Federal housing officials have arranged to sell seven housing projects, without competitive bidding, to a company that includes Edward L. Weidenfeld, the lawyer for President Reagan's campaign committee, and Weidenfeld's wife, Sheila, who was press secretary to former First Lady Betty Ford.
In an unusual, $11 million package deal, top officials at the Housing and Urban Development Department decided to bypass the standard procedure of putting the government-owned apartment buildings up for bidding at a public auction.
This decision was approved by Philip D. Winn, who until recently was the assistant housing secretary in charge of such HUD properties. The idea was proposed to him by Sheila Rabb Weidenfeld, who had served on a Reagan transition advisory group dealing with housing and historic preservation. Other HUD officials have tentatively approved the sale and say they expect to sign the final papers within several weeks.
Sheila Weidenfeld owns 20 percent of the stock in First American Housing Preservation Corp., which she helped form last fall to acquire these HUD-owned properties. Edward Weidenfeld, who still handles leftover legal matters for the Reagan-Bush Committee, is a director of the company and has represented the firm as an attorney in the negotiations.
Federal records show that the sale of seven properties in the New York area includes a variety of financial benefits for the company: a below-market mortgage rate of 11 1/2 percent; a potential profit that HUD estimates at more than $1 million; tax breaks that can both be used by the partners and sold to outside investors for more profits; a separate fee for managing the buildings; and a sales price nearly $600,000 less than HUD officials estimate the buildings might bring on the open market. In addition, HUD will lend most of the firm's $4 million down payment back to the company at just 2 1/2 percent interest and allow the firm to convert two of the buildings to condominiums.
The Weidenfelds, HUD officials and partners in First American Housing all say there is nothing improper about the noncompetitive sale. They say that HUD has a notoriously poor record in managing such properties and is losing money every day by holding onto them. By selling the buildings as a package, they say, HUD is unloading rundown properties along with the more desirable apartments, producing some income for the government and letting private industry improve living conditions for the tenants.
"I think it's a pretty straight deal," Sheila Weidenfeld said. "I'm not in a position to do anyone a favor or have a favor given to me. I can understand why people would raise eyebrows . . . but I was just a catalyst for an idea. I wanted to do something to save these buildings, which are a national resource."
"Anybody who made the effort to figure out how HUD works could have opened the door for consideration of this proposal," Edward Weidenfeld said. "First American spent months structuring a package that would be good for the government, the tenants and the company. HUD's decision to negotiate this package is based on the benefits to HUD, not the people who came up with the idea."
Winn, who tentatively approved the deal in March just before leaving HUD to run for governor of Colorado, did not respond to requests for comment.
Winn's successor at HUD, acting assistant secretary Philip Abrams, said: "The advantage the Weidenfelds have gotten is through their ingenuity in coming to the department first. If they came up with a bummer of an idea, we would have politely said no."
Sheldon S. Goldstein, a prominent New York developer who is chairman of First American Housing, said his new firm is among the few that have the money and managerial experience to improve some of the deteriorating buildings.
"If you're saying this is a giveaway because there's no bidding--absolutely no way, shape or form," Goldstein said in an interview in his Rockland County, N.Y., office. "This is a super deal for the government. Our gamble is high, but we think we can make money at it."
He said he joined with Sheila Weidenfeld because "she brought in the idea and she deserves something for it. She's a very aggressive woman. She's helped us tremendously. She was able to take the idea and make the appointment" with HUD officials.
"What do we know? We couldn't pick up the phone and get the assistant secretary of HUD on the other end," Goldstein said.
The Weidenfelds' role, he added, "is not gratuitous. They're looking at 20 percent of the profits of this company."
The 1,146 apartments in New York, New Jersey and Connecticut--which range from luxury buildings to subsidized low-income housing--are among 260 properties nationwide that HUD has taken over because the original owners defaulted on their government-backed mortgages. Most of the buildings that HUD has sold in recent years have been bid at public auction, at the market rate of 13 to 16 percent interest per year on the loans; with few exceptions, the remainder were sold without bidding to public housing authorities and nonprofit firms.
Roy S. Demmon, Abrams' top assistant, has prepared for Abrams a written justification for selling the projects to a profit-making developer, saying that at least two of the properties are not marketable. In recent weeks, Abrams and Demmon, both Reagan administration appointees, also abolished the panel of career officials that until now handled all property sales.
The discussions began last Sept. 15, when Sheila Weidenfeld met with Winn at his HUD office and explained her idea to buy a group of HUD properties that were languishing in foreclosure. When Winn expressed interest, Weidenfeld met Goldstein through a mutual friend and sold him on the concept. Two days later, they formed First American Housing, along with several partners.
In October, Edward Weidenfeld, who got to know Winn during the Reagan transition, asked Winn if he would meet with Goldstein in New York. Two weeks later, Winn sat down with Goldstein and his staff in a hotel suite at the World Trade Center, where the developers staged what Demmon called "a dog and pony show," including a videotape that touted the partners' previous building projects.
Winn told Goldstein to draw up a proposal and to work out the details with a private consultant Winn had hired at HUD's New York office. Weidenfeld met again with HUD officials in Washington, and by December, First American Housing had proposed to buy five HUD-owned projects, an offer that later was expanded to include two more properties.
Sheila Weidenfeld said the firm has paid her consulting fees for helping with the negotiations, although she would not specify the amount. While she has paid for her stock in the company, she said she is not sure how much money, if any, she will personally invest as her share of the purchase. "I'm very confused on the whole thing," she said. "I don't have any real business sense."
On March 15 Winn's office wrote Edward Weidenfeld that "we hereby accept your proposal."
"We are getting a price close to what we could get through the normal process," HUD's Abrams said. "It's a promising idea to get rid of the dogs the worst properties ."
A typical project on the list is Sherwood Village, three faded brick buildings in Queens where the three-bedroom units rent for $570 a month. The predominantly Hispanic tenants keep the apartments in tidy condition, but the buildings are plagued by leaking roofs, graffiti-covered stairwells, rotting wooden window frames and rusty fire escapes. A few weeks ago, thieves broke into one building's mailboxes and made off with the mail, including some residents' welfare and Social Security checks.
The most deteriorated building is near Goldstein's office, in Spring Valley, N.Y., where the tenants are mostly black and their rents mostly subsidized by HUD. More than 40 apartments are flooded and uninhabitable, dozens of windows are boarded up and teen-agers congregate outside on a dirt road littered with abandoned cars.
Several of the buildings are attractive properties, and the deal allows First American to convert two of them to condominiums. One of these is Mount Prospect, an air-conditioned Newark high-rise, with balconies and an indoor garage, that HUD officials say could be worth more than the $500,000 sales price.
HUD officials point out that they are limiting the company's profits to a 10 percent return on investment. First American officials say that is about what they usually make on real estate transactions, and that the fee doesn't include their major financial benefit of selling the tax deductions.
After taking a substantial tax write-off on their own investments, company officials say they will sell shares in each building project to high-income investors, who can thereby reduce their taxable income. "Without the tax breaks, you can take the whole thing and forget it," Goldstein said.
On four of the properties, the government is providing 40-year mortgages at 11 1/2 percent interest, with the entire sum payable on demand after 15 years. HUD also plans to pay management fees to three related management companies operated by Goldstein's son, Jeff, who already runs two of the buildings.
HUD officials also have agreed to return most of the firm's $4.1 million down payment for repairs and renovation, which developers generally have to finance on their own. HUD says it will lend back to the company $3.5 million, in the form of second mortgages at 2 1/2 percent interest, to fix up four of the buildings.
John F. O'Connell, First American's president, said these favorable terms are more than offset by other risks and liabilities the company is assuming. For example, he said, the firm will have to absorb substantial operating losses while renovating the buildings, which he called "a gamble" that could cost far more than expected.