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Reigning Entrepreneur Is Suddenly a HUD Target

November 25, 1989|DAN MORAIN and JILL STEWART | TIMES STAFF WRITERS

Bazarian's empire was on shaky ground, and his firm collapsed in 1987 with $133 million in debt, according to its bankruptcy in Oklahoma City. Bazarian's troubles have not ended. In September, he pleaded guilty to federal charges of skimming $97,000 from two HUD projects in Oklahoma--including one that is in AFC's inventory. AFC was not accused of wrongdoing.

Pleaded Guilty

Bazarian also pleaded guilty to fraud in obtaining $9 million in loans from two Orange County thrifts--Consolidated Savings Banks and American Diversified Savings Bank. As collateral, the charges said, he used promissory notes from an AFC subsidiary. In pleading guilty, he admitted knowing that the notes were "virtually worthless." Again, AFC was not accused of complicity.

"I knew the guy enough to know that he was involved in doing some things, but we never gave him false paper," Rozet said.

That AFC was associated with Bazarian is not a fact widely known among officials who call upon Rozet for his advice in the field of low-cost housing for the poor.

Sen. Cranston, for one, explained: "We don't have any way of checking up on everybody who comes in." Cranston and Sen. Alfonse M. D'Amato (R-N.Y.) are carrying legislation that Cranston described as the Senate's main HUD reform package this year. Rozet served on a committee that recommended the contents of the bill.

Cranston has been the main beneficiary of AFC's campaign donations. Rozet and Deane Earl Ross, who each own one-third of AFC, raised almost $20,000 for Cranston's 1986 reelection campaign. Rozet and Ross gave another $10,000 to one of Cranston's political action committees last year. Others associated with AFC, including Louis A. Cicalese, a Philadelphia lawyer who owns the remaining third of AFC, have given lesser amounts to Cranston.

"I have supported Alan Cranston for 20 years," Rozet said. Cranston has been open to his suggestions, Rozet added. "What is important is to have input into the legislative process."

Toward that end, Rozet was especially active in Washington in 1986, when Congress took on tax reform. The tax code revision eliminated many deductions, including one that allowed write-offs for investments in housing for low-income people.

Rozet worked hard for the alternative--housing tax credits. HUD leadership, tenants' advocates and elected officials in both parties support the concept of housing tax credits. One of the few tax shelters left, housing tax credits ensure that investors will continue to pump money into low-income housing.

The law creating housing tax credits is due to expire in 1990. Senate Majority Leader George J. Mitchell (D-Me.) and Sen. John C. Danforth (R-Mo.) are carrying widely supported legislation to extend the housing tax credits indefinitely. Rozet served on the committee appointed by Mitchell and Danforth that issued a report in January recommending the shape of the legislation.

Syndication was easier under the old tax code, when wealthy investors could reap 100% return on their money over the life of the investment. But while the tax law revision ended the high-flying days for AFC, and many HUD syndicators, AFC retains a portfolio of 350 projects. One way it can profit is to sell the properties. And that is what AFC is trying to do with Ujima Village, the troubled project south of Watts.

If the sale goes through, Ujima will have gone full circle, from nonprofit ownership to for-profit ownership and back again.

Like many projects now held by AFC, Ujima's construction was sponsored by a nonprofit corporation intent on housing the poor. HUD insured the mortgage. The townhouse development opened with great fanfare in 1973. As envisioned, low-income people would be living there in safe, suburban-like surroundings.

By the early 1980s, however, the nonprofit corporation had fallen $2 million behind in its mortgage. In 1982, Ujima became one of a block of 66 projects, all in rough neighborhoods or in financial trouble, that were bought by Stephen D. Moses, the housing investor who recently served as the go-between for AFC and Mayor Bradley.

"It needed normal renovations that weren't being done . . . but it was not a horrible environment," Moses recalled. Moses planned to use the proceeds from syndication to upgrade the project. But in 1984, Moses sold Ujima to another HUD syndicator, who in turn sold it to AFC in 1985. Shortly afterward, AFC's subsidiary, Housing Resources, took over the daily management.

All the while, as ownership changed hands, HUD records show that conditions in the project deteriorated. Previously, Ujima was "really nice," recalled one tenant leader. But the 300-unit complex began sliding into disrepair.

To help pay for much-needed upkeep, HUD granted several rent hikes. But while rent for a one-bedroom apartment went from $270 monthly to $408 between 1984 and 1987, HUD inspectors on annual visits to Ujima rated its maintenance "unsatisfactory" in 1986, 1987 and 1989.

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