The Affordable Housing Disaster

As 1995 drew to a close, HUD handed out "vouchers" entitling 276 Geneva Towers families to subsidized housing, anywhere in the country. Many left San Francisco at once; others hung on for a while. But rising rents and delays in building replacement housing presumably drove almost all of them out of town. No one is certain how many left. The developers of the replacement housing have lost track of all but 50 of the previous Geneva Towers tenants.

In 1996, Mayor Willie Brown cut the pie for Geneva Towers replacement housing into three slices. These three separate housing projects are being built by combinations of three development entities, all nonprofits.

The 1998 implosion of Geneva Towers -- just before the implosion.

The 1998 implosion of Geneva Towers -- the implosion begins.

Details

Read the feature story sidebar: The High Cost of Housing.

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• U.S. Department of Housing and Urban Development
• Alice Talcott
• John King
• Nonprofits and NGOs
• Government and Politics

The primary developer is Mercy Housing Inc., a nonprofit corporation with 50 subsidiaries that is operated out of Denver, Colorado by the Sisters of Mercy, a charitable organization run by Roman Catholic nuns. Another of the nonprofits, the Housing and Conservation Development Corporation, often known as HCDC, is run by a board composed largely of retired public officials. The third nonprofit partner, the Geneva Valley Development Corporation, was created, ostensibly, to represent the ownership interests of the ex-Geneva Towers tenants in the project.

Brown gave the largest slice of this housing pie -- the 148-unit Heritage Homes project, located at the old Geneva Towers site -- to a partnership of Mercy Housing and the Geneva Valley Development Corporation. Mercy and HCDC have partnered to build 92 more units at Britton Court, across the street from Heritage Homes. And at Brown's behest, Mercy Housing and HCDC combined to build 91 apartments for senior citizens at the John King Senior Community, a quarter mile away.

The city bankrolled the developers with city money, including loans, hotel tax funds, community development block grants, and money from a $100 million pot of affordable housing bonds. The developers used this public capital to raise additional money in conjunction with private, for-profit investors who have put about $20 million into the projects. These investors are the actual owners of the developments, and have the right to sell them in 15 years.

Meanwhile, HUD has given Mercy Housing and HCDC about $15 million in cash, millions of dollars in housing subsidies, and the land for the project, valued at $5 million. The IRS has allowed $26 million worth of tax write-offs for the project's private investors.

Neither HCDC nor Mercy Housing put any of its own money into the three projects. Most of the public money advanced does not have to be repaid. To date, the city of San Francisco has given $18 million to Mercy Housing and HCDC in the form of outright grants and forgivable loans.

The total expenses for the three projects, counting $14 million in city money given to "community-based organizations" connected to the developments, pencils out at roughly $80 million.

The three projects are, according to internal reports from the Mayor's Office of Housing, currently running $8 million over their combined budget. The project, overall, is more than a year behind schedule, according to those reports. Mercy Housing disputes this analysis; using its own methods, Mercy Housing calculates that the overall delay is a bit less than a year, and that the cost overruns currently total $2.6 million. Whomever you believe, the Geneva Towers replacement project clearly is well over budget and behind schedule.

Would that time and money were the only problems.

According to public records, Heritage Homes, Britton Courts, and John King Senior Community all have design problems. Utilities were left out of some areas at Britton Courts. Electric wiring designs and spatial configurations had to be redone at the senior center. The naked eye alone can see that some spanking-new houses at Heritage Homes are out of square; they actually lean. The entrance to the main driveway scrapes the bottom of cars. Concrete stairways wobble when tread upon.

City officials complained that, at Britton Court, "construction-related problems are due to unclear directions to the contractor and poorly coordinated construction documents." Structural and civil engineers refused to inspect work in progress for months at a time because the architect would not pay them. The roofs have inadequate warranties, according to a state official.

And to top it off, the developers have failed to procure money to build the multimillion-dollar community center that was a prime component of the plan presented to gain support from the surrounding community.

In plain speech: the developers and their architects have acted incompetently. Yet, the city continues to pour millions into the floundering project.

On the other hand, the Bank of America stamped its foot down -- hard -- to protect an $8 million construction loan it made to the Britton Court partnership. Last year, the bank declared the loan to be "out of balance" because of mounting cost overruns and the banks' belief that "the project will not be complete by the completion date." Work crashed to a halt -- until the city bailed out the developers with a $1 million forgivable loan.

The city's condition for the bailout: Mercy Housing had to completely take over the construction management from HCDC, which would remain a co-developer of the project in name only. Public records suggest that municipal housing officials believed the city had put too much money into the project to let it, and HCDC, tank. But they did force HCDC to give up all of its $550,000 developer fee for the project. (HCDC declined to comment on these matters.)