After major heart surgery and nearly 40 years nurturing a small, family-run string of Los Angeles apartment buildings, Kenneth Shaffer was sailing smoothly toward retirement last winter.
But his dreams ran violently aground in January's squall of seismic activity, which left one of his buildings destroyed, another shaken from its foundation and others battered enough to scare off tenants.
Now the 73-year-old landlord is struggling to stay afloat as he navigates the Small Business Administration disaster assistance program, the main channel of relief for owners of thousands of damaged rental units. Inundated with a record number of business and homeowner loan requests--already more than the combined total of applications in the Midwest floods, Hurricane Andrew and Hurricane Hugo--federal officials acknowledge that paperwork is backing up.
Nearly a month and half after filing his application, Shaffer finally completed the first leg of approval--meeting with a federal appraiser to verify his damages.
"I don't get much sleep. . . . The delays in this are just amazing," said Shaffer, who has lost nearly a quarter of the 250 rental units he accumulated over a lifetime's work.
With post-quake bills piling up and cash flow down, it's nail-biting time for many mom-and-pop apartment owners such as Shaffer, already squeezed by three years of recession and declining rents.
Small, private landlords make up the bulk of apartment owners. How they fare with the Small Business Administration could affect the post-quake dynamics of the local rental housing market, government and housing industry officials say.
With nearly 50,000 apartment units declared uninhabitable in Los Angeles, authorities fear that thousands of rental units could be lost, pushing up rents in some areas and shrinking the availability of affordable units.
Just how serious that threat is remains unclear, officials and industry leaders say. But the risk that large numbers of units could be abandoned increases the longer it takes landlords to patch together refinancing agreements with the Small Business Administration.
"The SBA is the key to everything," said Los Angeles housing department manager Gary Squier. "They are the ones with (low-interest) money . . . the primary vehicle for assisting (apartment) owners.
"It's been (two months) since the earthquake. If the SBA program is going to be effective, we should start seeing loans being made very shortly. This is sort of a critical time."
Industry officials echo that anxiety.
"People are . . . trying to pull their assets back from the brink of disaster," said Bill Shaw, president of the Apartment Assn. of Greater Los Angeles. "There's a lot of anguish out there. (The SBA) is certainly slower than most people hoped it would be. It's very cumbersome for some people."
SBA officials say they are moving as quickly and responsibly as possible to process the unparalleled load of more than 140,000 applications, with the number swelling by thousands per day. At the two-month mark after the disaster, the agency had reached a decision on less than 25% of the loan requests, compared to 85% in the Midwest floods and 75% in Hurricane Andrew.
"The numbers are enormous . . . completely outside of anyone's experience," said Bernard Kulik, the agency's assistant administrator for disaster assistance.
Although they are sensitive to landlords' needs, agency officials note that they are lending taxpayers money that must be repaid, unlike the emergency assistance grants rushed to victims immediately after the earthquake. As such, the agency is performing a case-by-case balancing act: trying to help applicants get back on their feet with 4% interest loans but ensuring that public funds can be recovered.
Even before the earthquake, many apartment owners were in precarious financial conditions after years of soft rental markets and evaporating equity. Most could not afford earthquake insurance, which makes them eligible for agency assistance.
Although the agency has approved more than 20,000 loans, totaling about $600 million, only several hundred involve apartment operators. The overwhelming majority are going to homeowners, who also rely on the Small Business Administration for reconstruction loans.
Only a tiny fraction of that money has made it to business applicants, including apartment owners.
"It's not an instantaneous process. . . . We are not an immediate response (agency)," said Gretchen Fournier, an agency spokeswoman. "This is a loan program that takes financial analysis, which takes some time."
Interviews show that landlords are having a range of experiences with the agency, and not all of them negative. "I am very delighted. They handled me very well," said a Westside retiree, who had received the first $10,000 increment of a $150,000 loan to repair his red-tagged, 10-unit apartment building.
Bill Tang, whose four-unit Hollywood building is a total loss, said the only frustrating part of his dealings with the agency was the chaos and long lines at the Disaster Assistance Center in the first days after the earthquake. After that, he was "pretty satisfied" with the pace toward approval of his $474,000 request, although he decided last week to forgo an agency rebuilding loan because the soft rental market makes the project too risky.
"It doesn't add up," said Tang, who hopes to sell the property.
Other anxious apartment owners are finding an infuriating mix of delays in the far-flung, multistaged process that extends to a massive center in Sacramento and a check writing facility in Denver.
"I'm emptying my bank account. I'm juggling my credit cards. . . . I'm afraid I may lose (my) building," said retired teacher Richard Daukas, who has run a gantlet of jammed phone lines and message machines trying to get a $186,900 loan to repair his 15-unit Sherman Oaks building, a retirement investment.
With broken drywall, flooded apartments and severely damaged stucco, Daukas raced to get his Small Business Administration application completed three days after the earthquake. Two weeks later, he was told that his loan was approved and that formal agreements would arrive in days.
"I've been calling and calling and calling. They keep telling me that it's in the legal department. . . . They said there's been some kind of glitch. They don't know what exactly," Daukas said.
Late last week, Daukas said the loan papers had finally arrived and he anticipates a two- to three-week wait for his check.
Initially, officials indicated that loans would be approved one to three weeks after a complete application was filed. "It became evident very quickly . . . we could not meet that," Kulik said. Officials said apartment and business loans are taking an average of four weeks to approve, although clearly some are taking far longer.
One reason for the backlog has been the need to hire and train the hundreds of additional loan processors, Kulik said. Previous disasters have been largely handled by a core of employees who are familiar with the agency's procedures.
The delays in Shaffer's request appear to be abnormal, officials insisted, a casualty of the huge volume of paperwork and inspections.
Even after approval is received, it can take two or three weeks more to complete legal documents and have the first loan funds issued, officials say.
Bureaucratic delays are only part of the problem landlords face in dealing with the agency. Even with low-interest borrowing, some buildings do not pencil out.
The agency has "never dealt with multifamily (housing) so laden with debt," said Bob Moncrief, a city housing official who is working with the federal agency.
Indeed, records show that nearly half of the SBA business loan applications, which include apartment operators, have been denied or withdrawn thus far, many of them because they could not show adequate cash flow to make payments.
That is hardest to show for those newer to the apartment market, who tend to start with less expensive, more marginally profitable buildings.
"The people that really need help aren't getting it," said Shaw, of the apartment association, recalling one immigrant couple who approached him frantically at a recent refinancing workshop. They had sunk their assets into a building that suffered major quake damage and it now seems nearly impossible to qualify for any loan program, he said.
"It was everything these people had. It was gone," Shaw said.
In Santa Monica, Carl Lambert managed an unsalvageable 15-unit building that was denied a $850,000 reconstruction loan from the agency. It concluded that historic rents, which are controlled by the city, did not justify the cost of rebuilding, Lambert said.
Santa Monica officials are finalizing legislation to allow landlords to increase rents to pay for some earthquake-related costs, and Lambert plans to reapply.
Despite criticism, agency officials say they are offering a bigger assistance package than ever. In addition to reconstruction loans, apartment owners for the first time are eligible for separate low-interest loans to cover lost income from reduced rents and other losses.
Also, to help save as many marginal buildings as possible, Los Angeles city officials are setting up a $30-million loan program for landlords who are rejected by the SBA. The program would seek to cover part of landlords' debts so they could qualify for agency assistance. Payments on those city loans can be deferred until the building turns a profit or is sold. The loans will be coordinated with the federal agency, but as yet no loans have been completed.
For Shaffer--his dreams of easing into retirement now buried in worries about bills, construction delays and debt restructuring--the end is nowhere in sight.
He finally got an agency appraiser to his property last week, after complaining to city officials about delays. The good news: The appraiser indicated that his losses appeared to be at least the $1.3 million he had sought, Shaffer said.
But time is money, and Shaffer worries that it could be several weeks before he receives his first money and can begin rehabilitating his buildings.
After borrowing money to make repairs on his buildings that sustained cosmetic damage, Shaffer is searching for additional short-term bank loans so repairs can begin on his flagship building. The three-story, 37-unit Sherman Oaks structure rocked off its foundation and is vacant, listing like a beached freighter and sealed off by chain-link fencing.
Shaffer has decided to turn back to the lender his 17-unit building, also in Sherman Oaks, that partially collapsed off its foundation.
"It's terrible. Terrible. The (SBA) delays mean delays all the way down the line," Shaffer said.
No Small Steps
The federal Small Business Administration, the primary vehicle for disaster assistance to small business owners and homeowners, has been swamped with an unprecedented number of applications. Some business complain of long delays in the loan process. Officials stress that they cannot guarantee time lines, but ideally this is how it should work:
1) Applicant obtains an application at a disaster assistance center, fills it out and returns it with documentation, such as three years of federal tax returns, insurance policies, copies of deeds, etc. The SBA says most delays are because of incomplete information.
2) Within a few days, the applicant should receive a postcard acknowledging receipt of the file.
Within five to 10 days, an SBA appraiser should meet with the applicant to verify and estimate the amount of the damage.
3) The packages moves to a loan processing center, typically a huge facility in Sacramento. Two weeks to one month after filing the application, a decision should be made and the applicant notified.
4) Within a few more days, the applicant should receive final loan documents in the mail. They may be completed and returned by mail, but processing can be expedited at an SBA processing center.
5) Once the loan documents are returned and reviewed, a check should be mailed to applicant within two to three weeks of being ordered.
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