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Rent to Evict 

For years, many low-income renters called the building their home. That's until a developer, who told the government it would be affordable, raised the rents.

Wednesday, Nov 8 2006
From the outside, little distinguishes the five-story brick box at 1030 Post St. from its neighboring structures — it's a generic, frill-free apartment building on a block full of them.

Inside, the place isn't particularly remarkable, either. It looks like any other aging, semidecrepit Tenderloin apartment hive, with floors that list noticeably from west to east, dark globs of chewing gum splotching the maroon carpet in the hallways, and dim lighting. The apartments themselves, mostly studio and one-bedroom units, aren't spacious.

Yet the structure stands at the center of a truly remarkable series of events — events that one high-ranking city official has publicly described as a "scam." It appears a profit-driven real estate developer has discovered a way to use tax dollars earmarked for affordable housing to buy a large apartment building and actually make it less affordable.

A little over a year ago, an Orange County developer called KDF Communities LLC purchased 1030 Post St. with the generous assistance of the state of California, which provided the company with millions of dollars in loans and tax breaks. In exchange for the funding, which totaled more than $11.1 million, KDF agreed to give the building an extreme makeover, extensively renovating the property and using it to shelter the city's less affluent citizens. Every single apartment in the building was to become an "affordable" unit for years to come.

But the opposite seems to have occurred. Since buying the property KDF has inflated the rents drastically, and, apparently, intends to purge the property of many poor tenants — the very people the company is supposed to be helping.

Now, the longtime inhabitants of 1030 Post — many of them ailing or elderly — fear they'll be forced out by ballooning rents.

"I keep on having nightmares, just thinking that we're not going to have a home no more," says Barbara Pohley, 64, who has resided in the building for 18 years. As she speaks, she nervously clutches at her gray-handled metal cane.

Her husband, Jim Pohley, 61, echoes the thought. "I just want to stay there. I don't want to go nowhere," he adds. The couple says they're now looking at a rent increase of more than $400 per month, money they don't have.

All of this looks to be quite lucrative for the company: In the coming years KDF expects to pocket $1.3 million in profits from its ownership of the building, according to documents on file with the state. To truly understand what's going on here, you need a brief primer on the business of providing affordable housing. For the past decade, KDF has used generous government subsidies to erect, purchase, and renovate some 30 housing developments, a constellation of properties scattered across the state from Santa Ana to Oakland. All of these properties are intended to house low- to moderate-income people, and the firm hypes itself as creating "better housing, better neighborhoods, and better lives."

But KDF is decidedly not a charitable enterprise. It is a commercial operation that transforms tax dollars into bankable profits.

This is a popular business model. For decades, cash-motivated real estate developers have scooped up federal and state money aimed at sheltering society's less affluent members. And these builders have used that money to create or renovate well over a million housing units during the past two decades.

They've also generated vast profits. Exhibit A would have to be AIMCO, a Denver, Colorado-based firm that claims to own more apartments than anyone else in America. Helmed by a former Colorado state senator — an arch conservative — AIMCO's portfolio includes some 42,000 government-subsidized apartment units, among them several hundred apartments in the Bayview-Hunters Point area. It's an enormously profitable business, and AIMCO, whose stock is traded on the New York Stock Exchange, last year posted net revenues of $71 million.

Another outfit, New York's Related Companies, was the subject of a front-page profile in the Wall Street Journal this past summer. According to the Journal, the corporation's "massive low-income housing operation throws off a river of cash for Related that runs fairly steadily through real estate boom and bust." The money stream allows the business to bankroll luxury developments like New York's $1.7 billion Time Warner Center.

KDF operates in a similar fashion, though on a much smaller scale.

When the company purchased 1030 Post in September 2005, it paid a San Francisco investment group $6.75 million for the building, according to property records. The acquisition, state records show, was financed almost entirely by the public sector.

One funding source was a body called the California Statewide Communities Development Authority. Essentially, the authority loans money to projects that benefit the public good, like affordable housing. The authority loaned KDF $7,435,000, to be repaid over the next 35 years.

Another funding source was an outfit called California Tax Credit Allocation Committee, which is an arm of state Treasurer Phil Angelides' office. Put simply, the committee directs hefty federal tax breaks — tax credits in real estate jargon — to developers who construct or refurbish affordable housing.

In KDF's case, the firm got about $3.7 million in tax credits to spend on 1030 Post St.; the company turned around and traded in the credits with a bank in exchange for roughly the same amount in cash.

Altogether, KDF received more than $11.1 million to acquire the property and renovate it.

Since then KDF has, in fact, hired a squad of contractors to make extensive improvements to the 93-year-old structure, but the firm's notion of affordable is curious. When KDF bought the property it was governed by the city's rental control law, which kept the rents from surging precipitously. After signing the deed, KDF concluded the city's law didn't apply.

That meant rents could shoot skyward.

The Pohleys, for example, say they were told the cost of the cramped one-bedroom apartment they share with their adult son would go from $712 a month to $1,150.

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