Community: Street Equity: April 2015

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.

Pimping Millennials & Screwing The Low Income

From Lofts to Micro Units, watch the Public’s Balance Sheet. To paraphrase an old saying, “If you find yourself stuck in a hole and you want to get out, first stop digging.” If DC as a city really wants to address our affordability crisis, we, the Mayor, and Council have to first find the courage to stop digging the affordability crisis hole. In this case “stop digging” means ending DMPED’s practice of structuring land disposition deals which manipulate public subsidies, often low income, to build overpriced so-called luxury housing transferring public wealth to a hand full of families. These deals have become “Balance Sheet” Brothels in which low and moderate income families get screwed through discrimination and Millennials pimped for their on-demand incomes while wealth building capacity is being siphoned from both.

This DMPED structured “Balance Sheet Brothel” is best illustrated in the Hill East land disposition deal recently signed by the Mayor and previously unanimously approved by the City Council. If we look at the deal’s Term Sheet and extract the Balance Sheet data you will see that under DMPED’s deal the developer will invest $10 in equity and in 2 years at the end of construction will hold $21M in equity on their Balance Sheet. That is a 2.1M% return on investment in 2 years. Further, the deal is structured to provide the developer with an implicit government guarantee via low income housing bonds. Because of this, the developer assumes minimal risk and collects $8M in fees for their trouble. You don’t have to have a MBA in finance to know if a $10 investment can produce $8M in fees and $21M in equity in 2 years that all the Brothel’s in DC have NOT been closed down. And some pimping and screwing is going on.

The Mayor and Council can’t honestly approve this Hill East deal as structured and claim to be working to address housing affordability and developing a path to the middle class. This deal and other DMPED deals are structured to do the opposite. Just follow the balance sheet. A high priced so called luxury micro-unit rental or pimped out dorm room is design to transfer future wealth/equity into present day income for the luxury developer, whose development is being made possible/subsidized by public spending financed by long term public debt. When the average Millennial rents one of these units disposal income which could be used for equity producing investments or stimulus into the overall or neighborhood economy instead flows to the hands of a few. If a developer wants to do this take the risk and a Millennial want to rents these fine, but it should not be propped up by my Government using public land, low income housing subsidies and discriminatory housing policies. Government can no longer tell limited options to deal with the affordability crisis, while continuing to do deal like Hill East.

It’s time to stop digging and clean-up the DMPED Brothel. Then we can seriously address our affordability crisis and invest for the future. The con of touting education reform as an investment in our children’s future, while mortgaging that future to subsidize luxury units is ethically and morally wrong. And our government needs to get out of this business. I know the world’s oldest profession is not going anywhere, but it should not be the bases of community and economic development in this city. We need real and health economic growth. I know we have the Mayor and Council who can do this, let’s close the Brothel.

DMPED & The Tapeworm vs. DC's Middle Class

DMPED & The Tapeworm vs. DC's Middle Class

I fully support the rhetoric coming from the Bowser administration, “Pathways to the Middle Class”. “We” must find ways to partner with the administration in achieving the goals of maintaining DC’s Middle Class and preserving pathways to it. Unfortunately, overall city policies and those of this administration are designed to squeeze the Middle Class out of existence and put in place an Apartheid like system made up of the so-called “Market Rate Class(es)” and the “Affordable Class(es)” preventing access to the Middle Class. This Apartheid like system, which I call “Genny Crow” after its great grandfather “Jim Crow” evolved out of the Williams Administration and developed through the Fenty and Gray Administrations; however, in spite its best of intentions the Bowser Administration is the first to formalize structurally “Genny Crow” with the creation of a Deputy Mayor for the “Affordable Class(es)”, Courtney Snowden and the Deputy Mayor for the “Market Rate Class(es)’, Brian Kenner. This split by the Bowser Administration is an honest admission that DC’s economic development policies over the last 11 years or so have lacked energy, depth and breadth needed grow, maintain and sustain “Pathways to the Middle Class” and that most of the economic growth experienced over the last 11 years of has been consumed or stolen by “The Tapeworm”. And now in the 50th year since Selma marches, we as a city are rationalizing and resigning ourselves to a reality that Apartheid is legitimate government policy as long it is not explicitly based on racial segregation. Instead of a policy rationalization and resignation, I urge instead a policy of destroying The Tapeworm ensuring “Pathways to the Middle Class”.

I’m often challenged to offer solutions instead of just critiques. Step One must be to starve and then kill the Tapeworm. The Tapeworm is maintained and sustained by DMPED’s Real Estate Development office and affiliated New Communities Office. The Real Estate Development office must immediately be defunded and assets, some personnel under its control transferred to the Deputy Mayor for the “Affordable Classes” along giving it management of DHCD. Walter Reed and St. Elizabeth probably should be spun off. The Real Estate Development office employs at least 8 people making over $120K per year plus benefits. Yet, it took that office 7 years to negotiate a development deal for Hill East. Then leveraging approximately $6M to $8M in public assets negotiated a deal which will create not a single Pathway to the Middle Class for a DC family, but will feed the Tapeworm $28M in equity. Similarly after working the Park Morton New Communities project for 9 years spending at minimum $20M produced at best 11 apartment units applicable to the Park Morton New Communities effort. Again not one Pathway to the Middle Class. This same office after restarting the Park Morton New Communities process about a year ago recently attended several community meetings(in the last 3 weeks), basically stated (while collecting salaries of over $120K each) that they, did not want to provide project timeline dates for Park Morton New Communities, because they did not want the community and residents of Park Morton to be able to hold them accountable. WTF?

Defunding DMPED’s office of Real Estate Development and transferring its assets will not immediately create, “Pathways to the Middle Class”, but it is a prerequisite. As it will immediately clear key obstacles in path to the Middle Class, wealth building opportunities and growth in disposable income for DC families. For example the Hill East deal will result in $28M in equity for the developer, but zero in homeownership equity for DC families. Home equity is one of the primary sources of wealth for entering and sustaining the middle class. The city would have been better off auctioning off the Hill East site and funding trusts for 100 DC General families of $140K each to help create “Pathways to the Middle Class”. Another path way to the middle class is increasing disposable incomes. DMPED’s Real Estate Development office structured the deal at Hill East to maximize rental rates, directly reducing disposable incomes. DMPED achieve the higher rents not only by building them into the deal structure, but by constricting the supply of housing. Delaying the current Hill East deal for 7 years and purposely sitting on many other Hill East parcels driving up rental prices by holding back supply. If the Mayor and Council are serious about affordability and “Pathways to the Middle Class” DMPED’s office of Real Estate Development will be dissolved in this budget cycle. The bottom line is that the Tapeworm consumes “Pathways to the Middle Class’, DMPED’s Real Estate Development office supports the Tapeworm, so the Real Estate Office consumes, not supports “Pathways to the Middle Class”; therefore, the office must be dissolved to create and maintain “Pathways to the Middle Class”. Instead of pathways for the Tapeworm to suck the life out of the Middle Class.

Re:DMPED & The Tapeworm vs. DC's Middle Class

"As William Julius Wilson said in a talk last night, neighborhood improvement with the addition of higher income residents isn't the problem per se, displacement is the problem"

Richard do the math Tapeworm economics displaces. In Columbia Heights/Ward 1 over 50% of the neighborhood's Black population (all income levels) has been displaced in less than 10 years and a significant portion of Ward 1's Latino Population has also been displaced. A direct and significant contributor to this displacement is the Tapeworm and DMPED's Real Estate Development office. This is the economic development model you are suggesting for Wards 7 & 8, one driven by displacement and segregation. Further you seem to be suggesting that higher income people will only be attracted to neighborhoods undergoing displacement or undergirded by de facto segregation?

If DM Snowden, who I found impressive in her run for city council, is charged with driving greater economic opportunity and paths to the Middle Class and not just be an overseer/caretaker (ie. The historic bureau of Indian Affairs), then lets check the math. Does her portfolio of agencies have the capacity to achieve the stated goal, for any reasonable person the math says, “No.”, especially when compared to DMPED.

Courtney Snowden - Deputy Mayor of Greater Economic Opportunity (Affordable Classes) Portfolio:

- Department of Employment Services (DOES)
- New Communities Initiative
- Commission on African American Affairs
- DSLBD
- Commission on Fatherhood, Men and Boys.

Brian Kenner - Deputy Mayor for Planning & Economic Development (Market Classes) Portfolio:
- DMPED
- Office of Planning (OP)
- Department of Housing & Community Development (DHCD)
- Department of Transportation (DDOT)
- Department of the Environment (DDOE)
- Taxicab Commission
- Motion Picture & Television
- Arts & Humanities
- Office of the Tenant Advocate

Clearly the portfolio for DMGEO lacks the gravitas and tools to achieve the stated goals. The gravitas and tools necessary to achieve the goals of DMGEO belongs to DMPED. In particular the office of Real Estate Development and its public land portfolio the fuel upon which the Tapeworm feeds. If DMGEO is to be respected as more that a political stunt or worst the acceptance of Modern Apartheid as an economic development model the math must be corrected. The solution to this mathematical imbalance is straight forward, move additional resources from DMPED to DMGEO. At a minimum DMPED's Real Estate Development land portfolio, DDOT and DHCD would be transferred to DMGEO. Otherwise current structure continues as this report below describes the city policies:

“These practices have created a dual housing market within the District and its metropolitan area—one housing market for Caucasians, Hispanics, and Asians, and a separate housing market for African Americans…
In a 180 degree reversal of the usual pattern of integration and regegregation, the District of Columbia has a long history in which integration is the period between the first wealthy white household moving into a neighborhood and the last poor African American household moving out.”

District of Columbia Analysis of Impediments to Fair Housing Choice 2006–2011

It’s interesting that the Hine School project was mentioned. Under DMPED it evolved into a Tapeworm project modeled on deals between DMPED at the lead community development Tapeworm in Ward 1 Donatelli Development. In order to make this deal structure work DMPED office of Real Estate Development hid the final Land Disposition Agreement (LDA) from the public and approved at deal which required the segregation of the “Affordable Class” from the “Market Class”. Premised on the fact that the “Market Class” will not pay adsorbent luxury prices to live integrated with the “Affordable Class”. The Tapeworm requires government subsidization of Luxury prices in public land disposition deals to feed and succeed as this deal illustrates.

DMPED land deals are design to feed the Tapeworm at the government/public’s expense premised on a dual market. This dual market does not just drive segregation of residents based primarily on class and by default race, but segregates the “Affordable Class” from economic opportunity. If DMGEO is going to do its job it must have the District’s driver of economic opportunity in its portfolio, DMPED’s office of Real Estate Development and land portfolio. And of course the ability restructure or cancel Tapeworm deals. I know, I know, like the good people of Birmingham, Ala. told Dr. King in 1963, be patient, this is way the system/market is, it will take time to change, good people will also say to me let education reform work over next 20 years to address economic opportunity. Or that the only way to grow the District’s economy is to feed the Tapeworm otherwise they will not develop in the District. The “Market Class” will pay for segregation, that’s the only we need to balance the city’s budget and increase our bond rating.

I get it, there is nothing we can do but bad math and feed the Tapeworm. No not really, we need and can produce real solutions for true economic grow without dependency on the Tapeworm. Just need some courage and leadership on the model of Dr. King and countless others who took on Jim Crow instead of making excuses for it.

Bozzuto, the Tapeworm, the Truth?

Bozzuto, the Tapeworm, the Truth?

Columbia Heights has a Tapeworm infestation which has spread to other parts of the Ward and city. This particular species of the tapeworm specializes in sucking public benefits, wealth out of community and economic development efforts in District neighborhoods. Like its parasitic cousins which can infect humans and other animals, the symptoms can sometimes be subtle, but usually leaves the victim weak, fatigued, hungry, nauseated, with vitamin and mineral deficiencies. While rarely fatal these symptoms will leave the victim vulnerable to other predators such as Genny Crows. The tapeworm found in animals and humans is often spread via the feces of previously infected animals, often when food preparers fail to operate with clean hands. The community development version is most often spread through city land disposition deals when DMPED fails to operate with clean hands. Controlling the spread of tapeworms is done through attacking the vectors which lead to their spread and treating infected victims with a medicine called praziquantel. The community development variety can only be controlled by eliminating DMPED’s Real Estate office (defund it) and removing all public subsidies from current deals in violation of their community benefit commitments.

Several years ago, DMPED conspired to allow Donatelli Development to use project community benefit funds to help pay Bozzuto Development as property manager at Highland Park to ensure the highest possible rents possible for the project. These community benefit funds were proffered to support neighborhood community development projects such as farmers markets, streetscape maintenance, small business development and youth entrepreneurial programs. The fund was to come from 5% of yearly net project rental revenues. That fund when including Highland Park I & II and Kenyon Square should equal about $100K per year about one tenth of what the Developer will receive in tax abatements this year. Compare that number to the conditions of the streetscape immediately adjacent to these publicly subsidized projects and you can get a sense of the nature of the impact and symptoms when your community has a Tapeworm or the vacant store fronts at Park Place and Park 7. Higher rental prices and lower quantity and quality public amenities.

Speaking of public amenities and/or benefits negotiated or management under DMPED’s Real Estate group, public dollars either pays for or offsite these benefits and amenities at a ratio of greater than 1 to 1. The developer does not pay. In fact, this means the Tapeworm profits from providing(not) public benefits and amenities, the tape worm does not pay for them. When you consider the salaries and support for the Real East group and their role as a tapeworm vector, the city would save money and get better community benefits, amenities and affordable housing just handing out deeds for public lands randomly on a street corner than negotiating deals disposition deals through DMPED’s Real Estate group. The tapeworm is spread now to Hill East, let the sucking there now begin. Watch were you step, the tapeworm can spread through feces.

In this budget year it's time to defund DMPED's Real State Group.