Construction Nightmare Lingers Long After Quake

There are few human activities that are as fraught with such nasty surprises as construction, unless it be war. Who can be surprised when a big construction project costs more and takes longer than called for in the original plan?

Even so, what has been happening since the Northridge earthquake at the twin, 18-story Ocean Towers complex in Santa Monica would seem to be an unusually pungent example of what can go wrong.

It may all come out all right in the end. That is, if the parties involved--the embattled managers, Joseph and Dorothy Orlando, and supporting board members--make a fresh effort to compromise with dissident shareholders.

A zone of seismic weakness in Santa Monica resulted in big losses 12 miles from the epicenter of the 1994 quake. Ocean Towers, a stock cooperative with 317 units at a scenic coastal outlook, bounced up and down on its foundations, causing the biggest residential claim in the entire quake.

At first, many people were able to remain in the buildings. But after insurance payments were arranged, loans received and repair work begun in 1997, all had to move out.

Who could have foreseen that today, more than three years after the repairs began, no new permanent occupancy permit for Ocean Towers has yet been issued by the city of Santa Monica?

After months of delay, a temporary occupancy permit was issued in late 1999, and about 100 units have been reoccupied. But construction trailers and a wire fence still block main entrances. It isn’t the picture of luxury that the price of these units, ranging as high as $1 million, would lead one to expect.

In addition to delays, repair costs have soared.

Originally, the $40-million insurance settlement seemed adequate to complete the work. But a $15-million loan from GMAC, on top of a $29-million preexisting loan, was followed by another $6.1-million loan, from National Cooperative Bank.

And now, another refinancing loan, of $70 million, to replace and add to the $50-million total outstanding--also from National Cooperative Bank--is close to being finalized.

Joseph Orlando points out that one unforeseen cost was $14 million to make loan payments and defray maintenance for the shareholders who had living expenses elsewhere. Originally estimated at one year in duration, these payments lasted two years.

The total amount loaned on this valuable property will still remain comparatively low, only about 25% of its value. As of this moment, there is a tentative $13-million completion budget, but as yet no firm date for finishing the work.

Suzanne Frick, director of planning and community development for Santa Monica, notes that management is in litigation with earlier construction supervisors who, she says, were found by the city to have disconnected a new alarm and fire sprinkler system, leading to the long delay in obtaining even the temporary occupancy permit.

As is always the case with a project that has taken so long, there are different versions of what happened. Joseph Orlando says a small fire occurred soon after the life and safety system was completed by the firm Intellisect, and this compromised it, necessitating long delays in readying the buildings for occupancy.

The overriding issue for the past year, however, has been a new election for board of directors at Ocean Towers. Even though state law prescribes annual board elections in such corporations, no election has been held there for three years. Maybe with an election, some of the bad feelings will dissipate.

An attempt to hold one on Dec. 18 broke up over what was said by a representative of the American Arbitration Assn. to be lack of a 50% quorum. Another one is scheduled for Jan. 16, and this time, according to Ocean Towers bylaws, the quorum requirement will be only 25%.

Last March, an organization of Ocean Towers dissidents known as the Assn. of Concerned Shareholders pressed for election of a new board. But the chairman, Eugene Fisher, refused.

“The vast majority of shareholders who have expressed their opinions . . . have stated that a board election when the shareholders are scattered far and wide would be undemocratic, unrepresentative [and] unwise,” he explained, although he later dropped his objections.

Two weeks ago, I was approached by Ana Krajewski, one of the Concerned Shareholders, who expressed anxiety that, regardless of the election outcome, the Orlandos, supported in particular by Fisher, would still refuse to step down.

Krajewski turned over hundreds of pages of papers. Among them was a July 20 letter signed by 48 dissidents demanding the election. “During the last several years, many of us have seen our homes and assets so badly mismanaged as to be placed in jeopardy,” it began.

Edmund Schaffer of Century City, the lawyer for management, said this was unfair to the Orlandos and the board. He estimated the hard-line dissidents number only five to 15 people, although he opined they might win one or two seats on the board of directors when the election is held, an indication of some strength.

Joseph Orlando indicated, meanwhile, that he would like to resign as manager. “But I don’t want to abandon what needs to be done to get Ocean Towers on the road to completion,” he said. “I want to fill my obligation.”

Regardless of the election outcome, Orlando declared, “I’ve served in the past under all kinds of boards--friends and foe.”

He acknowledged he had been disappointed over some of the work of the construction supervisors retained by the board.

Despite all the recriminations, I still feel there is a chance of a reasonable outcome. Despite very fractious exchanges, both seem open to settling on a compromise board and a joint construction policy. These are beautiful buildings. No construction dispute should be permitted to keep the shareholders from living together.

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Ken Reich can be contacted with your accounts of true consumer adventure at (213) 237-7060 or by e-mail at ken.reich@latimes.com.