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Excessive profits Found Again and Again by MA Inspector General More Bad Deals in Affordable Housing: See notes below & PDF
Attached is the latest report from the IG on
40B activity in the Town of
Berkley. This covers all of our concerns about excessive profits, 40B
*flipping*, as is assessment, etc. Even more
unsettling is the lack of
good oversight on the part of the CHAPA
monitor.
Several messages are worth highlighting. Before issuing a comprehensive permit, the town should validate the allowable acquisition value of the site against pertinent land appraisal(s). The allowable acquisition value should not exceed the as-is fair market value of the site under existing zoning and without the benefit of the comprehensive permit. The appraisals should be compared against the most current real estate tax assessments for the site. Any differences in value greater than 5% should be investigated and resolved. Related party land transactions and the selling/transfer of land/comprehensive permits need special scrutiny. The town should document and review in detail any future comprehensive permit transfer requests. Financial transactions associated with these transfers should be analyzed to ensure that profiteering does not take place at the expense of the town, its taxpayers and future affordable housing initiatives. To facilitate such analysis, the town and the "new" developer should be required to have a documented agreement (amended comprehensive permit and regulatory agreement) before the authorization to transfer the permit is granted. The agreement should specify what portions of these transfer costs will be considered allowable costs for computing the project's excess profit. Potential allowable transfer costs may include payments for services (such as architectural plans, surveys, permit fees, etc.) incurred by the original applicant but which will benefit the "new" developer as part of the project's continuation. The developer should provide detail support to the town for these transfer costs. As part of the comprehensive permit application process, the developers should identify all related party activities including any financing arrangements. For these related party arrangements, it is incumbent upon the town to understand the breakout of expected related party expenditures (direct versus indirect costs). Since these related party transactions are entered into without the benefit of a competitive bidding process, and higher development costs provide an opportunity/incentive for higher profits to be retained by a developer as opposed to being made available to the town for additional affordable housing initiatives, it is imperative that the town understand these related party costs. This includes understanding the associated overhead, general conditions and profit built into these relationships. The town should negotiate with the developer reasonable related party costs which will be included in the projects allowable costs and these agreements should be memorialized in the comprehensive permit and the regulatory agreement. The town should consider inserting itself in the cost monitoring process for the project and may even want to assume the role of monitoring agent. The town also should be a party to the selection process for the public accounting firm which will perform the detailed cost certification audit and should review the audit procedures to be performed in order to ensure that all concerns are addressed through the audit. These procedures should include review and comparison of income and expense categories reported in the cost certification to the original estimates reflected in the pro forma financials. Explanations for any material differences should be obtained from the developer and independently verified by the auditor. All these arrangements should be incorporated in both the comprehensive permit and the regulatory agreement. In order to help guarantee responsible project unit revenue sales estimates, the town should consider imposing conditions through the comprehensive permit and the regulatory agreement that would allow the town to retain or share in the sales revenues above the pro forma estimates. In addition to gaining an understanding of the related parties (and associated costs) which will be involved in any future Chapter 40B development, the town should also be aware of all planned consultant activities. This understanding should be developed as part of the comprehensive permit process. The town, possibly through an affordable housing committee, local housing authority, or other local entity, should consider assuming some of the consultant duties, such as marketing and lottery agent for the affordable units. Various state agencies have recently adopted guidelines which provide opportunity for liberal financial reward to Chapter 40B consultants. If the town serves in any of these capacities, it will be able to use this generous income to help create additional affordable housing opportunities than would otherwise be possible. In order to help guarantee project completion according to the agreed upon plans and also to protect the town's interest in potential excess profits, consideration should be given to requiring the developer to post adequate bonds or other forms of security. These arrangements should be clearly articulated in the comprehensive permit and the regulatory agreement.
Something that local ZBA's and Town Counsel's may want to consider.
Recently there has been a noticeable trend whereby a developer initiates and
gets approval on a 40B project then sells the approved project to another
party at a further inflated price. This practice often referred to as
*flipping*, presents a totally unwarranted abuse of the 40B law.
This scenario generally involves one of the high powered
developers engaging a powerful legal firm whose expertise and tactics
totally overwhelms the local ZBA and is often supported by the 40B
facilitators supplied by MassHousing. The project initiator may not be at
all interested in developing affordable housing but only seeking to maximize
profits on an acquired piece of real estate.
It has been suggested that a simple wording change in the
final ZBA approval could prevent a continuance of this undesirable
activity. There is an opinion that in most of the conditions where
reference is made to the "Applicant," the wording should include "his (or
its) heirs and assigns." There is a belief is that by referring only to the
Applicant, the opening is there for the present developer to walk away
before even beginning the project, whereas the suggested wording ties them
to the project through its completion. .
DRAFT GUIDELINES for Affordable Housing LIP (Local Initiative Project) - Useful for All Communities Link: HAC Regulation Changes for 40B Smart Growth Sustainability Scorecard To help fight unsustainable or poorly planned 40B Projects The Nimby Report Blackstone Valley's Affordable Housing Committees:
11/26/03 - Pawtucket Celebrates Opening of 27 Units of Affordable Housing Presently, the Valley has mostly waited for 40Bs to come along. The realization of the need, the possible reuse initiatives and the community setting a vision in place are all starting to come together as they have in Millbury with both large and small successful creation and renovation of affordable housing initiatives. In Uxbridge, a 40B will shortly be filed for land along Rte 146A past the Quaker Motor Lodge. Details will be forthcoming when filed with the ZBA. 10% Doesn't Matter Anyway??? Link:Mass Policy Online: Affordable Housing Update Save Miscoe Fights a Tough Fight to Preserve an ACEC (Area of Critical Environmental Concern) Sustainable Affordable Housing
Renovated mill housing line many Rhode Island and Massachusetts mill
communities. This can substantially enhance the community by maintaining affordability for the
core of citizens while keeping the older, but now renovated, mills and the mill homes as part of
each community's visual history. Ashton, RI and Northbridge, MA are two prime examples of the re-use of mill housing. New housing projects are also coming forward
but these have often eaten up the farmlands in a sprawl effect, so smart
planning and a proactive approach is critical to maintain the charm of our
communities. Link: Cumberland's
Successful Plan for Affordable Housing
Hopkinton has recently followed the lead of the Ashland Town Administrator to
join a regional housing effort in the communities of
Ashland, Hopkinton, Holliston, Southboro,
Sherborn and Medway. Hopkinton has a very diligent effort underway based on a
thorough analysis of needs and doable projects. Their analysis, however, showed,
that due to their lack of need for rentals, the Town will never reach the 10%
minimum required by the State to be able to deny 40Bs. However, their upfront
requirements, including a thorough Notice of Intent filed and reviewed prior to
any decision, assure a very informed committee will demand a suitable 40B
project for the town. 40B Letter from Witten and Horsely
CHAPA MassHousing
MHPFund DHCD
Calendar Second
Soft Loan Program - available in Grafton Resources Income Limits
3/16/04: "Turning a Dream into An Opportunity for
Hardworking Massachusetts Families" is the tag line of the Massachusetts
Housing Opportunities Corporation. "We work with communities to
establish a plan by building quality homes which reflect well within the
neighborhood." UMAss Amherst Dean and longtime Planner and Speaker for the
Blackstone Valley, Dr. John Mullin, sits on the Board of this group. MHOC helps
communities plan a planned production progra,. For more information, contact www.mhoc.info
or call 1-800-782-7040.
2/16/04: Lou Boersma of the Grafton Housing Authority has submitted a website for those building affordable units. If the design is incorporated from intial stages, the cost per unit to adapt a home for handicap (or universal) access is only about $300. extra. 2/9/04: Developer Sotir Papalilo will soon be bringing the lottery informational package for his project's affordable units to the Uxbridge ZBA for their review. The lottery information package consists of documents that are similar to those found in LIP application under Section VIII: Marketing Plan updated to reflect the current conditions. The ZBa will then review the materials and respond to the developer who hopes to advertise and start the lottery process by accepting applications from potential affordable homebuyers. The lottery is tentatively scheduled for April 8, 2004. A pre-lottery informational meeting will be held with all qualified participants on April 1, 2004. Further information will be forthcoming as the ZBA approves the marketing plan. The project is nearly fully constructed. It is unclear how many homes will be affordable although 25% of the project will be reserved for affordability.
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