By Erin Sherbert
By Rachel Swan
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By Albert Samaha
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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.
Documents obtained by SF Weekly show KDF is planning to boost rents steadily on a year-by-year basis in some cases doubling them within five years.
Dean Preston is an attorney at the Tenderloin Housing Clinic, a nonprofit law firm famous for jousting with landlords. He represents about a dozen tenants who live at 1030 Post, and says he's never seen anything like this before: people pushed out of a building for low-income people because they're too poor. "It's an unconscionable abuse of an affordable housing program," Preston argues.
Gathering dust in a file cabinet in Sacramento is a thick sheaf of paperwork that sheds a lot of light on how this whole situation came to be. Under the rules of the tax credit program, which was established in the 1980s and has undergone several permutations since, KDF has fairly wide latitude in setting the rents and determining who stays and leaves 1030 Post.
Because rents are so high in San Francisco, KDF is allowed, under the rules, to charge up to $1,200 for a studio, and $1,272 for a one-bedroom, and those figures are likely to go up in the future.
So people like the Pohleys who've been living at 1030 Post for years can have their rents jacked up substantially even though, in theory, they're now living in an "affordable" building.
This, of course, raises the question of just what constitutes affordable housing. At $1,150 per month, KDF is currently charging about $50 less than the average cost of a one-bedroom apartment in the Bay Area, according to RealFacts, a real estate data firm.
Asked about the turmoil at 1030 Post, KDF acquisitions and development chief Ray Harper will only offer SF Weekly a few brief comments. "It's regrettable that there have been hardships for the tenants as the building is undergoing $1.6 million in renovations," he says, noting that KDF has "financially assisted several tenants" who were moved out of the building. "Anyone who has qualified financially has been invited to stay," insists Harper, a gravelly voiced former Marine.
It's not just low-income people who are on their way out. Under the committee's rules, people who earn too much money aren't allowed to stay in the building, either. No single person making more than $47,500 will be able to remain, according to state documents.
As Preston started researching KDF, he ordered a 2-foot-tall stack of documents from the tax credit committee, and, as he was poring over them, discovered something startling. When KDF had submitted its application to the tax credit committee, it had included income information about every tenant at 1030 Post. But looking at the numbers, Preston knew they were wrong unemployed senior citizens with little cash flow were listed as making far more than they actually did. The figures made it look like the tenants could afford to pay higher rents.
After conferring with his clients, Preston concluded the information, which KDF had submitted to the committee under penalty of perjury, was bogus. In his rent board briefs, Preston claimed KDF had made "material misrepresentations" to the tax credit committee.
Another form submitted to the committee dealt with relocation. Would KDF have to move out any of the 1030 Post tenants after it bought the building? KDF stated, "[it] does not expect there to be any significant amount of relocation required," continuing, "there is no displacement expected." Yet tenants have left in droves apparently forced out because they earned too much money or too little.
"It was pretty obvious from the documentation that someone lied," recalls Preston. "It was a shock to see how blatant the misrepresentations were."
The lawyer alerted the tax credit committee to the matter via a letter sent late this summer. "We are particularly concerned regarding false statements made by KDF in its application," he wrote. "It appears [the committee] and perhaps other governmental agencies were misled into approving this project based on the false assertion" tenants wouldn't be booted.
In response, the committee's executive director, William Pavão, mailed back a letter saying the committee was concerned about the ouster of poor folks from the property. But Pavão didn't promise to do anything other than "stay in touch" with KDF. The committee, in a statement made through a spokesperson, sticks up for KDF and the transformation of 1030 Post, observing that the project conforms to state and federal rules.
Regarding the discrepancies on the company's application, the committee says, "KDF's statement was based on information provided by the previous owners. Only upon KDF's purchase of the property did more detailed income information become available." The committee also says it has assurances from KDF that the firm is making "accomodations" for low-income renters who can't handle the increased rents. Preston isn't happy with the committee's do-nothing posture, and he's not the only one. At the Mayor's Office of Housing, Matt Franklin has been tracking the intrigue at 1030 Post for months. "It's very clear there were misrepresentations made to Mr. Angelides' office," Franklin tells us, adding that KDF "has an obligation to ensure that the information they provide is accurate." In Franklin's opinion, "this is an out-and-out abuse of the California tax credit program. The whole goddamn program is built on providing affordable housing. This is not affordable housing." The tax credit program, he tells us, "is a good program, but they've blown it on this."
The committee seems to have a quite friendly relationship with KDF. The body is chaired by Treasurer Angelides and staffed by State Controller Steve Westly, and California Department of Finance director Michael C. Genest. A review of campaign finance data shows both Angelides (the Democratic candidate for governor) and Westly (who made a failed bid for the Democratic nomination for gubernatorial candidate) have received large sums of money from KDF in the form of campaign contributions. Between 2002 and late 2005, state records show KDF gave $38,700 to Angelides and $33,100 to Westly.
The committee says the donations had nothing to do with the tax breaks it gave KDF.
At KDF, Harper won't discuss the issue of contributions.
Asked about the discrepancies on the application, Chan replies, "I don't think [KDF's] intentions were malicious," but, "I really can't say they had the best information."
In KDF's defense, Chan notes the company really hasn't run into controversy with its other projects, and insists people will one day be happy KDF bought the building. He tells SF Weekly, "I'm really going to put in an effort to see that this project can be viewed as a positive contribution."
At this point, however, 1030 Post is mired in acrimony. Though the building was nearly full when KDF bought it, today there are at least 40 vacancies, and more people may be leaving soon, since, according to Preston, at least 15 other tenants have recently gotten eviction notices. "We believe these are unlawful attempts to evict people and raise the rents," says the lawyer, adding that KDF staffers have been "extremely disrespectful" to the residents.
This summer Preston's clients brought their grievances to the San Francisco Rent Board, a quasi-judicial body that settles disputes between renters and landlords. KDF's position was straightforward: The tax credit program that had funded their acquisition of the property was the product of state and federal laws, and as such, it trumped San Francisco's rental control ordinance. KDF could do what it saw fit as long as it hewed to the rules of the tax credit program.
In a brief filed with the rent board, KDF's attorney portrayed the firm as altruists spending tens of thousands per unit to rehab the property. KDF, wrote lawyer Clifford Fried, are dedicated to "providing long-term affordable housing."
At press time, the rent board had yet to rule on the matter. Nobody, however, expects the board's ruling to mark the end of the conflict.
Initially, Barbara Pohley was happy to learn that KDF had bought her building. The property, she was told, would get a top-to-bottom overhaul, including new refrigerators and stoves, new lighting, new carpets, a seismic upgrade, and even a rooftop garden. And it would be officially designated as affordable housing, which, she assumed, meant she and Jim would continue to pay reasonable rents.
"Everyone thought, 'This is good,'" she recalls. Then she watched as her friends and neighbors fled the building.
If the rent goes up, Barbara says, "we won't be able to eat." Things are already tight. Jim, who toiled for 27 years as a messenger for a blueprint company, is afflicted by severe circulatory problems, while Barbara, who spent her youth harvesting cotton in Texas before moving to California and taking a string of low-paid, labor-intensive jobs, is wracked with arthritis. Unable to work, they get by on food stamps, disability checks, and help from their grown son, a security guard at the Ferry Building.
Jim's wild gray eyebrows spring out from behind thick-lensed eyeglasses; he's clad in a red 49ers sweatshirt, and, as if to reinforce the point, a 49ers baseball cap. The look on Barbara's lined round face is by turns furious and fearful. "These people don't have no right to come and kick us out of there, to treat us like criminals," she rails, before adding, tearily, "We're so tired. I want this to stop. I've been living there for almost 20 years."
If they're pushed out, Barbara figures they'll end up on Skid Row, residing "in one of those nasty hotels where everybody robs you."
Jonas Kessler, 29, doesn't have a lot in common with the Pohleys, besides an address of 1030 Post. He's lived in the city for only a few years, after moving here from Virginia. He's healthy, young, and relatively well paid, pulling down "50 to $60,000" annually as a financial adviser.
Given his resources, he had a different problem than the Pohleys: KDF wanted him out because his income was too high. After battling with the firm for the better part of a year, Kessler recently bailed on 1030 Post, relocating to a new, more costly abode.
Evidently, KDF is pretty anxious to get rid of the wealthier tenants, seeing as how they handed Kessler $10,000 to leave. If wealthier tenants like Kessler were to remain ensconced in 1030 Post, the firm would likely face financial penalties from the tax credit committee.
"I never wanted to move out," he says, but "I was sick and tired of not knowing what was going to happen," he explains. "The people who are left are seniors, or disabled, or just want to fight till the bitter end."
Patrick Murphy, 49, thinks a lot about the bitter end. He's got full-blown AIDS and a brain-stem aneurysm that throws him into seizures. He moved into 1030 about three years ago, in part because he could park his battered car near the building for up to a week at a time, and in part because the place was rent-controlled.
"I wanted a place where I could go and stay until I die, if that makes any sense," Murphy explains. Now, as the building empties, he fears he'll soon be looking for new, probably more expensive, accommodations. In recent weeks he's observed an exodus "of young Latino families who don't speak English so well," from the building. He thinks he may be next. "I have a pretty simple issue. [KDF has] minimum income requirements and I don't meet them," he tells us. Before he got sick, Murphy made a living repairing cars and selling them at several Peninsula luxury car dealers. But at this point, he hasn't worked in 11 years "that hurts," he says with a grimace when the subject comes up and his bank account isn't exactly bulging. He gets by on about $25,000 annually.
"I'm very much a realist when it comes to my physical situation," Murphy says, while standing on the grimy sidewalk in front of the building. "I can whine, but it doesn't change anything."
Murphy has, however, been quite vocal about the nightmare on Post Street. On a recent afternoon he walked to City Hall with about a dozen other tenants to lay out the situation for city supervisors, who may try putting the brakes on the transformation of 1030 Post by rewriting a chunk of the San Francisco rental ordinance.
He was joined by Cary Barlow, 40, who is deaf, and made his comments to the supervisors through a sign-language translator. "My future is uncertain," Barlow tells SF Weekly, explaining that he can't handle what looks to be a looming rent increase.
Supervisor Aaron Peskin, who called the hearing, was clearly heated with KDF. "I'm sorry this scam is going on," Peskin growled. "I want to let Ray Harper know that you are going to pay a very high price if you keep messing with any of the folks in this room. They are salt-of-the-Earth people, and I will take it very seriously. Ray, I'm pretty pissed off."
In some ways, Peskin's tirade wasn't fair since Harper wasn't there to defend himself.
But who could blame Harper and his colleagues for wanting to hang out down in Orange County? After all, unlike the inhabitants of 1030 Post, the KDF honchos lead pretty posh lives. One of them, property records show, dwells in a vast $2.1 million mansion; another owns a five-bedroom, four-bathroom home equipped with a swimming pool, and, floating in a Newport Beach slip, a $364,000 yacht.
The affordable housing business must be booming.
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