Chapter 11 filing clouds future of troubled condo project; CRA could lose millions of dollars on Spring Street project.

A Chapter 11 bankruptcy filing by a real estate partnership is slowing foreclosure by the Los Angeles Community Redevelopment Agency on a downtown condominium project and forcing the CRA to spend tax money keeping the building in the black.

The 12-story, 120-unit building that is the source of the CRA's financial predicament is Premiere Towers at 621 S. Spring St. Originally a pair of office buildings, it was redeveloped in 1984 into a single-building condo complex for $12 million.

The CRA backed the development loans and provided "soft" second mortgages to make the lower-priced condos affordable to the middle class.

When the condos didn't sell well individually, the CRA sold 88 of them to an investment partnership headed by Beverly Hills accountant Murray Neidorf, which planned to rent out the units as apartments.

The 32 single-unit owners objected, so the CRA in 1991 considered buying back their units. Instead, it was decided that the CRA should buy back the Neidorf units first, and eventually make a decision about selling the whole building.

Neidorf said he negotiated in good faith with the CRA to sell back the units. He had been losing more than $100,000 a year on the condos, and the CRA had been loaning him more money (he estimated $250,000 a year) to subsidize additional operating deficits, he said, and he wanted out.

Neidorf said he had a seven-year deal with the CRA that provided that the agency would loan him money to cover operating deficits up to a point, but that deal expired in 1991.

John Hemer, director of real estate at the CRA, estimated that the agency may have loaned one of the Neidorf partnerships $2.9 million over seven years to cover operating deficits, secured only by a second trust deed on the condominiums.

"They (the loan funds) were used up, and I believe there was also a balloon payment (due)," said Hemer.

Instead of buying back the units from Neidorf, the CRA in 1992 purchased from the Resolution Trust Corp. the first trust deeds on the 88 units owned by the Neidorf partnerships, which totaled $4.35 million. Both trust deeds went into default later that year.

Neidorf said he allowed the notes to go into default because he was losing so much money on the condos, and because the CRA had failed to redevelop the rest of the street, as promised, or buy the condos back from him for a reasonable price.

"I think there were certain representations made to me. The CRA didn't live up to certain expectations," said Neidorf. "I don't think very highly of the ethics of the CRA."

Under the terms of the notes, the lender had the right to collect rental income from the units in the event of default, which the CRA began doing in February 1993.

The CRA foreclosed on one first trust deed, a $1.7 million note covering 36 units, in May 1993 and took over management of the building in August. The CRA was planning to foreclose on the other 52 units in September, but the second partnership filed for Chapter 11 protection from creditors, blocking the foreclosure until at least Jan. 27, 1994.

Neidorf said he blocked the foreclosure because he felt he had been treated unfairly by the CRA.

"It was a horrendous thing," said Neidorf. "It (the condo complex) never should have been built. The CRA built a white elephant."

On Dec. 16, the CRA board approved a motion authorizing the spending of another $810,000 to cover the building's operating deficits until the issue can be resolved and "all the units assembled under a single ownership," in Hemer's words.

Last year, the CRA had loaned $200,000 to the building's condo association to pay for property insurance and past-due bills. When the Neidorf partnerships went into default, they also had stopped paying the monthly assessments on their units.

The CRA is currently collecting rent from 33 units (37 percent occupancy), but it is not enough to even pay association dues for the entire building. There are still 31 individual-unit owners, all of whom have stopped paying association dues and have therefore lost their voting rights.

Neidorf estimates the building is now worth about $6 million, and that when all is said and done, the CRA will have lost about $8 million to $10 million on the deal.

Hemer said it is impossible to calculate the CRA's losses on the property since the building's future is in doubt. Some people advocate selling it to the highest bidder, he noted, while others favor ensuring the best possible use for the community.

"If you can tell me when we'll assemble all of them (the condos), when we'll resell them, under what conditions we'll sell them, then I could tell you what our net loss is," said Hemer.