Purchase of Reputed Mobster’s Low-Income Apartments Recommended : Report: Task force concludes that allegations about owner’s ties to organized crime ‘pale’ in comparison to city’s need for low-income housing.

A San Diego Housing Commission task force report released Wednesday urges the city to buy two low-income apartment complexes, arguing that unproven allegations about the owner’s ties to organized crime “pale” in comparison to the need for low-income housing.

The 17-page report called the $47.5-million cost of buying and renovating the Penasquitos Gardens and Mt. Aguilar apartment complexes, owned by reputed mobster Alvin Malnik, “fair and reasonable.”

Mayor Maureen O’Connor and Councilman Bruce Henderson, the two biggest opponents of the purchase, have expressed concerns about dealing with Malnik. Although the report responded to many of the criticisms previously raised by opponents, it failed to move either O’Connor or Henderson any closer to supporting the project.

At a joint meeting of the commission and Housing Authority, O’Connor raised additional questions about the financing and whether Malnik has made all the necessary disclosures about his role as owner of the complexes. Henderson continued to argue in favor of a private buyer for the properties, which consist of 816 units for low-income families.

Supporters of the project, led by Councilman Wes Pratt, chairman of the task force that put together the report, charged that O’Connor was being picayune in her opposition and that Henderson was opposed to the purchase on philosophical grounds.

Although the report itself did not break any new ground, it answered some questions raised by O’Connor at an Oct. 15 council meeting.

“Malnik has never been convicted of any crimes, and, as a result of the acquisition, would have no further associations with these projects,” the report said. “HUD further reported that Malnik had managed the properties responsibly for more than 15 years.”

City Manager John Lockwood said Wednesday that a police investigation of Malnik’s background failed to disclose any evidence of wrongdoing by him. However, Malnik is still the subject of a similar investigation being done, at the council’s request, by the district attorney’s office.

If the two complexes are purchased by the commission, rents will be subsidized with Section 8 funds from the U.S. Department of Housing and Urban Development. Rents now range from $288 to $326 for two- and three-bedroom units. There are no one-bedroom units.

Housing Commission spokeswoman Mary Jo Riley said the rents are unrealistically low because of a financing agreement between Malnik and HUD when the complexes were built. Although the complexes were built for low-income residents, renters are allowed to stay even if their incomes increase dramatically.

“The agreement (between Malnik and HUD) was that nobody could move in unless they were low-income. But, as their income increased, they were allowed to remain,” said Riley.

Consequently, 70% of the families living at the two complexes are paying less than 30% of their income for rent. Under Section 8 guidelines, low-income renters pay 30% of their income for housing.

If the commission succeeds in purchasing the apartments, rents would increase by one-third per year for three years, Riley said.

At the Oct. 15 council meeting, O’Connor suggested that someone on the commission staff purposely omitted Malnik’s name as owner of the complexes in the paper work forwarded to the council. She also accused the commission of hiding the fact that a company partly owned by Malnik would manage the properties for one year after their sale to the commission.

The task force report said the commission had acted on other purchases by identifying only the company that owned them and not the individual owners.

“There is no policy at this time to identify individual owners of property in this type of transaction. . . . In light of this experience, it is recommended that a policy of identifying owners be developed and implemented,” said the report.

As for the company that will manage the apartments for one year after their purchase by the commission, the report said Malnik divested himself of the firm in early 1989. Further, it was HUD’s recommendation that the company that now manages the apartments continue in that capacity for one year after the purchase, the report said.

The report urged the City Council, which also acts as the Housing Authority, to move quickly on the apartments, warning that federal money for the purchase may not be available in the future.

Pratt’s staff said $6.8 million for the financing will come from federal funds. About $4.2 million will come from tax credits, $9.2 million from state housing rehabilitation funds and $500,000 from a reserve account.

The bulk of the financing will come from $26.7 million in tax-exempt bonds to be issued by the Housing Authority. Approval for issuing the bonds is expected to come Jan. 17, when the commission and Housing Authority meet jointly again.