Council questions plan for housing group

Jul. 27, 2013 @ 04:53 PM

A Community Development Department proposal meant to keep a troubled housing nonprofit alive splintered the City Council last week, forcing administrators to pull it back for more work.

The plan targets Rebuild Durham Inc., which controls 13 “affordable” rental houses it acquired with a combination of private-sector and government loans, but has had trouble making ends meet.
City officials are cooperating with SunTrust bank on a last-ditch rescue plan that asks both to restructure Rebuild Durham’s debts in a way that gives the nonprofit a bigger cash flow to maintain its properties.
But one councilman, Eugene Brown, says it would be better to end dealings with it and foreclose on its properties.
“It’s time for the private sector to step in, let them take it on and let them do what they can do with it, what has not been done in the past 15 years,” he told the rest of the council during a Thursday work session.
Another councilwoman, Diane Catotti, said officials should consider forcing Rebuild Durham to sell some of its properities to raise working capital.
But two others, Don Moffitt and Steve Schewel, agreed Community Development’s proposal is, in Schewel’s words, “quite reasonable” given the circumstances of the case.
The only other elected official present for Thursday’s discussion, Mayor Bill Bell, didn’t tip his hand one way or another.
Rebuild Durham is a special type of nonprofit that government officials call a “community housing development organization,” or CHDO, that’s entitled by law to a share of the federal housing aid cities like Durham receive.
CHDOs receive that preference in return for having reserved a third of the seats on their governing boards to residents or representatives of low-income neighborhoods.
The idea is to give low-income residents a bigger say in what happens in their community and the opportunity to develop their own institutions.
But city officials acknowledge that CHDOs nationally have a mixed track record, some working well, others failing to produce results. Brown made it clear Thursday he thinks Rebuild Durham falls into the failing-to-produce category and that he questions the premise of the set-aside.
It has, he claimed, a “phantom board” that rarely meets and lacks members with the business and real-estate skills required for it to provide the organization with oversight and direction.
Continuing to deal with it, Brown added, exposes the city to the risk of having its own administrative competence questioned.
Foreclosure “would be better than this torture that has continued for too long,” Brown said, adding that the city would have been better off financing mainstream nonprofits like Habitat for Humanity.
Catotti’s objections were less to the concept of CHDOs than to the specifics of the deal Community Development wants to make.
Rebuild Durham owes Durham’s government $368,323, less than half of the money it borrowed from the city in 2000 and 2003. It in theory has to make monthly payments covering the principal of the city’s zero-interest loans, but halted them in 2011 to apply the money instead to repairs.
Community Development Director Reginald Johnson proposes doing away with monthly payments entirely, instead asking for repayment only if Rebuild Durham sells its properties.
In return, the nonprofit would have to plow the savings into further repairs and give one of the houses to the city. For two other rundown, vacant houses, it’d have to escrow money for renovations against a four-year completion deadline.
Catotti didn’t like the escrow proposal, questioning whether it would merely allow the two houses to drag down the value of surrounding property for years to come.
“Should we be pushing them to sell and divest, because they don’t have a great track record?” she asked Johnson.
He answered that the city may be better off dealing with Rebuild Durham, as SunTrust is willing to restructure its own loans to the nonprofit and another group would likely require a new funding pledge from the city to step in.
Moffitt and Schewel, meanwhile, saw the question as one of how the city should deal with a case of sunk costs.
Johnson’s proposal calls for no additional funding from the city, save accepting the loss of $12,804 in annual repayments that haven’t been forthcoming anyway. He’s also skeptical the city would get a good return from foreclosure, as SunTrust holds first mortgages on the properties.
“The horse is out of the barn,” Moffitt said. “If there was any intimation of us putting additional fudning into this, I’d have a different opinion. The likelihood of recovering any funds is fairly low, but substantially smaller if we said we’re not interesterd in doing any more workouts or being patient.”