Housing Providers Miss Golden Chance : Bureaucracy: Red tape and impatient banks keep developers of low-income dwellings from picking up foreclosed apartment buildings at bargain prices.
Financial institutions are selling a record number of Los Angeles apartment houses that are in foreclosure, and investors are picking up buildings for a song.
But one group--low-income housing providers--has been curiously absent from the boom in apartments gone bust.
These developers, financed largely by taxpayers, have continued to build new apartments for the poor at an average cost of $150,000 each, even though units in foreclosure are available from lenders for an average price of only $37,000.
“What an opportunity missed!” lamented Michael Teitz, professor of urban planning at UC Berkeley.
Decisions to build may seem irrational, given that lenders unloaded 19,000 foreclosed units in Los Angeles County last year, according to COMPS, a commercial property information firm.
Indeed, affordable-housing providers are virtually the only developers continuing to build, according to the Southern California Assn. of Governments. New construction in the six-county region has slowed to a crawl, with only 6,000 building permits for new apartments taken out last year; low-income housing developers accounted for two-thirds of those.
Many low-income housing providers say they have tried to get into the foreclosure market only to find themselves stymied.
Their problem has been that lending institutions want to close deals faster than the low-income developers can persuade government agencies to fund their projects.
Lenders say they are under pressure from government regulators to get the apartments quickly off their books, since they represent bad loans.
The result, said Antonio Sanchez, who manages the West Coast assets of the Federal National Mortgage Assn., known as Fannie Mae, a huge player in U.S. mortgage markets, is that “the government is at cross-purposes with itself.”
While the government provides most of the money for low-income housing, it also discourages lending institutions from selling foreclosed properties to low-income housing providers.
“It’s a political dilemma,” Sanchez said.
Attempts to resolve it have been launched by some federal and local agencies. But it is unclear whether these efforts will succeed--and whether they will do so swiftly enough to capitalize on opportunities that will dry up as the regional economy improves.
The foreclosure market for apartment houses took off locally in 1991 and is expected to get another boost this year as owners walk away from earthquake-damaged buildings. Real estate professionals vary in their estimates of how long the boom will last, with some saying six months and others two years.
Meantime, speculators, ranging from out-of-state “vultures” to mom-and-pop investors, are vying for bargains. Where lenders once had four or five offers on an apartment house, they say they now have 10.
That may be good for lenders, but it may not be healthy for neighborhoods.
“Too often those who have the cash are speculators who don’t do anything to improve the properties,” said Alan Fisher, director of the California Reinvestment Committee, a nonprofit group that pressures banks to obey a federal law that requires them to be sensitive to community needs. “Properties that may already be run-down by the time they are taken over by the bank become more run-down.”
Fisher’s group has begun a campaign to convince regulators and banks that low-income housing providers should be given more time to compete because it is in the community’s interest that they acquire these properties.
Low-income housing providers, the group contends, would be in a position to use tax subsidies to maintain buildings and keep rents affordable long after the recession ends and rents for existing apartments start to rise.
But developers of low-income housing, mainly nonprofit organizations, typically have to win approval for their projects from a variety of government agencies--a process that takes months.
Lending institutions say they feel pressure to sell more quickly than that to cut losses and please stockholders. They say federal banking regulators also push them to get the apartments off their books as quickly as possible.
“By the time (a nonprofit developer) gets a decision, we would have passed over numerous (other) offers,” said David Norton, a senior vice president at California Federal Bank in charge of selling property acquired through foreclosures.
Federal regulators have been willing to listen to the pleas of Fisher’s group. “We’ve put together a working group of bankers, nonprofit developers and community groups to . . . develop solutions,” said Leonora Cross, spokeswoman for the Office of the Comptroller of the Currency, the section of the Treasury Department that regulates national banks.
But radical change seems unlikely. “I’m not sure what will grow out of that,” Cross said. Since the savings and loan debacle, she acknowledged, regulators have been under pressure to be more conservative than ever in making certain that banks are financially sound.
Meanwhile, some nonprofit developers and local governments say they have difficulty even learning of the availability of bank-owned properties in their areas.
“We would appreciate it if (lenders) would come to us and let us know what they have in terms of inventory,” said Greg Brown, development specialist in the Huntington Beach city administrator’s office. “They don’t.”
The Los Angeles city Housing Department appears to be the only government agency attempting to address the problem with a program designed specifically to exploit the foreclosure market.
“We are committed to the idea that this is a golden moment in Los Angeles when we can buy affordability without building a building,” said Barbara Zeidman, the department’s assistant general manager.
The program, which was presented for approval to the City Council last week, would seek to make low-income housing providers more competitive by speeding their access to federal funds.
It would allow developers who have found a property to apply for accelerated approval of up to $20,000 per unit in loans of federal funds administered by the city. It would also allow developers who know in advance that they will be looking for foreclosure properties to pre-qualify for loans.
“If we can get those funds out there in a hurry, cut down the (City) Council review process, shorten all of our (internal) review process, we may be able to . . . secure those properties,” Housing Department General Manager Gary Squier said at a recent public hearing on the proposal.
But some developers say that is not enough.
“We need banks to slow down as well as for the public agencies to speed up,” said Jack Gardner, director of the Hollywood Community Housing Corp. and one of the few nonprofit housing developers who have managed to buy a foreclosed-upon apartment house.
“I got the bank to move like molasses and the city to move like lightning,” he said. When Gardner tried to duplicate his success with another bank, however, “they were not even willing to talk to me,” he said.
He said he later found out the reason for his earlier success. He had been the only one interested in buying the apartment house.
Rooms for Sale
Here is a look at how the numbers of foreclosures on apartments in Los Angeles County have increased in the past three years:
YEAR: 1991
APT. UNITS: 1,132
AVG. PRICE PER UNIT: $63,679
YEAR: 1992
APT. UNITS: 7,287
AVG. PRICE PER UNIT: $42,062
YEAR: 1993
APT. UNITS: 19,041
AVG. PRICE PER UNIT: $36,931
Source: COMPS
