Housing Agency: West End Project Mismanaged

Firm also ousted from Louisville complex

Jan 19, 2011 at 2:06 pm

A Boston-based firm responsible for managing City West, the once-praised $200 million West End development, might be removed from the project after its relationship with the Cincinnati Metropolitan Housing Authority (CMHA) has worsened in recent weeks.

The agency's long-strained relationship with management firm The Community Builders (TCB) is now tenuous at best after the organization sent a letter to the development's lenders asking them to demand TCB's ouster, citing years of mismanagement.

"We've always had a complex relationship," says Lou Mitsch, TCB's vice president. "It's been contentious in the past. Not this contentious."

This isn't the first time the agency has sought a change in management for City West. But its calls took on a different tenor in December, shortly after TCB defaulted on four of its seven loans linked to the West End project.

PNC Bank, acting on behalf of the Cincinnati Development Fund, filed foreclosure on three of the loans, totaling $5.7 million. At that time, the bank asked the Hamilton County Common Pleas Court to name a receiver in TCB's place.

Soon thereafter, the Housing Authority leapt into the fray, issuing a letter to the development's partners and lenders.

"We again asked, according to our operating agreement, that TCB be removed as managers of City West," says Kelly Kramer, a CMHA spokeswoman. "There have been issues that have gone on for years: management issues, maintenance issues, rent collection. We've asked repeatedly that they be corrected, sometimes for six or seven years now. And we keep finding the same problems."

Some of those issues date as far back as 2003, shortly after TCB took over management duties at the development, Kramer adds.

Begun in 1999 using HOPE IV funds from the U.S. Department of Housing and Urban Development (HUD), the original plan for City West called for the construction of more than 800 apartments — a mix of government-subsidized and market-rate units — to replace Lincoln Court and Laurel Homes, two of the city's oldest low-income, publicly subsidized apartment communities.

Columbus-based Concorde/Mid-City Urban was originally tabbed to manage the project, but was later fired after the Housing Authority charged it had failed to live up to its contract.

A political fight developed — centered around former Cincinnati Mayor Dwight Tillery, a Concorde board member, and then-CMHA director Donald Troendle — and City Council became involved. After council briefly delayed the project, it was restarted in 2000 when TCB won the bid to serve as managing partner.

During this period, the original $176 million budget crept up to $200 million, and there were construction delays.

It wasn't long before TCB drew the housing authority's ire, but not for the overruns.

Ted Bergh, the Housing Authority's interim director, send a letter to TCB outlining the many problems with the company's management during the past seven years. The five-page litany of charges included budget overruns, non-reporting of required information, failure to collect rents and unresolved maintenance problems. Many of them, Bergh pointed out, had been reported to TCB multiple times, only to have the developer respond — falsely, Bergh claims — that they had been corrected.

"It is unfortunate that TCB has allowed its poor management of these properties to cause financial hardships its partners must now endure," Bergh wrote. "But given the wide range of deficiencies ... and the number of years TCB has had to address these deficiencies, it is beyond doubt that an immediate change in property management is required."

After TCB defaulted on its loans, Bergh issued another letter calling for the change.

The move elicited a stern rebuke from Patrick Clancy, TCB's president and CEO, who said the move had "no legal validity" and was "grossly irresponsible."

Complicating matters is that TCB serves as both the general partner and manager of City West.

In essence, Bergh was writing to the general partner (TCB), asking that it remove the project's manager — itself — which seems unlikely. TCB's hand would be forced, however, if a consensus of City West partners, including all its lenders, joined in the request. That hasn't yet happened but isn't without precedent.

Last year the Louisville Metro Housing Authority won a three-year battle to have TCB removed from its 500-unit HOPE VI Park DuValle project, which faced many of the same problems the local agency is now citing.

According to TCB, its problems in both Cincinnati and Louisville have been beyond the company's control.

With City West, Mitsch says, "everyone is happy with the physical aspect of the project. From the financial standpoint, though, it hasn't achieved everything we set out to do. Those are because of external factors that we had no control over."

He cites the tough housing market, the West End's higher crime rate now (as opposed to 2000) and changes in the way HUD funds public housing as contributing factors to City West's financial woes. Even Cincinnati's 2001 race riots played a part, Mitsch adds.

"The riots happened when we started the market-rate units, and that had a huge impact. The housing units have never broken even in part because of all those factors,” Mitsch says. “There's been a lot of water under the bridge over the years that has affected City West financially, and the Housing Authority refuses to recognize the impact it's had. They've left us holding the bag.”

Also, TCB has leveled its own charges at the Housing Authority, claiming it's holding back nearly $1 million annually in federal funding that's supposed to go toward the project.

Although the company has paid $3 million to offset operating deficits at City West, Mitsch says, "The Housing Authority is getting money from HUD and not passing along to us, as they're supposed to. There's about $1 million a year that is supposed to go to City West that we've not seen."

"That's completely incorrect," Kramer replies. "The Housing Authority is providing TCB with all the funds they're supposed to receive, as previously agreed upon. We're still open to working with TCB. We've asked them to bring a new plan to the partners that we can work with. We're still waiting. "

But when it comes to the standoff, Mitsch counters that the ball is in CMHA's court.

"We'll continue to work with the Housing Authority," he says. "All that we're asking is that they work with us."

If the troubled partnership remains mired in the dispute, the implications for the city, the Housing Authority and City West residents could be costly.

The Housing Authority would be responsible for paying a $500,000 letter of credit tied to the defaulted loans, at a time when City Councilman Charlie Winburn is calling for a lawsuit to recoup part of its $16 million investment in the project because it has failed to provide the full number of residential units promised. That could put a strain on CMHA's budget, while residents could suffer with under a temporary, lame-duck management firm.

And that's not even taking into account the impact on downtown development.

Michael Cervay, the city's community development director, says he's been watching with interest.

"Our agreement is with CMHA, so we rely on their judgment, but we are watching with some concern," he says. "City West has been a success, and any ding on it would be a ding on downtown development, so it's very important to the city. In this case, there just don't seem to be easy answers."