Investors at Last Are Seeing Opportunity in ‘Inner City’

They are symbols of new thinking about investment in inner-city business--and of hope.

A pile of rubble sits in a cleared lot at Slauson and Western avenues in South Los Angeles. Soon it will become the Chesterfield Square shopping center, anchored by a Home Depot store.

The brick walls of a gutted building stand at Hobart and Adams boulevards in South Los Angeles. Soon it will house a Fame Renaissance incubator for fledgling businesses in manufacturing, services and multimedia.

A vacant warehouse sits at Grand Avenue and 37th Street in South Los Angeles. Soon it will become Mercado La Paloma, a market of individually owned food stalls, tailor and shoe repair shops and the like.

In their separate ways, those projects proclaim that business perceptions of the “inner city” are changing at last.

After years of avoiding the neighborhoods south and west of downtown Los Angeles as burned-out ghettos, retailers and investment bankers are now noticing that the areas contain more than 1 million residents with aggregate annual income--read potential purchasing power--of more than $10 billion.

The area’s population is growing. And anybody who visits South Los Angeles knows it is a place of neat private homes and quiet streets off the broad commercial boulevards of Vermont, Slauson, Florence, Manchester and others.

Trouble is, the commercial streets have lacked commerce for years. A study by Pepperdine University last year found that South Los Angeles is served by 65% fewer grocery stores and 40% fewer banks than most other parts of Los Angeles and Southern California.

Finally retailers realized that more people and fewer stores meant opportunity for growth. So now investment is moving into South Los Angeles. New stores and shopping centers are coming in; Wal-Mart is opening a store in the Baldwin Hills mall.

Housing is being built and refurbished. Venture capital funds are being formed to invest in inner-city businesses.

To be sure, capital is not yet flowing in abundance to poor neighborhoods. But a start is being made.

Mark Ridley-Thomas, whose City Council district is in South Los Angeles, has long preached to business about the economic potential of urban neighborhoods. He’s pleased that the message is getting through. “Business is not static,” he says. “Business finds new niches to make money.”

The niches exist in every “inner city” in America, including parts of the San Fernando Valley, downtown San Bernardino and several cities in Orange County.

Real estate investment pools are being organized because inner cities contain “5 million acres of strategic, underused real estate,” says Robert Turner of Canyon Capital Realty Advisors, a Beverly Hills firm that is developing a retail and housing complex in New York City’s East Harlem.

Real estate is the focus of inner city investment funds being put together by California’s Public Employee pension system, Calpers, and by the city of Los Angeles, which has organized Genesis L.A.

Venture capital, too, is coming. The Los Angeles Community Development Bank has advanced $10 million in venture capital to Fame Renaissance, the community investment arm of the First African Methodist Episcopal Church.

Mark Whitlock, who heads Fame Renaissance, is also raising money from Wells Fargo, Washington Mutual and other banks. The aim, Whitlock says, is to help small manufacturing and service companies with equity capital and management expertise.

Venture investment, normally associated with technology start-ups, can be a real advantage for inner city firms because equity offers more flexibility than bank debt, says Linda Griego, a Los Angeles entrepreneur who recently completed a stint as head of the Community Development Bank.

Griego cites West Coast Metals, a South Los Angeles electro-plating company that is negotiating terms for a $100,000 venture investment so it can expand. West Coast, which has roughly $3 million in annual sales to automobile manufacturers, has expanded from 6 employees to 42 in the last four years. With a little capital, the firm could add 25 more employees, says Douglas Waterman, a financial advisor to the small company.

And investment in inner city companies can earn a good return, “20% to 25% a year over five to seven years,” Waterman says.

So there is promise, but don’t cheer too soon. Precious little venture capital has yet found its way to poor neighborhoods in this region. The Community Development Bank advanced $25 million last year to Zone Ventures, a highly publicized fund in Los Angeles. But the Zone Fund hasn’t invested in South Los Angeles. “We don’t go there,” a spokesman says.

It’s difficult for investors accustomed to dealing in million-dollar packages to adjust “downward to smaller financings,” says economist Glenn Yago, who will chair a panel on inner cities titled “The Emerging Market in Our Own Backyard” at the Milken Institute’s Global Conference this Thursday.

The reality is that inner city investment demands ingenuity, government support and years of hard work. Shelby Jordan, a developer of a townhome project near Exposition Park for low income residents, took three years to put together financing backed by the federal and city governments, by USC, local museums, the Los Angeles Police Department and the Faithful Central Bible Church.

The proposed Mercado La Paloma is being financed in part by sales of $1 coupons, entitling buyers to discounts on merchandise when the market is completed.

Still, undeniably the tide is turning; business sees opportunity in the inner city. South Los Angeles home developer Chris Hammond’s Capital Vision Equities firm is co-developing Chesterfield Square with major developer Katell Properties. The project will bring a Home Depot to the area’s house-proud residents, and the work will boost Hammond’s local company.

“We’re looking to build up equity values,” says Ridley-Thomas. Progress may be slow, but now at last it’s sure.

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James Flanigan can be reached at jim.flanigan@latimes.com.