A pattern of HUD projects stalled or abandoned

May 14, 2011

The federal government’s largest housing construction program for the poor has squandered hundreds of millions of dollars on stalled or abandoned projects and routinely failed to crack down on derelict developers or the local housing agencies that funded them.

Nationwide, nearly 700 projects awarded $400 million have been idling for years, a Washington Post investigation found. Some have languished for a decade or longer even as much of the country struggles with record-high foreclosures and a dramatic loss of affordable housing.

The U.S. Department of Housing and Urban Development, which oversees the nation’s housing fund, has largely looked the other way: It does not track the pace of construction and often fails to spot defunct deals, instead trusting local agencies to police projects.

The result is a trail of failed developments in every corner of the country. Fields where apartment complexes were promised are empty and neglected. Houses that were supposed to be renovated are boarded up and crumbling, eyesores in decaying neighborhoods.

In Inglewood, Calif., a sprawling, overgrown lot two blocks from city hall frustrates senior citizens who were promised a state-of-the-art housing complex more than four years ago. Although the city invested $2 million in HUD funds, the developer doesn’t have the financing to move forward.

In Newark, two partially completed duplexes sit empty in a neighborhood blighted by boarded-up homes lost to foreclosure. The city paid nearly $400,000 to build the houses, but after a decade of delays, the developer folded and never finished. The money has not been repaid.

In Orange, Tex., 35-year-old laborer Jay Breed lives next to a dumping ground littered with tires and other trash, where a nonprofit developer was supposed to build 50 houses for the poor. Five years later, with $140,000 in HUD money gone, no homes have gone up.

“It’s a wasteland,” Breed said.

The Post examined every major project currently funded under the HUD program, analyzing a database of 5,100 projects worth $3.2 billion, studying more than 600 satellite images and collecting information from 165 housing agencies nationwide.

The yearlong investigation uncovered a dysfunctional system that delivers billions of dollars to local housing agencies with few rules, safeguards or even a reliable way to track projects. The lapses have led to widespread misspending and delays in a two-decade-old program meant to deliver decent housing to the working poor.

The Post found breakdowns at every level:

• Local housing agencies have doled out millions to troubled developers, including novice builders, fledgling nonprofits and groups accused of fraud or delivering shoddy work.

• Checks were cut even when projects were still on the drawing boards, without land, financing or permits to move forward. In at least 55 cases, developers drew HUD money but left behind only barren lots.

• Overall, nearly one in seven projects shows signs of significant delay. Time and again, housing agencies failed to cancel bad deals or alert HUD when projects foundered.

• HUD has known about the problems for years but still imposes few requirements on local housing agencies and relies on a data system that makes it difficult to determine which developments are stalled.

• Even when HUD learns of a botched deal, federal law does not give the agency the authority to demand repayment. HUD can ask local authorities to voluntarily repay, but the agency was unable to say how much money has been returned.

The D.C. region has a particularly troubled track record. In Prince George’s County, the nonprofit Kairos Development Corp., received $750,000 in 2005 to build dozens of homes. Six years later, Kairos has not built a single house.

“When Kairos came along, I thought this would be something that would help the community,” said Clinton Adams, a local landowner who discussed selling property to Kairos. “What did they do with the money?”

Dozens of housing agencies nationwide acknowledge botched deals and often blame the economy for leaving developers without financing to finish the work.

But hundreds of stalled projects predate the troubled financial markets, with developers tapping HUD’s program for easy money and then escaping even rudimentary oversight from local and federal authorities. The agency’s inspector general for years has chronicled scores of delayed projects and millions in waste.

“We need to reduce the risk for HUD funding in development deals,” said Annemarie Maiorano, who manages HUD money for Wake County, N.C. “There needs to be basic standards.”

HUD officials said they have recently tried to determine why developments are delayed and have begun to cancel projects. In response to inquiries from The Post, the agency last month launched investigations into a series of defunct deals, finding questionable payments and excessive delays, and in recent weeks has sought the return of more than $4 million from housing agencies in the District and Prince George’s County.

“We can do better and we will,” said Mercedes Marquez, HUD’s assistant secretary for community planning and development, who was nominated by President Obama in 2009. “HUD, the Congress and every taxpayer I know expects these funds to be put to work. . . . I won’t hesitate to do what’s necessary.”

A program that began with great promise for the poor

Past HUD scandals have involved misused vouchers for rental properties, unsafe conditions in public housing and corruption in grant-making programs. The Post’s investigation is the first systemic look at the progress of construction in HUD’s affordable-housing fund, known as the HOME Investment Partnerships Program.

The program launched with great promise two decades ago, when Congress vowed to fund the construction or renovation of thousands of apartments and houses for working-poor families.

Since 1992, HUD’s vast main office on 7th Street in Southwest Washington and its 43 field offices have overseen $32 billion in funding, which is distributed in block grants to 642 cities, counties and states. They, in turn, partner with developers, giving out grants or loans with generous terms such as delayed repayment, low interest rates and outright forgiveness of debt.

HUD’s money typically doesn’t cover all construction costs. The program is meant to provide partial funding for developers who are expected to draw additional financing from banks and other sources.

Clearly, building in blighted neighborhoods can be challenging, with private financing and political will hard to come by. Over the years, local housing agencies and their development partners have completed thousands of projects.

But hundreds of current projects have faced years-long delays, with a similar pattern playing out in city after city.

Behind many of the deals are developers who didn’t have land, permits, financial capacity or commitments for private financing. HUD has few underwriting standards: Housing agencies are required to ensure that developers have a proposed budget and construction schedule — but not proof that they have the money to start building.

Other developers have had little housing experience or were dogged by foreclosures, cost overruns, liens and allegations of defective work. In most cases, HUD requires only that housing agencies ensure that developers have not been barred from doing business with the federal government.

HUD officials say local agencies are supposed to apply their own rules and choose developers capable of beginning construction within a year and eventually completing the job. “This is what comes with having the flexibility of a block grant, where you respect local decisions,” Marquez said.

In the District, which receives $9 million annually in HUD housing construction funds, the lapses have produced a series of troubled projects.

Alicia Marshall was a 33-year-old novice landlord in 2004 when she bought an aging, six-unit apartment building on Foote Street NE for $245,000. Within months, city inspectors cited Marshall for code violations that included leaks, cracked ceilings, broken doors and no heat.

Marshall agreed to renovate if tenants gave up their rent-controlled units. Although she had little construction experience, the District gave her $600,000 in HUD funds in 2008.

A project plan in city files noted that Vincent Ford, the former D.C. chief building inspector, would oversee the renovation. Ford, however, told The Post that he did not act as the project manager. “Didn’t happen,” he said.

The plan also noted that the construction work would be done by Calvert County resident Richard Hagler, 54, whose company, according to the plan, had worked for government agencies, built custom homes and refurbished apartment buildings. The Post found that Hagler and his companies have faced a string of civil judgments, and in 2006 agreed to a $250,000 settlement after being sued for shoddy construction. He has declared bankruptcy three times in the last decade, records show.

Neither Marshall nor Hagler responded to calls or letters seeking comment.

In 2009, Marshall’s building twice failed District construction inspections, a city official said. Later that year, after months of delays, the city approved a certificate of occupancy.

But evidence of substandard work continues to crop up. Soon after retired truck driver Grady Baxter moved in last year, part of his bathroom ceiling collapsed and sewage from the apartment upstairs soaked the walls.

“They started work on it,” he said, “but didn’t come back.”

The D.C. Department of Housing and Community Development defended the project. “Marshall assembled a skilled team to manage the renovations,” spokeswoman Najuma Thorpe said.

When contacted by The Post last month, HUD officials initiated an investigation into the quality of construction.

Many nonprofit agencies lacking in experience

One of the few rules HUD imposes actually contributes to the number of failing projects. Federal law mandates that housing agencies give 15 percent of their funding to community-based nonprofit groups, which are often undercapitalized and lack experience.

“Development is hard for developers. It’s complex. It’s risky,” said Maiorano of Wake County. “Then there are these mom and pops who don’t know things . . . we’re asking them to try to do something that they have no experience in.”

In Newark, the Department of Economic and Housing Development invested more than $2 million since 1995 in five projects that promised dozens of new homes. But every development ran aground when the developers, mostly small nonprofits, could not complete the work or fell into foreclosure, records show.

On South 13th Street in the shadow of downtown Newark, children play next to an empty lot filled with trash and mattresses, where a nonprofit developer drew $50,000 but built nothing. “It’s just dirt,” said eight-year-old Shakina Boulding. “There should be grass and flowers.”

One mile away, on a distressed stretch of Littleton Avenue, two partially completed duplexes that cost the city nearly $400,000 sit empty behind an unlatched fence.

“They’ve been like that for over seven years now,” said Wade Tapp, 45, a recreation center director who owns an apartment building across the street. “It’s quite shameful.”

Newark’s new housing chief, Michael Meyer, said he is trying to recoup money and change the city’s policies. “The public has not gotten what it intended to get when we started these projects,” he said.

Two of the most troubled projects in the D.C. region were proposed by Kairos Development Corp., which won $400,000 in HUD funding from Prince George’s County in May 2005 after promising several houses and an apartment complex with as many as 150 units on a winding, rural stretch of Middleton Lane in Camp Springs.

The nonprofit had little construction experience, offered none of its own money and had no other funding committed to the project, records show.

Kairos eventually bought two properties with the HUD money, but six years later, nothing has been built.

At the same time in 2005, Kairos received a second HUD loan from the county, for $350,000, for 56 condominiums proposed on a wooded hillside on Naylor Road near the District line. The nonprofit did not own the land or have permission to build on it.

The owners of the property were Lashelle Adams, a hairdresser, and her father, Clinton, who ultimately decided not to sell to Kairos.

The project exists now only as a three-digit number on HUD’s books.

Harold Davis, executive director at Kairos, blamed the delays on the economic downturn and a surplus of condominiums in the region, adding that the money was spent on architectural, development, legal and consulting fees. In a written response to The Post, he said the Naylor Road project became “unfeasible due to significant change in selling prices.” He said the Middleton Lane project is still viable.

County spokeswoman Angela Wright said a new administration has no knowledge of either project. Kairos was allowed to keep the HUD money; the county wrote off both loans. It is unlikely that the group could repay anyway: On its 2009 tax return, the nonprofit reported that it was $1.2 million in the red.

When contacted by The Post, HUD officials said the loans made to Kairos were excessive. Last month, federal officials sent a letter to Prince George’s County seeking the return of nearly $550,000. HUD has also banned Prince George’s County from awarding any more money to community-based groups without the agency’s approval.

“I’m appalled, just appalled,” said Marquez, HUD assistant secretary. “We’re just not standing for it.”

A resident asks,
‘Where did the money go?’

At the heart of the problem lies HUD’s failure to track the pace of construction.

HUD monitors only when local agencies draw money from their federal accounts, not what is actually being built. That leaves HUD with little way of knowing when projects stall or die. Local housing agencies are supposed to notify the federal government, but they often fail to say anything.

“If [housing agencies] fail to terminate projects as they should, we may not be aware of them right away,” Marquez said.

She said that it is not feasible for HUD to monitor thousands of ongoing developments and that local agencies should have their own project-tracking systems.

The Post independently analyzed HUD data to find about 700 troubled projects that were awarded $400 million.

But the actual number of stalled or terminated projects is likely to be much higher. The Post identified an additional 2,800 projects worth $1 billion that are in “final draw,” meaning the projects drew all of their allotted HUD funding but are still listed as open and ongoing in HUD’s records.

In some cases, the work was completed, but local agencies had failed to tell HUD. In other cases, however, projects were delayed or scrapped. The Post found abandoned projects in final draw from Texas to Florida to the D.C. region.

One dead project listed in final draw was proposed for downtown Rockville, where the nonprofit Montgomery Housing Partnership received $550,000 in 2008 to build a 109-unit apartment building.

The project struggled with funding gaps, opposition from neighbors and a lack of support from elected officials. Three years later, nothing has been built.

Montgomery Housing Partnership President Robert Goldman said the development is no longer viable and the nonprofit is hoping to roll the money into a future project. “This is really a very unusual circumstance,” he said.

The nonprofit had another project go bad adjacent to that empty lot.

In the 1990s, the group renovated a 14-unit building that was later condemned with leaks and mold. It is still shuttered, with a sign on the front door that warns, “Dangerous and Unsafe.”

One of the oldest unfinished projects in the country sits on a desolate stretch of High Street in Southeast Washington, where the shells of three apartment buildings rise above overgrown brush and rotting heaps of trash. In 2001, the District delivered nearly $800,000 in HUD funding to the nonprofit Safe Haven Outreach Ministry, but a decade later, no renovations have been done.

A neighbor posted a makeshift sign in front of the rubble: “Celebrating Life in Anacostia.”

Nearby resident Bernadine Thomas wants to move into a refurbished apartment but can’t find one that she can afford in a region with some of the highest rents in the country. She drives by the unfinished buildings on High Street and imagines a different life.

“Where did the money go?” said Thomas, a 60-year-old retired apartment manager who has lived for three years in a leaky complex that reeks of sewage. “I’ve worked all my life. All I want is a decent place to live.”

Marsha Richerson, Safe Haven’s executive director, said that the nonprofit did not anticipate problems getting permits and private funding, and that the housing agency was aware of the delays.

“They knew everything,” she said. “They knew we had a credible defense.”

City officials extended Safe Haven’s construction deadlines, hoping the project would eventually be completed. The agency “makes every attempt to work with developers to bring these projects to fruition,” said Thorpe, the D.C. housing agency spokeswoman.

In December, HUD identified the project as stalled through an audit and asked the District to repay the $800,000. So far, no money has been repaid. District officials said they are going to ask HUD to reconsider.

HUD can’t compel local authorities to repay

Even when HUD learns of a bungled deal, federal law does not give the agency the ability to compel local authorities to repay. HUD can only ask agencies to voluntarily return money by replenishing their federal accounts from local funds, essentially moving their own money around. HUD officials said local authorities almost always comply when asked to repay. HUD, however, could not provide statistics on how much has been returned. Officials said they have not felt a need to compile the data because it is tracked by HUD field offices.

The agency can reduce grants to housing agencies if HUD funding is not spent quickly enough, which creates pressure to move money out but does not ensure that construction is completed. Grant reductions for missed spending deadlines have happened just 20 times since 1992, with HUD taking back a total of $7.5 million, The Post found. Much of the money came from Prince George’s County, which last year forfeited $2.2 million.

HUD also has an enforcement center staffed with lawyers who can pursue repayments before an administrative law judge or in a criminal case in federal court. The agency has taken five cases to enforcement since the program began two decades ago, recouping about $19 million, The Post found. The agency has never taken a case to court.

HUD officials said they don’t need a more robust enforcement effort, again citing the success of voluntary repayments.

Marquez said the agency is focused more than ever on delayed projects and recouping money.

“This will get cleaned up,” she said.

Staff researchers Jennifer Jenkins, Meg Smith and Julie Tate contributed to this report.

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