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CRA’s Forgiveness Pays

Profit-making businesses among beneficiaries of agency’s pardonable loans

December 4, 1995

By CHIP JACOBS AND PATRICK McGREEVY
Daily News Staff Writers 

At the Ripley’s Believe-It-Or-Not Odditorium on Hollywood Boulevard, visitors plunk down $8.95 apiece each day for a glimpse of life’s freakish extremes.

The tourist draw revolves around anomalies, man-made or natural, from the John Wayne portrait sewn out of laundry lint to the tiny skeleton of the two-headed baby.

What visitors can’t gawk at is the unusual $125,000 “forgivable loan” the tourist attraction’s owner received from the Los Angeles Community Redevelopment Agency three years ago.

Under its CRA deal, the Odditorium’s owner, Calgary-based Amusements International Ltd., will never have to pay back a dime so long as the landmark art deco building is maintained to specified design standards.

“They helped us to get the historical facade back to its original condition,” said Kamiar Torbati, a Westside investor who helped negotiate the loan.

In the name of urban gentrification, the redevelopment agency has made 76 such “forgivable loans,” worth roughly $13 million to a panoply of health centers, mom-and-pop merchants, Skid Row housing centers and others throughout the city, records through August show.

But among these smaller companies are large, profit-making companies that have somehow managed to enjoy the charitable benefits of such loans.

In one instance, a Midwest insurance company that owns a vintage landmark Hollywood office tower is using a $250,000 CRA loan to finance a top-flight elevator system.

Agency officials acknowledged the practice last week, though they declined to discuss the details of individual loans.

In an interview, CRA administrator John Malloy defended the concept behind the arrangements, noting that many borrowers are required to pony up matching funds for building expansion or rehabilitation.

Without such incentives, he added, it’s almost impossible at times to spur private investment in blighted areas such as Hollywood, long riven by crumbling buildings, seedy retail strips and neglected public facilities.

“When you get down to the property interests, these are people who have money, and for whatever reason they have made a conscious decision not to invest,” Malloy said. “So we are intervening to change that. (But) we make no pretense. We could be dealing with a sheik or a billionaire.”

The agency came under fire last month after the Daily News reported that nearly 20 percent of the CRA’s loan portfolio was in default – a record level – and that $317 million of all agency loans are structured so they won’t have to be paid back for years, if ever.

City Council members, a Los Angeles state senator and others others reacted angrily, saying the loans smack of corporate welfare.

“I didn’t think (CRA officials) were in the business of giving money away,” Councilman Joel Wachs said. “To me a loan means loan, and if it is going to be a gift it ought to say so up front.”

About 80 percent of all the loans were not required to win City Council approval because they were below $250,000.

Joel Fox, president of the Howard Jarvis Taxpayers Association, a state watchdog group, said loans that don’t have to be repaid don’t make sense, especially in an age of public skepticism toward government.

“If you are a for-profit business, you shouldn’t be receiving taxpayer-funded grants that you are under no obligation to pay,” he said. “It doesn’t seem to me that’s appropriate.”

In the sheer number of deals, the forgivable loans are the fastest growing component of the CRA’s $453 million portfolio, swelling 50 percent since June 1994, according to agency calculations.

Why call them loans? Malloy said it gives the agency leverage to get the money back if the recipients breach their agreements.

Typically, borrowers get their loan amounts “written down” a bit at a time by keeping their buildings’ facades spruced up or by continuing company operations at a site for a set period, often 10 years. There are other arrangements as well.

At $1.9 million, the nonprofit Pediatric and Family Medical Center has the biggest forgivable loan – money the nonprofit group used to help finance its building in downtown’s South Park enclave.

As long as the group’s clientele includes a certain percentage of poor patients over 20 years, the center never has to make a payment, according to executive director Carl Coan.

“You need to think about the 11,000 families that get care here,” Coan said. “Given (the shape) of the county health system, centers like ours are the key safety net.”

Still, much of the loan account has been shipped to private property owners, many of them clustered in Tinseltown. Ironically, that community was a hotbed of anti-redevelopment sentiment during the late 1980s, when the CRA’s $1 billion makeover plan was stalled by lawsuits.

For instance, the CRA forged a $250,000 forgivable loan to assist the rehabilitation of a landmark Sunset Boulevard building once occupied by The Hollywood Reporter trade publication. The structure, records and interviews show, is controlled by the trust of Tichi Wilkerson-Kassel, a Beverly Hills philanthropist and the paper’s ex-publisher.

The entertainment publication moved out of the building a few years ago, and it is now leased to the L.A. Weekly, according to the trust’s accountant. Wilkerson-Kassel, meanwhile, sold the Reporter seven years ago for a price estimated in published accounts at $23 million.

A famous Hollywood Boulevard structure – the El Capitan building – is also being revived thanks in part to a $250,000 CRA forgivable loan. The owner is Century Life of America, an Iowa-based insurance company that has earned $303 million in premiums, according to Standard & Poor’s Register of Corporations.

Once the headquarters for the old Barker Bros. furniture chain, the El Capitan building is known for the glitzy, revamped theater leased by the Walt Disney Corp. and another company.

But Century Life is using its CRA money to put in a “first-class” elevator system company officials hope will lure tenants to the vacant office building, senior asset manager Jeff Rouze said. Those improvements are part of a $5 million restoration financed by the firm.

“If the loan program wasn’t available, we wouldn’t be doing as extensive renovations,” Rouze said. “There are a lot of closed buildings up and down the block.”

Despite the criticism, CRA commissioner Christine Essel said the deals cut with Hollywood property owners were a “success story,” because they address two of the area’s fundamental woes: business flight and dilapidated building facades.

“This is a blighted community,” Essel said. “You have to provide incentives to turn it around.”

City Councilwoman Jackie Goldberg, who represents Hollywood, declined comment for this story.

In the shadow of Bunker Hill’s skyscrapers, meanwhile, a vaulting, glass-framed YMCA was erected in part with a forgivable loan that CRA records show was for $1.5 million.

The money was intended to support the organization’s numerous community outreach programs, though roughly half the YMCA’s clientele are upper-income business people, said executive director Robert Wilkins. He said the loan, set up in the mid-1980s, was actually for $1 million.

Another large loan went to The East Los Angeles Community Union, a community development organization. The group used the $876,000 to help buy and restore the Yorkshire Hotel, a single-room occupancy apartment building on Broadway Street with monthly rents as low as $400, said TELACU spokeswoman J.C. Flores.

She said the money was well-spent because it meets an important city need: affordable housing.

“We usually leverage public grants or loans with private financing,” Flores said. “They are able to do more with the public money that way.”

Even so, the nonprofit has been a player in local political campaigns. TELACU has given nearly $21,000 to elected city officials and candidates in the last three years, including $2,000 to Mayor Richard Riordan and $2,250 to City Councilman Mike Hernandez, campaign records indicate.

State Sen. Tom Hayden, D-Los Angeles, said Friday he wants a legislative oversight hearing to debate whether the forgivable loans are proper, especially given a state constitutional provision banning the gift of public funds.

“There needs to be more light of day whether these forgivable loans . . . are yielding some provable results, building community or are slush funds,” Hayden said.