Law May Force Loss of Low-Income Apartments : Housing: Owners of federally subsidized complexes can prepay the mortgages and sell the properties. Some experts worry that poor tenants will have to move.

Los Angeles could lose thousands of units of federally subsidized apartments and face widespread displacement of low-income tenants during the next few years.

The housing is in jeopardy because of an option that allows developers of low-income projects who obtained low-interest loans in the 1960s to pay off their long-term mortgages early and sever their relationships with the federal government.

During the next few years, hundreds of the subsidized apartment buildings in Los Angeles could be sold--either to nonprofit groups and tenants who hope to keep the projects affordable or to developers who may convert the properties to get a higher return on their investment.

It is difficult to predict how many of the estimated 645,000 apartment units eligible nationally or the 40,000 in California will be lost to prepayment, but some Los Angeles housing experts are worried.

“Most of the people living in those units are a paycheck away from homelessness,” said Rebecca Logue, an analyst with the city’s Department of Housing Preservation and Production. “As it stands, Los Angeles’ affordable housing stock is in jeopardy. The city is in no position to re-create these buildings. Once they’re gone, they’re gone forever.”

Of the 136 federally subsidized apartment projects eligible for prepayment in Los Angeles before 1997, 41 have notified the Department of Housing and Urban Development that they intend to prepay. Twelve of those have filed plans for how they intend to withdraw from the program, affecting 953 low-income units.

The problem is especially acute in high-rent metropolitan areas such as Los Angeles, where prime coastal properties carry multimillion-dollar price tags because of rapid appreciation. According to the Southern California Assn. of Governments, nearly 50% of the affected tenants are elderly.

Congress revised a law last year aimed at preserving much of the nation’s low-income housing stock. The law offers financial incentives to owners to hang on to their buildings and promises federal funds to assist tenant groups and nonprofit agencies to buy projects that are put up for sale.

HUD officials are optimistic about their ability to protect the units. But the recession, banks’ cautious loan policies and HUD’s bureaucracy have frustrated efforts by numerous groups interested in purchasing the units.

Half of the city’s 23,000 low-income apartment units will be eligible for prepayment during the next two years. The leases began expiring in the late 1980s, but the program was put on hold while Congress considered legislation to deal with the housing problem. The prepayment process takes at least two years.

California and New York, two of the most expensive housing areas in the country, stand to lose the most because they have a disproportionate share of the subsidized projects.

“I think that the people who had planned to deal with the funding question are aware that certain areas of the country have more needs than other parts of the country,” said Joseph Lagerbauer, HUD’s director of housing management in Southern California. “If we go to Cleveland, prepayment is not a problem because the housing has not been appreciating there.”

The prepayment program, part of the National Affordable Housing Act, was updated by Congress last year to increase developers’ annual rate of return to 8% from 6%, largely through rent increases. The revised law contains other incentives for developers, such as allowing them to get loans equal to 70% of the equity in the projects.

If the developers decide to sell, the housing projects must first be offered to tenant groups, nonprofit organizations and other public agencies such as the Housing Authority of the city of Los Angeles for retention as low-income units. A public hearing on the proposed prepayment regulations will be held Thursday at 6:30 p.m. at the Golden State Life Insurance building at 1999 W. Adams Blvd.

For 1990-91, Congress put aside $200 million to assist tenant group purchases of buildings. Housing experts say that amount is minuscule compared to the amount needed to protect the nation’s supply of subsidized housing. Some budget analysts have indicated that as much as $25 billion would be needed to cover the cost of housing projects that are eligible for prepayment during the next five years.

HUD does not finance 100% of the loans needed to buy the apartments, and agencies and tenant groups must find “gap funding”--between 5% and 15% of the project cost--to cover the rest of the purchase price.

At a meeting in Los Angeles earlier this year, HUD officials, city housing specialists and bank officials discussed the task of developing financing to meet the looming housing crisis.

Although federal housing officials remain optimistic that they can find the money, the lenders were glum. Most suggested that their banks would be reluctant to make high-risk loans to cash-poor tenant groups during the long prepayment process.

“If there are not enough appropriations, then the whole program gets blown out of the water,” said James Grow, an attorney with the National Housing Law Project in Berkeley. “If up to 20% of each project’s cost must come from another source, there is still a reason for significant concern.”

While the prepayment requirements will be tough for developers to meet, it will not be for lack of trying. Many building owners say that profits aside, they are simply tired of dealing with HUD.

“HUD is too large to deal with anything but the big fish,” said Morris Goldberg, owner of the Westminister Villa complex in the Oakwood neighborhood of Venice and one of the developers who has filed for prepayment. “They don’t help us deal with tenant problems, they make us file tons of financial papers for the smallest things, and they act more as interference than anything else.

“When this program started 20 years ago, we struggled to make it work, but now we’re in a position where HUD is harming us a lot more than they’re helping us. The incentives are gone.”

Despite the federal agency’s promise to find qualified tenant and nonprofit buyers for those properties, HUD finds itself under fire from housing activists as well. They say that the agency, after having worked solely with developers for the past 20 years, has proved itself ill-equipped to deal with tenant groups that are organizing to deal with the coming crisis.

The activists say HUD has refused to share critical financial information about projects in prepayment with potential housing buyers. They say HUD has declared off-limits even simple information such as annual maintenance reports and profit-and-loss statements. HUD officials say their hands are tied by confidentiality laws regarding an individual’s finances.

As a result, tenant-assistance groups such as the Legal Aid Foundation of Los Angeles have been forced to rely on the Freedom of Information Act to get financial data about apartment buildings.

“It’s almost as if you’re given the buns to a sandwich without anything in-between,” attorney David Etezadi said. “The information is essential to anybody interested in (buying) those buildings, so it’s terribly ironic that we’re not invited to the table. I don’t think HUD’s intent is malicious, but they’ve certainly been slow to change.”

Etezadi said that in one case, he and another tenant organizer saw five complete plans, with full financial information, when he went to HUD’s Los Angeles office. When he requested copies of the plans, he received a formal reply from HUD’s legal staff that the files were off limits because of confidentiality laws.

Tenant groups that have bought an apartment complex through the prepayment process said it was so difficult that they considered bowing out of the deal.

Pamela Brown, one of the principals involved in the negotiations for the purchase of the Lakeview Terrace apartments in Pacoima, said tenants were kept in the dark on most of the complex owners’ financial information during the talks. Then, after nearly a year of negotiation, she said, the owner applied for a rent increase instead.

“The whole process was so frustrating I’ve tried to block it from my mind,” Brown, an attorney with the San Fernando Valley Neighborhood Legal Services told a workshop group. “Throughout the negotiations, the tenants were seen as impediments to the plan, rather than as a help in preserving it.”

Lagerbauer said he is confident that the process will get smoother and said housing officials view the prepayment option as “a great opportunity to preserve the nation’s low-income housing forever. Our sole purpose in life is to make sure that people have a place to live. This is a serious issue that deals with the quality of life in America.”

Housing at Risk

There are an estimated 645,000 low-income apartment units nationwide at risk under the prepayment option of the National Affordable Housing Act, although many housing analysts believe most subsidized apartments will be saved . In Los Angeles, the numbers look like this:

* 136 projects, with more than 23,000 apartment units, will have an option to prepay by 1997.

* Developers of 41 projects already have filed an intent to prepay.

* More than 50 of the projects are in Central City West, between Koreatown and downtown Los Angeles. About 30 are in the northeast and northwest San Fernando Valley.

* HUD officials estimate that it will cost more than $1 billion to pay off the mortgage debts and preserve the at-risk units in California.