While the Los Angeles city attorney was secretly investigating slum traders last year, another public agency, the Los Angeles Memorial Coliseum Commission, paid some of the same traders $1.6 million for a dilapidated, fire-damaged apartment house, according to records.
The rationale for the May, 1988, purchase was expansion of parking facilities near the Coliseum, but officials say they primarily wanted to get rid of gang members who inhabited the building.
The Coliseum Commission, anxious to raze the building at 3981 S. Menlo Ave., did not order a written appraisal and may have paid more than market value for the property, The Times found. At the end of 1985, when the property was legally habitable, it sold for about $1.1 million--about a third less than the $1.6-million sale price.
"I couldn't believe the price when I heard it, I was so flabbergasted," said insurance broker Benton O. Shannon, who handled insurance for the building until the former owner, fugitive slumlord V. J. Sharma, stopped paying his bills. "It just wasn't worth that. I heard about it from (one of Sharma's associates) and he just smiled. It was one of those sly, shake-your-head smiles."
Coliseum officials said that they have no regrets about purchasing the building, which has been torn down and converted into a parking lot. "If we'd paid $3 million for it, we would have thought it was a bargain," Joel Ralph, general manager of the Coliseum and Sports Arena, said last week in an interview. "We had parking lots no one would park on because they were scared to death to walk by that building."
Almost all the principals involved in the building over the previous three years--including the real estate firm that got a $97,500 commission from the sellers in the deal--are now defendants in a civil racketeering suit filed March 28 by the city attorney, the Legal Aid Foundation of Los Angeles, and Litt & Stormer, a private firm representing tenants.
The lesson to be learned from the deal, according to Kim Savage, an attorney with the Legal Aid Foundation, is that the slumlords "won."
"They run it (a building) down until someone is willing to just knock it down," Savage said. "They win. They get what they are interested in, which is profit from real estate. Then there is the most obvious loss: the loss of affordable housing."
The lawsuit alleges that 142 financiers, investors and companies conspired to drain 11 sample slum buildings of thousands of dollars in cash rents through sham sales and inflated loans while leaving the buildings to fall into disrepair.
The 3981 S. Menlo Ave. building was to have been the 12th example in the lawsuit, and will still be used as evidence at trial, according to Deputy City Atty. Stephanie Sautner, who heads the city's slum task force.
"This building fits the pattern of all the others with respect to the same players, the same rapid transfers, the same slum housing violations and the same lenders and brokers involved," she said. "Many of the sham transfers are aimed at falsely inflating the value of the property."
Sautner said she could not comment on whether the $1.6-million sales price was appropriate.
The story of 3981 S. Menlo Ave. shows how closely the management of a building can be tied to crime in a neighborhood, and how costly a building's decline can be in both human and financial terms.
The building, called the El Portal Apartments, was erected in 1926 across the street from what is now the Los Angeles Swimming Stadium in Exposition Park. In recent years, the building housed immigrant families and other low-income tenants.
In December, 1985, the building was purchased by Los Angeles real estate agent William Leyton's Interreal Pacific Properties for about $1.1 million.
Recorded documents and interviews indicate the paper value of the property rose steadily as its physical condition deteriorated. They also show how critical a role lenders played in establishing that paper value.
On Dec. 30, 1985, records show, Interreal Pacific Properties got virtually 100% financing on his purchase from A & B Loan Co. of Inglewood, which issued three separate loans for about $1.1 million on the property--loans that would ultimately be paid off in the Coliseum sale.
"They got this highly questionable loan," said Harold Gibbons, one of the sellers. "And the place was just like a jungle within a matter of weeks after we sold it. It just turned my stomach even to drive by it."
Generally, lenders require 20% down, and often much more for apartment buildings or old structures. Therefore, anyone looking at the recorded loans against the property would think it was worth considerably more than its actual market value. That impression would be enhanced by the fact that the loans were transferred--one seven times in 24 months--to different loan companies apparently eager to buy them. And new loans would be added.