Valley Interview : ‘Ghost Town’ Apartment House Owner Hits Bureaucratic Wall

For 20 years a seven-unit apartment house on Vista del Monte in Sherman Oaks was a winning investment for attorney William Streitfeld and his wife, Melanie. It produced steady cash flow and tax write-offs. When they needed cash to remodel their own home, they took it out of the building, tax-free, by refinancing.

Then the Jan. 17 Northridge earthquake shook the building off its foundation. Now the Streitfelds are among Valley apartment owners in so-called “ghost town” neighborhoods, who face financial disaster on the heels of natural disaster.

Having no earthquake insurance, Streitfeld, 53, has since been haggling with the Small Business Administration and his own lender to finance repairs he estimates at $115,000. Immediately after the earthquake, Streitfeld retained a house mover to lift the 2 1/2-story structure on hydraulic jacks to stabilize it. He has obtained a building permit and has been told orally that his lender will cooperate. The SBA initially rejected his loan application but reversed itself in April. But the money still hasn’t come through, and Streitfeld is not sure what the future holds.

He was interviewed by Times staff writer Doug Smith.

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Question: What happened to your building?

Answer: My building was basically too tall. It did not have enough lateral support. It was poorly engineered. What happened was, when the building got hit by the quake, the building rocked and rolled, trying to find out which way it was going to go. It happened to go to the north and slid off its foundation about 18 inches.

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Q: How has this affected your financial position?

A: We had an equity of over $100,000. We had a net income of $1,600 per month after expenses. Now we’re down to no equity, and we’ve lost $1,600 per month income. It’s that simple.

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Q: Did you ever consider walking away from the building?

A: We’ve opted to repair it, not because we are heroes, but because from a practical view there’s more advantage in taking that risk than in letting someone else deal with the problem.

What we’re trying to do in the short term is fix it and get it rented again, because we think the other alternatives would be worse. Foreclosure would be bad for our credit. That leaves another building that may be picked up by speculators. It leaves us exposed to the house movers to come after us personally for the $26,000. It leaves them high and dry. It leaves us with all sorts of problems in terms of what we would do income-tax-wise. Should the building be foreclosed, obviously, there would be no debt. If there is no debt, there is a gain, in Internal Revenue Service parlance. Since we don’t want to pay for a gain on a building we no longer own, we would really prefer to rebuild.

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Q: You mean the house movers did the job without being paid?

A: I would say that they did the work on faith in the sense that they believed that the Federal Emergency Management Agency and the SBA would advance that money. The problem is mechanically getting the money. I’ve been approved for the minimum interest of 4% with a 10-year pay-back. However, as with most bureaucracies, I cannot get the money released, so I cannot do my project. They sent out some money and then they ran into paperwork problems and haven’t sent out any money since.

Additionally, I’m still waiting for my bank to send paperwork out. The bank, Great Western Bank, has indicated that it will cooperate in restructuring the debt. The first meeting I had with Great Western was on Presidents Day. We had two subsequent meetings, one on April 3 or 4 and one on May 13. We still have nothing in writing yet.

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Q: Why did the SBA at first turn down your loan application?

A: They gave us a reason for turning us down that we had other available means of getting money. We could never quite figure out what that meant, because nobody is going to loan you money on a building that is being held up on blocks, 80-foot steel beams and hydraulic jacks waiting to be put back on its foundation. There’s no lender that will loan you a dime on it.

I didn’t quite understand how we were going to make money out of lemonade. They’re a bureaucracy. They made a mistake in turning us down. Our project, I think, was the type that the loans were designed for. We could make the income stream break even with their loan.

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Q: How did you change their minds?

A: Sen. (Barbara) Boxer’s office intervened.

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Q: Did you contact her office?

A: I certainly did. I must tell you it’s a well-oiled machine that Sen. Boxer has. Sen. (Dianne) Feinstein had someone call me and say, “Thank you for your inquiry. We’re going to do something about it” and did nothing. Sen. Boxer’s office had three different people make phone calls and write letters and follow up in a period of one week. I suddenly and miraculously the following week got an approval. I can’t say that it’s directly connected to that, but it’s an amazing coincidence, isn’t it?

I’ve got to tell you that I couldn’t do it and I’m kind of pushy. I’m an attorney. I tried to fight the bureaucratic maze. I called five or six numbers in Washington and I got names and numbers of people to call, and I wrote letters.

I even got the President’s hot line. That’s kind of a joke. You call the White House. There’s a professional listener who says, “Oh, isn’t that sad? Isn’t that a problem you’re having?” And you say, “Is that it?” And they say, “Well, your 30 minutes are up.”

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Q: How is the area around your building coming back?

A: You don’t see much happening when you go out. You see some buildings being rebuilt and a lot of them not being touched. They should be removed or rebuilt. Somebody from the federal government should just make the decision that they should be operative.

The first building that was rebuilt following the Northridge earthquake in Sherman Oaks was this obscene-book store, the name of which is Le Sex Shoppe. And they’re going strong now. They’ve rebuilt and they’re back in business again. They were red-tagged, I believe, at the same time we were. But I guess they don’t need SBA money. They get other money from other sources. That’s kind of a disgrace to the city of Los Angeles, that such activity can be the only successful commercial activity that can be back in business.

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Q: What could be done about that?

A: I’m surprised that Mayor Riordan is not taking a higher profile on this. He is the mayor of this city. I see very little being done by the mayor. He didn’t do any lobbying in Washington, where the money is. He should be out there every day advocating that more money be made available and advocating that these buildings be repaired, trying to get legislation passed which would relieve the owner of even the responsibility of doing it, and let the city come in and either demolish the building or repair the building with federal funds and then bill the owner, or force the owner to be the co-venturer in the project.

I think if he put pressure on and worked with the President and these federal agencies, they could easily start repairing these buildings. Fix ‘em up, rent ‘em out. Let HUD step in and put a HUD administrator in there and rent them out. Send some of the rent to the landlord. Send some of the rent to the people who did the repairs, back payments to the federal government. Enforce it that way. We’re all sitting around waiting for private industry to do this. The problem is, private industry lenders will not loan money on these damaged properties.