CRA takes beating in Hollywood investments.

One building goes into foreclosure, eatery closes

The real estate recession has taken its toll on the Los Angeles Community Redevelopment Agency recently - with a low-income Hollywood apartment building, in which the CRA invested more than $3 million, going into foreclosure, a newly opened historic restaurant closing again, and Standard & Poor's lowering Bunker Hill bond ratings.

"We just have to ride the storm," commented CRA Chief Financial Officer Pierre Lorenger. He added that a major planned low-income housing program may have to be cut back or delayed if it doesn't become financially feasible to sell new Bunker Hill bonds by the end of the year.

The apartment building that recently reverted back to lender Bank of America at a trustee's foreclosure sale is the Montecito Apartments at 6650 Franklin Ave., a 188-unit building.

CRA housing administrator John McCoy said although the CRA had loaned the developers $3.26 million on the project - money that now cannot be recovered - the agency never really expected the money to be repaid. The CRA is pleased that the low-income restrictions on the property will stay in place, and it didn't make financial sense for the CRA to show up at the foreclosure sale and "try to outbid the others," he said.

BofA had signed a letter of credit guaranteeing $2.6 million in primary debt on the project, which was financed in 1987 through the California Housing Finance Agency at 10.875 percent over 24 years. The CRA loan was subordinate.

Non-profits weigh in

McCoy said there are a number of nonprofit groups interested in buying and refinancing the building.

"The public purpose continues to be achieved," he said. "We lost the money. However, the money was only recoverable out of cash flow; there was a low expectation of repayment.

"When we loan money, rather than make a grant, we preserve the opportunity that we may get (the money back). We view these loans as a grant with some possibility of getting the money back if we have unexpectedly favorable circumstances."

Meanwhile, another $400,000 of CRA money spent in Hollywood apparently went for naught because Rusty's Hacienda Mexican Restaurant at 1716 Cahuenga Blvd. closed.

Last November, Rusty's relocated from Boyle Heights to the building that once housed the famous Tick Tock Restaurant and, for a brief time, was a Gorky's eatery. The CRA provided $400,000 in acquisition and relocation money.

Losses run heavy

Rusty's owner Alberto Pino could not be reached for comment. Sources said the restaurant closed because it was losing a lot of money.

CRA spokesman Mark Littman said CRA officials were saddened to learn about Rusty's closing.

In the Bunker Hill project area, Standard & Poor's downgraded senior CRA debt on the Grand Central Market project from A-minus to BBB-plus, and S&P rated a proposed issue of another $15 million in subordinate debt at BBB-minus. The rating was so low it would have resulted in an interest rate of 10 percent, so the CRA opted not to sell the bonds.

A number of factors contributed to the low rating, among them the record number of property tax assessment appeals and the shaky financial position of California governments.

"Maybe in 1996. we'll be able to demonstrate that we've hit bottom, and we'll get our rating restored," said Lorenger.