Advertisement
YOU ARE HERE: LAT HomeCollections

COMMERCIAL REAL ESTATE

Eyesore Apartments Now Looking Good

Housing shortage and rising property values have investors acquiring and rehabilitating flagging complexes.

April 27, 1999|BOB HOWARD | SPECIAL TO THE TIMES

Intrepid investors are converting some of Southern California's worst apartment buildings into profitable properties--including many complexes that were once havens for gangs and drug dealing--through a business strategy that might be summed up as "capital conquering crime."

From the smallest private investors to the biggest publicly held real estate investment trusts, buyers willing to spend heavily on renovations and pay close attention to managing their properties are turning neglected, deteriorating buildings from barely to fairly profitable and at the same time eliminating what in many cases has long been a neighborhood eyesore.

Thanks to the strong demand for apartments generated by the region's surging population and stable economy, these buyers say, landlords today can afford to invest in extensive renovations and raise rents at buildings where previous owners often struggled to find tenants and meet their mortgage payments during the recession.

One of the best examples of such a conversion is Cypress Gardens, a 102-unit complex in Hawaiian Gardens, where Irvine-based Bascom Group paid $5.3 million for the building and then spent more than $900,000, or an average of $8,800 per unit, on interior and exterior renovations.

"This was at best a [grade] 'D' building when we bought it," said David Kim, Bascom Group's operations manager.

"It was the worst property in the neighborhood. Now it's a solid 'B.' "

The building "was full of drug dealers and drug users," including gang members, when Bascom bought the complex in May, Kim said.

The company embarked on a four-step program that it follows for just such problem properties: lining up funds from private investors to buy the building and to allow plenty of money for renovations and other expenses; installing a management team to keep a close eye on the property; completing the physical renovations; and launching a "community outreach" program that includes local youth groups sponsorships, a resident watch program and close police cooperation. Sometimes the company even sets aside an apartment unit as a local police substation.

Within three months of Bascom's buying Cypress Gardens, 70% of the tenants had left. That's an unusually quick turnaround, according to Kim, who said conversions usually take a year to 18 months.

"I think the drug dealers left so quickly because they were making a lot of money there and went somewhere else where they could do business without being disturbed," Kim said. "I hesitate to put it this way, but drug dealers are businesspeople too. They don't want to be in a building where there's a lot of construction activity or where there's a lot of attention being brought to the property."

Kim said the Hawaiian Gardens apartments had a higher-than-average percentage of problem tenants (he estimated about 30%) compared with well under 10% in most of the problem properties Bascom buys.

"The majority of tenants in most buildings just want a good place to live. It only takes a small minority to create the problems that drive the building down," he said.

Rents at Cypress Gardens now average $700 a month, compared with $480 before Bascom bought it. Kim described it as a "bread-and-butter" building, a modest but well-maintained property catering to middle-income tenants.

"This isn't rocket science. People will pay the higher rents if they know you'll replace their carpets, maintain good security and provide a fresh coat of paint when it's necessary," Kim said.

As part of its turnaround strategy on such properties, Bascom works with Fair Housing Council officials to ensure that it complies with fair housing laws in setting new house rules and implementing other changes to improve properties.

The apartment complex was in poor condition before the renovation, according to Mary Irving, a Fair Housing Council executive director who worked on the Hawaiian Gardens property. Besides suffering from deterioration and lack of maintenance, she said, the property was rife with health and safety violations, including piles of trash in the parking lot and rat and roach infestations.

"Everyone who lived there was given the opportunity to stay, provided they signed a drug-free agreement and agreed to the new house rules," Irving said. "A fair number of them were either low-income families, the disabled or the elderly, so the renovations have provided affordable housing for a segment of the population that often doesn't have any place decent to go."

Renovations typically extend far beyond a mere fresh coat of paint, however, as another veteran of problem properties attests.

"We're not here to just paint the building, sell it and move on," said Bernard Ward, a senior portfolio manager at Avalon Bay Communities, a San Jose-based real estate investment trust that prefers to build new complexes but is renovating existing buildings in Southern California, in large part because of the scarcity of vacant land.

Advertisement
Los Angeles Times Articles
|
|
|