The first Baldwin Village apartment building that business partners Joe Killinger and George Pino considered buying was infested with gangs, and broken bicycles rusted in a swimming pool with stagnant green water.
It was perfect.
The partners were looking for a Petri dish for their new company, Learning Links LLC, to test the idea that landlords in poorer neighborhoods can increase their profits by converting one unit into a learning resource center essentially a mini-library with desks and computers and steeply discounting another unit for a school district teacher.
When Killinger came up with the idea a couple of years ago, he believed residents with children would take greater pride in their buildings and that would result in families staying for longer periods.
He hypothesized that the resulting lower maintenance costs, vacancy rates and turnover would more than make up for the units taken off the market and bring in better returns.
"At first I thought he was off his rocker," Pino said, "but after I started crunching the numbers I found under the right conditions it was possible."
Not only has it worked, but the Learning Links model is shedding 12 percent returns to its investors better than Killinger and Pino had imagined. "Not bad for apartment buildings in L.A.," Pino said.
Maintenance costs, on average, have fallen by 12 percent and average turnover is down to 1 percent compared with a 3 percent average in L.A. County. When there is a vacancy, "we get four applications before it's ever listed," Killinger said. "We get word of mouth, people want to be in our building. Vacancy is not a factor for us."
For decades, public officials and non-profits have grappled with attracting private investment to poorer urban neighborhoods, but there have been few success stories. Even in the last five years of explosive residential real estate development, much of the activity has skipped neighborhoods south of the Santa Monica (10) Freeway.
But if Learning Links can show there is money to be made by investing in these areas, other real estate investment companies may begin buying and renovating dilapidated apartment buildings.
"Once you get one landlord to participate, others see the better area they could live in," said LAPD officer Brian Richardson, who patrols in Baldwin Village. "We hope it will rub off."
For the first apartment complex, Killinger and Pino used their own money to buy the $2 million building, figuring banks wouldn't bet on their experiment. Since then, the company has recruited several private investors, including DBL Realtors founder Alan Long, and it has expanded its holdings considerably.
Learning Links now owns five Baldwin Village apartment buildings with a cumulative 104 units. Last month the company paid $3.4 million for a 31-unit complex in Glassell Park.
As prices for L.A. apartment buildings have soared in recent years, the company has begun looking at similar neighborhoods in Nevada, Arizona and Texas. "Our margins are very tight," Killinger said, "so it's become difficult to do this in Los Angeles."
'Are you crazy?'
Baldwin Village, between Baldwin Hills and the Crenshaw district of Los Angeles, was nicknamed "The Jungle" soon after it was developed in the 1950s because of its lush landscaping and dense foliage. But the name took on another meaning as the community's crime rate rose.
When Killinger and Pino met with police officers to tell them about their plans for a pair of apartment buildings on Coco Avenue, one officer asked them, "Are you crazy?"
But Killinger and Pino are no strangers to real estate. The pair started OPM Investments, a real estate holding company, after leaving Beverly Hills-based real estate investment firm Kennedy-Wilson Inc. At the same time, Killinger and Pino were running the auction division of Sands Group Inc., a division of Fred Sands Realty. Today they also run the local commercial real estate operation for Sotheby's International.
The pair sunk $180,000 fixing up its buildings and converting units into resource centers.
The centers and the discounted apartments for teachers are donated to a non-profit started by Killinger and Pino called Education Advantage Foundation, which manages the units, recruits teachers and raises funds to outfit the resource centers.
Gang members and known drug dealers are evicted from the buildings; at the Coco Avenue buildings 19 of the 52 units had tenants that were forced to leave. "There were a number of drug dealers and gang members, which is why we had so many evictions," Killinger said. "Others were under the impression they didn't have to pay rent."
Tenants who stay are screened for credit and prior evictions. They also must sign new leases with a provision that tenants face eviction if they are caught with drugs in the building. "We will work with them if they have poor credit but we want to open communication," said Pino. "We have some strict rules and regulations that most landlords wouldn't put in place."
More than a year before buying their first building, the pair started meeting with police and the L.A. City Council offices of Martin Ludlow and Bernard Parks.
"It never takes just one call, it takes a lot of them," Killinger said. "You have to get in front of them and stay there. A lot of it has been persistence."
But once the police began randomly stopping by the buildings, the gangs and drug dealers moved along.
The improvements have paid dividends to the neighborhood. Already, other building owners and managers have begun fixing up their properties. Richardson, who is on a 16-officer squad dedicated to Baldwin Village called the Safer City Initiative, said Learning Links has evicted the drug dealers and given police access to their buildings.
"A couple of buildings that they have were some of our most problematic buildings in the village," Richardson said. "They have evicted those tenants that were problem tenants and they are cleaning them up."
While police are still called to the buildings, Richardson said it doesn't happen as frequently. He said it also helps to stop by the buildings' resource centers to talk with neighborhood kids.
Killinger said gang members are easy to identify and usually leave on their own after he explains the company's plans for the building. "Once they know the police will be stopping by randomly, they usually take off," he said.
Karen Batiste, a three-year resident of Baldwin Village whose Santa Rosalia Drive building was purchased by Learning Links, said not only is the building safer and cleaner but her daughter is doing better in school.
"It was very frustrating," said Batiste of trying to help her daughter with her homework. "I didn't know some of the techniques they were teaching and what to do."
Now, gang members who used to drink liquor in front of her building are gone. The building's security gate has been fixed and children play freely in the courtyard. And Batiste said Learning Links has only marginally raised her rent.
"I met a lot of other parents and neighbors I hadn't interacted with before," she said. "The center gives us something in common, something to talk about."
Learning Links is trying to repeat the same formula in Glassell Park, where it's looking for more properties. The company is also working with city officials in Glendale and Carson for possible deals on new ground-up construction.
"We have such a high increase and influx of people moving into Los Angeles who are moving into the low- and moderate-income areas," said Pino. "This is something that is definitely needed."
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