I knew this “market rate” housing talk as B.S. a few years ago when a developer speculated in the Columbia Heights market with a high end luxury condo project and it crashed. The city steps in with $5.7M in taxs abatements and a few weeks later the building is flipped by the developer for a record $670/sqft. That’s not “market rate” housing, that’s cross between money laundering and a ponzi scheme. But check this sh$t out.

The city just enabled a developer to sell a homeless shelter for $883/sqft..

In 2012 the Gospel Rescue Ministries a faith-based homeless shelter which opened in 1906 and operated with District Government contracts considers filing for bankruptcy but then decides instead to sell the shelter. So in February 2013, The Rock Creek Property Group comes along and buys the shelter for $5.95 million, or $192 per square foot from Gospel Rescue to build high end “market rate” residential units.

In June of 2014 the city comes back and offers Rock Creek a 20 year lease at $1.28 million, or $39.77 per square foot to convert back to a homeless shelter.

Rewind to December 2011, the city gives developer Brian Friedman a $46M tax abatement to build a hotel in Adams Morgan. The deal is rushed through Council claiming a hardship need or the deal with fail. Deal fails any way. In 2013 Friedmen leverages the abatement to find a new partner. The partner comes in from New York takes a piece of the deal from Brian and Freidman Capital.

Fast forward to 2016. Rock Creek signs a new lease for the old now new and improved Gospel Rescuse homeless shelter with the City as part of the Mayor’s “Bill 21-620, Homeward DC Omnibus Approval of Facilities Plan for Short-Term Housing for Persons Experiencing Homelessness Act of 2016”.

On March 10th 2016, Rock Creek flips the shelter and lease to guess who? Brian of Freidman Capital for $883/sqft or about $28.5M.

So did the city effectively pay Freidman Capital $46M to pay $28M to the Rock Creek Property Group so Rock Creek could convert luxury rentals back to a homeless shelter that the city could have bought 3 years ago as a shelter for $3M or so?

Could this be the same city that is supposedly so broke and concerned about the city’s debt cap that it can’t fully fund the New Communities Human Capital programs and acquire build first sites? Instead, everything needs to be funded by converting public housing to “market rate” housing? Of course not, right.

It surely is not the same city that is proposing to send $55M to build a Basketball Practice Facility for billionaires because the billionaires can only afford to pay $5M. What kind of “market rate” is that?

I’m sure it’s me, but what my government calls saving the homeless by closing DC General and fostering economic development, sounds and smells like a tax payer money laundering ponzi scheme. But WTF, we going to but a cap on it.

William

Rock Creek Property Group cuts ties after converting Chinatown site into homeless shelter
www.bizjournals.com/washington/breaking_ground/2014/06/in-chinatown-high-end-residential-is-out-and.html

In Chinatown, high-end residential is out and shelter is in
www.bizjournals.com/washington/breaking_ground/2016/03/rock-creek-property-group-sells-chinatown-site.html?ana=e_du_pap&s=article_du&ed=2016-03-14&u=oSmDycT7fYztxKl8aVEQckJ2JXJ&t=1457984186&j=71395762

Tax abatements, exemptions to face new scrutiny in D.C.
www.bizjournals.com/washington/print-edition/2011/09/30/tax-abatements-exemptions-to-face-new.html

Gospel Rescue Ministries Files For Bankruptcy To Keep Its Buildings
www.washingtoncitypaper.com/blogs/housingcomplex/2012/05/30/gospel-rescue-ministries-files-for-bankruptcy-wont-lose-its-buildings/

UDR closes on View 14 sale
www.bizjournals.com/washington/blog/2011/06/udr-closes-on-view-14-sale.html

Tax break approved for Adams Morgan hotel
www.bizjournals.com/washington/blog/2010/12/tax-break-approved-for-adams-morgan.html

 

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.
.

 

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.
William