The new head of the Los Angeles Community Development Bank knows there are real opportunities for inner-city commercial real estate lending, which his publicly funded lending institution can capitalize upon.

But there are real questions as to whether the bank will be around long enough to see such investment bear fruit.

Almost since its inception, the bank has been dogged by controversy. Set up in the wake of the 1992 riots to help revitalize some of the city’s most impoverished areas and funded with $430 million from the U.S. Department of Housing and Urban Development, it has come under fire for its poor loan judgment and currently is facing several lawsuits filed by disgruntled borrowers.

The bank’s new head, William H. Chu, acknowledges that the bank has had severe problems. But he maintains that it can still be a lending force for inner-city development, citing the more than $35 million in real estate loans that the bank has made in its four-year history.

“We’re doing a lot, and will continue to do a lot,” he said.

By definition, the bank funds borrowers that have been rejected by traditional commercial banks. Chu points out that the bank made a $15.5 million loan on the high-profile Chesterfield Square retail project in South Central. Now that the project is going forward, its loan is being taken over by Bank of America.

“Banks are being more aggressive in their commercial lending. Our role is to turn these deals into bankable ones,” Chu said.

The bank hasn’t made any real estate loans since Chu took over from interim Chief Executive Linda Griego in January, and Chu says housecleaning tasks have slowed him down a little bit.

Critics say the jury is still out on the new CEO, but given the bank’s missteps in the past, the future is spotty at best.

“You need a core series of successes to make it work,” said a local banker, speaking on condition of anonymity. “If you go to the big guys to help fund a project, it takes leverage to twist the arm of a Home Depot or a Staples. (The CDB) hasn’t learned how to do that.”

Even community lenders that have worked successfully with the bank point out problems.

“In (the bank’s) business plan, there was a $10 million (grant) fund to spend on inner-city projects like ours,” said Marva Smith Battle-Bey, president of the Vermont Slauson Economic Development Corp., which got a $2.5 million real estate loan from the bank. “We have had a good relationship with the bank in helping us do the acquisition of our property. But it wasn’t a grant, it was a loan at market rates.”

The bank has said it will use $1 million of the original $10 million this year in grants. But some say it is another example of the bank not delivering on its mandate.

“The $10 million allocation was for equity investments in community-based projects,” said Roberto Barragan, president of the Valley Economic Development Center, and a fierce critic of the bank.

He contends that $10 million in equity grants could have meant another $90 million in real estate loans because of the increased worth of the businesses invested in. The bank’s $1 million allocation this year is “too little, too late,” Barragan asserted.

Barragan wants the bank to undertake all sorts of reforms, including having the Small Business Administration come in and assess its portfolio and end all its direct lending in the meantime. But even he is cautiously optimistic about Chu, who drew praise in his tenure heading up East West Bank’s commercial lending program.

“Thank god they brought in an actual lender,” Barragan said. “What I’ve heard so far is that he’s hands-on.”

He’s going to have to be to help the bank weather this stormy period. Last month, a disgruntled borrower was awarded $7.2 million in court after suing the bank for mishandling his loan.

The bank is appealing the ruling, but is already out more than $1 million in attorney and receiver fees on the case. The bank’s insurance covers its legal fees, but not the judgment, since it exceeds $1 million.