The D.C. government over the last two years has spent nearly 40 percent of its housing acquisition funds to purchase properties from developer Theodore R. Hagans Jr., a close personal friend of Mayor Marion Barry and the chairman of Barry's inaugural committee.
In one instance, the city's Department of Housing and Community Development altered the boundaries of its 14th Street urban renewal area in order to purchase a deteriorating 227-unit apartment building from Hagans at a cost of $1.6 million. The city also bought from Hagans eight renovated houses in the 2900 block of Denver Street SE for $440,000.
In addition to the purchases, the department has taken the unusual step of agreeing to subsidize the purchase of nerly two dozen $70,000 town houses by moderate-income families at Hagan's Fort Lincoln new town. Hagans has been unable to sell the homes on the private market for several months. Hagans stopped most construction at the new town several months ago because of his dearth of sales.
D.C. Housing Director Robert L. Moore, whose department has spent $5.4 million for properties over the last two years, defended the purchases, saying he buys from anyone offering a favorable price and the Hagans properties "were good deals."
The city buys the properties and then sells or rents them to low- and moderate-income families.
Hagans said the Fort Lincoln arrangement helps four elements: "the community, the city, the bank and the developer." Hagans is the developer. He declined yesterday to respond to a reporter's inquiries about his relationship with the mayor.
"The implication is that because of Ted's political relation to the mayor, he's getting some kind of political favoritism. That's just not true," said Barry's press secretary, Alan F. Grip.
"What Ted Hagans is doing," Grip said, "is coming in with a good deal for the city that puts people in houses. If the city is making a good deal, what does it matter who it is?"
Hagans' friendship with Barry has blossomed since shortly after Barry won the Sept. 12, 1978, Democratic primay and was subsequently elected mayor. Hagans generally supported former mayor Walter E. Washington in the three-way race between Washington, Barry and former City Council chairman Sterling Tucker.
But when Barry took office in 1979, it was Hagans who presided as chairman of the inaugual activities -- at Barry's insistence, according to some sources.
Hagan's who along with the Oliver T. Carr Co. is developing a $160 million project near the Metro Center subway stop downtown, is one of a handful of wealthy blacks in the city for whom Barry has expressed a special admiration.
Shortly before becoming mayor, Barry told an interviewer that he hoped he could double the number of successful, wealthy blacks in business during his first four years in office.
Since Barry became Mayor, he and Hagans have gone fishing at a home owned by Hagans on the Potomac River in Indian Head, Md. In May 1979, Barry flew to Philadelphia to campaign for an old friend who was running for mayor. Barry made the trip aboard Hagan's own six-seat plant, with Hagans serving as one of the copilots.
And last May, when Barry and his wife accepted a free $2,000 trip to Paris aboard TW Airlines but later were unable to go, Hagans took the mayor's place.
Barry declined yesterdy to elaborate on the property purchases or his relationship with Hagans. "My comment is to talk to Bob Moore about that," the mayor told a reporter.
The first city purchase of Hagans property occurred on July 2, 1979, when the housing department bouht the Cavalier Apartments at 3500 14th St. NW. "It was 227 units that were sitting there, half-vacant and deteriorating," said Moore.
The units are to be occupied by low-income tenants who will pay 25 percent of their income for rent. The city paid $1.6 million for the building. HUD placed the value of the building at $2.4 million earlier this year when it approved the renovation plans.So far, no renovation has been done and the building is about half occupied -- as it when the city purchased it.
The department could not have purchased the building with subsidy funds if it were not in the 14th Street urban renewal area, so the boundaries of the area were expanded to include the Cavalier.
Moore said the expansion and the purchase were necessary because not enough units were available in the originial area to satisfy all of the subsidy requests of the city had made. The purchase of the Cavalier allowed the city to acquire the potential units and avoid losing the federal funds, he said. Grip said Hagans has received only $300,000 of the money so far. The remaining $1.3 million will be paid later, Grip said.
There is disagreement on who initiated the second purchase of Hagan's property, which occurred nearly a year later while Hagans was renovating eight homes he owned in the 2900 block of Denver Street SE. Hagans said the city asked to buy the properties. Moore said Hagans offered them to the government.
The cit gave Hagans an interest free $274,041 loan to complete the renovation and then purchased the homes for $55,000 each for a total of $440,000. Later, they were sold to moderate-income families. Moore said the properties were valued at $65,000 by an appraiser hired by the department.
Moore said the city bought the homes because "instead of people waiting two years for a rehibilitation of a home, they could move in immediately."
Moore said Hagans initiated the Fort Lincoln arrangement two months ago by offering the houses to the city.
"They were sitting there vacant for more than a year. He could not sell them," Moore said.
The sale of the homes will help Hagans pay the Riggs National Bank part of the $750,000 it is still owed for financing construction of the section of town houses where the 22 homes are located. Hagans is also paying on a $1.3 million construction loan, also from Riggs, for another group of Fort Lincoln houses.
The Riggs bank is also taking the mortgages on the 22 homes at a 12.5 percent interest.
It is not unusual for the city to help moderate-income families buy homes in new developments such as Fort Lincoln, which was built in part with city funds.
But the housing department usually makes those arrangements in advance of construction, rather than stepping in after the developer encounters difficulty.
Hagans said he has 25 completed but unsold town house condominiums out of a total of 105. The city will find familes generally earning less than $27,000 to buy 22 of them.
The city will select the 22 new homeowners from a list it keeps of families whose incomes qualify them for subsidized housing. To reduce the prices of the homes, which generally sell for $76,500 to $79,500, the city will lend the families up to $16,000 for a down payment and Hagans will reduce the price by $13,500. He will then get back $9,500 of the reduction.
The city government owns the 330-acre Fort Lincoln site and is selling sections to Hagans one-by-one. The next time he buys a section, the already low sales price will be reduced by $9,500 for each of the 22 homes, Moore said.
Hagans will then have to sell the remaining three, which are priced at $104,000. In another part of the project he has 46 other vacant homes out of a total project of 90. He stopped construction in 40 of these and will finish them only when they are sold, he said.
Hagan's sales problems are similar to those faced by developers all over the area because high mortgage interest rates have slowed the housing market, Hagans said. Most families cannot affort to make the payments on mortgages with 14, 15 or 16 percent interest rates.
He saw he sales fall from 20 to 25 houses a month to their current level of about five a month. And he over-built and got caught with a large inventory when the high interest rates collapsed the market, he said.
"When I get the inventory down I will build some more, he said.
Hagans sees the sales slump as temporary. "Fort Lincoln is going to make it despite what everybody thinks . . . It's a chance for a minority to succeed. I have put all my little ducats on it," Hagans said.
The lack of housing sales is just the latest in a long series of difficulties to face Fort Lincoln new town, a city urban renewal project, which was haild at its inception in 1967 as a symbol of the Great Society's commitment to the revitalization of the cities.
Because of the lack of sales, there is more subsidized housing at Fort Lincoln than nonassisted homes. Thee are 484 public housing and subsidized units for the elderly built and occupied, and a high-rise building with 306 units of subsidized apartments for low-income families is currently under construction. By comparison, there are 434 unsubsidized rowhouses and pigyback town houses.