Landlords Hope to Halt Cycle of Decay

The sins of bad gamblers and failed landlords are the same: greed, impatience and inattention. And Mike Gold says his partners in a North Hills apartment building fell victim to all three.

Unhappy that rising costs and a predatory shakeout in the rental real estate market were making their $2.4-million investment unprofitable, they brought in cheaper, less experienced managers. They stopped making repairs, and in a vain attempt to keep the building full, quit taking care to rent to only the most reliable tenants.

Predictably, rent-paying, law-abiding tenants fled, to be replaced by drug dealers who chased even more tenants away.

“Before you know it, the jig’s up,” said Gold, who got out of the partnership before the lender began foreclosing on the building at 8750 Orion Ave. earlier this year. “Anybody who’s been to Vegas understands: If you are losing, you get up and walk away and come back to play another day.”

Since last July, banks have seized 15 buildings representing more than 1,000 apartments in the Panorama City-North Hills area in the heart of the San Fernando Valley, and notices of default are being filed against eight to 10 additional buildings every month, according to commercial real estate brokers specializing in the area.

But the failed investors aren’t the only ones hurt when buildings go bad, said Tony Swan, a property manager who organized a meeting of apartment owners and managers Wednesday night with police and city officials to address the problems of the area. The neglect, crime and fear generated by one sick building, Swan and others said, spread like a virus, setting in motion a downward spiral that can make blocks and blocks of once decent housing unlivable.

“The owners are losers, the lenders are losers and the residents themselves are the biggest losers,” Swan said.

He and others said the city’s housing department, which offers lower-than-market interest rate loans for rehabilitating run-down buildings, should ease its lending rules so that owners can get loans more quickly. Rather than spending $140,000 per unit to build new housing, he said, the city ought to spend far less to rehabilitate the numerous vacant buildings in the area.

In addition, he said, bankers need to give the owners some breathing room, and police need to increase their presence to drive away the drug dealers who hang out on numerous street corners, openly selling to passing cars.

“There’s almost as much blight in this area as in South-Central, but we can’t get the resources,” Swan said. “We have all the same problems, but we didn’t burn it down.”

Merely calling for more police in the area won’t work either, Swan and others said. Anne Tonnessen Madden, a management consultant and secretary of the North Hills Coordinating Council, said many apartment owners and managers in the area rent to deadbeat tenants out of desperation.

“But desperation creates acts that aren’t necessarily going to benefit the community,” she said. In the long run, the cost of renting to tenants with a history of not paying rent or to known gang members or drug dealers is far greater than the cost of leaving the apartment vacant, she said.

Not only do decent, rent-paying tenants flee, it can cost thousands to rehabilitate the apartments destroyed by irresponsible tenants to make them rentable.

Owners and managers first “have to make a commitment to working together” and to renting to only reliable tenants, Swan told a group of about 45 building owners and managers on Wednesday. “If we don’t care who we rent to, we’ll have the problem in our buildings.”

The meeting was meant to be a first step toward halting a powerful cycle of decay that city officials and residents say is destroying the quality of life as well as the apartment buildings in an area roughly from the San Diego Freeway east to Van Nuys Boulevard and roughly between Roscoe Boulevard on the south and Nordhoff Boulevard on the north.

Although much of Los Angeles’ rental housing market is stumbling, it is areas where rents are the lowest, such as North Hills, Van Nuys, Pacoima, South Los Angeles and the Mid-Wilshire area, that are the worst off.

In those areas, poor tenants are doubling up to afford the rents. Average vacancy rates are 11% or higher with some buildings as much as half empty. Crime and drugs make it impossible for owners to attract reliable tenants to fill their buildings. And those that are financially vulnerable, some of whom are speculators who bought their buildings at the peak of the county’s real estate market in the late 1980s, are pushed over the edge into foreclosure.

By the time banks seize the properties, some of them are in such bad shape that the only course of action is evict the remaining tenants, board the buildings up and spend thousands of dollars on rehabilitation.

Once banks repossess a building, they want to resell it as quickly as possible. That means discounting its price in recognition of the risk and the operating costs a new owner will have to assume.

An owner who buys a building for far less than what was paid for nearby buildings has a competitive advantage that allows him or her to charge lower rents.

Swan said the next step is just one more turn in the downward cycle. Decent tenants are drawn to the newly rehabilitated building by the lower rents, which are now as low as $450 for a one-bedroom unit in the area. And the financial pain spreads to the buildings that they leave behind.

“Some people may deserve to have lost money because they didn’t put in the effort and they thought it would be easy,” Swan said. “But people have lost all the money they deserved to lose, and the people who live there deserve better.”

Three adjacent apartment buildings in the 8800 block of Memory Park Avenue, just east of Sepulveda Boulevard in an area blockaded by police in an attempt to stop crime, represent a perfect example of the phenomenon.

Last year, as many as 40 gang members began hanging out on the building’s patio, intimidating residents, selling drugs, firing their guns into the air and spraying graffiti at will.

Building manager Domingo Perez said police came several times and the gang members would run away but quickly return. Within weeks, Perez said, the building began emptying out as rent-paying tenants fled in fear. One tenant was shot. Another was bashed in the head with a pipe. A child was wounded by a gunshot as he stood on his balcony.

“It was dangerous for me, for my children and for my wife,” said Perez. Once, a gang member stuck a pistol in his ear while he was cleaning graffiti off a wall and threatened to kill him.

Eventually, he said, gang members took over 10 units, spraying the walls with their monikers in bright red paint, breaking all the windows, starting small fires, scattering syringes and trash about and knocking holes in walls. For six months the building was a war zone, a 24-hour urban hell that had the handful of remaining tenants huddled in the corners of their homes, fearing to go out.

Eventually, Perez said, the building was seized by the bank, and a management firm specializing in turning such distressed properties around was brought in. On April 1, a trio of armed security guards began patrolling the property. Security fences and razor wire was installed, and slowly the completely destroyed units are being restored.

Living conditions are “totally different” now, said Perez, but it is still proving virtually impossible to rent the apartments. “There’s shooting still in the street at night and gang members sell drugs just across the street,” he said.

Senior Lead Officer John Girard, who works in the area, said that unless the new owner of such a building understands the challenge, it will happen all over again. “Probably the most important thing . . . is getting people involved in their community,” he said.

Tom Spear of Property Management Associates of Hollywood said it costs as much as $10,000 per unit to turn such a troubled property around. “Then you have to lease it out again and you have the history of a building to deal with,” he said. “It’s a very tough market.”

As a result, brokers said, some buildings are worth 30% to 40% less now than they were only a few years ago. “Some of the buildings . . . I would walk away from very quickly,” Spear said. “They are just not economically viable.”

That was the case with the North Hills building Mike Gold and his partners bought in 1989. They owed the lender $40,000 per unit while similar nearby buildings had been sold for less than $20,000 a unit.

“We thought it was a good investment” said Gold. “We paid top buck.”