Saturday, May 2, 2015

The Math, 51 for 464,000,000

The Math, 51 for 464,000,000
On Monday April 27th Mayor Bowser broke ground on 3825 Georgia Avenue a Deputy Mayor for Planning and Economic Development (DMPED) negotiated deal.  With this deal, conservatively doing the Math on back a napkin, Donatelli Development would have paid $51 for public-private deals valued at $464,000,000.  This is on just 6 DMPED negotiated public-private partnerships.  If that was not enough, to reduce Donatelli Development’s risks, DMPED has provided Donatelli Development over 27 years’ worth of tax free land banking.   In other words, DMPED allowed Donatelli Development to sit-on keep of the market publicly owned land during the city’s prime development years. On top of this the city has provided 20 years of tax abatements which will have a value of over $10,000,000 to Donatelli Development.  All sites sit within 2 blocks of prime Metro site locations 5 literally atop their respective Metro Stations.  Of course Donatelli Development actually paid more than $51 for deals worth $464,000,000 but I’m not including contributions to the political campaigns of D.C. Mayors and Council Members, my focus here is primarily on DMPED.

These “51 for 464,000,000” deals were overseen and managed by DMPED’s Real Estate Development Office.   This office is typically made up of 25 to 35 real estate professionals, project managers and supervisors who draw salaries between $120,000 - $190,000 per year each or about $4,000,000 per year for the last 9 years or $37,000,000.   Another way to link about this math is that tax payers paid DMPED $37,000,000 over the last 9 years to give Donatelli Development deals worth $464,000,000 for $51.   As well, in the last 9 years DMPED’s Office of Real Estate Development has left 4 New Communities Projects mathematical undefined or the same is when you divide a whole number or any number by “0” in this case 4/0. 

At 10AM Monday morning April 27th, I’m at the ground breaking ceremony for Donatelli Development’s 3825 Georgia Avenue project in Petworth doing the math. I Use my phone to video and photograph the ceremony to capture the continued shameful looting of our neighborhoods and communities by Donatelli Development and DMPED.   That evening I watched a video and photographs of a different type looting in Baltimore.   I pondered irony of D.C. sending police officers to protect Baltimore’s Inner-Harbor from looters.  I read Facebook posts and listened to new commentary about whether Baltimore could come to D.C.. Then I started to do the math, “51 for 464,000,000” and “4/0”.   Looting had already come to D.C. and I had it on video.

Wednesday, April 29, 2015

DMPED Deals, Affordability Crisis & Housing Discrimination

DMPED Deals, Affordability Crisis & Housing Discrimination

Housing discrimination is at the root of Washington, D.C.’s housing affordability crisis. The primary driver of this discrimination has been the city’s Office of the Deputy Mayor for Planning & Economic Development (DMPED) and its deal methodologies. Specifically, the methodologies used by DMPED in structuring and executing many of its land disposition deals purposely limits access to new housing units by Section 8/Housing Choice Voucher Program (HCVP) certificate holders by artificially manipulating higher housing prices. In doing so DMPED is violating the city’s Human Rights Law. A recent DMPED deal in DC’s Hill East neighborhood, illustrates DMPED’s discriminatory practices. In the Hill East neighborhood a HCVP certificate pays up to $1,363/month for a one bedroom unit which is the market price. In this same neighborhood under DMPED’s current deal methodology, DMPED will subsidized to the tune of over $6.8M in public subsidy the building of market rate units with target market rents starting at $1,750/month for a one bedroom apartment. The $1,750 deal price is being set artificially by DMPED, the price is above market and structurally baked into the deal. This has been DMPED’s deal pattern over the last 10 years and is designed to limit voucher holder's access to housing. A pattern that discriminates against voucher holders, but also limits the access of working and middle class families to housing. This is at the root of today’s affordability crisis in the city.

Any serious attempt to address the City’s housing affordability crisis and the shameful conditions at DC General will require DMPED’s new Deputy Mayor Brian Kenner, the Mayor, Council and civic leaders to immediately restructure discriminatory deal and methods being used by DMPED.

 Vouchers Market vs. DMPED's Market Table

 Blue - Approved by DMPED November 2014
Red - Minimum unit size of use to typical DC General Family, at least 2 bedrooms @ 30% AMI
** Upscale Luxury Project receiving 20 year property tax abatement
%% Project Flagged by multiple DC Audit Reports for Non-compliance
/+ Land Banked by DMPED over 7 years
Note: Park Place and Highland Park were DMPED dispositions awarded in 2004/05, while Hill East and 3829 Georgia Ave. (3829) were dispositions started in 2008 both finally approved in November of 2014.

DMPED’s deal methodologies are morally and ethically contrary to our city’s values and violate DC's Human Rights Law. These methodologies not only harm low income families attempting to leverage HCVPs, but they also harm moderate/middle income families, unnecessarily destabilizes mix-income neighborhoods, stymies small business development, job and retail growth in neighborhood business corridors. Effectively, these methodologies are a tax on housing accessibility as the old “poll tax” was to voting accessibility under Jim Crow.

The "Vouchers Market vs. DMPED's Market" table above highlights how DMPED uses luxury unit price subsidy targets in its deals to limit voucher holder access to new luxury housing being subsided by public dollars. Park Place, Highland Park, Hill East and 3829 Georgia Avenue (3829) are DMPED developed projects leveraging government subsidies. In no case would a HCVP voucher holder (limits highlighted in red) have access to market rate units at any one of these projects. In fact, units most in need by HCVP voucher holders, 2 and 3 bedroom units were negotiated and structured by DMPED to be priced 45% and 30% respectively higher than voucher limits and “market rates”.

"Typically in October to December of each calendar year HCVP conducts a rental market analysis of the unassisted rented units in District of Columbia. Unassisted comparables do not include any units rented that are tax credit, subsidized with local funds, or subsidized with Federal funds (including existing voucher assisted units). HCVP will only review unassisted units rented in that legal submarket (i.e. Anacostia, Capitol Hill..). HCVP utilizes resources from an unbiased legal searchable database (that includes the MRIS database/Realtor MLS), validation of market rents paid from conducting a canvass of the submarket asking market tenants what they are paying, or data that has been validated to determine what is a market rent in each submarket – with/without utilities included."
- HCVP Submarket Rent Methodology Disclosure

DMPED’s discriminatory deal methodologies are not a recent phenomenon, but evolved from practices developed and refined in Ward 1’s Columbia Heights neighborhood (2003 – 2014) to pressure landlords not to rent to Section 8 voucher holders. The 2008 housing market crash and city’s subsequent Luxury Condo bailout lead DMPED to bake discriminatory practices into their land disposition deal structures. (see DCA062013 FY2013 Audit of the Affordable Housing Mandates for Development Projects Formerly Managed by the Dissolved National Capital Revitalization Corporation and Anacostia Waterfront Corporation).

The Hill East deal just completed in November of 2014 and its “Term Sheet” is just the latest manifestation of these discriminatory methodologies out of DMPED funded by public dollars. Ironically, fighting this form of State sponsored discrimination was one of the foundations of DC’s modern Home Rule movement. Makes one wonder whether today’s Home Rule movement is morphing into a States Rights movement.

"In concluding the land value estimate under this premise, we have examined market rents for comparable rental projects in the Hilll East and Capitol Hill extended Area, to determine a basis for our adjustment to the market value estimate. Our review of projects indicates market rents for respective unit types in a hypothetical subject building are as follows:
Studios: $1,300 to $1,500 per month
One Bedrooms: $1,700 to $1,800 per month
Two Bedrooms: $2,300 to $2,400 per month
Three Bedrooms: $2,700 to $2,900 per month"
- DMPED Supporting Document to PR20-1153

Here’s how DMPED bakes discrimination into its land disposition deals. Instead of basing its Land Disposition Deals on “Market Rates” as determined by the HCVP, DMPED determines "Market Rate" by hiring a certified appraiser and negotiating with the selected developer based on the developers proposed project in a closed door process. In other words, DMPED in its deal makiking methodology biases the market on behalf of the Seller/Developer against the Buyer/Citizen. In its Hill East disposition which borders the DC General Homeless Shelter, DMPED baked in market rental rates of $1,400, $1,750, $2,350 and $2,800 for studios, one bedrooms, two bedrooms and three bedrooms respectively. These rates are 45% and 30% higher respectively for 2 and 3 bedroom units than HCVP “Market Rate” will pay. And these are the very units which would be most relevant for providing permanent housing for families living at the DC General Shelter which just about everyone agrees needs to be closed. Instead DMPED’s Hill East deal is designed to price these families out of new construction while the city pays through other means approximately $14,000/yr or $1,200/month to house families in substandard conditions at DC General. Clearly it makes little economic sense to subsidize the building of market rate units that are beyond the very tools designed to get families into those units and then pay again to house those same families in substandard units. However, if your goal is to limit access to new developments by HCVP voucher holders this makes perfect sense.

Another way in which housing discrimination is encouraged in Washington, D.C. by DMPED is manipulation of unit size.

 Unit Size Table

Red - Minimum unit size of use to typical DC General Family, at least 2 bedrooms @ 30% AMI
** Land banked by DMPED over 6 years
%% Project Flagged by multiple DC Audit Reports for Non-compliance

Along with Hill East, 3829 Georgia Avenue (3829) is another city subsidized project recently negotiated and approved by DMPED. After allowing the developer to sit on the city owned 3829 parcel for 6 years DMPED approved a deal which allowed the developer to shrink unit sizes in the project to very one small bedroom units. As the “Unit Size” table above shows not a single unit at 3829 would be accessible to a DC General family. This was not a new pattern for DMPED, in 2010 the developer of Highland Park Phase II in Columbia Heights was allowed by DMPED to shrink unit size by dropping 2 bedroom units from the project, reducing the size of one bedrooms resulting in a project of all studios and very small one bedrooms. In these cases unit size instead of price directly is used to limit access by HCVP holders. In the case of 3829 helping to undermine process on DMPED’s own Park Morton New Communities Initiative. Again, Hill East, 3829 and Highland Park are heavily subsidized by the city and the city pays extra to keep them inaccessible to HCVP holders.

Housing discrimination by DMPED should not be dismissed as something reminiscent of  the past like the march from Selma to Montgomery. It is real today and has a real cost. At Hill East with over $6.8M in public subsidy and $18M in public financing only 25 out of 354 would potentially be available to address the challenge at DC General because of small unit size and DMPED price manipulations. This in the face of what began as a trickle in 2010 DC General today typically houses approximately 200 families. Since 2008 considering just 3 projects under its control, DMPED has kept approximately 525 units off the market, colluded with developers to drive up housing prices. 30% or about 158 of these 525 units were to be set-a-side as affordable nearly enough to have closed DC General. However, after applying DMPED’s discriminatory deal methodologies only about 25 out of these 525 or 5% city sponsored units would be applicable to solve DC General. If we estimate that the city spent $14K/year x 200 families x 5 years to house families at DC General, we come up with a minimum of $14M in opportunity costs. In total that would be at a minimum of $20.8M in discrimination costs not counting other public subsidizes provided at Hill East, 3829 and Highland Park to keep HCVP holders out.

Housing discrimination is at the root of Washington, D.C.’s housing affordability crisis and unfortunately it is state sponsored through DMPED. The good news is that the first step in resolving the crisis is simple, follow DC’s own Human Rights Law and remove the state’s sponsorship for housing discrimination. On a practical level this means restructuring how DMPED does deals, and forcing DMPED to immediately base deals on the HCVP rate and change its negotiating position from a Seller/Developer bias to a Buyer/Citizen bias. Then and only then can we begin to address with honesty our state sponsored affordability crisis. This is not just the ethically and morally right thing to do, but will stimulate overall economic development by removing DMPED discriminatory “poll tax” on market rate housing, freeing up more disposable income to support small business development, job and retail growth in neighborhood business corridors.

End State Sponsored Discrimination in Housing Policy. With DMPED's leadership we can do this and resolve our affordability crisis.