Apartment Complex Faces Foreclosure : Woodland Hills: Coast Savings Financial seeks to take control of Warner Center Apartments. Investors could lose at least $12 million.

Warner Center Apartments, a 1,279-unit apartment complex in Woodland Hills that was built amid controversy seven years ago with $144 million in city revenue bonds, faces foreclosure by its prime lender.

If the foreclosure is approved, private investors could lose at least $12 million in the project, according to court papers and attorneys.

Coast Savings Financial, the Los Angeles-based parent of Coast Federal Bank, filed suit in June against owner Mayer Warner Center, seeking to take control of the apartments at 5555 Canoga Ave.

Coast, which financed the housing bond issue and holds a lien on the property, took the action in Los Angeles Superior Court after Mayer Warner failed to make its mortgage payment June 15, lawyers said. The 16-building apartment complex has a high occupancy rate, lawyers said, but rental income has been lower than projected.

Mayer Warner is a California partnership made up of general partners Shearson Lehman/American Express and developer Alan Casden, who together manage the apartments, and scores of limited partners who bought ownership stakes in the property, according to court papers.

In a separate suit filed in April, more than 130 of the limited partners accused the general partners of fraud, negligent representation and breach of fiduciary duty.

Jeff Valle, an attorney representing Shearson, which sold the shares to the limited partners, said the suit amounts to nothing more than a complaint that reality didn’t turn out to be as good as projections. “We hardly see that as a basis for a lawsuit,” he said, adding that “the real estate market is quite different than when the project began.”

Responding to the suit filed by Coast, Casden said the apartments “generate enough income to serve the bond indebtedness and then some,” but he contended that Coast was seeking in excess of that amount. “It’s a question of whether Coast is entitled to any more,” Casden said.

Coast officials and its lawyers did not return telephone calls.

Built in 1985, the apartment complex was intended to address a shortage of affordable housing by setting aside 20% of the units for low- and moderate-income families, but the project drew fire from neighboring residents and from some city officials who complained that the city was subsidizing private development in a relatively affluent area.

Michael White, an attorney representing the limited partners who filed suit against the general partners, said foreclosure of the property could result in a total loss of $12 million that his clients invested. In addition, he said, the investors would have to pay taxes for tax losses that they have claimed since 1986.

In the suit, White accused general partners Casden and Shearson of misrepresenting the potential value of the property to the investors, alleging, among other things, that projected revenues from the apartments were inflated by at least 30%.

“They’re renting for considerably less than they were projected to be . . . because the market is saturated,” White said.

Monthly rent for a one-bedroom apartment is now listed at $795, and $995 for a two-bedroom apartment, but with special move-in offers a two-bedroom unit can be rented for $779 a month, according to a manager at the rental office.

Contending that the suit had no merit, Shearson’s attorney recently filed to have the complaint dismissed. But White said that filing was denied.