Monday, April 04, 2016

GREED FILE - Habitat for Humanity NYC

"How Habitat for Humanity Went to Brooklyn and Poor Families Lost Their Homes" by Marcelo Rochabrun, ProPublica 4/1/2016


In 2010, the New York City affiliate of Habitat for Humanity received a $21 million federal grant to work on a city neighborhood hit particularly hard by the foreclosure crisis and help stabilize it.

The funds would allow Habitat-NYC to launch the most ambitious project in its 32-year history.  Its neighborhood pick was Bedford-Stuyvesant, a historically poor neighborhood in central Brooklyn, where the charity would focus on buying and renovating abandoned apartment buildings.

There was just one problem.  With few vacancies in the gentrifying area, longtime tenants were pushed out of their apartments — some into homelessness — clearing the way for developers to sell to Habitat at a hefty profit, a ProPublica investigation has found.

Ultimately, Habitat's project came with a cost:  While scores of families gained new homes, other even needier ones were displaced.

Though Habitat promoted the properties it acquired to renovate as “long-vacant,” four of nine were still occupied shortly before the charity moved to buy them, records show.  In two cases, Habitat targeted buildings just days after the last families living there moved out.

The deals, and what local Habitat executives said about how they were being accomplished, left some inside the charity so upset that at least two employees emailed anonymous complaints to the nonprofit's international headquarters in Georgia.

“Habitat-NYC's Director [of] Real Estate and Construction speaks openly about making deals with developers, saying that we can not buy buildings from them until they get rid of all their tenants,” one of the employees wrote in a May 2012 email, which was provided to ProPublica“We are spending federal money to throw low-income New Yorkers out of buildings.”

ProPublica's reconstruction of the events was based on hundreds of pages of internal Habitat emails and memos, as well as a review of public real estate records related to those buildings.  ProPublica tracked down former tenants and used public complaints filed with the city's housing department as well as court records to establish the buildings' occupancy.

Between 2010 and 2011, at least seven Bed-Stuy families were pushed out of their rental apartments shortly before Habitat purchased them, ProPublica found.  All had relied on federal housing subsidies or New York's rent regulation laws to afford their units.  None were evicted in court.  Three of the families ended up homeless.

Internal emails show that Habitat officials were willing to consider buildings even when they were aware that they hadn't been empty for long.  “The Jefferson building I researched before is now vacant, and I am speaking with the owner,” Bill Bogdon, the director of real estate and construction, wrote to a colleague in 2011.  “The challenge with this one is the recent occupancy.”

Overall, with privately raised funds heaped onto the $21 million grant, Habitat spent $43 million on the Bed-Stuy housing initiative.

Some $8.4 million went to buy six properties from developer Isaac Katz and limited liability corporations he represented.  In 2006, New York's Attorney General sued Katz and his associates over a scheme in which they allegedly sold blighted buildings to dozens of minority homebuyers at artificially inflated prices.  Katz settled his share of the suit for $750,000, admitting no wrongdoing.

“There's zero doubt in my mind that [Katz is] a bad guy and did bad things,” wrote then-Habitat-NYC Executive Director Josh Lockwood in a June 2011 email, responding to a colleague's inquiry.  “Agreed its unlikely that an investigative reporter would target us specifically, but obviously we'd need to be prepared in the event s/he does.”

One day after Lockwood wrote the email, Habitat's Real Estate Investment Committee approved the purchase of three additional buildings from what they considered to be a group controlled by Katz for $6 million.

Katz's attorney said his client never had an ownership stake in the buildings, and was merely facilitating their sale to Habitat.

One of the buildings was the elegant, but rundown brownstone on Madison Street where Tashemia Tyson, a single mother of three, rented a third-floor apartment with public assistance.  Around three months before Habitat began discussions to acquire the building, Tyson said Katz began pressuring her to leave.

Katz's attorney denied Tyson's allegations, saying that his client “never spoke to Tyson” and that all the units were vacant when he facilitated the sale to Habitat.

The apartment had no heat.  “He told us that just as they were going to fix the boiler, the pipes burst,” Tyson said.  Reluctant to move, she said she relied on her gas stove for heat and hauled water buckets up the stairs to cook and to bathe for more than a week.

Finally, in February 2011, she said she accepted an offer from Katz of six months' free rent at another building, but couldn't afford the new apartment once the regular rent kicked in.  Today, she sleeps in a shelter in the Bronx.

Habitat said in a statement that “at no point were we aware that any tenant had been forcibly moved or incentivized to move out of their homes in properties we were intending to purchase.  Moreover, we would condemn the use of any such tactics.”  The charity added that they had retained outside legal counsel to investigate complaints made about their handling of the federal grant, but said the lawyers found no evidence of wrongdoing and that Habitat International concurred with their finding.

A spokesperson for Habitat International said “the anonymous hotline submitter… did not have documentation and their concerns were speculative.”

Bogdon called the allegations made against him in the whistleblower email “hearsay and erroneous.”  He also said that the Jefferson building he had discussed with his colleague was never purchased.

Lockwood, who is now the CEO of the Red Cross's greater New York region, declined to comment.

Habitat acknowledged that they had struggled to find vacant properties in Bed-Stuy despite their extensive efforts and that “many of the [grant]-appropriate properties in that area were owned by Isaac Katz.”

Katz's lawyer denies that he owned many properties.

But Habitat said that they “undertook numerous steps to ensure that our actions adhered to all grant guidelines.”  They said they had paid no more than the appraised value for each property and that Katz and other developers signed good-faith agreements affirming that no tenants had been improperly displaced.

“If we are able to determine that any former residents were affected by such tactics, we are willing to work with them to connect them to affordable housing resources,” Habitat said.

Paul Aloe, an attorney representing Katz, said “Mr. Katz was in no way involved in any harassment or removal of any tenants from the properties.”  Later, he added, “Mr. Katz only got involved at all when the subject buildings were vacant.”

Karen Haycox, the CEO of Habitat-NYC, who joined the charity in 2015, long after the Bed-Stuy deals, said in statement, “we are proud that Habitat for Humanity-New York's participation in the [federal grant program] enabled our organization to help 105 families in need of affordable housing become homeowners.”

Four dozen of those families moved into new homes built on vacant land.  Still, the majority of families helped by the project moved into units made available, in part, because others had been displaced

Many of those who bought Habitat's renovated homes earned around $50,000 a year — almost double the median income for renters in the neighborhood and about five times as much as the disability income of Charles Watson, a tenant who lived a floor below Tyson and ended up living on the streets after he was pushed out.  Watson did not remember the name of the person who pushed him to leave.

“I didn't want to move,” Watson said.  “They wanted everybody out because they knew they were going to sell and make the apartments into condos.  And they knew that would be a lot of money.  That's what it was all about, anyway: money.”

Josh Lockwood had a bold vision for Habitat-NYC when he was named its acting executive director in 2007

“In the face of New York City's crushing housing shortage, Habitat-NYC is adapting our volunteer building model to a large-scale project,” Lockwood was quoted saying in the charity's summer newsletter that year.

For most of its history, Habitat-NYC built only a handful of single-family homes annually.  It was a model pioneered by Habitat International, the Christian charity that sprung to fame in the 1980s thanks in part to former President Jimmy Carter's close involvement.

Under Lockwood's leadership, the charity moved into large-scale construction, breaking ground on a 41-unit complex in the Brownsville neighborhood of Brooklyn.  It was celebrated as the largest building project ever undertaken by a Habitat affiliate in the United States.

Lockwood was a rising star in the nonprofit world.  In 2010, Crain's New York Business honored Lockwood as one of the city's “40 under 40.”

The federal grant was crucial in Lockwood's expansion plans.  Now, Habitat would develop more than 100 units in one project.  But taking the funds, part of the Obama administration's stimulus package, would require Habitat to modify another aspect of its building model.

In the past, Habitat acquired vacant lots and buildings from the city at nominal prices.  With the federal grant money, Habitat would be going on the open market for the first time.  The nonprofit also had to move forward on an accelerated timeline as it had agreed to spend half of the $21 million grant by the end of 2011, only a year and a half after receiving access to the money.

On the surface, it made sense that Habitat chose to work in Bed-Stuy.  The neighborhood had the highest foreclosure rate of multifamily rental properties in the city, according to a report by New York University's Furman Center for Real Estate and Urban Policy, and Habitat had worked in the area.

The charity purchased nine apartment buildings to renovate in Bedford-Stuyvesant with the help of federal dollars starting in 2010.  (Map source: City of New York; Credit: Al Shaw/ProPublica)

But according to city data, the neighborhood had few vacancies.  That's because tenants who live in old, multifamily buildings are usually protected from eviction.  New York's rent regulation laws afford those tenants the right to renew their leases even in the case of foreclosure.

All seven families who moved shortly before Habitat bought their buildings lived in rent-regulated units.

“If I were looking for vacant buildings as a result of the foreclosure crisis Bed-Stuy would not have been the first place to look,” said Harold Shultz, a former deputy commissioner at the city's housing department.

The rules governing the grant did not set out how long a property had to be vacant to be eligible for acquisition, but federal officials did not want their money to entice developers to empty out buildings to score a sale.

During a web seminar with the federal department of Housing and Urban Development in June 2010, a Habitat-NYC employee asked, according to a transcript of the meeting, if it would be okay to make an offer on an occupied building where “the tenants were not all paying their rent and there might be some eviction proceedings going on.”

“I see that as a big problem,” an official replied.  If Habitat were to buy that property, he explained, the federal funds would be linked to the eviction of tenants.

By the end of the month, Habitat began targeting several buildings for acquisition.  They worked with a real estate broker named Jordan Bardach, who knew Isaac Katz.  At the time, Katz was still paying off his settlement to the attorney general.

Bardach has operated several ventures under the name “Imagine.”  One of them, Imagine Equities, advertises services on its website to help “remove tenants” in case of “future building renovations and upgrades.”  Another, Imagine Living, lists on its website the buildings Habitat ultimately purchased.  In 2013, he and Katz developed an app that “speeds up” the process for landlords to get tenants “paying rent again or evicted swiftly.”

Through a lawyer, Bardach said “Habitat reached out to me because of my general experience and asked for assistance in acquisitions.”

Three of the buildings Habitat acquired with Bardach's help were long vacant.  But another, 849 Halsey St., still had three tenants shortly before Habitat targeted it for acquisition in late June, according to city housing records, and letters mailed to these tenants that were obtained by ProPublica.

Twana Midgette said she left the building in June 2010 after she found what looked like an eviction notice on her door.  “Because of the conditions of the building, I didn't even put up a fight, and I didn't have anyone to contact,” Midgette said.  She now lives in upstate New York, where she said she continues to pay rent with public assistance.

Melinda Ortiz remained as long as she could.  “They said they wanted to gut the apartments.  They even started working on the apartments downstairs,” she said.  “They said that they weren't going to accept any more money.”  Ortiz left shortly after Midgette and has spent the past few years moving from apartment to apartment.

David Coachman, a tenant who lived in a rent-stabilized unit, said he left on June 12, after accepting a $10,000 settlement.  Four days later, a Habitat employee visited the property, HUD records show.  “They wanted me out because they wanted the whole building empty,” he said.  Today, Coachman lives with his son in Flatbush, Brooklyn.

On July 19, 2010, Katz signed a document that said he would notify Habitat if there had been tenants at 849 Halsey in the past three months and would “not order current occupant(s) to move, or fail to renew a lease, in order to sell the property to us as vacant.”

That was a little more than a month after the three tenants left.

Habitat declined to say whether Katz had told them about the tenants when he signed the document.

The tenants all said they had been pressured to leave, but do not remember the names of the people who spoke to them.  Katz's attorney told ProPublica his client hadn't purchased the building until early July.  “When Katz purchased the building, it was vacant,” he said.

If Habitat had independently tried to verify the occupancy history of the building, they might have found housing records that documented a call from Ortiz's apartment to register complaints of bedbugs, mold and a broken banister.  The date of the call was June 1, 2010 — 15 days before a Habitat official first visited the property.

“I found all the units to be vacant,” the official wrote to HUD.

Katz's LLC closed on the sale of 849 Halsey to Habitat in late January 2011.

That month, Katz also sold a building at 203 Marion St. to the charity for about $620,000.

It was a remarkably quick and lucrative flip.  Katz had purchased the six-unit property earlier that day for about $380,000 from Lena and Percy Spellman, an elderly African American couple who had owned it since 1983.

Internal Habitat documents provided to ProPublica show that Habitat first targeted the property for acquisition the previous June, when it was still owned by the Spellmans.

Katz's lawyer said this was “incorrect,” but did not elaborate.

Property records show that the Spellmans did not sign a contract agreeing to sell the property to Katz until July 30.

“I'm not very up to date on real estate law, but I don't know how you can sell something you don't own,” said Jerome Spellman, the son of the building's longtime owners.  “And that's what he did.”

Habitat officials deny this was the case.  In a statement, they said Katz already had a binding contract in hand when they first learned about the property.  “There was no legal way Habitat-NYC could have directly purchased the property from the Spellmans,” they said.

Michael Kozek, a real estate lawyer, who reviewed the documents for ProPublica, said the Spellmans may have cause for complaint.

“The circumstances indicate something suspect,” he said.  “It appears that the Spellmans were deprived of the full value of their property.”

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