EARLY MANAGEMENT AND BANKRUPTCY

Management and sales were handled by Wherritt and Brown of Berkeley, California. An initial sales campaign by this firm during the first quarter of 1964 encouraged some 60 cooperative subscribers to pledge down payments for units at Midtown Park. But additional subscriptions were not plentiful and, by August, the sales agent and the developer concluded that to continuue searching for additional subscriptions would place a financial hardship on the housing development. Purchase of Midtown Park by ownership subscription was contingent on a 97 percent sellout within a two year period which, unfortunately, was not attained during the initial sales campaign.

In general it can be said that during this period cooperatives were hard put to get started. Unlike many European countries the United States was handicapped without a central clearinghouse for cooperatives which could assist local cooperative developments in organization, financing, construction and management. Unfortunately, what was gained by the elimination of profit and other advantages, was lost in conflicts, inexperience and lack of cooperation. The FHA programs Section 213 and 221(d)(3) generated greater interest in cooperative housing with the insurance of mortgages for a period of forty years. The Section 221(d)(3) program had the advantage of a lower interest rate which permitted about a 20 percent savings in monthly debt service costs over comparable costs in the Section 213 program. This benefitted Midtown Park's sister housing project at St. Francis Square which became a successful cooperative venture, and may have closed the door to many potential cooperators at Midtown Park.

In September, 1964, Barton-Western, Inc., requested permission from the Federal Housing Administration to cancel the Land Sales Agreement under which existing cooperators were to purchase individual apartment units. A month earlier, Barton-Western, Inc., had requested and received permission from the Redevelopment Agency to waive the stipulation for cooperative housing in the land sales agreement. Administration, hoping to bolster the financial sliding of the development, authorized the conversion of Midtown Park from a Section 213 cooperative to a Section 220 rental. Under such a change, the developer refunded down payments on subscriptions for cooperative apartment units and increased the monthly payments, now rents, about 15 to 20 percent.

In November, 1964, the Federal Housing

The conversion to rental housing was, at best, a disappointment to the existing Midtown Park subscribers. Between December, 1963, and the following November, a total of 60 families had moved into Midtown Park, assuming that the development would succeed as a cooperative with all the attendant benefits of equity in a home, income tax advantages, improvement opportunities and easy mortgage payments. Instead, the cooperative subscribers found themselves in the dubious position of paying rent on a month-to-month pasis with no assurance that this new arrangement would not continue indefinitely.

Although there were many rumors concerning the changeover, the cooperators were not officially informed until signs announcing rental housing were erected on the site along Geary Boulevard in late December, 1964. In January, 1965, a committee of the former subscription holders

proposed to Barton-Western, Inc. that a portion of Midtown Park, three of the six structures, be moved forward under the cooperative financing

arrangement.

In May, 1965, the developers agreed to a partial financial arrangement involving a cost increase of about 10 percent. Unfortunately by that time the number of subscribers had diminished, the general maintenance of the buildings and grounds had been badly neglected, and careless screening of new tenants had added less desirable neighbors to the Midtown Park development. Within six months the goal of cooperative housing at Midtown Park had been shattered.

Poor management, physical deterioration and a high vacancy rate continued to plague Midtown Park during 1965. A total of seven managers paraded in and out of responsible charge of the apartment complex. Rental records indicated that only 85 units were occupied in May, 1965, while nine months later the total number of occupied units dropped to 66. Starting in July, 1965, Barton-Western, Inc. became delinquent in its mortgage payments which prompted the Federal Housing Administration in January, 1966, to file suit in Federal District Court to foreclose the mortgage on Midtown Park.

A court-appointed receiver took over the management responsibility for Midtown Park in February, 1966. The receiver recorded immediately major physical and managerial shortcomings of the apartment complex which had occurred during the preceding year. As noted by the receiver, none of the vacant units were immediately ready for rental although many of them had

never been occupied. All vacant units required extensive housecleaning and many of the apartment stoves and refrigerators had been moved to avoid the task of cleaning. In some cases, equipment had been cannibalized for

repair purposes.

Windows were broken in the vacant units and a considerable amount of trash had been left behind by departing tenants. A few tenants who vacated during the night moved the apartment stove and refrigerator with them. The police made numerous calls to Midtown Park during 1965. Weekly raids were authorized during August to curb prostitution, gambling, dope and stolen property. These problems escalated until the police established an

observation post in one of the apartments.

Leases, rental rates, security and cleaning fee requirements changed with each new manager, a total of seven during 1965. While a security paynent amounting to a month's rent was required, records showed that this deposit was generally deferred. In some cases, tenants paid only a portion of their total rent. If character or credit checks were made of prospective tena..ts, the receiver found no evidence of any standard procedure.

The court-appointed receiver managed Midtown Park between February, 1956, and July, 1967. At the beginning of the receivership period only ten of the original sixty cooperative subscription holders still remained in the development, but now as renters. In addition to these ten, another 56 units were occupied by other renters and eight other apartment units were used by the management staff for various purposes such as storage and office space.

During the receivership period the appointed manager made significant physical improvements which permitted the renting of practically all of the total 140 units by the end of 1966. A survey taken by the manager in February, 1967, recorded an increase from 66 occupied units at the time receivership was started to 138 occupied units one year later. This marked increase brought the level of occupancy to its highest ever, two units short of total occupancy.

The Federal Housing Administration sought to recover its insurance loss on Midtown Park amounting to about $3 million by placing the housing development on the auction block in June, 1967. Other than an opening bid of $1,675,900 by FHA itself, in order to protect its own investment, no other buyer came forward. The Federal government would thus retain Midtown Park with the expectation of selling the development at a later time to recover as much as possible of the original $3 million owed on the property.