission has new procedures requiring written appraisals before to property acquisitions. “Our first time around, you could maybe say we were a little naive,” she said. “You could consider us novices who took most things at face value.”