From the Pain of the Quake, an Idea for Low-Income Housing

Michael Goodman is a real estate entrepreneur and past president of the nonprofit Organization for the Needs of the Elderly in Van Nuys. He believes the Northridge earthquake may have a silver lining by providing an opportunity to develop more low-income housing in the San Fernando Valley. He was interviewed by Times staff writer John Johnson.

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Question: Could you tell me about your idea?

Answer: First let me give you a little background. There has been almost no affordable low-income housing that has been developed of any significance in the San Fernando Valley for many, many years. And today, the cost of building a new project is not as practical or as feasible as buying something that’s existing and rehabilitating it or remodeling it, depending on the degree of fixing up that it needs. Developing new low-income housing requires a fresh approach then.

The opportunity here stems from the fact that even before the earthquake, many apartment building owners were financially strapped, especially if they bought their buildings any time in the last five or six or seven years. Because of what’s happened in the real estate market generally, they probably have no equity in their buildings. In many instances, the buildings are worth less than the loans against them.

Owners in this category whose buildings were damaged in the earthquake are not going to be inclined to take money out of their pockets to repair a building that they’re either not making money on or they have no equity in. So, they’re more than likely going to say, “I’m going to let go of this building.”

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Q. What happens then?

A. They are basically going to give the buildings back to lenders. It’s my feeling that now is a time that perhaps we can begin to meet some of the housing demand in the Valley by rehabilitating these buildings and converting them to low-income and affordable housing.

In order to do that, though, there has to be a spirit of cooperation existing between the city, between the lending institutions and between the development community.

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Q. Who would take the lead on this? How would this work?

A. My feeling is that the lead has to be taken by the City Council people whose districts were affected by the quake and by the financial institutions to work with not only the cities, but also the people who would be providing the housing. It could be nonprofit, could be for profit or maybe combinations of the two of them working in concert.

I’m not suggesting by the way that all of the available housing stock in terms of apartment buildings is going to fall into a category where it is either appropriate, or even desirable, to do something like this. What I am suggesting is, if we are all interested in seeing some changes take place, then some percentage, maybe it’s 10%, maybe it’s 5%, maybe it’s 15% of the units, could be used this way. I think we could conceivably be talking in terms of 1,000 units that could fall into this category.

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Q. Would the city buy up all these buildings and operate them through some authority?

A. I don’t think that’s going to happen. First of all, they’re not in a financial position to be able to do that. Nor is it necessarily the most desirable thing to happen. The way it might work is that people willing to buy these buildings and rehabilitate them would be able to take the buildings off the banks’ hands at a reduced price in return for a promise to operate them afterward as affordable housing. What the city can offer is ways of expediting the processes that are necessary in order for the rehab work to be completed. They can provide what they call gap financing to do this rehab work. They can consider waiving, or deferring, certain fees. In other words, they can provide an environment that would allow for this to happen.

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Q. Would there be some authority controlling the program?

A. There are lots of authorities already in place that under any circumstances would have either a direct or peripheral involvement. The management of the projects may be done either by nonprofit or for-profit operations, depending on who’s involved. There may also be different types of projects done. Some of them may be purely rental. Others might be ones where there is a form of ownership created, as in a cooperative form of ownership, where you would end up creating something where the people that live there now become stake-holders in the community.

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Q. If some structure is set up where fees are waived and everybody comes together to make this happen, wouldn’t you need some sort of binding agreement such that people who benefit from all these favors don’t get in there and increase the rents later on?

A. These favors are not going to be allowed unless they’re conditioned on certain requirements that housing be maintained under a certain rental level, generally the life of the building or very long-term. Because the idea with this is to create a sort of a pool of affordable and low-income housing that will continue to be there in 10 years and 20 years from today. Part of the coming together of this is for people not to have a new vehicle to take advantage of the system. That’s not to say that there may not be an opportunity for people to make money in that.

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Q. Do you have any sense so far of how many units have been turned in?

A. I can’t give you specific numbers, but I’m hearing that a lot of owners are desperately seeking solutions of what to do.

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Q. The way you’ve mapped this out, this might benefit people who don’t turn their buildings in, who say: “I’m going to have to turn my building in unless something is done,” and then this organization could help?

A. That’s true. That may happen. I don’t want to suggest that it’s an organization that’s going to do this, because God knows we don’t need another organization to be created to do something. There are enough organizations out there, both private and public, to be involved in this process.

What has to happen, though, is a desire for these different groups to be participating--for somebody to come forward and say: “Hey, we really want this to happen.” It may happen from a City Council person saying, “I am strongly supportive of something happening in my community that will address these needs. Therefore, I am going to designate someone on my staff to help coordinate this effort, working with groups to see that we can move this through the system. We are going to work with already existing agencies in the community. We are going to work with developers and streamline this process.”

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Q. Have you talked to any City Council people?

A. The only one that I have spoken to in this regard is Laura Chick, who is very supportive of this happening. She has already brought together a number of different groups representative in the community of the people we are talking about to have discussions about how to address this both short-term and long-term.

You also have to have a lender out there that has sort of an enlightened executive, who says, “Hey, you know what? Part of our community reinvestment, part of our long-range plan in the community, is to see to it that worthwhile projects are done to better enhance the community. Okay, we’ve got some buildings, or we know we’re getting some buildings back. We want to participate in something like this.”

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Q. How needed is this? Before the earthquake, if you drove around the Valley and you looked at apartment buildings, you saw signs reading “First month free, free move-in, no deposits.” It seemed that there was already pressure downward on rents because there was an abundance of rental units out there.

A. That’s true. But that doesn’t necessarily mean that that is addressing the needs of a family where you have two parents or a single parent, where you’re talking about people working at a minimum wage. It doesn’t mean that we’re addressing the needs of an elderly widow or widower who has a very minimal amount of money coming in.

In order to pay the rent, for instance, a lot of lower-income families are having to double up. They’re doubling and tripling up in small units because that’s the only way that they can pay rent.

So what we’re talking about here is, how can we make a dent in the need and the demand that is out there without having to develop new housing? Which is economically not that viable when you have existing housing out there that can be bought for half the price that it would take to develop the same thing new today.