CRA Assailed Over Club’s Late Payment

A loan made in June to the elegant downtown Stock Exchange nightclub by the Community Redevelopment Agency is now more than a week overdue for repayment and City Councilman Zev Yaroslavsky on Friday blasted the agency for making a “sweetheart deal” that it may not have fully secured.

The $250,000 loan, due with $6,250 interest Oct. 13, was made June 15 to keep fire officials from closing the club for its inadequate sprinkler system and other safety problems. The loan was the first phase of what will be a $1.5-million loan by the CRA to complete work on the vaulting, five-story nightclub, located in a historic building on Spring Street, and to renovate several floors above it.

The June loan prompted an outcry from homeless rights advocates and the Legal Aid Foundation of Los Angeles, who questioned the wisdom of a loan to a high-priced dance club in light of problems facing the city’s homeless and poor.

The lead partner of the Stock Exchange, Brian Potashnik, could not be reached for comment Friday. However, Barbara Kaiser, the CRA’s downtown project manager, said that if Potashnik and his partners are unable to pay off the $256,250, the agency could elect to either force them into foreclosure or give the owners more time.

Yaroslavsky, who has recently been criticizing the agency’s record in creating affordable housing, said Friday that the news that the payment had not arrived “confirms for me and I think for the public that the CRA is playing fast and loose with the public’s dollars and with statistics on the whole range of things. This was a sweetheart deal for this guy and this building.”

However, Kaiser said the loan is properly secured. She said no more money in the $1.5-million deal will be loaned to the Stock Exchange’s owners until they secure a separate $4.6-million loan from a private lender to refinance the entire project.

“We sent out a demand-for-payment letter and are still waiting for a response,” Kaiser said. “We will be getting in touch with them next week and asking them what is the situation. If they cannot pay, the $250,000 we advanced is secured by the fixtures inside the building, plus the personal guarantee of the owners.”

She acknowledged, however, not knowing the personal worth of the partners while Yaroslavsky disputed the value of the used fixtures.

The club and restaurant, which remain open, have experienced dramatically fluctuating crowds, according to CRA documents. CRA officials have defended the $1.5 million loan, saying that most of it is intended for the renovation of the handsome 1920s building.

Kaiser said the CRA is not sure it knows about all outstanding claims against the property, which already faces a sizable lien by the original remodeling contractor, who still has not been paid.

“You can only do so much checking to assure yourself that there are no loans outstanding, but the owners have been real open about their records,” she said.

Yaroslavsky called the CRA’s arrangement with the Stock Exchange “a bad loan, and the CRA knew it--they were told by their own staff it was a bad loan. They should not have made it on financial grounds, let alone on public policy grounds.”

Yaroslavsky, who is expected to challenge Mayor Tom Bradley in next year’s election, said the loan brings into question other projects along Spring Street in which the CRA has “sunk a lot of money, including the L.A. Theater Center, which I think will total something like $16 million next year.”