Surmounting more than a year of protest from community groups and a powerful congresswoman, First Interstate Bank finalized plans last week to revitalize a section of South Central Los Angeles.

In addition to providing $11 million in financing, First Interstate is leading -- from start to finish -- the project to redevelop the former site of Pepperdine University.

Pepperdine moved to Malibu 22 years ago and its former campus is now overgrown with weeds and strewn with trash.

The $25 billion-asset lead bank of First Interstate Bancorp. began the project in October 1993, holding a competition among California architects and developers for the best idea for the site. A group of seven local residents and businesspeople selected the winning proposal.

The bank decided to hold a contest as a more creative -- and visible -- way of meeting Community Reinvestment Act requirements.

"We were trying to create a larger portfolio, and to market ouselves as leaders in this area," said John Gray, executive vice president of First Interstate.

The bank has gotten the regulators' attention.

Stasia Woods, community investment adviser at the Federal Reserve Bank of San Francisco, has been watching the First Interstate venture since its inception. "It's commendable that a bank would take the initiative to do this kind of project," she said.

But while everyone agreed the area needed to be redeveloped, the project split the community into two camps: those who supported the bank's plans to build both housing and commercial properties on the site, and those who said it should be developed solely for business use.

Rep. Maxine Waters, the California Democrat whose district covers the area, protested vehemently that the bank was forcing the wrong kind of development on South Central.

Rep. Waters argued for commercial development in order to provide jobs for people in the area. She also said housing could be provided through rehabilitation of apartment buildings just east of the site.

The fight taught First Interstate that community reinvestment isn't easy.

"We learned that the process is wrought with difficulties if people have different agendas," Mr. Gray said.

When the project is complete, the developer will buy it from the bank, and First Interstate will move on to the next competition.

First Interstate plans to hold such contests every two years as part of its 1993 promise to invest $2 billion over 10 years in California's economically troubled areas.

While the endeavor has been difficult, Mr. Gray said he hopes it will serve as an example of how banks can use their financial expertise to manage a reinvestment plan from the bottom up.

"This project shows that banks can be the catalyst in community development," said Mr. Gray.

Other banks, even small ones, can copy the program successfully on a smaller scale, Mr. Gray said.

The contest winners -- Caleb Development Corp. of Los Angeles and San Francisco architect David Solomon -- expect the project to break ground in mid-1995.

The team plans to turn a boarded-up former Pepperdine building into a small business development center. It also will build a city block of new streetfront retail space with 35 town houses above and behind. The old university building also will have a community room and a day care center.

The 18-month construction project is expected to provide jobs to 200 people, Mr. Gray said. Permanent jobs will be created at the nine retail outlets in the development.

City Councilman Mark Ridley-Thomas, one of the judges, said the group selected the Caleb-Solomon plan "because its design was the most respectful of the existing architecture and flavor of the community, and responsive to the local needs and wants of people who work in the area."

That's where Rep. Waters and Berlin Parker, president of the Vermont-Manchester Vicinity Association, a local community group, disagreed.

In March, both wrote letters to the editor of the Los Angeles Times blasting First Interstate's plan.

"Find a lot in South Central Los Angeles, buy it cheap, build low-income housing ... then cut a ribbon to proclaim we have done something for the community," Mr. Parker wrote.

"The days of being able to bribe communities with promises of false hope are over," he said.

Rep. Waters, who lives in South Central, still contends it would be better economically for the community to use the site for retail rather than housing.

In a March 16 Times editorial, she claimed the bank was ignoring solutions that would really boost the area's financial health. "The obstacle to the kind of development the community wants is First Interstate Bank," she said.

Also in the editorial, Rep. Waters quoted the California Greenlining Coalition's study of the bank's lending to African-Americans. Out of 332 First Interstate branches, a total of 337 loans were made to blacks in 1990, the coalition said.

Despite her criticism, the project continued, and at least some community members are happy with it.

Naomi Nightingale, one of the local residents on the selection panel, said the former Pepperdine site has been an eyesore for the two decades she has lived in the community.

"We've been waiting for 20 years and the lot remains vacant," Ms. Nightingale said. "Now we have the opportunity to take the initiative ourselves."

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