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L.A. Plans Cash Infusion to Revive Quake Ghost Towns : Rebuilding: Officials hope loans can save ravaged areas and stop spread of blight. Owners, banks must also help.

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TIMES STAFF WRITERS

The crumbled foundations and cracked facades of 17 empty apartment buildings that line two blocks of Willis Avenue in Sherman Oaks represent one of the greatest concentrations of damage from the Northridge earthquake. Now city officials fear that those silent hulks could become epicenters of further disaster.

Without rapid public intervention, they said, Willis and other such earthquake-ravaged stretches of Northridge, Hollywood and East and South Los Angeles could remain ghost towns for years.

“These are neighborhoods where real potential for multiple walkaways and disinvestment will make it hard to bring them back,” said Gary Squier, general manager of the city’s Housing Department. “They are still good neighborhoods, but have the potential for sliding downhill.”

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As it has elsewhere, blight created by disaster could spread from abandoned neighborhoods, causing nearby stores to close and making adjacent areas undesirable.

But the city, already reeling from recession and riots, cannot afford the five years or so that it has taken other regions to rebuild after hurricanes, fires and floods, planners said.

They cautioned that state and federal programs will not be enough to get the job done quickly. So Los Angeles needs to embark on an ambitious program of its own to revitalize the ghost towns that threaten the city’s economy and spirit, they said.

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The major feature of the program, developed at the urging of Mayor Richard Riordan, calls for loaning property owners and banks at least $150 million in the coming months to make repairs on quake-damaged properties. By comparison, the city in recent years has loaned about $50 million annually to jump-start the creation of affordable housing.

Under the new strategy, the city would loan money--received from federal earthquake aid and from city-issued bonds--to private real estate investors who might otherwise abandon apartment buildings rather than make costly earthquake repairs.

To fend off blight, the city plans to conduct building-by-building, block-by-block assessments, targeting those loans to areas with the greatest damage. The city Community Redevelopment Agency and the state government are also planning loan programs.

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Officials acknowledge that this ambitious but untested strategy could face serious political challenges if it appears to favor certain districts.

The program’s success hinges on the city’s ability to enlist enough property owners to participate and on getting enough lenders to partially forgive mortgages. It also depends on moving quickly, before lethargy sets in.

Without such intervention, UC Berkeley architecture professor Mary Comerio thinks the ghost towns could linger for a decade or more. “It has nothing to do with the economy and nothing to do with the economic health of L.A. It’s the simple fact that it will take five years to rebuild once somebody starts,” said Comerio, who studied the rebuilding effort after the 1989 Loma Prieta earthquake in Northern California.

Signs of Blight

Already some Los Angeles property owners are giving up and related symptoms of neighborhood decline are appearing.

For example, a third of the apartments and condominiums in a several-mile-long area that includes Willis and flanks Ventura Boulevard were so badly damaged in the quake that they remain uninhabitable. Those 2,200 units were occupied until Jan. 17 by middle- and upper-income renters and condo owners who patronized neighborhood hardware stores, markets, hairstylists and framing shops. Although green-tagged, meaning inspectors have approved them for use, such nearby stores as The Gap and Banana Republic are still closed and will not publicly commit to reopening.

Officials now worry that those businesses could fail if nearby apartments are not repaired or rebuilt soon to house potential customers. That, in turn, would drive down property values and fuel further middle-class flight.

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The potential for decay is greatest, city officials fear, in areas of concentrated damage. Thirty-eight census tracts had 100 or more housing units destroyed and many more than that left temporarily vacant and in need of repair, according to the report. In the 13 tracts most at risk--12 in the San Fernando Valley--more than 15% of the housing stock is now shuttered or in rubble.

In 11 of those tracts, a strong majority of residents are white and median household incomes range from about $32,000 to $53,000 a year. The two other tracts are home to very large Latino populations, and median incomes are much lower--about $26,300 in a Van Nuys tract and about $15,000 in a Westlake one.

Along Willis, untended grass in front of fenced-off buildings grows knee-high, graffiti is sprouting on nearby businesses and a cushionless sofa molders at the curb. In east Hollywood, parts of a once vibrant ethnic neighborhood are still vacant, and remaining residents fear gang incursions. In Northridge, rats and bugs are infesting the ghostly rows of red-tagged apartment buildings along Lassen Street and Zelzah Avenue, just across from Cal State Northridge, and squatters are spotted too.

“You can imagine the quality of life for the next three or four years if these buildings stay like this. Something has to be done,” said Arnie Mitchnick, who lives in a single-family home on the same Northridge block as those shattered apartments.

Aid Plans

To bring those areas back quickly, housing officials hope to spend at least two-thirds of $99 million the city received in federal Community Development Block Grant funds for earthquake aid, which could otherwise go toward repairing public structures and providing social services. U.S. Secretary of Housing and Urban Development Henry Cisneros has waived a number of rules to give the city more spending flexibility.

Another federal program, which usually focuses on repairing housing, will kick in $50 million more for the city’s ghost-town busting efforts. And funds from city-issued bonds are to provide at least $30 million more.

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To make the loans attractive, the city plans to offer easier terms than under earlier housing programs. In some cases, repayment can be delayed until a building returns to profitability or is sold. Also to be relaxed are some rules requiring that apartment owners who receive government loans keep the units affordable for low- and moderate-income tenants.

In allied efforts, the Community Redevelopment Agency proposes to spend $7.9 million for earthquake recovery, mostly low-interest loans for low- and moderate-income housing.

Similarly, the state Department of Housing and Community Development plans to offer about $160 million in low-interest loans to rebuild multifamily apartment buildings with low and moderate rents and $415 million in loans to single-family homeowners if voters approve a recovery bond issue in June.

The city might form redevelopment zones to condemn, level and get properties rebuilt, but only as a last resort and only with neighborhood agreement, according to John Maguire, the CRA’s deputy director for housing.

Funding for the whole strategy needs City Council approval.

Councilman Mark Ridley-Thomas, chairman of the council’s Housing and Redevelopment Committee, said that he can understand the need to focus on the most hard-hit neighborhoods, but that other damaged areas should not be neglected. “I’m prepared to resist that,” said Ridley-Thomas, who represents some areas struck by the 1992 riots.

One justification for this vast and potentially risky public investment in private housing lies in sheer volume--$1.15 billion in damage to more than 65,000 buildings citywide. About 84% of all damaged units were in multifamily buildings.

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In addition, a five-year-long slide in property values has left many owners owing more than buildings are worth. Even before the earthquake, officials said, the number of apartment buildings being seized through foreclosures had gone from a handful to hundreds annually, especially in lower-income areas. Now, saddled with earthquake repairs, as many as 10,000 houses and buildings containing nearly 20,000 apartments could wind up abandoned, the Housing Department study said.

Apartment building owners may face more hurdles than single-family homeowners in receiving federal aid. They are not eligible for federal emergency housing grants and their rental income may be too small to qualify them for federal Small Business Administration loans. And matters are complicated by the lack of earthquake insurance or high deductibles.

Cooperation Required

Even optimists concede that bringing hard-hit areas back will require unprecedented cooperation among property owners, lenders, insurers and government. Also necessary will be a lot of money, innovation and patience.

Several badly damaged census tracts, including one along Lassen Street where nearly 40% of the apartments remain vacated, flank Cal State Northridge. Even though the built-in demand from students gives the building owners incentive to rebuild, many are facing financial ruin if they have to rely solely on SBA loans.

Beverly Jones is still awaiting a final answer from the SBA about how much money she and her co-owner might be able to borrow to repair the $1 million in damage to their 112-unit complex at Plummer Street and Reseda Boulevard near the campus. Jones said she expects to get only $500,000.

Without city help, she said, “we couldn’t do it. We not only must have that additional money, we must have it at a low enough interest rate that we can afford to operate.”

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Nearby businesses are feeling the loss of customers. “It’s scary, it’s very creepy to be the only life form around,” complained Jan Kelson, manager of the Northridge Video Store several blocks away on Lassen.

Willis Avenue has the same eerie feel to it. “At first it felt like a ghost town. . . . It was just me and the birds,” said 82-year-old Lil Stein of her post-quake return to a new apartment in the neighborhood where she has lived for 18 years.

Now, her world remains disrupted, her previous apartment destroyed, her friends scattered, some of her favorite stores on nearby Ventura Boulevard closed.

Yet Stein, a retired university office manager, is optimistic that the once vibrant street will come back. She sees trash bins and growing curbside piles of debris as positive signs of rebuilding. And, she said, “I’m seeing more and more people on the street.”

City officials said Sherman Oaks apartment buildings that commanded relatively high rents are more likely to be rebuilt than those in less affluent areas. However, many nearby condominium projects on Vista del Monte, Natick and Colbath avenues, face the financial and insurance complications that arise from having multiple owners in one building.

“You’ve got to wonder whether it’s worth it” to rebuild, said George L. Ophoff, Western regional manager of National Catastrophe Adjusters, which advises banks about damaged properties.

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Pre-Quake Troubles

Neighborhoods that were troubled by abandoned buildings, gangs and drugs before the quake present more intractable problems. For example, before Jan. 17, city housing officials had made some progress in improving the square-block area of Northridge known as Roscoe-Schoenborn.

One of the small, mostly run-down apartment buildings that had been abandoned by its owner was boarded up to keep out gang members. High-intensity, bullet-resistant street lights had been installed along the mid-block alley to discourage drug and gun sales. And police had stepped up patrols.

As a result, the area had improved before the earthquake, but “it’s slid back” since, said Glenn Blackshaw, who owns a quake-damaged building in the 17900 block of Roscoe Boulevard. Gang members use an adjacent building as a virtual headquarters and several others in the area already have been abandoned by their owners.

Meanwhile, Blackshaw’s own building remains unrentable while he tries to work out how to finance more than $35,000 in repairs not covered by insurance. He said his lender won’t even return his telephone calls.

“Any financial help the city could come up with would be great,” he said. “Otherwise, they’re going to end up bulldozing all those buildings and lose all those units.”

UCLA architecture and urban planning professor Jacqueline Leavitt is worried that the earthquake damage, on top of unemployment, middle-class flight, ethnic changes and overcrowded housing, could push such neighborhoods downward and worsen the city’s already desperate shortage of affordable rental housing.

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“I don’t think you can separate the natural disasters and man-made disasters,” said Leavitt, an expert on urban abandonment issues.

But Thomas Black, a resident fellow at the Urban Land Institute, a Washington, D.C.-based real estate think tank, said the impact of the earthquake in such neighborhoods does not have to be permanent. “As long as the area economy is doing well . . . I don’t think it will have a long-term effect.”

Role of Banks

Lenders are key to the revival of ghost towns, city officials said. To win their cooperation, city delegations have promised banks less red tape and easy terms.

“The city is not going to have the resources, and never will, to substitute for the private financial community. There is too much destruction here,” stressed Los Angeles City Councilman Zev Yaroslavsky, whose district includes hard-hit Sherman Oaks.

Some lenders welcome the city’s efforts. “Frankly, anything the city or the state can do . . . to share some of the risk of the loans” would help, said Rick Hall, senior vice president of Home Savings of America, the affected area’s largest residential lender.

But housing officials suggest that some other banks may simply sell off damaged properties to “bottom fishers,” speculators who buy buildings at deep discounts, make minimal repairs and re-rent them at cutthroat prices. And some apartment building owners have said that lenders are resisting making any concessions.

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The Clinton Administration’s aggressive approach to recovery may help the city rebound more quickly than other areas have after natural disasters, some officials said. Yet even if the city’s plans go smoothly, residents and landlords must be patient, experts said.

Nearly all 3,000 single-family homes damaged or destroyed in the Loma Prieta earthquake had been repaired or rebuilt a year later, according to a UC Berkeley study. Half of the multifamily units, however, remained uninhabitable four years later. And downtown Santa Cruz’s shopping district remains pocked with empty lots.

A wait such as that “is . . . devastating to the local community if you are sitting next to an abandoned building,” said Comerio, who co-authored the study. “It depresses property values in the whole area, which then makes it even harder to redo the property, because you can’t get the rents or loans you need. It’s a potentially vicious cycle.”

Even the rebuilding effort in the quiet woodsy hills above Oakland, where 2,500 expensive houses were incinerated in a 1991 wildfire, is making slow progress. As of last month, a third of the houses had not even begun to be replaced.

Also recovering slowly from disaster is the southern Florida area hit by 1992’s Hurricane Andrew, where a study predicts that it will be next year before even half the 47,000 housing units are replaced.

Even with low-interest loans, some landlords still walked away, recalled Bill Finley, an official leading the revival effort in Homestead, Fla. “The costs were so high and the rents were stable,” he said. “There was no way there could be economic sense in refurbishing.”

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Pockets of Destruction

The Northridge earthquake created pockets of intense damage to apartment buildings and single-family homes that officials fear could remain virtual ghost towns for years. Here are the 10 census tracts in Los Angeles with the greatest number of heavily damaged or destroyed housing units.

Multi- Single family family % Census tract units lost units lost renters 1) 1152.01 Northridge 793 2 71% 2) 1412 Sherman Oaks 773 8 69% 3) 1413.01 Sherman Oaks 750 12 68% 4) 1411 Sherman Oaks 676 9 73% 5) 1113.02 Northridge 618 22 41% 6) 1133.21 Chatsworth 541 2 70% 7) 1252 North Hollywood 414 3 68% 8) 1114 Granada Hills 403 10 55% 9) 115102 Northridge 395 12 67% 10) 1235 Van Nuys 390 1 64%

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City’s Strategy

Although state and federal earthquake aid is available, city housing officials are concerned it won’t be enough to ensure the recovery of especially hard-hit neighborhoods. So officials are proposing the following strategy:

* Workers will go door-to-door to find out whether building owners can afford to repair their property. Talks also will be held with lenders.

* Low-interest loans will be offered directly to banks to underwrite the repair and resale of buildings that they have foreclosed on.

* Up to $15,000 per apartment will be loaned to owners who invest in repairing damaged properties. Repayment would start after five years, but only if the building had become profitable.

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* If the lender agrees to forgive part of the mortgage on a damaged property, the city will loan up to $30,000 more per apartment for repairs.

* To encourage banks to extend repair loans, the city will partially guarantee the loan repayments.

Source: Los Angeles City Housing Dept., 1990 U.S. Census data.

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