City’s old names grace trendy new residences
As stately downtown buildings of yesteryear are reborn as high-end lofts and condos, some storied pasts are being dusted off too.
By Cecilia Rasmussen
Times Staff Writer

March 25, 2007

As downtown’s new residential conversion marches deeper into old Los Angeles, architects and developers are tapping into history, paying homage to pioneers and perhaps to a tree.

Some of the building names — Brockman, Blackstone, Douglas — were practically forgotten in the years when downtown sank into decay. Now, many of the buildings are enjoying a revival as they’re converted into high-end lofts and condos. Downtown’s mostly young new residents tell one another, “I live at the Higgins” or “at the Douglas.”

Art Astor isn’t in that demographic. He’s 82, and he may be one of the few who bought a piece of downtown for reasons of nostalgia. He owns a sixth-floor corner loft in the newly refurbished Chapman Building at 8th Street and Broadway.

“My father had his law office here from 1930 to 1960,” Astor said in a recent interview. He owns four radio stations and a private Anaheim museum of vintage cars and antique radios and telephones.

Astor recalled going downtown every Saturday with his father. From the office window, he could see every theater along Broadway.

“He’d give me a dime and send me off to the movies while he worked,” Astor said.

“All of his mail was addressed to A.M. Astor at the Chapman building,” Astor said. “Street addresses weren’t necessary. Everyone knew the Chapman Building.”

His father, who changed his name from Astor Arakelian to A.M. Astor, was an Armenian who immigrated to America in 1910, at 21, to escape slaughter in Turkey, Astor said.

“His parents were killed by soldiers right in front of him, when he was about 4 years old,” he said. “He ran to a neighbor’s house and hid under her skirt. She turned him over to an orphanage, where he was educated by Methodist missionaries.”

Once in the U.S., Astor said, his father “worked as a soda jerk while putting himself through USC law school.”

The Chapman, a 13-story beaux arts building, was constructed in 1912, more than a decade before Broadway became downtown’s jazziest entertainment district, lined with motion picture palaces. The Los Angeles Investment Co. built it at a cost of $1 million. Designed by architect Ernest McConnell, the building was said to be fireproof. It has mahogany doorways, sweeping marble stairways and wrought-iron letters “LA” marking each stair railing.

“It’s built like a battleship,” Astor said, referring to the strength of the materials.

In 1920, Charles Clarke Chapman — Fullerton’s first mayor and the chief benefactor of Chapman University — bought the building for $1.6 million. The so-called Orange King of California — who built his fortune on citrus and real estate — made it his headquarters. He added bronze elevator doors ornately embossed with the letter C.

At the Chapman, “everyone advertised with gold lettering on the windows,” Astor said. But in the 1930s, business was so slow that his father “was almost swatting flies.” That is, until the day a poorly dressed elderly woman walked into his office with a brown paper bag.

The woman, whose name Astor has forgotten, told the senior Astor that every day she’d meet a man in Pershing Square. They shared coffee and muffins and became friends. One day the man didn’t show up, but someone else did: a stranger who handed her the bag. Her friend had died the night before, he explained, leaving her everything he owned. As the stranger walked away, the woman opened the bag and saw “stocks and bonds worth nearly $400,000, even in the late Depression.”

As she walked out of the park, the woman looked up and saw Astor’s name and sign on his office window — “A.M. Astor, Attorney at Law.”

“She had no idea that her friend had been wealthy, and my father became her executor.”

Greg Fischer, an aide to Councilwoman Jan Perry, wields such knowledge of downtown’s historic past that you’d think he’d lived there since the early 1900s. He can rattle off details about old buildings as if they were family.

Here are a few of downtown’s residential projects that have pioneer names:

• Brockman Building, 530 W. 7th St. In 1912, mining magnate John Brockman staked half a million dollars that 7th Street would become the heart of downtown’s shopping district. He was right. The 13-story renaissance revival building at 7th Street and Grand Avenue was designed by architect Harrison Albright. Brockman leased several floors to J.J. Haggarty clothing store.

By the mid-1920s, the sidewalks and electric streetcars were bustling with shoppers. Brooks Brothers traditional men’s clothing store anchored the building for decades.

• Douglas Building, 257 S. Spring St. Thomas Douglas Stimson, a Chicago and Seattle lumber baron, industrialist and financier, made a fortune before retiring to Los Angeles in 1890. He turned to banking, built the most expensive mansion in the city and erected a 42-room boarding house at 3rd and Spring streets, called the Stimson Block.

He dreamed of another grand office complex across the street, handing the task to San Francisco architects James and Merritt Reid, whose credits include the Hotel del Coronado in San Diego. Stimson died in 1898.

His family continued the project and etched “Douglas” deeply into terra cotta over the entrance, probably in honor of his middle name.

But it could also have been a nod to the type of tree — Douglas fir — whose wood was shipped from Stimson’s timberlands in Oregon and Washington and used to decorate the interior.

• Blackstone’s Department Store Building, 901-909 Broadway. Nathaniel Blackstone, former business partner and brother-in-law of department store founder J.W. Robinson, began building the flagship of his own emporiums in 1917.

The six-story beaux arts building at 9th Street and Broadway was designed by architect John Parkinson. In the 1920s, Blackstone hired beauty specialists to give tips on hairstyles and makeup, provided customers with mah-jongg lessons and offered classes in interior decorating and landscape gardening, according to Times stories of the era. Blackstone died in 1930.

• Roosevelt Building, 727 W. 7th St. Named for President Theodore Roosevelt, the renaissance revival office building opened in 1927. The Roosevelt was once a popular address for doctors and dentists.

Before Christmas in 1943, an aggrieved patient shot and killed his surgeon, then killed himself. In 1946, the state Supreme Court ruled in Hunt vs. Authier that the slain surgeon’s heirs had the right to collect damages from the killer’s estate. Victims’ families have filed wrongful-death suits ever since.

By ALEX VEIGA AP Business Writer
News Fuze
Article Launched:03/16/2007 02:04:31 PM PDT
LOS ANGELES- For years, mortgage banker New Century Financial Corp. was flying high amid the strong housing market and a seemingly insatiable demand by borrowers for sub-prime home loans to chase the American Dream.

Riding historically low mortgage interest rates, the Irvine-based company became the second-largest provider of expensive home loans to borrowers with less-than-perfect credit.

Just four months ago, CEO Brad A. Morrice gave a roundly positive outlook at an investors’ conference.

Despite acknowledging the growing challenges of sub-prime lending, Morrice said it was “an excellent business for the long term.”

“We don’t have a great crystal ball. I can’t tell you when everybody gets healthier,” he said. “What I can tell you is we’re going to be there when it happens and ready to profit on the next up cycle.”

Now, faulty accounting and rising mortgage defaults have left New Century on the brink of bankruptcy. Its stock has collapsed and creditors are pressuring it to buy back billions of dollars in loans.

“They don’t have the liquidity to operate the business,” said Matthew Howlett, an analyst with Fox-Pitt, Kelton in New York. “Clearly, it’s in rough shape.”

New Century was founded as a mortgage lender in 1995 by Morrice, Robert K. Cole and Edward F. Gotschall.

Its primary focus was providing sub-prime loans that it then sold to investment banks, using that revenue to fund more consumer loans. In 2003 and 2004, Fortune magazine listed New Century on its list of 100 fastest-growing companies.

Like other sub-prime lenders, New Century profited during the real estate boom, when appreciation rates soared and equity protected most homebuyers from defaulting on their loans. Most could simply refinance or sell homes at a big enough profit to pay off mortgages and move on.

Investment banks also jumped in, eager to buy loans from sub-prime lenders then slice them up into bond products to sell on Wall Street.

“New Century was the prime beneficiary of it, as they were sort of in the sweet spot, having the sales force out there to capture the growing market,” Howlett said.

That helped New Century stock hit its historic high of $65.95 in December 2004. Its earnings a year later also reflected a company that was riding high, despite mounting concerns over the weakening housing market. New Century posted net earnings that year of $411.1 million, or $7.17 a share, up from $375.6 million, or $8.29 a share, in 2004.

Its loan production for 2005 hit a record $56.1 billion as it racked up four consecutive dividend increases. However, it held off on providing Wall Street with full-year guidance for earnings per share or loan production.

By 2006, the housing downturn had led to weaker price growth and even declines in some pricier markets. Homeowners were left with few options if they fell behind on payments.

Default rates and foreclosures shot up as a result. New Century, like other sub-prime lenders, began to see loans go bad.

That spelled trouble, as New Century’s deals with investment banks required the company to buy the loans back if borrowers default early in the loan.

“Now that housing is flattening or declining, all the problems in the industry are coming to the surface,” said Chris Brendler, an analyst with Stifel Nicolaus.

Despite the faltering market, New Century’s financial reports showed continued profitability through 2006.

Morrice hinted in November that he wasn’t thrilled with its third-quarter performance, but he reassured investors that New Century was nevertheless on sound financial footing.

A company statement boasted it was able to “add liquidity, add financial strength,” even though it expected loan repurchases to increase.

“As we look at our own situation, we feel, despite the challenging market, that we’re very well positioned to compete and continue to profitably grow market share,” Morrice told investors at the time.

On Feb. 7, the outlook changed drastically.

New Century informed the Securities and Exchange Commission that it would have to restate financial results for the first three quarters of 2006. The problem: The company had failed to accurately tally losses from loan repurchases.

Earlier this month, the company said it be unable to file its annual report on time, but advised it expected earnings for 2006 would be significantly lower than previously reported.

This week, New Century revealed its lenders had cut off funding or announced their intent to do so. It also said it did not have enough capital to pay outstanding loan repurchase obligations.

The company also stopped accepting new loan applications.

Speculation grew on Wall Street that the company could be close to filing for bankruptcy protection as its creditors began demanding payments. The apparent financial meltdown spurred several analysts to change their outlook on New Century stock, advising investors to dump it.

On Monday, the New York Stock Exchange halted trading of New Century shares and said it would seek to have the company’s stock delisted from the exchange.

The company’s stock has tumbled 96.8 percent since its 52-week high of $51.97 last May.

It also faces federal probes by the SEC and the U.S. Justice Department. And shareholders, angry over their losses and alleging mismanagement by the company’s directors and officers, have fired off several lawsuits.

“Most likely, the final outcome will be determined in a bankruptcy type auction,” Howlett said. “Clearly, it’s going to be bid out and segmented.”

Gregory J. Wilcox, Staff writer

Most of the big home sales and price reports for the first month of 2007 are in, and this year is looking a lot like 1996, sort of.

Home sales will probably stay under the 1,000 level every month this year, just like they did in 1996.

Price is where the two years differ though.

Back in 1996 the year started with the median price home of $164,000 in the San Fernando Valley. This year started with a price 273.8 percent higher - $613,000.

OK, one month doesn’t make a trend, but the evidence seems compelling that at least sales in 2007 will more closely track 1996 than any other year.

Since 1984, every year but five has featured at least one month when Valley residents bought 1,000. And 2006 was one of those five years.

“When we get to the end of this year, our feeling is we’ll find a market with about the same sales as last year and the median price up 5 or 6 percent,” said Jim Link, executive vice president of the Southland Regional Association of Realtors in Van Nuys.

Home sales have now fallen for 16 consecutive months, though January’s was the smallest decline of this current down market.

The numbers now hint that the biggest price declines are behind us.

“I think quite honestly we have enough time under our belts to realize that this is a trend, and it’s going to continue this way,” Link said. “The market seems to have found a level.”

Daniel Blake, director of the Economic Research Center at California State University, Northridge, concurs.

“The sales were going to drop, then sort of level off. That’s what it looks like to us.”

There’s still weakness in the market, though.

Blake said that notices of default, the first step in the foreclosure process, are about 30 percent higher than a year ago.

The actual foreclosure rate, in which a person loses a home, is about one in four.

The California Budget Project notes that the slump has already taken a toll on some real estate-related sectors.

Last week it issued a report showing that the slowdown is having a like impact on personal income growth and consumer spending.

It’s not doing any forecasting, though.

“We look at the past, we don’t predict the future,” said Jean Ross, the project’s executive director. “The take-home message for us is when you look at the housing sector’s contribution to job growth in the early years of the decade and look at the current environment, there are widespread implications.”

For example, in the decade’s first five years, 61.7 percent of California’s non-farm job growth came from three housing-related industries - residential construction, residential speciality trade contracting and real estate. But they accounted for just 3.7 percent of the state’s jobs.

In the preceding five years, these three sectors accounted for 6.8 percent of California’s job growth, the report said.

And the surge of housing-related jobs from 2000 to 2005 helped offset weakness in other sectors.

The report also found that job growth slowed last year, reflecting a deflating housing market, and it dampened the nation’s economic growth.

This news didn’t resonate with everyone, though.

“This is sort of, `OK, we know this news. Why bother?’ is sort of my response,” said Jack Kyser, vice president and chief economist at the Los Angeles Economic Development Corp. “Construction employment has slowed, but you are seeing other sectors pick up the beat.”

Kyser said some big nonresidential construction projects are now under way (l.a.livenext to Staples Center) or recently approved (Grand Avenue project downtown) and this will ease the pressure from the housing slowdown.

And Stephen Levy, director of the Center For Continuing Study of the California Economy, doesn’t see long-term fallout from the housing market slowdown.

“I think that is a problem for this year. I think we will see some job losses, but what’s been fortunate so far is that throughout the state we’ve been able to offset them,” he said.

In other words, sales may continue at an anemic pace but the patient will eventually recover.

It’s the “when” that remains unclear.

BY JACOB ADELMAN, Associated Press
LA Daily News
Article Last Updated:01/13/2007 01:31:53 AM PST

Far from her home in South Korea, Choung Yang-suk just bought a condo in Los Angeles, where she plans to retire in a few years to be near her two grown children.

Choung is among a growing number of Koreans scooping up real estate in the United States and elsewhere after the overseas investment cap in their country was lifted.

Koreans are expected to invest nearly $2 billion in U.S. residential property in 2007, up from $1.27 billion in 2005 when such investments were mostly limited to large Korean corporations, said Brian Shaffer of the International Real Estate Trade Organization.

Worldwide, Koreans could spend at least $4 billion on overseas homes in 2007 as a result of the changes made in May that allow an individual to make as much as $1 million in foreign investments, analysts said.

Many of the purchases are being prompted by the strength of South Korean currency - the won, pronounced like “one” in English - against other currencies, analysts said.

Much of the money will likely be directed to U.S. cities with large Korean populations, including San Francisco, New York and Atlanta as well as well as Los Angeles, to take advantage of the weakening U.S. housing market.

Observers said the lion’s share of the money will be invested in Los Angeles, with its large Koreatown and one of the world’s largest Korean populations outside the Asian nation.

“It could very well release a tidal wave of investment into Southern California, particularly Koreatown,” said Peter Morrison, a demographer with the Rand Corp., who has studied homebuying patterns among immigrant groups.

Investors are snatching up properties as long-term investments or as future homes for themselves.

For Koreans with family members in Koreatown, buying homes in the district two miles west of downtown Los Angeles is particularly attractive. The swath of five square miles features hundreds of Korean-owned businesses. Few English-language signs are visible along the wide boulevards.

“Koreatown is very convenient for me since I only speak Korean,” Choung said through an interpreter. “This is where my people live, and I can go to the market or shops without speaking English.”

Southern California also has an abundance of banks and brokers catering to Koreans to aid in purchases.

One Koreatown-based lender, Wilshire State Bank, created a special division for overseas borrowers and has closed its first mortgages since the investment caps were lifted, bank executive Gene Sheen said.

Sheen met the borrowers at investing seminars he stages in Korea.

Until May, Korea enforced tight investing rules to stem capital flight after the Asian financial crisis of 1997. Only large firms and individuals with special permits could buy property abroad.

But with South Korea’s won now near nine-year highs of about 930 to the U.S. dollar, government officials have decided to encourage Koreans to spend money abroad, hoping to take some air out of the currency to benefit exporters.

This year Korean officials intend to allow citizens to invest as much as $3 million in overseas property. If President Roh Moo-hyun gives his approval, caps would be dropped altogether by 2009.

That could free up even more potential buyers for the roughly 1,500 condo units now on sale or planned as part of a Koreatown construction boom. Many of the units are part of high-rise complexes resembling condo complexes in South Korean cities.

The Martin Group, developers of the 1100 Wilshire building in nearby downtown Los Angeles, has sold about 40 units to Korean buyers since the investment caps were changed, said Ki Ryu, a director for the company. Planners have overseas Korean investors in mind as they map out future condominium projects in Koreatown.

By DEBORAH CROWE - 1/1/2007
Los Angeles Business Journal Staff

It was one of the strongest years for U.S. public markets since the dot-com crash – and L.A.’s community of mostly small and middle market public companies in 2006 more than held their own.

Skechers U.S.A. Inc. was the only company with a billion dollar-plus market cap to see percentage share gains in the triple digits. But others weren’t far behind, such as DirecTV Group Inc., which rose steadily on improved revenues from a strategic turnaround to end the year up 77 percent.

Of course, there were more than a few duds, and some big ones at that. Once high-flying homebuilders such as KB Home saw their shares fall by almost a third, mirroring a slowdown in the housing market. And even a long-term stellar performer such as Amgen Inc. suffered the big pharma blues as questions abounded about its long-term growth prospects.

Still, as of the close of trading on Dec. 27, local stocks measured by the LABJ 200 Index rose 18 percent for the year, narrowly beating the Dow Jones industrial average’s 16 percent gain and leaving the Nasdaq Composite Index’s 9 percent appreciation in the dust.

And barring a catastrophic event that sends financial markets into a tailspin, this year is likely to be similarly healthy for growth.

“You also saw a lot of turnarounds that had been in the works for a couple of years, especially post-dot-com bubble, that are showing results this year,” said Ken Tang, director of institutional sales for B. Riley & Co. “As long as that continues and the M&A activity keeps up we should have a good year next year too.”

In addition to a thriving mergers-and-acquisition environment that helped drive the markets’ growth, companies based in Los Angeles’ diverse regional economy benefited last year from increased defense and homeland security spending, record import-export business at the ports and a hot commercial real estate market.

Shares of busy Torrance aerospace contractor Hi-Shear Technology Corp. tripled – the best performance of any local company trading above $5 a share. Hi-Shear’s stock reached as high as $18.90 before falling victim to profit-takers, ending the year at around $9.

More typical of the top gainers was Los Angeles-based PeopleSupport Inc., which was only a few years old when the market crashed. It struggled in the early part of the decade before turning around its global outsourcing service business.

The company, which provides a variety of business services such as accounts receivable, made two January acquisitions that enabled the company to gain more than 150 percent this year to trade at $21.62. It separately acquired companies providing fast-turnaround transcription and captioning services in 15 languages.

PeopleSupport, with its $483 million market cap, is among the lucky small- to mid-sized companies to attract the attention of Wall Street analysts; 11 firms cover it. That attention helps support enough trading volume for a reasonably healthy market in its shares.

New blood in the executive suite also paid off in exciting investors. A revitalized Walt Disney Co. ended the year up more than 44 percent to $34.54. The smooth transition from the Michael Eisner era to his hand-picked successor Robert Iger led to accelerated new media initiatives. And Iger’s success in mending fences with longtime creative partners such as Steve Jobs enabled Disney to juice up its flagship animation division with the acquisition of Job’s Pixar.

Sector struggles

Meanwhile, the diverging fortunes of the residential and commercial real estate markets could easily be seen in performance of local public companies in those sectors.

The weakening home sales market contributed to 29 percent and 25 percent declines respectively for homebuilders KB Home and Ryland Group Inc. That was largely responsible for a 13 percent decline in the construction-engineering sector that not even a 22 percent jump in the shares of Jacobs Engineering Group Inc. could counter. Jacobs, like Hi-Shear announced a succession of government contracts during the year.

It was a far different story in the local commercial real estate sector, dominated by real estate investment trusts, property management companies and brokers. That sector saw 65 percent appreciation for the year. Typical was CB Richard Ellis Group. Inc., which capped a string of acquisitions by swallowing Houston institution Trammel Crow Co., and saw its stock rise more than 70 percent over the year.

Even the county’s largest companies saw strong share appreciation this year, with only Amgen and energy utility Edison International among the 10 largest by market cap not to see double-digit gains for the year.

In fact, Amgen lost ground and that made the biotech-pharmaceutical sector the area’s biggest loser, shedding 16 percent. It joined only five sectors among the 18 different industry categories that comprise the LABJ 200 Index to post negative returns.

Amgen, whose stock gained 24 percent in 2005, was on track to end 2006 down 13 percent. Amgen suffered because it could not meet Wall Street expectations for returns more in line with a small, fast-growing tech than the mid-size pharmaceutical company it has become.

A similar drag on the sector was Abraxis Bioscience Inc., the area’s second largest biotech, whose stock was down 28 percent for the year as the market showed impatience at lagging sales growth for its lead cancer drug.

Only two of 12 companies in the sector – drug developer MannKind Corp. and nutritional supplement maker Natrol Inc. – saw their stock appreciate during the year. MannKind’s gains this year have largely been driven by heightened expectations for an inhaled insulin system that has yet to receive FDA approval.

Energy and utilities was in the middle of the pack among the sectors, showing a 21 percent growth as a whole.

Occidental Petroleum Corp. was in line with that average, riding the wave of record-high oil prices to end the year just under $50 a share, a 24 percent gain. But energy utility Edison, whose shares rose 34 percent in 2005, saw only 5 percent appreciation in 2006, now trading at around $46.

Edison, the parent of electric utility Southern California Edison, has seen lackluster earnings and faces a variety of risks from rising natural gas prices, a vulnerable regional power grid and potentially costly state regulation of greenhouse gas emissions.

By David Streitfeld
Times Staff Writer

December 11, 2006

EVERY day, Will Hertzberg owns a little less of his three-bedroom house in Corona.

Like hundreds of thousands of other homeowners around the state, Hertzberg has a mortgage that lets him choose how much he pays each month.

Like many of them, he always chooses to pay as little as possible.

For the moment, this allows the 56-year-old Hertzberg to continue living in his tract home despite being only marginally employed. But his debt is swelling, and his mortgage company controls his fate.

“I am rather screwed,” he said.

Alarmed regulators recently have attempted to force lenders to cut back on loans like Hertzberg’s. Even some industry executives are beginning to wonder how these borrowers will handle their added debt, especially if housing prices stay flat or fall.

If it turns out that many can’t, it would be a major blow to the housing market. In the worst outcome, it could drag down the overall economy.

Hertzberg could sell now, but his lender would charge him an $11,034 prepayment penalty — money he doesn’t have. Yet if he stays, the housing market may tank, vaporizing what little equity he has left.

“I made choices, and they happened to be the wrong choices,” said Hertzberg, a big guy who lives alone amid the clutter of decades of memorabilia.

The real estate boom of the last few years has made it very easy to become overextended.

Earlier generations bought houses knowing they had no choice but to keep paying at the same rate for three decades. Their reward: the ability to sleep well, knowing their payments wouldn’t abruptly adjust upward.

As interest rates rose in the early 1980s, many borrowers couldn’t afford these traditional loans. Lenders responded with adjustable mortgages that offered lower introductory rates.

A few years ago, as home prices began escalating sharply, lenders pushed loans that let the homeowner pay only the interest for an initial period.

When even that was too onerous for some borrowers, they offered loans such as Hertzberg’s, often called “pay option” loans.

One of his options is to pay $2,513 a month. That would cover the principal and interest as if it were a traditional 30-year loan.

A second possibility is to pay $2,279, which would cover only the interest.

But each month he always takes the cheapest option: paying $1,106 and promising to make up the shortfall later.

Essentially, option loans are bets that good things will happen. Maybe the mortgage holder will get a big raise, or sell a script to Hollywood, or inherit a chunk of change. When the borrower has to start paying off the loan in earnest in five years, the plan is that he or she will somehow be able to handle it.

At a minimum, the borrower is betting the housing market will be better in a few years than it is today. If the house goes up in value, it will be possible to refinance and the day of reckoning can be put off once again.

In 2003, only about 8 of every 1,000 people buying a home or refinancing a mortgage in California got a pay option loan, according to San Francisco-based data tracking company First American LoanPerformance.

Last year, 1 in 5 loan applicants got one.

In the first eight months of 2006, even as the real estate market began to weaken amid fears of a downturn, the appeal increased again. Nearly 1 in 3 California loan applicants are now choosing them. The state boasts about 580,000 active pay option mortgages, about half the U.S. total.

After four years of escalating prices, they’re the only way some first-time buyers can get into the market. But another group flocking to option loans are homeowners who find themselves stretched. For those beset by calamity, these are the loans of last resort.

HERTZBERG bought his house 11 years ago for $129,995, immediately after his second divorce. (He has no children.) Since then, Corona and the Inland Empire have boomed.

Comparable homes in his neighborhood fetch more than $400,000. With fresh paint and a few repairs, Hertzberg could probably sell his place for $275,000 more than he paid.

He would see little of that, however, because he’s already seen so much. Over the years he has taken out $190,000 in cash through refinancings.

Hertzberg’s home equity paid off his credit cards, financed trips around the world that allowed him to indulge his passion for photography, bought a $32,000 Toyota Avalon and enabled some lousy investments. He bought dot-com stocks and lost money. To recoup those losses, he bought commodities — and lost money faster.

“Free money always has the unfortunate effect of making people go overboard,” said Hertzberg, whose living room is strewn with financial publications including American Cash Flow Journal and Donald Trump’s “How to Get Rich.” “You’d be surprised how fast $190,000 can go.”

The money wasn’t really free, of course. It just seemed that way, the result of a radical shift during the last decade in how people view their homes.

“Homeownership has become like auto leasing, where the price of the car doesn’t matter,” said Rick Soukoulis, chief executive of LoanCity, a San Jose lender that funded $7 billion in mortgages in 2005. “All that matters is the size of your monthly payment.”

Lenders say these new loans are all about payment choice, but Hertzberg is far from the only borrower who invariably chooses the smallest payment option. Washington Mutual Inc., which has one of the nation’s largest portfolios of pay option loans, said 47% of its borrowers in this category last December took the minimum option.

Few people intend to become deeper in debt every month. Hertzberg certainly didn’t.

“I assumed my future and my retirement would be taken care of by the company I worked for,” he said. “I trusted corporate America.”

He used to make a six-figure income selling vacation packages to corporations that would use them as customer incentives and employee bonuses. After the 9/11 terrorist attacks, the business soured.

His current sources of income include selling comic books on EBay and freelance photos to golf and travel publications. “Once you’re over 55, what employer wants to hire you?” he asked. “I’m a dinosaur.”

Last fall, he went to a mortgage broker and refinanced again to make his payments easier to bear. He thought he would have a five-year window before the principal started coming due.

But the day of reckoning is arriving early. By paying the minimum, Hertzberg has increased the size of his loan in a little over a year from $320,000 to $332,616. His lender, Calabasas-based Countrywide Financial Corp., recently sent him a letter warning that when his loan hits 115% of its original size he’ll run out of credit with the company.

That will happen in about two years if he continues to take the smallest payment option. Then his minimum payment will automatically go up 150%, to $2,848 a month.

“If I could afford that,” he said, “I wouldn’t have needed this loan in the first place.”

It’s a sorry situation, and Hertzberg is generous in assigning responsibility for it. To start with, he blames his mortgage broker, who didn’t advise him how risky these loans were.

Few brokers do, U.S. Comptroller of the Currency John Dugan says.

In an October speech, Dugan said the marketing materials for payment option loans often “emphasized the low initial payments but glossed over the likelihood of much higher payments later.” He also said some lenders were not evaluating the borrowers’ ability to handle the inevitable higher payments.

Although Dugan and other regulators are taking steps to address both problems, Hertzberg said they never should have allowed these loans to become so prevalent in the first place.

“The government wanted to keep the housing party going,” he said.

Yet who didn’t want that? Hertzberg admits he was a willing co-conspirator.

“I got spoiled and complacent and was not prepared when the bottom fell out,” he said.

COUNTRYWIDE sees little risk of widespread foreclosures, saying its pay option customers have good credit scores, indicating a high degree of financial stability. But at a company investment conference in September, Chairman Angelo R. Mozilo seemed to indicate that these borrowers might be naively optimistic.

“The average age of our borrowers is about 38 years old,” Mozilo said. “They have never in their adult lives seen values going down. The concept is alien to them.”

Just how many of these homeowners will end up in trouble is the big unknown for the housing market and the economy. Although many economists expect the loans to prompt a certain degree of turmoil, they don’t think it would cause a recession.

Hertzberg is much bleaker. He’s become a connoisseur of doom, a subscriber to websites and newsletters that predict the economy is headed for both recession and inflation.

The bears’ speculation: A rapid increase in foreclosures will flood the market with cheap homes, putting all of real estate into a tailspin. That would push up unemployment among builders, lenders, home improvement warehouses and furniture stores. That, in turn, would stall the economy, which is already slowing.

Although Hertzberg has lost his complacency, he hasn’t been compelled to act.

He estimates it would cost about $22,000 to fix up his house for sale, and he’d have to upend his life. The sales agent would take another chunk of money, and he’d have to undercut the crowded market to secure a buyer. Texas and Panama, two places he has thought about moving, aren’t so appealing that he wants to be broke there.

When the year-over-year appreciation numbers in Corona start heading down, he says, he’ll do something.

If Hertzberg is living on borrowed time, there’s small comfort in the home finance industry’s endless inventiveness. It’s certainly trying to tempt him. Several times a week, he gets a refinancing offer in the mail.

The latest one suggested a certain unfamiliarity with basic English, proclaiming, “Economic forecast suggests you Interest Rate will increase 1.00% every six months.” But its central message was clear: “We can solve your problem in 15 minutes over the phone.”

Hertzberg always looks at these fliers, hopeful in spite of himself. “I’m waiting for a 100-year loan,” he said. “My heirs can worry about paying it off.”

BY GREGORY J. WILCOX, Staff Writer
LA Daily News
Article Last Updated:11/18/2006 10:01:33 PM PST

Over the summer, John Toole put his Woodland Hills home on the market for $1,695,000 and waited for a rush of prospective buyers.

And waited, and waited and waited.

So he offered a 15-day Hawaiian Islands cruise for two to the agent representing the buyer to stimulate some interest. And Toole waited some more.

He eventually slashed his asking price by $100,000. Nothing changed.

“It didn’t bring anybody around. Nothing. The market is absolutely dead,” Toole said. “I was amazed.”

He’s taking the house off the market when the listing contract expires next month.

Toole’s experience, sagging sales and scant year-over-year price appreciation offer proof that the boom market of the late 1990s and first half of this decade is over.

The number of “For Sale” signs across the San Fernando Valley soared earlier this year and many now feature “Price Reduced” banners. Monthly sales of houses and condominiums have been consistently about 20 percent below their 2005 levels, and prices are now increasing by the smallest amount in years.

Home sales counts have totaled fewer than 1,000 units every month since October 2005. And the year is expected to end that way for the first time since 1996.

And while the median home price - the point at which half the units cost more and half less - peaked at a record $625,000 this June, it has been bouncing around between the high $500,000 to low $600,000 range for 15 months.

At some point, possibly this month or next, many expect the median home price to fall below its year-ago level for the first time since March 1996.

One thing is certain: The last two market cycles are like none in recent Valley history. This boom has been longer and stronger than its bust.

The bust

The previous boom market peaked in 1988, when a then-record 15,263 houses changed owners, a 14.5 percent annual increase.

In 1988 the median price increased a record 32.1 percent to $195,708. The price record for that cycle came the following year when it twice hit $245,000. But 1989 also saw sales fall 16.4 percent.

The price slide began in 1990 when the median for the full year fell 2.4 percent. The full-year average median price then fell for seven consecutive years.

Starting in March 1992, the median price fell on an annual basis for 37 consecutive months. In November 1995, it dipped to $155,000, the low point in that down market, 36.7 percent below the old record high.

The boom

The sale upturn began in 1996 with a 7.6 percent annual increase. Sales then increased for three consecutive years, the biggest being a 14.7 percent gain in 1998.

Prices took off in 1997 when the full-year median increased 3.4 percent. Since then it has increased annually for 116 consecutive months.

Price gains far outstrip the loss of the early 1990s. From its low point in 1995, the median price skyrocketed 303.2 percent to a June 2006 record. It is up 293.5 percent through October.

From the prior boom market record, the median price is up 149 percent.

But October’s sales total of 771 houses is the lowest for that month since 1992.

So is this the 1990s all over again?

“It feels exactly the same,” said Realtor Raquel Magro of the Northridge office of Pinnacle Estate Properties Inc.

Magro has been selling Valley houses and condominiums for 24 years and has seen both bust and boom.

“In my opinion, prices are adjusting themselves to 2005. And what I’m seeing is that anything under $450,000 is selling, even with multiple offers. That seems to be the price for affordable housing in the starter market.”

She also saw another change last week. Magro specializes in foreclosed properties and last week a lender hired her to market a Burbank condominium priced at $519,000.

The owner who lost the condo paid $530,000 in September 2005 and it was being rented out at the time of the foreclosure, Magro said.

Buyers are still setting high asking prices and it usually takes three cuts to trigger a sale.

Some buyers who tried to time the price peak now are simply taking their properties off the market until things pick up again, Magro said.

To Jerry Carlisle, who has been inspecting properties for 20 years, the current climate has a sense of d j vu.

His business has been down by as much as 35 percent since the sales slide started.

“I’m concerned with it. I think it’s an indication of a down trend in the market that may be here for some time, but I have no way to predict that,” he said.

Part of it is the market and that there is more competition from other inspection firms now.

“A lot of it has to do with the time of year. When school starts again, you have fewer people selling their homes,” he said.

Carlisle has stepped up his marketing, going out and meeting Realtors, speaking at office meetings and sending out brochures.

But he is not turning bearish on the residential real estate market. Not just yet.

“I think that the real estate market in the Los Angeles area will be very good. The reason for that is the people that hire me, 25 percent are from the L.A. area and the others are from other parts of the world. So there is demand,” he said.

Market’s turn

Jim Link, executive vice president of the Van Nuys-based Southland Regional Association of Realtors, said the market has definitely made a turn.

But this slump likely won’t bring a twin whammy of falling sales and collapsing prices.

The last two market swings were not exactly normal, either.

“I would say that it is the longest sustained boom market since I’ve been here and I definitely think it lasted longer than anyone expected,” he said.

Industry officials and analysts had predicted as long ago as two years that sales would soften and prices would flatten.

But the market kept going until late last year.

“What we’re getting now is that correction,” Link said.

It seems to take more than a sales decline to tug down prices. When sales plunged in 1990 the median price eased down.

But that came after the Cold War ended and huge defense spending cuts wrought massive job losses in the aerospace sector, which was then a dominant component of the Los Angeles area economy.

Many of those jobs moved to other parts of the country and people followed them. Many of those who lost jobs also lost their homes, foreclosures spiked and the real estate market tanked.

The long boom that followed the early 1990s’ collapse began unwinding in 2004, when sales decreased an annual 4.3 percent. The median price though, increased 26.3 percent, the second-biggest on record in the association’s database dating back to 1988.

Last year, sales decreased 3.7 percent, but the median price gained 20.1 percent.

This year’s sales decline will be in the 20 percent range and the median price gain in single digits percentage wise.

L.A.’s economy

This down market will probably not end up like the 1990s for one reason: the economy.

It’s on much firmer footing now.

Daniel Blake, director of the San Fernando Valley Economic Research Center at California State University, Northridge, has noted that the local economy has a broader base and is expected to add jobs over the next several years.

Job growth can help mute downward price pressure from sagging sales. And the housing market sailed right through the recession in the early 2000s.

When this boom started no one guessed it would last this long. Prices have stayed in a fairly narrow range for more than a year and sales have been falling from their year-ago level for the past 12 months.

But while no one can say how long this slump will last, Blake seems certain about future Valley housing markets:

“I think they will cycle less violently,” he said.

$1 billion bond measure may spur massive projects
BY KERRY CAVANAUGH, Staff Writer
Article Last Updated:11/01/2006 01:16:17 AM PST

At the bottom of the Nov. 7 ballot is a $1 billion affordable-housing bond measure that could spur a massive, publicly funded building boom in Los Angeles over the next decade.

Measure H - the biggest bond in the city’s history - also touches on some of the controversial issues of development, density, homelessness and population growth.

Supporters argue that its passage would allow the city to coherently address those issues by concentrating denser, below-market housing near transit lines and moving transients from Skid Row into supportive housing complexes.

“Think about this, a billion-dollar investment in housing with a $6 billion economic impact. We’ll see the face of the city change before our very eyes. We’ll reconfigure what our city looks like,” Mayor Antonio Villaraigosa said last month at a housing summit to promote Measure H.

“It’s an incredible opportunity to remake Los Angeles.”

The measure would cost property owners roughly $15 per $100,000 of assessed value - about $53 for a $350,000 home, and $75 annually for a median-priced $500,000 home.

And that bothers Walter Moore, a real-estate broker and high school teacher who is among the most vocal opponents of Measure H.

“I don’t see why I have a duty - having worked hard and saved to buy a home - to work harder to pay for other people,” he said.

“It really boils down to what is your vision for the future of the city. Do we tax everyone who lives here to accommodate everyone who wants to live here?”

Too expensive

With the average monthly rent in Los Angeles at $1,500, low-income units are priced according to tenant income, with sample rents ranging from $400 for a two-bedroom apartment to $950 for a four-bedroom unit.

“At times, people don’t really remember there are security guards, food service workers, bank workers and a whole lot of people not served by our current housing situation. That’s why we’ve targeted this more to the less well-off, lower-income workers,” said G. Allan Kingston, president of nonprofit housing developer Century Housing and a co-chairman of the Homes for L.A. Families campaign committee.

Kingston and others say Los Angeles is suffering a housing crisis because not enough homes have been built over the past decade to meet population growth - and the homes that are available are too expensive for most Angelenos.

Housing need

Just 20 percent of Los Angeles residents can afford to buy today’s median-priced, $500,000 house.

Still, the need for affordable housing is much greater than the 10,000 units the Measure H bond would provide, said Valley Village resident and apartment owner Victor Viereck.

“There’s so much more demand for what is there. You can’t overcome that by subsidizing things,” said Viereck, who sat on the city’s housing task force in the late 1990s.

“You’re taking from other people who need the money, from a lot of people who are struggling and there’s a relatively small percentage of people who would get the benefit.”

Plus, the city has lost more than nearly 12,000 affordable, rent-controlled units over the past five years as property owners demolished buildings to develop condominiums or converted rental apartments to condos.

Supporters acknowledge that government assistance will still be needed for low- and moderate-income residents despite the cooling real estate market and construction of more market-rate units.

“You cannot provide low-income housing without a subsidy. In a city like Los Angeles, which has very high land prices, you can’t even come close on a low and moderate income,” said Michael H. Schill, dean of the UCLA School of Law and an expert on housing policy.

But skeptics counter that Los Angeles, state and federal governments already fund Section 8 rental assistance, low-income housing subsidies and first-time homebuyer programs.

Plus, there are 626,000 rent-controlled units in the city.

“We’re doing plenty now to help, but if you’re hellbent on spending money on the poor, take the city’s tax revenues and spend some of that on Section 8,” said Moore, who signed the ballot argument against Prop. H along with anti-tax groups.

“Three quarters of the (bond) money goes to developers, the rest you’re taking money to pay for homes for yuppies.”

Developer view

Developers scoff at the idea they’ll make big bucks building low-income housing.

“All the tax-credit people and affordable-housing-credit people, their profits are regulated by the state and federal government,” said developer Jeff Lee, who builds condos and houses for low-income and market-rate buyers.

“This is not a get-rich-quick scheme by building affordable housing. Most of these people would be better off if they went to Palmdale and built $250,000 tract homes.”

And supporters note that Measure H also would require regular audits and an oversight committee appointed by the mayor and council president to advise the Housing Department on how to dole out dollars.

The measure also promises criminal penalties for misuse of the funds.

Bond supporters say the Housing Department has a good track record of managing the Affordable Housing Trust Fund, and every Los Angeles dollar has been matched by $4 to $5 in private, state and federal dollars.

“It’s one of the most successful government programs that we can look to in Los Angeles, and third parties, like the state, reinforce how well we’ve done,” said City Council President Eric Garcetti.

More importantly, Garcetti said, the trust fund created a transparent, point-based system to award funds, which took politics and influence out of the selection process.

“Quite frankly, if it had been the Housing Department with that money 10 years ago it would have been `Who do you know?’ It was very political,” Garcetti said.

“It’s a really clean process now.”

However, there hasn’t been a full, independent analysis of the trust fund in recent years. City Controller Laura Chick is auditing the trust fund, but her review will not be complete until later this year.

Spending history

Records show that since 2003 Los Angeles has spent $183 million in city and federal funds to help build and rehabilitate 4,679 rental units in 79 projects.

The trust fund generally has paid less than 20 percent of the total construction cost and most developers have received between $1 million and $6 million from the fund, depending on the size and cost of their building.

So far, most of the money has been spent in downtown, Central, East and South Los Angeles, in neighborhoods with lots of low-income residents and rundown rentals.

Roughly 12 percent of the funds have been spent on 12 projects in the San Fernando Valley, largely in the communities of North Hills, Pacoima, Van Nuys and Canoga Park.

In Van Nuys, L.A. Family Housing received $2 million from the Affordable Housing Trust Fund to build the 30-unit Cecil Younger Gardens apartment house on a vacant lot.

The nonprofit paired that with $2.3 million in tax credits, $1.4 million from the state housing bond, and other sources to cover the $7.2 million project.

The result is a clean, modern building with roomy apartments, a play area, and a child-care center.

Pilar Luna and her three children were crammed into a one-bedroom North Hollywood apartment before they were accepted into Saticoy Gardens.

Now they enjoy a brand-new unit with three bedrooms - enough room to play hide-and-seek in the apartment, 9-year-old Brandon Luna joked.

“When I saw the apartment for the first time, I cried,” Luna said recently. “We were uncomfortable and life was stressful before. This is good for my kids.”

Remodeling: It’s all about timing
By Dian Hymer
Inman News

October 1, 2006

Many people think that fixing up a house is a sure way to make money when they sell. Yet, homeowners are often disappointed when they find that their renovations don’t add as much to the value of their home as they cost.

There are several factors that determine whether a remodeling project will be profitable. One is where you are. For example, it costs less in the Midwest than in the West to replace windows with high-end dual-pane ones. But the homeowner who lives in the West is likely to recoup more than 100% of that investment, while the Midwesterner will probably only recoup about 84%, according to the annual 2005 Cost vs. Value Report published each year by the National Assn. of Realtors in conjunction with Remodeling Magazine.

Another variable is the rate of appreciation, which also varies over time and from place to place. Generally, the last five years were a good time to remodel. For example, if you bought a fixer-upper in the San Francisco Bay Area in 2000 and enhanced it with cost-effective improvements, you probably realized a healthy profit if you sold in 2005.

Let’s say you pay $300,000 for a fixer. According to the Cost vs. Value Report, improving curb appeal — such as adding new siding and windows — and kitchen and bathroom projects consistently have been high-return investments in most markets. So you concentrate your efforts on these high-performing improvements and spend $50,000 sprucing up the property. After the renovations, the house has “cost” $350,000. The market appreciates at a rapid clip — let’s say 10% per year from 2000 until 2005. Your property is now worth $563,678. If you had not done the renovations, your property would only be worth $483,153 or $80,525 less.

By making the improvements, you not only enhanced your enjoyment of the property while living there, you received an added bonus of more than $80,000 in appreciation on a more valuable asset. This assumes that the appreciation rate is constant across price ranges.

Now that the resale housing market is slowing, does it still make sense to invest in home improvements? Not if you live in an area where the appreciation rate is waning and you’re planning on moving soon. Depending on where you live, you might only recoup 70% to 90% of the money you invested on renovations at the time of sale if you don’t stay long enough to benefit from appreciation.

If you buy a new home rather than remodel your existing home, you won’t have to live through the construction nightmare. There’s also no need to worry about over-improving your home for the neighborhood — a mistake made by many homeowners who remodel.

The razing, converting of rent-controlled units almost equals the building of new ones, study says.

By Nancy Cleeland
Times Staff Writer
September 7, 2006

The city of Los Angeles has made little headway in expanding the supply of housing for low- and middle-income residents because old affordable units have been destroyed almost as quickly as new ones have been built, according to a new study.

The analysis, to be released today by the Southern California Assn. of Non-Profit Housing, is likely to fuel an increasingly heated debate about housing and gentrification in the city.

Using municipal and U.S. census data, the study by the trade association of nonprofit housing developers found that 12,800 affordable rental units were built through city incentive programs since 2001, while 11,000 older rent-controlled apartments were either torn down or converted to condominiums.

The study found that the loss rate has accelerated, far outpacing new construction since 2005.

Market-rate rents in Los Angeles grew by about 30% during the same five years, to $1,770 a month, according to RealFacts, a Bay Area real estate consulting firm that surveys large apartment complexes.

Paul Zimmerman, director of the association that produced the report, said it showed the need for a comprehensive housing strategy in Los Angeles.

“Housing is like water,” he said. “You need a production pipeline and a preservation strategy. Unless you have both you’re not going to take a dent out of the problem.”

The association backs a moratorium on the demolition or conversion of rent-controlled apartments. Los Angeles City Councilmen Bill Rosendahl and Alex Padilla have proposed moratoriums for their own districts. Their proposals haven’t drawn much support from colleagues, and Rosendahl’s is now before a committee.

“I like incentives better than requirements. This is America,” said Councilman Herb Wesson, who is the chairman of the housing committee that has the bill.

He added later, “I gave Mr. Rosendahl my word I would talk to him and listen to his argument. But I’ll be honest, this problem is a city issue and I’m not big on piecemeal approaches.”

Rosendahl’s 11th District, on the Westside, has lost more than 4,000 rent-controlled units since 2001 — one-third of the citywide total, according to the analysis.

“I want to take a time out and come up with other strategies,” Rosendahl said. “It’s not fair that the ocean and fresh air be just for the rich.”

He said he expected his moratorium to pass this year, despite opposition.

Wesson recently proposed his own strategy, which the full council adopted last month. The measure created a task force to look at comprehensive solutions and a committee to study the 1978 rent control law that limits rent increases in older buildings.

Developers and business leaders, who acknowledge a severe shortage of affordable housing, have argued for market-based solutions that encourage more dense housing along transportation corridors.

“At minimum you have to develop the opportunity for the private sector to supply those affordable units. That’s at least half the battle. Beyond that, the marketplace will dictate where such profitability resides,” said Stuart Gabriel, director of the USC Lusk Center for Real Estate. “From an economic perspective, rent control is not always a good long-run solution in the sense that it does not result in significant added supply of affordable units…. We need to turn our attention to a series of incentive structures and programs that go beyond rent control.”

Gabriel saw the results of the analysis differently.

“The fact that we’re even able to remain at the level of prior years should be viewed as a positive outcome, given market forces that make it nearly impossible to develop affordable housing,” he said.

Zimmerman said affordability in Los Angeles has been shrinking for 25 years in a largely unfettered market.

“I don’t trust the market,” he said. “If we had a functioning market, it would be producing housing that is affordable to people at different income levels. But because of macroeconomic factors, the market is only producing high-end product now.”