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Housing authority’s rehab plan chases after private gold

ANALYSIS: Has Baltimore found a “magic bullet” to repair its badly deteriorated public housing? Or is it racing into a financial and construction quagmire?

Above: High-rise Murphy Homes in West Baltimore shown under construction in 1963.

Is it all just too good to be true?

By partnering with private developers, Baltimore hopes to unleash over $300 million in private investment to rehab nearly half of its aging public housing stock in a matter of “two years plus,” housing commissioner Paul T. Graziano said on the radio today.

Along the way, it expects to pocket some sizable developers’ fees and earn about $147 million (according to a city document reviewed by The Brew) by selling off buildings that now are plagued with leaking windows, faulty plumbing, obsolete electrical wiring and elevators that don’t elevate.

No, it’s not a fantasy, says Graziano, who doubles as executive director of the Housing Authority of Baltimore City (HABC), but a unique opportunity afforded by the Rental Assistance Demonstration program started by the U.S. Department of Housing and Urban Development.

Baltimore Jumps In

No other East Coast city has  plunged into the RAD pilot project so enthusiastically as Baltimore.

The city has won preliminary HUD approval to convert 4,583 units – that’s 43% of its total public housing stock – from public ownership to a Section 8 housing subsidy that, combined with generous federal tax credits, would allow developers to rehab the buildings and own them for up to 40 years.

Without RAD, Graziano said on WEAA’s Marc Steiner Show today, some public housing projects “are going to be uninhabitable [in] eight to 10 years from now, if not sooner.”

HUD records show that major cities – including Washington, Philadelphia, New York, St. Louis, Detroit, Newark and Boston – have opted not to be part of the first round of RAD conversions, while other cities are taking a very cautious approach.

The Houston Housing Authority, for example, seeks to convert only 89 units, while Richmond, Va., has applied for 317 units – or 7% of the number proposed by Baltimore.

(The exceptions are Chicago, El Paso, Nashville and Birmingham, who are proposing to convert 10,935, 6,100, 5,384 and 5,015 units to RAD, respectively. More typical of cities applying for RAD conversions are Bellingham, Wash., Albany, Ga., and Opelika, Ala.)

Media Rebuffed

Until The Brew broke news of the plan 12 days ago, the program was kept effectively out of the media spotlight by Graziano and his staff. They refused to discuss the project with reporters, saying they would make a future announcement when all the details were ironed out.

As The Brew reported in its initial story, residents at the affected locations and employees’ representatives had been told about the upcoming sell-off. And some City Council members say they were briefed on RAD last fall, although those recently interviewed had only a sketchy idea of how the program would work.

City selling Baltimore’s high-rise public housing to private entities (2/27/14)

Graziano defends housing privatization in a surprise call to radio station (3/5/14)

Housing authority workers threatened with layoffs (3/6/14)

Housing advocates seek details about plan to privatize public housing (3/7/14)

But housing officials so far have not answered a long list of questions about RAD sent by housing advocates in January and declined to answer questions emailed by The Brew weeks ago.

Meanwhile, the developers selected by HABC have been advised by Graziano’s staff not to speak to the media, The Brew has learned. Councilman Bill Henry, chair of the Housing and Community Development Committee, has called for a public informational hearing next week. this Wednesday, March 12, at 5 p.m. in the Council chambers.

It will be televised on Channel 25.

Speaking before tonight’s Council meeting, Henry said the hearing was being moved up because “we are inspired by all of the interest generated by the issue” and “because a lot of questions need to be answered right away.”

More Unanswered Questions

While much of the worry expressed so far centers on whether low-income residents will be displaced from public housing by the program, several other key questions have been largely overlooked.

• Is the Housing Authority of Baltimore City – long criticized for its sluggish management and foot-dragging on such things as lead paint abatement – capable of administering such a large-scale, complex and unproven program?

• Are the developers qualified by HABC financially able to raise the funds and to carry out a top-to-bottom rebuilding of large deteriorated buildings on such an aggressive timetable as the “two years plus” promised by Graziano?

Here are some of the relevant facts, culled from interviewed and public documents.

The city is proposing to sell 11 public housing projects to developers in the first round of RAD, with an additional 11 in the second round.

(SEE BELOW for the exact projects.)

HABC issued a Request for Proposals that lays out guidelines for how the program might work. The RFP differs from the recent approval given by HUD, in that only 16 (not 22) housing projects are designated for conversion.

Minimum 20% Developer’s Fee 

The RFP says that developers applying for the program will be partly ranked on the generousness of the fee they paid upfront to the city.

“A minimum of 20% of the developer’s fee must be paid to HABC,” the document states, adding: “HABC acknowledges that committing to a specific fee-sharing arrangement at such an early stage of the development process is not ideal; however, such a commitment can be made and the timing and nature of the RAD program require this information in order for HABC to make appropriate selections under this RFP.”

The developer with the highest fee split with HABC will receive 40 points, and another 60 points will be given to the developer with the highest “quality” score, as ranked by HABC.

The developer with the highest overall score will be offered its first choice of the projects, the second-ranked developer offered its first choice of the remaining projects, and so on.

Cash Flow Varies

The process essentially means that – in return for high fee payments – developers get to cherry-pick the most financially promising projects. And the buildings will throw off highly variable cash, according to an HABC analysis reviewed by The Brew.

For example, Lakeview Tower in Reservoir Hill is earmarked for having a “potential surplus annual cash” of $229,407, while Wyman House in Charles Village would throw off just $87,604 yearly.

Other examples: $200,851 for J. Van Story Branch, $209,699 for Rosemont Tower, and $95,997 for Ellerslie Apartments.

This money does not include the low-income tax credits that private investors would receive by putting equity into the projects. The major tax credit is known as the “4% credit” that allows investors to offset approximately 4% of their taxable income each year for 10 years.

Late last week, the housing authority released the names of 11 developers who have been qualified to buy and rehab the 22 projects slated for RAD, but has not publicly matched the developer to the project.

The HABC has given estimates of how much the housing units might sell for and how much it might cost for their reconstruction and maintenance over a 15-year period.

Using an “income approach for acquisition,” the 16 projects could be sold for $146.8 million, HABC estimates, and the developers would put in a total of $416 million in construction, maintenance and “soft costs” over 15 years.

Even with these large expenses, the city estimated that the developers will earn a yearly cash flow, which could be augmented by other tax credits – and from paying little or no property taxes to Baltimore City.

“Very Simple Assumptions” 

What these figures lack is a sense that they are grounded in reality.

HABC, for example, has modeled its analysis of the potential earnings of privatized public housing on “very simply assumptions” – that’s its own words in the RFP. One assumption is that reserves, utility costs, taxes, management and maintenance costs will amount to exactly $6,500 a year per unit following its rehabilitation.

If, however, this $6,500 figure proves to be too low – if, for example, water or heating fees rise steeply in future years – the private owner could face severe financial strains, even bankruptcy.

And if construction costs are higher than anticipated, what’s to stop a development group from abandoning the project, leaving the city with a partly-rehabbed building now in need of a large infusion of public money?

Has HABC – or better yet, an independent agency – done a risk assessment? After all, this is a pilot program with unknown risks as well as unintended consequences.

What’s more, under HABC’s plan to renovate over 40% of its housing stock in a two-year period, how many residents would potentially be displaced from their units during construction?

(Different HABC officials have told residents that they could stay in the building during renovations, and that they may be put in motel rooms or other facilities during reconstruction.)

During the confusion of reconstruction, could vulnerable residents – such as seniors and the mentally or physically impaired – slip between the cracks and wind up homeless?

These are questions that Commissioner Graziano – not to speak of the mayor – should address to make the plan transparent to HABC residents and as thoroughly thought-out as such a radical step in public policy deserves.

To reach the writer: reuttermark@yahoo.com

List of Public Housing Projects given Preliminary Approval by HUD for RAD Privatization:

Phase 1

• Allendale, 3600 West Franklin, 164-unit high rise
• Bel Park Towers, 3800 West Belvedere, 253-unit high rise
• Bernard E. Mason, 2121 Windsor Gardens, 223-unit mid rise
• Brentwood, 410 East 25th Street, 149-unit high rise
• Hollins House, 1010 West Baltimore, 130-unit high rise
• Lakeview Tower, 717 Druid Park Lake Dr, 301-unit high rise
• McCulloh Homes Extension, 501 Dolphin, 349-unit high rise
• Pleasant View Gardens, 311-unit townhouses
• Primrose Place, 820 South Caton, 125-unit high rise
• Somerset Court Extension, 60-unit low rise
• Wyman House, 123 West 29th, 168-unit high rise

Phase 2 (approval sought from HUD after Congress lifts cap on RAD program)

• Arbor Oaks, 811 Dartmouth, 62 townhouses
• Chase House, 1027 Cathedral, 189-unit high rise
• Ellerslie Apts., 601 Wyonoke, 117 townhouses
• Govans Manor, 5220 York, 199-unit high rise
• Heritage Crossing, 600 Brune, 75 townhouses
• J. Van Story Branch, 11 West 20th, 357-unit high rise
• Monument East, 633 Aisquith, 170-unit high rise
• Rosemont Tower, 740 Poplar Grove, 203-unit high rise
• The Townes at the Terrace, 202 North Fremont, 203 townhouses
• The Terrace, 202 North Fremont, 47-unit mid-rise
• scattered units

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