City to Keep Apartments Low-Income; Ownership Up in Air : Housing: 5-4 vote follows three hours of contentious debate over property offered by reputed mobster.

A divided San Diego City Council voted Monday to keep two apartment complexes owned by reputed mobster Alvin I. Malnik as low-income housing in perpetuity, regardless of who ends up purchasing the buildings.

The final 5-4 vote in favor of a proposal offered by Councilwoman Linda Bernhardt ended three hours of contentious debate that had council members and Mayor Maureen O’Connor sniping at each other.

Still, the council did not answer the question of who will end up owning the properties. Instead, it will study its options and may decide to either authorize the Housing Commission to purchase the complexes or allow a private party to buy them with the understanding from the federal Department of Housing and Urban Development that the buildings are to remain low-income units.

O’Connor and a majority of the council defeated an alternate proposal by Councilwoman Abbe Wolfsheimer that would have put the city on record as offering to purchase the property from Malnik if necessary to keep it as housing for low-income families. The mayor, who led the fight to defeat Wolfsheimer’s proposal, repeatedly voiced concerns about dealing with Malnik, a Miami Beach developer and attorney.

However, the proposal adopted by the council does not preclude it from dealing with Malnik in the future. The council is awaiting the results of a background check being done by the FBI, San Diego police and the district attorney into Malnik’s purported ties to organized crime.

Malnik owns the Penasquitos Gardens apartments in Rancho Penasquitos and the Mt. Aguilar apartments in Clairemont, which are federally subsidized for low-income families. He has offered to sell the complexes to the city for $38.5 million, a price some council members said may be too high.

Several dozen tenants of the two complexes packed the council chambers to lobby for the purchase of the complexes from Malnik, fearful that, if a private owner purchases the units, their rents will either be increased or they will be forced out. Several residents addressed the council.

“You people have control of our lives; that is absolutely frightening. . . . We hope and pray that we have homes to go to,” said LeAnn Feinerman, a resident of Penasquitos Gardens, as she struggled to maintain her composure.

Raya Sue DeShazo, another Penasquitos Gardens resident, pleaded with the council “to please, please buy our homes before rents go through the roof.”

The lengthy hearing was punctuated with frequent lectures directed by O’Connor at Housing Commission Executive Director Evan E. Becker. On several occasions, O’Connor accused Becker and the commission staff of not being forthcoming with the council, which also acts as the city’s Housing Authority, and of keeping information about the sale of Malnik’s properties from the council.

“Every one of the internal documents has Malnik’s name all over it. Every one of the public documents never discloses his name,” the mayor said. “Someone made the decision (to omit Malnik’s name from the public documents). . . . Why was his name never disclosed?”

Then, pointing a finger at Becker, the mayor said the commission had decided to pay Malnik’s asking price of $38.5 million, despite an appraisal that put the value of the apartments at $34 million to $35 million.

O’Connor went on to say that the commission’s internal documents also reveal that a company partly owned by Malnik would be allowed to manage the properties for one year after their sale to the commission.

The mayor’s ire was raised again when she took Becker and the commission to task for suggesting that the city could obtain the apartment complexes by condemning them if both sides could not agree on a purchase price. She reminded Becker that condemnation can only be pursued by the Housing Authority and berated him for not discussing that alternative with the agency.

O’Connor then suggested that the commission favored condemnation so Malnik could avoid paying taxes on the sale.

“They’ve put the wording there to give him an advantage with the IRS,” O’Connor said.

Councilman Bob Filner criticized O’Connor and Councilman Bruce Henderson for blocking the commission’s purchase of the apartments. He accused O’Connor of “using every technical objection” to block the purchase, and Henderson of using Malnik’s reputed ties to organized crime as an excuse to oppose plans to buy the apartments.

He also criticized Henderson for displaying giant reproductions of newspaper stories about Malnik’s alleged crime ties. Filner charged that Henderson had unnecessarily frightened residents of the two complexes into believing that they would lose their subsidized homes because the city would not deal with Malnik.

“You may as well start burning down the whole community,” said one speaker, “if you’re talking about money that’s dirty.”

Councilman Wes Pratt introduced a memorandum that he received from Malnik, who charged that, in a May 1 telephone conversation with Henderson aide Jim Sills, Sills suggested that he not sell the apartments to the city. According to Malnik’s memo, Sills reminded him that he could charge higher rents by converting them to “market-rate rentals.”

Further, Malnik’s memo quotes Sills as saying that “tenants in these complexes were not of the caliber that he would like to see . . . and everybody would be a lot better off if they were rented at much higher rates without any subsidies, to a higher type of renter.”

Sills admitted calling Malnik on that day but denied “making any disparaging remarks about the tenants” and denied the other comments attributed to him.