Mark Adams, the bankruptcy trustee who oversees 1,500 Skid Row tenants, tendered his resignation Thursday, ending a turbulent three-month tenure that failed to stabilize the neighborhood’s largest inventory of homeless shelters while also incurring additional debt in the properties to charge millions.
Adams resigned at the request of Los Angeles Superior Court Judge Mitchell L. Beckloff near the end of a two-hour hearing. Beckloff ruled that disputes between Adams and city officials were overwhelming the daunting task of managing 29 properties owned by nonprofit landlord Skid Row Housing Trust.
Mayor Karen Bass and City Atty. Hydee Feldstein Soto had recommended Adams to manage the trust’s portfolio.
Feldstein Soto said Adams, one of the state’s most experienced bankruptcy trustees, was particularly qualified to stabilize the properties and fund repairs so other affordable housing providers could take over.
However, she admitted that her office did not fully review his resume given the urgency of the trust’s issues. Feldstein Soto and other city leaders said they lost faith in Adams when problems policing the properties escalated last month.
“It seems to me that maybe a fresh start is the way to go,” Beckloff said.
Beckloff’s hands were tied in part by the city council’s decision this week to provide $10 million in new funding only on the condition that Adams is ousted. With the Adams bankruptcy trustee running out of money after weeks of scrambling to raise funds, the judge concluded that the city’s plan was the most responsible way to continue paying for necessary upgrades and repairs.
City officials hope the funding will cover unpaid securities and other bills Adams has racked up while providing Kevin Singer, the replacement administrator that Beckloff approved Thursday, with enough dollars to maintain the trust’s properties for at least four years more months to manage.
Adams’ tenure has prolonged the turmoil faced by the trust’s formerly homeless tenants, who have endured years of mismanagement and financial hardship as conditions in the buildings steadily deteriorated. In April, with the foundation unable to pay its bills and local residents reporting poor security and property management, broken doors, windows and plumbing, and widespread trespassing and drug abuse, Beckloff Adams appointed Soto at Bass and Feldstein’s request.
Soon after, a Times report detailed previous cases under Adams’ receivership, in which property owners lost their homes, renters faced evictions, and he overbilled by six figures.
The city’s problems with Adams first came to light at a court hearing last month. He had borrowed $1.3 million for escrow operations and modernizations at a 15% interest rate, which the city said violated its obligation to only secure loans with interest rates below 10%.
Over the next week, Adams’ real estate management firm issued 451 eviction notices to tenants who failed to pay rent in May. One tenant was told he owed $56 and many others had been exempted from paying due to the poor condition of their homes. Feldstein Soto considered all postings illegal under city law.
Adams said the notices were sent without his knowledge and that he recanted them in letters to tenants.
Since then, city officials have complained that Adams does not provide them with detailed financial information and that repairs have been slow or non-existent. The number of properties with defective fire and safety equipment has more than doubled since Adams took over the portfolio, necessitating costly around-the-clock security guards, Feldstein Soto told a council committee this week.
Adams dismissed the city’s claim that fire safety had deteriorated during his tenure, saying nearly all buildings had had problems prior to his appointment.
In court filings filed this week, he said city officials made him a scapegoat for their failure to allow the trust’s portfolio to deteriorate and deliberately deprive him of cash. The condition of the city providing financial support for his replacement, he said, would be tantamount to taking trustee residents hostage while not funding essential security services and emergency repairs.
“Honestly, the city’s actions could end up costing lives,” Adams wrote.
First, Adams asked Beckloff to direct the city to provide him with $10 million in funding. But on the eve of Thursday’s hearing, Adams filed a statement saying he had reached out to Avatar Financial Group, a Seattle-based private real estate lender, for a $12 million loan at a rate of $15 % and an additional upfront fee of $800,000.
In court on Thursday, Adams continued to point out that the lack of funding was the main problem with the bankruptcy and said he was confident he could finish the job if he had access to the money.
“To say that the lack of funds is a problem is an understatement,” Adams said. “Because it’s the problem.”
Beckloff appeared to agree with Adams, repeating his praise, expressed at previous hearings, that Adams was well qualified for the role. The judge also stated that he had no problem with Adams’ work and found no wrongdoing.
Managing the trust’s properties was such a big job that Beckloff said he wasn’t sure anyone could handle it better.
However, the judge ruled that the city’s financing program, which provides an interest rate of up to 3%, was the best way forward.
“It’s gotten to a situation where I have the city in one corner and the receiver in another and there’s a lot of people around the ring,” Beckloff said. “But the focus is on 1,500 people who are at risk of becoming homeless.”
How much it will cost to repair the trust’s portfolio and who will foot the bills remains unclear.
Bankruptcy trustees typically pay for repairs and the bankruptcy trustee’s fees using the properties’ equity or using proceeds from a property sale or higher rents. But the foundation is on the brink of bankruptcy, federal and local restrictions are preventing renters from skyrocketing, and amid a homelessness crisis, city officials are desperate to find affordable housing.
The $10 million loan comes from a city affordable housing program. City officials told councilors this week that they would eventually expect a repayment as the properties would be spun off to other companies, but that the city and other public subsidies would likely have to cover at least some of the debt.
City officials and Singer, who appeared in court virtually on Thursday, developed the new $10 million budget by projecting that more than half of the trust’s affordable housing developments — the newer and more valuable properties — will be built over the next year would be transferred to other non-profit housing providers a few months. Beckloff has already approved the delivery of six of these buildings to PATH Ventures and another to LA Family Housing.
That would leave a dozen of the trust’s centuries-old residential hotels and other run-down buildings under receivership.
“We will most likely have to return to the City Council and seek additional funding after we show we’ve had great success,” Singer said.
One important variable, city leaders said, remains unknown: what Adams’ tenure will cost. Adams had hired 18 employees at hourly rates ranging from $151 to $465.
In court filings, Adams said fees for his company, California Receivership Group, in April and May totaled $329,000 — not counting what was owed to outside law firms, property management, security and other contractors he hired becomes. City attorneys told the court Thursday they believe the total outstanding bills total more than $3 million.
Feldstein Soto, who was not in court Thursday, tried to reassure council members that Singer will do a better job than Adams. At a council committee hearing this week, she cited a more thorough review of the new bankruptcy trustee’s résumé of nearly 500 cases, his work on complex matters in San Francisco and his willingness to provide the city with detailed information on his progress.
“It’s very difficult to admit a mistake,” Feldstein Soto said at the hearing. “But I think one of our jobs is to correct a mistake.”
