CALIFORNIA COMMENTARY : Tip the Balance to the ‘Rebuild’ Side : Owners of quake-hit rental property are in a bind that government and lenders can settle for the good of all.

My brother Gene and I have lived in Los Angeles since 1945. Along with our father, we built our first apartments in 1954 and have been actively building and investing in real estate since then. On Jan. 17 we, like everyone else in Los Angeles, had our world badly shaken, in so many ways. Luckily, no one in our seven damaged properties suffered any physical harm, due to the brave efforts of our managers and the tenants themselves.

After recovering from the initial shock, we set about deciding whether or not to rebuild. It’s not a simple question, and believe me, at times we feel like Tevye from “Fiddler on the Roof,” reciting, “On the one hand, however, on the other hand.”

Rebuild: Only we owners of the properties at the time of the quake can utilize the Small Business Administration loan funds. If we don’t rebuild them ourselves, no one else is eligible for the loan program.

Don’t rebuild: Even though our buildings sustained $3.9 million in physical damage, the SBA can lend us only $1.5 million because of rules that consider all of our family companies as one entity. This means that some buildings won’t get rebuilt if the additional dollars can’t be found. Now that the state’s bond measure has been defeated, we don’t know where to turn for the shortfall.

Rebuild: Because we’ve owned these buildings for quite some time, they are fully depreciated from a tax point of view. If we don’t rebuild, letting the buildings go to foreclosure, we’ll get hit with a whopping tax bill.

Don’t rebuild: No one knows if we’ll be able to rent apartments in badly quake-hit areas. If the rebuilt apartments stay empty, what will we have accomplished?

Rebuild: We’re good citizens of Los Angeles and have benefited most of our lives from working here.

Don’t rebuild: The city is pressuring us to demolish our vacant structures as a blight-prevention measure unless we can rebuild quickly.

Rebuild: We have an obligation to our tenants, vendors, investors and partners to see this temporary setback through and make things right again.

Don’t rebuild: No one has a good handle on what our personal liability will be in the future if we are unable to obtain insurance and another quake occurs. We keep coming back to the basic economic issue of too much debt. Even if we were to find additional capital, the buildings can support only so much debt. The decline in real estate values in general means we might never be able to sell the properties at a price that will pay off their full indebtedness.

So, no matter how much we’d like to rebuild, it’s clear that we can’t just add more debt without some sort of accommodations from our existing lenders.

The SBA alone can’t do the job; the federal agency needs help from the banks. The banks need regulatory relief if they are expected to cooperate. Without it, they will continue to foreclose on quake-related properties.

Let me suggest the following creative alternatives to foreclosing:

* Lenders have been patient, waiving payments on damaged properties. But instead of requiring a lump sum at the end of their patience, the amount owed should be added to existing debt and amortized over the length of the loan.

* Halt foreclosure proceedings for earthquake-damaged properties to allow owners time to rebuild and regain an income stream. This could take another year.

* Allow banks to loan on a higher percentage of the value of quake-affected structures, then share later in any appreciation in value. This would require modification of some federal banking regulations.

At last count, there were nearly 300 apartment buildings in the San Fernando Valley with 16 or more “red-tagged” units declared unsafe for occupancy. The owners of many of these buildings face the same dilemmas that my brother and I do. Without some creativity, coordination and civic leadership, a large portion of this housing stock simply won’t be rebuilt. There are compelling social, economic and political reasons for everyone to pull together and begin to rebuild now rather than going by the book.

The city, state and federal governments each have their own rules. A coordinated partnership, along with private property owners and their lenders, is needed to take advantage of the help that is being offered by the federal government. This partnership could drive a real recovery and tip the scale toward a decision to rebuild.