posted on 02 April 2016
Special Report from ProPublica
-- this post authored by Marcelo Rochabrun
The charity paid millions in federal stimulus funds to developers shortly after longtime tenants were pushed out. A Habitat whistleblower wrote:
In 2010, the New York City affiliate of Habitat for Humanity received a $21 million federal grant to work on a city neighborhood hit particularly hard by the foreclosure crisis and help stabilize it.
The funds would allow Habitat-NYC to launch the most ambitious project in its 32-year history. Its neighborhood pick was Bedford-Stuyvesant, a historically poor neighborhood in central Brooklyn, where the charity would focus on buying and renovating abandoned apartment buildings.
There was just one problem. With few vacancies in the gentrifying area, longtime tenants were pushed out of their apartments - some into homelessness - clearing the way for developers to sell to Habitat at a hefty profit, a ProPublica investigation has found.
Ultimately, Habitat's project came with a cost: While scores of families gained new homes, other even needier ones were displaced.
Though Habitat promoted the properties it acquired to renovate as "long-vacant," four of nine were still occupied shortly before the charity moved to buy them, records show. In two cases, Habitat targeted buildings just days after the last families living there moved out.
836 Jefferson Ave. Roslyn Reed left her third-floor apartment four days before Habitat's offer to purchase the newly empty building was accepted. (Edwin Torres for ProPublica)
The deals, and what local Habitat executives said about how they were being accomplished, left some inside the charity so upset that at least two employees emailed anonymous complaints to the nonprofit's international headquarters in Georgia.
One of the employees wrote in a May 2012 email, which was provided to ProPublica:
ProPublica's reconstruction of the events was based on hundreds of pages of internal Habitat emails and memos, as well as a review of public real estate records related to those buildings. ProPublica tracked down former tenants and used public complaints filed with the city's housing department as well as court records to establish the buildings' occupancy.
Between 2010 and 2011, at least seven Bed-Stuy families were pushed out of their rental apartments shortly before Habitat purchased them, ProPublica found. All had relied on federal housing subsidies or New York's rent regulation laws to afford their units. None were evicted in court. Three of the families ended up homeless.
Internal emails show that Habitat officials were willing to consider buildings even when they were aware that they hadn't been empty for long.
Bill Bogdon, the director of real estate and construction, wrote to a colleague in 2011:
Overall, with privately raised funds heaped onto the $21 million grant, Habitat spent $43 million on the Bed-Stuy housing initiative.
Some $8.4 million went to buy six properties from developer Isaac Katz and limited liability corporations he represented. In 2006, New York's Attorney General sued Katz and his associates over a scheme in which they allegedly sold blighted buildings to dozens of minority homebuyers at artificially inflated prices. Katz settled his share of the suit for $750,000, admitting no wrongdoing.
Wrote then-Habitat-NYC Executive Director Josh Lockwood in a June 2011 email, responding to a colleague's inquiry:
One day after Lockwood wrote the email, Habitat's Real Estate Investment Committee approved the purchase of three additional buildings from what they considered to be a group controlled by Katz for $6 million.
Katz's attorney said his client never had an ownership stake in the buildings, and was merely facilitating their sale to Habitat.
Tashemia Tyson in front of the homeless shelter where she lives in the Bronx. She said she has been unable to find a permanent home after being pushed out of her apartment on Madison Street five years ago. (Edwin Torres for ProPublica)
One of the buildings was the elegant, but rundown brownstone on Madison Street where Tashemia Tyson, a single mother of three, rented a third-floor apartment with public assistance. Around three months before Habitat began discussions to acquire the building, Tyson said Katz began pressuring her to leave.
Katz's attorney denied Tyson's allegations, saying that his client "never spoke to Tyson" and that all the units were vacant when he facilitated the sale to Habitat.
The apartment had no heat. Tyson said:
Reluctant to move, she said she relied on her gas stove for heat and hauled water buckets up the stairs to cook and to bathe for more than a week.
Finally, in February 2011, she said she accepted an offer from Katz of six months' free rent at another building, but couldn't afford the new apartment once the regular rent kicked in. Today, she sleeps in a shelter in the Bronx.
Habitat said in a statement that:
The charity added that they had retained outside legal counsel to investigate complaints made about their handling of the federal grant, but said the lawyers found no evidence of wrongdoing and that Habitat International concurred with their finding.
A spokesperson for Habitat International said:
Bogdon called the allegations made against him in the whistleblower email "hearsay and erroneous." He also said that the Jefferson building he had discussed with his colleague was never purchased.
Lockwood, who is now the CEO of the Red Cross's greater New York region, declined to comment.
Habitat acknowledged that they had struggled to find vacant properties in Bed-Stuy despite their extensive efforts and that "many of the [grant]-appropriate properties in that area were owned by Isaac Katz".
Katz's lawyer denies that he owned many properties.
But Habitat said that they:
They said they had paid no more than the appraised value for each property and that Katz and other developers signed good-faith agreements affirming that no tenants had been improperly displaced.
Paul Aloe, an attorney representing Katz, said:
Karen Haycox, the CEO of Habitat-NYC, who joined the charity in 2015, long after the Bed-Stuy deals, said in statement:
Four dozen of those families moved into new homes built on vacant land. Still, the majority of families helped by the project moved into units made available, in part, because others had been displaced.
Many of those who bought Habitat's renovated homes earned around $50,000 a year - almost double the median income for renters in the neighborhood and about five times as much as the disability income of Charles Watson, a tenant who lived a floor below Tyson and ended up living on the streets after he was pushed out. Watson did not remember the name of the person who pushed him to leave.
Josh Lockwood had a bold vision for Habitat-NYC when he was named its acting executive director in 2007.
Lockwood was quoted saying in the charity's summer newsletter that year:
For most of its history, Habitat-NYC built only a handful of single-family homes annually. It was a model pioneered by Habitat International, the Christian charity that sprung to fame in the 1980s thanks in part to former President Jimmy Carter's close involvement.
Under Lockwood's leadership, the charity moved into large-scale construction, breaking ground on a 41-unit complex in the Brownsville neighborhood of Brooklyn. It was celebrated as the largest building project ever undertaken by a Habitat affiliate in the United States.
Lockwood was a rising star in the nonprofit world. In 2010, Crain's New York Business honored Lockwood as one of the city's "40 under 40."
The federal grant was crucial in Lockwood's expansion plans. Now, Habitat would develop more than 100 units in one project. But taking the funds, part of the Obama administration's stimulus package, would require Habitat to modify another aspect of its building model.
In the past, Habitat acquired vacant lots and buildings from the city at nominal prices. With the federal grant money, Habitat would be going on the open market for the first time. The nonprofit also had to move forward on an accelerated timeline as it had agreed to spend half of the $21 million grant by the end of 2011, only a year and a half after receiving access to the money.
On the surface, it made sense that Habitat chose to work in Bed-Stuy. The neighborhood had the highest foreclosure rate of multifamily rental properties in the city, according to a report by New York University's Furman Center for Real Estate and Urban Policy, and Habitat had worked in the area.
Properties Habitat Purchased in Bedford-Stuyvesant
The charity purchased nine apartment buildings to renovate in Bedford-Stuyvesant with the help of federal dollars starting in 2010. (Map source: City of New York; Credit: Al Shaw/ProPublica)
But according to city data, the neighborhood had few vacancies. That's because tenants who live in old, multifamily buildings are usually protected from eviction. New York's rent regulation laws afford those tenants the right to renew their leases even in the case of foreclosure.
All seven families who moved shortly before Habitat bought their buildings lived in rent-regulated units.
Harold Shultz, a former deputy commissioner at the city's housing department, said:
The rules governing the grant did not set out how long a property had to be vacant to be eligible for acquisition, but federal officials did not want their money to entice developers to empty out buildings to score a sale.
During a web seminar with the federal department of Housing and Urban Development in June 2010, a Habitat-NYC employee asked, according to a transcript of the meeting, if it would be okay to make an offer on an occupied building where "the tenants were not all paying their rent and there might be some eviction proceedings going on."
An official replied:
If Habitat were to buy that property, he explained, the federal funds would be linked to the eviction of tenants.
Listen to the conversation
By the end of the month, Habitat began targeting several buildings for acquisition. They worked with a real estate broker named Jordan Bardach, who knew Isaac Katz. At the time, Katz was still paying off his settlement to the attorney general.
Bardach has operated several ventures under the name "Imagine." One of them, Imagine Equities, advertises services on its website to help "remove tenants" in case of "future building renovations and upgrades." Another, Imagine Living, lists on its website the buildings Habitat ultimately purchased. In 2013, he and Katz developed an app that "speeds up" the process for landlords to get tenants "paying rent again or evicted swiftly".
Through a lawyer, Bardach said:
Three of the buildings Habitat acquired with Bardach's help were long vacant. But another, 849 Halsey St., still had three tenants shortly before Habitat targeted it for acquisition in late June, according to city housing records, and letters mailed to these tenants that were obtained by ProPublica.
203 Marion St. Isaac Katz purchased the building and resold it to Habitat on the same day, netting a profit of almost $250,000. (Edwin Torres for ProPublica)
Twana Midgette said she left the building in June 2010 after she found what looked like an eviction notice on her door.
She now lives in upstate New York, where she said she continues to pay rent with public assistance.
Melinda Ortiz remained as long as she could.
Ortiz left shortly after Midgette and has spent the past few years moving from apartment to apartment.
David Coachman, a tenant who lived in a rent-stabilized unit, said he left on June 12, after accepting a $10,000 settlement. Four days later, a Habitat employee visited the property, HUD records show.
Today, Coachman lives with his son in Flatbush, Brooklyn.
On July 19, 2010, Katz signed a document that said he would notify Habitat if there had been tenants at 849 Halsey in the past three months and would
That was a little more than a month after the three tenants left.
Habitat declined to say whether Katz had told them about the tenants when he signed the document.
The tenants all said they had been pressured to leave, but do not remember the names of the people who spoke to them. Katz's attorney told ProPublica his client hadn't purchased the building until early July.
If Habitat had independently tried to verify the occupancy history of the building, they might have found housing records that documented a call from Ortiz's apartment to register complaints of bedbugs, mold and a broken banister. The date of the call was June 1, 2010 - 15 days before a Habitat official first visited the property.
The official wrote to HUD:
Katz's LLC closed on the sale of 849 Halsey to Habitat in late January 2011.
David Coachman sits at a nursing home in Brooklyn. He lived for decades at 849 Halsey St. (Edwin Torres for ProPublica):
That month, Katz also sold a building at 203 Marion St. to the charity for about $620,000.
It was a remarkably quick and lucrative flip. Katz had purchased the six-unit property earlier that day for about $380,000 from Lena and Percy Spellman, an elderly African American couple who had owned it since 1983.
Internal Habitat documents provided to ProPublica show that Habitat first targeted the property for acquisition the previous June, when it was still owned by the Spellmans.
Katz's lawyer said this was "incorrect", but did not elaborate.
Property records show that the Spellmans did not sign a contract agreeing to sell the property to Katz until July 30.
Jerome Spellman, the son of the building's longtime owners, said:
Habitat officials deny this was the case. In a statement, they said Katz already had a binding contract in hand when they first learned about the property. They said:
Michael Kozek, a real estate lawyer, who reviewed the documents for ProPublica, said the Spellmans may have cause for complaint. He said:
As Habitat bought properties from Katz, some in the nonprofit grew concerned.
One of the early alarm bells came from then-Habitat board member Karim Hutson in April 2011. "I thought we decided we would not consider any additional Isaac Katz buildings?" he asked Lockwood, according to an email Lockwood wrote summarizing their conversation.
Records show that Habitat employees and the board discussed repeatedly whether to move forward with a new offering from Katz: three adjacent brownstones at 782, 784, and 786 Madison St. On June 6, Hutson said on a conference call that he would agree to the sale only if Habitat's outside counsel at Hirschen, Epstein & Singer conducted research on Katz.
A view of 786 Madison St., one of three contiguous buildings acquired by Habitat, where Walter Tatum says his family had been living since 1962. (Edwin Torres for ProPublica)
Lockwood wrote in an email to a colleague a few days later:
Ultimately, Hutson voted against moving forward with the purchase, but was outnumbered, an internal memo shows.
Katz's lawyer denied that his client ever owned the buildings, but said that he had helped facilitate the sale. At the time Katz got involved, the lawyer added, the buildings were vacant.
When Habitat began discussing the acquisition in April 2011, three tenants had recently occupied the buildings. One was Tashemia Tyson.
Walter Tatum said his family had lived at 786 Madison since 1962. His unit was rent controlled, and he said it cost him about $200 a month. In late January 2011, he complained to the city about the lack of water and heat in the building, records show. Soon afterward, Tatum said he was paid a $50,000 settlement to leave. It seemed like a lot of money. But because he was unable to work after suffering a head injury many years ago, Tatum realized that the payout would not be enough for him to afford a market rate apartment over the long haul.
Kamal Tatum, Walter's son, said:
He signed into a homeless shelter and remained there for about a year before moving with his son to Georgia. Neither Kamal nor Walter remember who gave Walter the money.
Charles Watson stayed the longest. On Feb. 1, he put most of his belongings in a storage facility that offered a month of free use - still registering Madison Street as his home address - but left behind a bed to sleep on as workers gutted the building. After a few weeks, Watson said he discovered that the locks had been changed. He started sleeping on the subway, especially the J and A lines.
Watson said he was homeless for more than a month as he looked for an apartment and transferred his housing subsidy to a new unit. Today, Watson lives in the basement of a large apartment building in Crown Heights and wishes he could move back to his old neighborhood. He said he has been on disability for 15 years after hurting his back while working as a janitor in a hospital on Coney Island.
Charles Watson lives in a poorly maintained basement apartment in Crown Heights. He said he slept on the subway for more than a month after being pushed out of 784 Madison St. (Edwin Torres for ProPublica)
Even as Habitat employees questioned Lockwood about buying properties from Katz, Habitat appeared to be expanding its relationship with the developer. The idea was to have Katz do the renovation work on Madison Street, instead of the charity doing it itself.
A Habitat memo stated:
Katz's attorney denied his client was the contractor.
Internal documents show that Habitat did this to avoid federal requirements that it pay government-set wages, a deal structure that Habitat's attorneys approved.
Bill Bogdon wrote to Habitat's Real Estate Investment Committee on May 16, 2011:
In a statement, Habitat said the Madison buildings "were in full compliance with prevailing wage regulations." However, they did not answer whether contractors had paid prevailing wages on the project.
As Habitat entered its second year of the federal grant, documents show that senior officials expressed concern about meeting their first spending deadline.
Rachel Hyman, Habitat-NYC's Chief Operating Officer, wrote in May 2011:
They soon targeted 836 Jefferson Ave., which until recently was inhabited by a tenant named Roslyn Reed and her family.
In mid-May, Reed filed complaints with the city on 17 different issues in the building, including broken doors and rats. Developers filed an eviction lawsuit against her soon afterward. The first hearing took place on June 13, court records show.
But on July 3, before the lawsuit was resolved, Reed said she and four family members moved out. Four days after their departure, a developer named Steven Makowsky accepted Habitat's offer letter to purchase the building for nearly $1 million. That was twice as much as he'd paid for it 10 months earlier, records show. It's unclear if he had done any work on the building. Habitat's inspector considered its condition to be "poor."
Roslyn Reed with her daughter and grandson. Her rent more than triple since she lost her rent-controlled apartment at 836 Jefferson Ave. (Edwin Torres for ProPublica)
Reed said Makowsky covered one month's rent at a nearby apartment plus the security deposit and broker's fee.
Makowsky could not be reached for comment after numerous attempts.
Reed's family struggled as the rent went from $600 a month for their rent-controlled unit on Jefferson Avenue to $1,800 at the new place, she said
After two years, Reed said she and her family were pressured to leave their new apartment. Then they moved to a humid basement apartment nearby which changed hands after they got there. The new owners, Reed said, refused to do repairs, and told them they had to leave.
They recently moved to East New York, into another basement apartment where a total of seven people live.
Reed inside the small East New York basement where she now lives with six other relatives.
Lockwood left Habitat-NYC to become CEO of the Red Cross's greater New York region in the spring of 2012.
In a memo, Lockwood briefed his successor, Hyman, on the potential for a public relations crisis over the Bed-Stuy project. He suggested that she "line up stakeholders to be prepared to support our position." He also outlined talking points for her to use:
Hyman, who left the nonprofit in 2013, declined to comment.
The phrase was echoed four years later in a statement from Habitat officials to ProPublica: The charity said it purchased buildings from Katz:
Even during Lockwood's last months on the job, Habitat continued to scout the real estate market, looking for properties to acquire. In March 2012, Bardach, the broker, emailed Habitat's Bogdon about a Bed-Stuy listing he had first mentioned two months earlier. Bogdon sent him a four-word response.
Production by Hannah Birch.
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