Loan History May Be Issue in Project

Los Angeles city officials have proposed turning over the financially troubled Los Angeles Theatre Center to developer Tom Gilmore, even though the flamboyant champion of downtown development has not paid back any of the principal of his $3.8-million city loan to renovate several buildings downtown.

The new proposal would represent a potential windfall for Gilmore, whose 240-unit Old Bank District project has been credited with helping revitalize downtown. The project, involving three buildings along 4th Street at Spring and Main streets -- the Continental, the Hellman and the San Fernando -- has cost $37 million, almost all of it in city loans and a federally guaranteed mortgage.

New financial disclosure reports show that, for the 23 months ending Nov. 30, the Old Bank District project had an operating deficit of more than $1.4 million. The report also showed that costs and obligations for the project had exceeded revenue by $258,608 for the five months that ended Nov. 30.

The deficits mean that Gilmore has not been required to repay any of the principal owed on the city’s 1999 loan. The loan was made by officials with the understanding that nothing but interest payments would be required until the housing project turned a profit.

Over the last year, Gilmore has faced several financial crises. He briefly borrowed an additional $1.2 million from the city in a second loan to pay accrued interest on the original $3.8-million loan.

Then, after granting Gilmore the largest loan in its 50-year history, the National Trust for Historic Preservation threatened to take him to court after he failed for months to make repayments on the $750,000 that the foundation had provided for his projects, officials said. And last spring, Gilmore also faced the possibility of losing his Old Bank District project because he had failed to pay nearly $900,000 that was owed to a contractor. In both cases, Gilmore raised the necessary money.

Gilmore said his lofts are now 98% occupied. He attributed the red ink to renovation cost overruns and the lack of leases for about 30% of the ground-floor retail space. He also said he expected the project to begin generating enough revenue in the middle of 2004 to allow him to begin repaying the city loan.

“We have skirted the edges of tragedy more than a couple of times,” Gilmore said. “The fact of the matter is we are alive and moving forward, and that’s a miracle.”

Gilmore said he hoped the empty commercial space would be rented next year, providing the cash flow to put the project back in the black. “That has always been the kicker,” Gilmore said.

City officials said their preference would be to have the loan paid back so the money could be recycled into other development projects.

“To the extent it is paid back, it will help others,” said Gloria Stevenson-Clark, assistant general manager of the city Community Development Department, which provided the money.

She added, however, that the loan had been crafted to require payments only if the project turned a profit -- recognition that the city was investing in a risky proposal that had public benefits beyond the cash repaid.

“We obviously support the investment we have made in downtown, and believe it will have some long-term benefits,” she said.

Councilwoman Jan Perry, whose district includes downtown, said the positive effect of Gilmore’s project had to be considered in weighing whether the loan had been a good one.

“That, in and of itself, is worth it,” said Perry, who earlier noted that the project area “is rapidly becoming a vibrant residential and commercial center.”

In recognition of Gilmore’s Old Bank District efforts, Perry and Mayor James K. Hahn have personally intervened to work out an agreement for joint operation of the Los Angeles Theatre Center.

If the deal is approved by the City Council and Cultural Affairs Commission, Gilmore and two theater companies could receive a three-year contract to operate the center. Financial details and a profit-sharing agreement are still being negotiated.

Gilmore said that he did not expect the theater to generate any profit for his firm in the foreseeable future, but that he had gotten involved to help create some artistic life downtown for the hundreds of people moving into new housing in the historic core.

But some outside City Hall already are concerned about Gilmore’s handling of the Old Bank District project.

“It looks like a bad deal for taxpayers,” said Ernie Dynda, president of the United Organizations of Taxpayers. He acknowledged that Gilmore’s housing units are generating more property and sales tax revenue than the once nearly vacant buildings did.

But at a time when the city and state are considering layoffs to avoid budget deficits, Dynda said, taxpayers cannot afford to have their money diverted from basic services to subsidies for private developers. And until any budget crisis has passed, he said, city officials should declare a moratorium on loans that do not include strict requirements for repayments.

Former city Planning Commissioner Robert Scott said city coffers should not be put in jeopardy for private ventures that businesses already have viewed as too risky for investment. “I don’t see why the taxpayers should bear the risk on that,” he said.

It is not the first time that Gilmore’s business practices have drawn fire from those who applauded his goals.

Three years ago, the private, nonprofit National Trust for Historic Preservation granted Gilmore a $250,000 loan to rehabilitate the Palace Theater, and a $500,000 revolving line of credit for three other renovation projects: the Rowan building, El Dorado Hotel and St. Vibiana’s Cathedral.

But after making some initial payments, officials say, Gilmore quit paying, and it took the threat of foreclosure for the foundation to get back its money.

“We almost stood on the courthouse steps before Mr. Gilmore paid back the loan,” said Rhoda Stauffer, head of the trust’s loan program.

For months after Gilmore stopped making payments, Stauffer said, the trust pressed him to make good on his loan.

“He seemed to be spread too thin,” she said. “He had a hard time adhering to our terms, and then he stopped paying us back. We tried really hard to work with him, and got very little response. We figured the only way to get his attention was to go to court.”

Initially, she said, Gilmore threatened to file for bankruptcy -- a move that would have all but killed the trust’s chances of recovering its loan.

Ultimately, however, Gilmore responded to the move toward foreclosure by enlisting a new business partner who helped him pay his debt to the trust.

Gilmore acknowledged that he had talked briefly of seeking bankruptcy protection several months ago for one of his business entities -- Bankhouse -- when the foundation made its threat.

The developer said that he had repaid the foundation, and that his corporation -- Gilmore Associates -- never was at risk during the deal.

He said trust officials did not understand the complexity and problems of a for-profit company taking on “catalytic” renovation projects in urban settings, and the need for flexibility.

But Stauffer, citing the organization’s long history and plans for the future, said it no longer could afford to risk its funds with other sizable grants. After its experience with Gilmore, she said, the new maximum for loans is $350,000 -- half the amount advanced to Gilmore.

“We are grateful for the leadership role he took, and it is unfortunate how it turned out.... We applaud what he tried to do,” she said. “Unfortunately, his own business management practices sabotaged his efforts.”