Million-Dollar Wasteland: A Washington Post Investigation
Speculators score, District loses in affordable-housing deal
By Debbie Cenziper
May 15, 2011
It sure looked like a good deal at the time.
A nonprofit developer promised to spend millions renovating three rotting apartment complexes in some of the most blighted neighborhoods of Southeast Washington. It would be one of the largest redevelopment projects in years east of the Anacostia River, helping dozens of low-income renters suffering through roof leaks and winters without heat.
In late 2007, then-Mayor Adrian Fenty sent a letter to the D.C. Council touting the developer’s experience, construction team and financing. The council swiftly approved the deal, lending $3.5 million in federal funds to help pay for the renovation of 98 units priced for the poor.
But the project died before a shovel ever hit dirt.
East of the River Community Development Corp. had taken on nearly $8 million in mortgages to buy complexes riddled with leaks, sewer backups, and buckling stairwells, roofs and floors.
Soon after the city delivered the federal money, the group declared bankruptcy and shut down. The District lost millions of dollars while the project was delayed for years.
But one group reaped millions. A handful of real estate speculators, including three previously convicted in a sweeping housing fraud scandal, had sold the complexes to East of the River based on adjusted appraisals written by one of the sellers’ associates, The Washington Post found.
The project is a case study of the breakdowns in the nation’s $2 billion-a-year affordable-housing program, in which extensive construction delays have derailed the development of thousands of homes.
The District’s East of the River project involved an inexperienced developer that cut an ill-fated deal with savvy speculators under the watch of a local housing agency that failed to protect the government’s investment.
Waste and weak oversight are endemic at housing agencies nationwide. A Post investigation found that about $400 million in affordable-housing funds from the U.S. Department of Housing and Urban Development is tied up in hundreds of troubled construction projects, including the one proposed by East of the River...