UCLA Faces $7 Million in Losses on Subdivision : Education: Ill-fated development was supposed to lure and retain key personnel. Faculty have bought or leased eight of 86 homes and 10 remain unsold.

UCLA expects to lose almost $7 million from its ill-fated attempt to build a subdivision of homes for professors on choice Westside property once owned by billionaire Howard Hughes, university officials disclosed Tuesday.

Conceived as an innovative attempt to lure and retain key faculty members during an era of soaring real estate prices, the development was intended to provide 86 homes at below-market prices for UCLA professors and lecturers. But today, only eight faculty members have purchased or leased homes, with the general public owning most of the rest.

“Well, it hasn’t been a great success,” said UCLA Chancellor Charles E. Young. “But, again . . . given what I knew then, I would do the same thing tomorrow.”

UCLA won permission from UC regents in 1989 to build the homes on 15 acres about 10 miles south of the campus. Before the subdivision was finished in 1993, however, the bottom fell out of the Southern California real estate market and demand for the housing had evaporated, leaving UCLA officials with a $50-million investment to recoup.

On Tuesday, Young said the university’s current shortfall amounts to about $11 million, but he added that he is “extremely” confident the loss will be reduced to $6.8 million by June, when he expects the last home to be sold.

Officials have not yet decided exactly what funds will be used to make up for the loss, but Young said the money will come from the chancellor’s non-state discretionary funds, which include gifts and income from campus enterprises such as parking revenues.

“There is sufficient funding there to cover this,” Young said. “We don’t know whether we will do it in a lump sum or whether we’ll do it over a two- or three-year period.”

Tuesday’s disclosure by UCLA comes after The Times made a public records request this month for information on the project, called Westchester Bluffs.

The announcement represents the first acknowledgment of a loss.

Sam Morabito, assistant vice chancellor of business enterprises, said 10 homes remain to be sold. There is an offer pending on one. Only 16 families who have purchased or leased properties are connected with the university, and half of those are professors, Morabito said. The development was expected to sell out to UCLA faculty members eager to snap up three- and four-bedroom homes offered at 30% below market prices and located southwest of the San Diego Freeway and Sepulveda Boulevard, a relatively short drive from the Westwood campus.

Not only did the plunging real estate market take the shine off the deal, state budget cuts greatly curtailed faculty recruiting during the early 1990s.

The public was invited to purchase the homes a year ago. The university lifted deed and resale restrictions, slashed prices by as much as $74,000, agreed to put in front-yard landscaping and hired a consultant marketing firm to handle home sales at a cost of $1.8 million.

Morabito said $3.5 million of the projected $6.8-million loss has resulted from the university’s decision to reduce the original prices of the homes for sale to the public. The homes, now listing at $409,000 to $609,000, are selling from $399,000 to $580,000.

Morabito said the loss includes $1.5 million in extra finance charges, partly incurred when UCLA renegotiated its project loan. The current monthly interest charge on the $10.2-million outstanding loan balance is $50,000, and declines with each home sold, he said. The university hopes to retire the entire debt by June.

UCLA officials said the project’s loss should be understood “within the context” of the university’s $1.7-billion annual operating budget. They also noted that more than $40 million in other faculty housing projects built during the past 15 years have either broken even or made money.

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Howard Leach, chairman of the UC Regents, said Tuesday that he does not fault Young for the loss and that the chancellor has kept the governing board posted on the project.

“Our purpose to get into this was not to make money, but it sure wasn’t to lose money,” said Leach, who was not serving on the board when the regents approved the development in January, 1989. “We got hurt in this case.”

He pointed out that nearly every UC campus has built special faculty housing to counter California’s high real estate costs.

“To my knowledge,” he said, “this is the first one where the market has lost the university money.”