In the early 1990s, HUD had a reputation for owning some of the biggest slums in Boston. “There were a number of negative stories about HUD's management,” says Jeffrey Sacks, an attorney at Brown Rudnick in Boston, which represented a group of HUD tenants at one agency-owned property.
So, in 1995, HUD partnered with MassHousing (then called the Massachusetts Housing Finance Agency) to launch the “Demo Dispo” program. The program's purpose: to renovate or rebuild 11 developments (1,850 units) of HUD-foreclosed, multifamily housing. After the rehab, each property's tenant association and an experienced real estate firm would own the apartments.
But one tenant group—Franklin Park in Dorchester, Mass.—wanted homeownership. This wasn't in HUD's plan. “HUD isn't in the business of building town-houses,” says Miniard Culpepper, HUD's New England acting regional director. “We were a little concerned when they initially came to us with the proposal.”
Here's how the tenant group eventually changed HUD's mind, earning final approval for the homeownership concept in October 2002.
The Settlement Attorney: Jeffrey Sacks, Brown Rudnick Berlack Israels, Boston: The Franklin Park tenants weren't the only group Brown Rudnick helped through the Demo Dispo program. The firm also worked with tenant groups at two other properties, whose disposition went as planned, with MassHousing acting as an agent and organizing the rehab.
But Franklin Park had its own challenges. “The Franklin Park project is different because some of the wood-framed buildings were so bad that the tenants, MassHousing, and HUD concluded that you really couldn't rehab those buildings,” Sacks says. “There were very significant roof, window, heating system, and infrastructure damages. This housing was an embarrassment.”
The Franklin Park residents wanted new housing of which they could be proud. And they wanted to own it. “HUD wanted apartment buildings, but we felt like they should give low-income residents a chance to own their own homes and see what it feels like to be an owner,” says Patricia Mayo, president of the Franklin Park Tenants Association.
While the plan was hardly an easy sell, Sacks took it to MassHousing and HUD. The proposal gained some traction when the city of Dorchester volunteered to contribute some land. “Our pitch was, ‘If you guys put the capital in, the city will give you another piece of land,'” he says. “‘We'll get some money to build 16 townhouses from parts of the city and the contribution of land. Then you won't have the Section 8 commitment.'”
The Facilitator: Robert Pyne, director of rental housing development, MassHousing: When HUD decided to implement the Demo Dispo program, HUD knew it didn't want to do it alone. It had just completed a downsizing and needed outside help. In addition, designating an outside agency to act as the agent for the program would open up a new level of contractors for participants in the Demo Dispo program, not just bidders that came in at the lowest price.
Though MassHousing was HUD's agent, the federal agency still signed off on each project. So when the tenants' association came to MassHousing with its proposal for 16 for-sale condos, Pyne was apprehensive. “We had 18 construction projects going on at the time,” he says. “It added another complex wrinkle and set of negotiations with HUD to a program that was already big and complex. It was complicated, and it involved the HUD legal staff doing things it hadn't done before.”