D.C. housing deal shows much spent but less accomplished
By Debbie Cenziper and Nikita Stewart,
The deal was forged in 2008 when a fledgling nonprofit group with political connections promised to turn distressed apartment complexes into badly needed homes for troubled young men.
Peaceoholics had never bought or repaired a building. It had never operated affordable housing. It had no construction money from private lenders and less than $27,000 cash on hand.
But the D.C. Department of Housing and Community Development delivered $4.6 million to the organization so it could buy three apartment complexes and launch renovations. Then-Mayor Adrian M. Fenty (D) hailed the project as a way to help at-risk men transitioning out of foster care.
(Read the Q&A with the authors of this story )
Instead, the project became something of a spending free-for-all for developers and contractors who knew redevelopment money was out on the street and in the hands of a novice nonprofit with unchecked authority to spend it, records and interviews show.
The project was overseen at the housing agency by a top manager with real estate interests of his own who, along with other housing officials, often failed to impose fundamental spending rules and regular oversight. Instead of competitive bidding, Peaceoholics did business with friends and associates. Work often wasn’t tracked or documented.
Officials at Peaceoholics said they tried to keep the project on course. “It was our dream,” said co-founder Ron Moten. “We saw a need for housing.”
The ill-fated project, which is now under council scrutiny, underscores the city’s years-long struggle to build and renovate housing for the poor. Time and again, the housing agency has poured millions in local and federal money into affordable housing projects that were delayed, over budget or riddled with undocumented costs.
“We got a call from someone we’ve known for years,” said Edward P. Wilson III of Anne Arundel County, whose company sold one of the three buildings to Peaceoholics. “He said, ‘We’ve got some guys with a bunch of money for this program. . . . I said, ‘Are you kidding? Let’s go.’ ”
When the project faltered in late 2010 without a single unit delivered, top managers at the housing agency quietly changed the course of the deal, records show. Without review or approval from the D.C. Council, they replaced Peaceoholics with a new developer — then invested another $900,000 in local and federal funds.
The project went downhill from there.
The new developer, Richard Hagler of Calvert County, has faced more than a dozen lawsuits in the District and Prince George’s, Calvert and Montgomery counties alleging such problems as shoddy construction and breach of contract. Hagler, 54, who does not have a home improvement license in the District or Maryland, has filed for bankruptcy three times since 2000 and recently lost his house to foreclosure.
Hagler did not return repeated calls seeking comment or answer a letter sent to his home.
Records show Hagler promised to complete the renovations and fill the units with low-income tenants. A year later, one of the buildings is still vacant, and tenants in another list several complaints, including dangerous conditions, a lack of basic maintenance and pricey fees for parking and washing machines. One tenant said she is paying Hagler market-rate rent of nearly $1,000 a month.
Teka Adams, a mother of two who was formerly homeless, struggles with a hole in her ceiling and another in a bedroom closet with exposed electrical wiring. At the building next door, she said tenants use a butter knife to jimmy a front door that is chronically jammed.
“I’ve been here since April. I’ve had to call [Hagler] at least 50 to 60 times,” said Adams, 31, whose $959-a-month rent to Hagler is paid by a nonprofit transitional housing program. “I take care of this apartment. It’s a hazard to my children.”
Two other tenants interviewed by The Post said they were enjoying their new homes.
D.C. Council member Jim Graham (D-Ward 1) has been raising questions and requesting documents from the housing agency since October. On Saturday, Graham and D.C. Council member Michael A. Brown (I-At Large) e-mailed the city’s inspector general and attorney general calling for an investigation.
“D.C. taxpayers were robbed,” Graham said. “No one in the D.C. government was supervising what was going on. As a result, costs ballooned, suspicious if not fraudulent deals were made, the law was ignored, and ultimately the only ones to benefit were those who were out to make a buck.”
John E. Hall, who became director of the housing agency in April, has been trying to sort through the details of the deal, which has so far cost $5.5 million. On Friday, one day after The Post began asking questions about the project in a meeting with city officials, the housing agency moved to terminate its chief program officer and place a project manager on administrative leave.
“I’m trying to assess the best route for the District,” Hall said.
Hall, who would not comment on personnel matters, said the agency failed on a number of fronts, such as ensuring from the start that Peaceoholics could spend the public’s money wisely and was immune to pressure and politics.
“They were probably getting lots of calls,” Hall said. “It was definitely feasting time for Peaceoholics during the Fenty administration.”
The Post studied dozens of deeds, mortgages, loan documents, government e-mails and budgets, and interviewed the founders of Peaceoholics and others with direct knowledge of the deal.
It started in March 2008 when Peaceoholics proposed buying four apartment complexes in Southeast and Northeast Washington to create independent housing for young men.
The nonprofit group was among the most connected in the city: It was run by Moten and Jauhar Abraham, who had risen from criminal backgrounds to become gang reformers and mediators in some of the city’s toughest neighborhoods. Moten had grown up alongside Fenty in Northwest, where Moten was a drug dealer when he was young.
When Anthony A. Williams (D) was mayor, Peaceoholics struggled to gain city funding. After Fenty became mayor in 2007 on a platform of education reform, however, millions in city funding poured in for the group, which employed 80-plus workers and consultants at its peak.
Fenty did not return repeated calls seeking comment.
Peaceoholics had never tried anything as ambitious as building and operating independent housing, which would involve millions in construction money from the housing agency and hundreds of thousands in operating funds and support services from two other city agencies.
In August 2008, the housing agency awarded Peaceoholics a $600,000 loan for pre-development and other so-called “soft costs.”
In e-mails, council member Graham has repeatedly asked the city for invoices, receipts and other documents to justify Peaceoholics’ spending. To date, few records have been produced.
Abraham, co-founder of Peaceoholics, said receipts were submitted to the housing agency but he does “not know where that stuff is now.”
He added: “Nothing was done with the intent . . . to defraud the government.”
The housing agency provided to The Post a summary that showed Peaceoholics spent money on legal fees, environmental work and development consultants, but the records contain few details. Housing officials said they are searching for more documents.
One of the documents provided by the city shows that Hagler first entered the deal in 2008 to do a marketing and zoning analysis for Peaceoholics. Although Hagler is a contractor, Abraham said Hagler appeared qualified to do the in-depth report. Hagler submitted two invoices totaling more than $200,000 for the work.
Abraham said he had known Hagler for the better part of two decades. Abraham had worked as a boxing promoter earlier in his life and said that he met the Hagler family through those connections.
“Eventually, we developed a relationship,” Abraham said. “We have families. We have a lot of associations, a lot of people who know each other.”
Abraham said he was unaware of Hagler’s past. Just two years before he was hired by Peaceoholics, for example, Hagler agreed to settle a civil lawsuit in Prince George’s County by paying more than $400,000 to a couple who had hired him to rebuild their home after a fire. According to the complaint, county inspectors found Hagler had not obtained a valid construction permit, and they ordered the work stopped; a private inspector later found the renovations to be substandard.
Abraham said that he would have hired Hagler anyway and that Hagler did good work. Abraham said Hagler followed through on a promise to hire Peaceoholics’ clients for some of the renovations. “All of us had to be given a chance by somebody,” Abraham said about Hagler. “That stuff didn’t matter to me.”
The housing agency did not question the hiring of Hagler, Abraham said.
Hall, the agency’s current director, criticized the hands-off nature of city housing managers. He said competitive bidding was not required at the time, but it should have been.
The housing agency director at the time was Fenty appointee Leila Finucane Edmonds, who referred questions to the housing agency. Chris Earley, chief program officer, said staff at the housing agency was told by Edmonds to push the project along. Earley said he was dismissed by Hall late last week.
“This was top down — get the deal done,” Earley said just hours after he learned he would be terminated. “The agency received a mandate to make sure the project moved forward, from the mayor, city administrator, on down through the director. When you receive a directive from your [boss] and you don’t do it, what happens? You get fired.”
D.C. puts in more money
In late 2008, records show, the District’s investment in the Peaceoholics project grew: Fenty urged the D.C. Council to support a $4.4 million loan so the nonprofit could buy and renovate four properties in Wards 5 and 6, which would produce a total of 35 units. Peaceoholics eventually used about $4 million of that money.
The properties, however, were different from the ones on the original list. The new list included an apartment complex on Meigs Place NE that had been purchased by a company headed by developer David Tolson, a business partner of Fenty’s longtime campaign treasurer, Ben Soto. Soto said he is not involved the Peaceoholics deal.
Tolson had his own connection to Hagler. In a 2007 transaction unrelated to the Peaceoholics project, Tolson’s company had lent Hagler $355,000 to finance a Southeast property. The seller was a company run by Edward Wilson, the Anne Arundel businessman, according to property records and interviews.
In early 2009, Peaceoholics added another new property to the list, a vacant building on Congress Street SE. The property had been purchased months earlier by a limited-liability company. The owner: Wilson.
In March 2009, the housing agency approved the purchase of the two properties, along with a third one owned by a D.C police officer.
For Tolson’s property, Peaceoholics paid $2.35 million — more than quadruple what Tolson’s company had paid about a year earlier.
For Wilson’s property, Peaceoholics paid $400,000 — four times what Wilson’s company had paid about seven months earlier at a tax sale.
Both Tolson and Wilson, however, said they did not profit.
Wilson, 58, said his interest in the Congress Street property began in 2005 when he bought the note on the property and assumed the role of lender. He said he paid off hundreds of thousands of dollars in liens, back taxes and other fees associated with the property before he became the owner in 2008.
“We didn’t even break even,” he said.
Tolson said that he had lost hundreds of thousands of dollars on a defaulted loan to the former owner of the property on Meigs Place, then paid thousands more for repairs to the property before Peaceoholics bought it.
Abraham said he found the Tolson property through one of Peaceoholics’ clients, a young man who had been working with Tolson. Abraham said he found the Wilson property after receiving a call from local mortgage banker Jose Strickland, 44.
“Everyone knew we had just gotten public money,” Abraham said. “People were just calling, wanting to meet. . . . Strickland said he had a building.”
Wilson and Strickland had done business together for years, records show, with Wilson’s company providing loans for a series of properties purchased by Strickland. Strickland did not return calls requesting comment. Soto, an attorney who has represented Strickland in the past, said he was unaware of Strickland’s involvement in the project.
Wilson said he paid Strickland a $38,000 “finder’s fee” after Peaceoholics bought his building. “The condo market had collapsed,” Wilson said. “We were glad to be rid of it.”
Tolson said Peaceoholics approached him about buying his building. He acknowledged knowing Hagler, saying Hagler had done construction work years ago for people who had borrowed money from Tolson.
Tolson said he was unaware of Hagler’s involvement in the Peaceoholics project.
‘I scratch your back’
With the properties in hand, Peaceoholics brought in Hagler to make renovations, with at least $315,000 earmarked to his company, according to a schedule of costs submitted to the city. Earley, the program officer at the housing agency, said staff members at the time thought Hagler had the ability to get the work done.
“I didn’t know about a bunch of things that Mr. Hagler apparently has been part of. If I’d known that, I would have been like, ‘Wait a minute. Let’s make sure these guys use a different contractor,’ ” Earley said.
In 2010, about a year after the city funded Peaceoholics, the group said it needed more money for renovations. Abraham said banks had refused to finance the work, so he accepted a $1.6 million loan from a company managed by Wilson, who had sold Peaceoholics the property on Congress Street. Wilson’s loan has an 18 percent interest rate for late payments.
“I said, ‘Hey, maybe we can finally make a little bit back on the loss” from the sale on the property, Wilson said.
In loan documents, Wilson insisted that Hagler be used “exclusively for all repairs and renovations.” And Wilson went a step further: He insisted that $400,000 be immediately paid to Hagler.
Abraham said he was fine with that. “I owed both of these guys,” he said.
Wilson said he made the $400,000 a stipulation so Hagler could get a “big jump” on construction. Wilson also said Strickland had wanted to bring Hagler into the deal.
“Jose brought me the deal, and Jose was partners with Hagler,” Wilson added. “I said: ‘Okay. That seems fair. I scratch your back. You scratch mine.’ ”
When Wilson provided the loan money, city housing officials agreed to put up as collateral all three of the properties that Peaceoholics had purchased with city money, putting Wilson in the first position to claim the properties if Peaceoholics defaulted on his loan.
“That sounded like a sweet deal,” Wilson said. “I hold the upper hand.”
Hall, the new housing agency director, said the agency should not have offered all three buildings as collateral. “It doesn’t make sense to me,” he said.
At the housing agency, the Peaceoholics deal was overseen by project manager Ray Slade, who in addition to managing redevelopment projects for the city has for years taken part in real estate transactions as a private citizen.
Records show Slade, 57, of Upper Marlboro has purchased about 17 properties in the District and Prince George’s County since 1995, with a total price of more than $3.5 million. He started at the housing agency in 2003 and earns $115,000 annually, city records show.
In recent years, records show, Slade has sold or transferred properties to two of his co-workers at the housing agency: Earley, chief program officer, and another manager who left the agency last year.
Slade, who city sources said will be placed on administrative leave, did not return calls or respond to a letter sent to his home seeking comment.
When asked about the transactions, Hall said, “Just to know that I have a staffer who has . . . real estate transactions and that I have people who work together doing business together, that is a no-no.”
In late 2010, Slade sounded the alarms at the housing agency about needing a new developer for the Peaceoholics project, writing in a memo to Edmonds, then the agency’s head, that the nonprofit was flailing and the deal was on the ropes.
He recommended the housing agency do a “due diligence review” of a new borrower: Hagler’s newly created company. Two months later, Slade said the vetting of Hagler’s company was “75-80 percent complete and has been favorable to date.”
Slade also recommended the city immediately send as much as $900,000 in additional funds to Wilson to pay down Peaceoholics’ construction loan.
Slade sent his recommendations through Earley, who in 2009 had been given sole ownership by Slade of a property in Northwest they had jointly purchased two years earlier for $359,000, records show. Earley said it was a private transaction and had nothing to do with his work for the city.
The housing agency signed off on the transfer of the three buildings to Hagler and the payment to Wilson without approval by the D.C. Council. Earley said he did not think the deal needed approval.
The housing agency released Peaceoholics from the project with no liability.
“The very fact that this transaction was approved by the council, then later changed in a major way and not resubmitted, raises questions of law and procedure,” council member Graham said.
Hall acknowledged that the housing agency’s vetting of Hagler was poor, saying, “There are shortcomings of our due diligence not just that we need to fine-tune but we need to revamp.”
However, Hall said the city’s investment is protected because Hagler owes the city all of the money invested in the project so far, a total of $5.5 million.
But Hagler also owes Wilson more than $1 million — and Wilson’s loan is backed by the three buildings. Hagler is behind on his payments, and Wilson said he could foreclose at any time, which would diminish or even eliminate the city’s investment.
On Friday, Hagler was supposed to meet with tenants to discuss their complaints about a lack of maintenance and shoddy repair work. The night before, however, he showed up and made fixes.
“He apologized,” said tenant Ronald Bell. “He said he’s been having a lot of issues.”
Researcher Jennifer Jenkins contributed to this report.