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They picked the typical run-through developer who takes us all to the bank. Look at what Mr. Kevin Key. This actually is illegal.
How a government nonprofit and private companies turned federal funds into $400,000 apartments for the poor
It took a nonprofit middleman and million-dollar paydays to an alliance of businessmen to put hundreds of the Hill District’s poor into new homes.
Atop the Hill, on a site with stunning views of Downtown and the South Side, drug-plagued Addison Terrace is gone, replaced by manicured Skyline Terrace. Around 84 percent of its renters get subsidies because of their low incomes.
In February 1967, Addison Terrace was described as "a public housing complex in the Hill District with nearly 1,000 units. Its tallest building is a 15-floor high-rise structure of gleaming white brick and anodized aluminum yellow panels, with 150 apartments for older couples." (The Pittsburgh Press)
Improving their surroundings involved $160 million in public funds -- around $400,000 per townhome -- flowing from the federal government through the Housing Authority, banks, a nonprofit corporation, a dozen private companies and two savvy businessmen. At the center of the process is a 10-year-old Allies & Ross Management and Development Corp., which has grown into one of the region’s 50 most asset-rich nonprofits, while participating in the transformation of low-income housing in Garfield, the Hill District, Larimer and the North Side.
Housing Authority Executive Director Caster Binion, who is also president of Allies & Ross, said it “is not the Caster company. This is the people’s company. ... The end product,” he added, “is affordable housing.”
Including the cost of razing Addison, flattening out a hill and building new infrastructure, Skyline’s costs exceeded the averages found in the few studies of the cost of low-income housing.
Cost is one downside of the complex public and private, nonprofit and for-profit arrangements now used to revamp aging public housing complexes nationwide, said Ethan Handelman, vice president of policy and advocacy for the Washington, D.C.-based National Housing Conference.
Skyline’s cost is “a high number. I won’t deny that,” he said, when told of its cost. If the costs reflect quality design and construction, he said, they may be warranted because “you’re getting a real community asset.”
“I would like to see the industry doing lower costs,” he added, “because then we’re housing more people.”
A new way to rebuild
Kenneth Woods, 67 and a former steelworker, moved to Addison Terrace in the mid-1980s, and raised -- and lost -- a son there.
Kenneth Woods talks about life in his new, one-bedroom house in Skyline Terrace -- formerly Addison Terrace -- in the Hill District. (Pam Panchak/Post-Gazette)
Living on Bentley Drive in the 1980s, he reminisced, “Sometimes, there would be 25, 30, 50 grills going at a time. People were socializing, their kids playing.
“Then I seen it go under.”
Members of rival gangs moved in. A drug market took root. For Mr. Woods, the descent culminated in 2008, when his son, Kenneth Woods Jr., was gunned down in broad daylight on Bentley, at age 30.
Determined not to be driven out by fear or grief, the father stayed on, moving away only for a year-long relocation while the 734 monotonous apartments of Addison were demolished and Skyline constructed.
The 386 replacement townhomes are mostly in the Hill, with the rest under construction in Homewood, and range from one to four bedrooms. They will include 75 for market-rate renters and 311 slated for low-income residents like Mr. Woods. He pays 30 percent of his income for the one-bedroom apartment with its own laundry machines and back porch. “I love it now,” he said. “This is a dream. I always wanted a nice, little place. I’ve got my flowers outside. … It’s just peaceful.”
The process that led to the destruction of Depression-era Addison started a decade ago, when the federal Department of Housing and Urban Development told local housing agencies that they could create nonprofit corporations to redevelop their properties. Pittsburgh’s Housing Authority, which is overseen by a volunteer board appointed by the mayor, promptly created Allies & Ross.
Demolition on Addison Terrace started in 2012. (Darrell Sapp/Post-Gazette)
Before Allies & Ross, according to Mr. Binion, his agency “would have developers come in, they would build these massive places and the Housing Authority would not be in the deal.” Allies & Ross, though, is allowed to do things an authority can’t, such as join partnerships with developers and thereby get a cut of the fees and profits.
First, under the authority’s then-director A. Fulton Meachem Jr., Allies & Ross teamed with Columbus developer Keith B. Key to transform 632-unit Garfield Heights into Garfield Commons, a 225-apartment complex. The cost: $100 million.
For Mr. Key, that was an important step in expanding KBK Enterprises, now a company with more than 60 employees and developments in Garfield, the Hill District, Larimer, Downtown, New Orleans, Harlem, New York and Columbus, Ohio.
In 2010, Allies & Ross prepared for even bigger jobs, and picked KBK, St. Louis-based McCormack Baron Salazar, and Downtown’s Trek Development Group as its go-to partners. KBK was assigned to redo Addison, while McCormack Baron is working in Larimer and Trek in Allegheny Dwellings -- all in collaboration with Allies & Ross.
Allies & Ross, in its last disclosure to the IRS, reported $132 million in assets, including $42 million in cash and $87 million owed to it by others. It has no employees. Since it works only for the Housing Authority, that agency’s employees run the nonprofit, taking only their government salaries.
The deals Allies & Ross inks, though, have resulted in big paydays for private business people, including those responsible for Skyline.
“A very complicated deal”
The money flow starts with the federal government. The U.S. Department of Housing and Urban Development subsidizes the Housing Authority. The IRS authorizes low-income housing tax credits, which investors buy in return for equivalent tax deductions.
To transform Addison, the Housing Authority transferred $102 million to Allies & Ross. Tax credits cover almost all of the balance.
To secure the interests of the tax credit investors, Allies & Ross and KBK created around a dozen other entities -- with names like Addison Terrace Phase I General Partner LLC and ARMDC-Addison Terrace III Inc., to take ownership stakes and make various guarantees. Much of the money flows to, or through, KBK, general contractor Mistick Construction Services, or a Columbus-based company created by Mr. Key and Robert Mistick in 2010, called Alliance Construction Group.
“If there was a default, we would be out of business overnight.”
For its work on the first three phases of the Addison-to-Skyline project, KBK earned $6.12 million in developer fees. It also got a 6 percent slice of the millions of dollars of site preparation work it agreed to manage.
Mr. Binion justified KBK’s fees by saying it was “a very complicated deal” in which “the developer incurs a lot of expenses.”
Mr. Key said that KBK had to put together financing, sell tax credits, work with politicians and neighborhood leaders, plan transportation links, line up contractors, surveyors, engineers and other professionals, ensure the use of minority-and-women-owned businesses and local labor, among other tasks. “It’s a thousand moving parts,” with significant pre-development costs, he said.
“When we net it out, it doesn’t always seem like we made much,” said Mr. Key, adding that he took on considerable risk. “If any of those phases went belly up or didn’t get completed, we had the obligation to our investors for any shortfall. … If there was a default, we would be out of business overnight.”
In a highly regulated market, there are additional risks. In other cities, he said, “You’ve seen developers go to jail.”
“If you’re a developer who has a contracting arm, there are two advantages. One, you make more money. Two, you have more control over the product.”
Government-funded construction often includes checks and balances. For instance, while contractors may benefit from higher price tags, developers typically have an incentive to control costs.
KBK, though, chose the Key/Mistick firm Alliance as its general contractor, and Mistick Construction as a major subcontractor. Experts said that’s unusual, but not unheard-of. “If you’re a developer who has a contracting arm, there are two advantages. One, you make more money. Two, you have more control over the product,” said Chris Hornig, a former HUD official who is now an attorney specializing in housing transactions.
Such arrangements trigger extra scrutiny.
HUD requirements compelled the Housing Authority to provide an independent estimate of the cost of turning Addison into Skyline. KBK chose Crawford Consulting Services, of East Pittsburgh, which specializes in such estimates, to put together an independent quote. Crawford’s estimates came in slightly higher than Alliance’s, so HUD allowed the Key/Mistick venture to manage the construction. For the first three phases, the total bill exceeded $80 million. On most of that figure, Alliance was allowed to make as much as 6 percent profit -- around $4.8 million -- though Mr. Key said that in the end his firm received somewhat less.
“Alliance is my company, I’m the majority interest owner, and Bob [Mistick] is a partner,” Mr. Key said. Alliance, he added, doesn’t do the work itself, hiring Mistick and others for that. “All of our work is hired out to the lowest bidder.”
Mr. Mistick did not grant an interview despite a half dozen requests.
As the new properties are rented -- some to low-income tenants subsidized by HUD, others at market rates -- the money will continue to flow, to both the profit-seekers and the nonprofit. KBK is entitled to 4.5 percent of the rents, or 5.25 percent if the occupancy rate tops 97 percent. Then, after all of the operating expenses and reserves are covered, KBK gets 25 percent of any cash balance, with the rest going to Allies & Ross. The cash flow to KBK could continue for decades.
Mr. Key said Skyline will arrange services for low-income residents, including summer lunch programs and camps, plus scholarships, for the kids.
“This is not where the riches lie,” Mr. Key said of the low-income housing market. “Developers who do all market rate -- that is more normal -- they make money, they sell [their properties] typically, and they have returns that are much more significant.”
Allies & Ross expects to get $18 million in fees, interest on loans and cash flow from the units that replace Addison. That, said Mr. Binion, will go back into the development of affordable housing.
“You know all the problems Addison had before,” said Mr. Binion. “When you go up there you see the kids playing and you see the type of programs that we have, you see how well built it is. … I think we made a difference, and it’s a community people can be proud of.”
Above-average costs
Though affordable for residents, Skyline is unusually expensive for taxpayers. It epitomizes a big question in low-income housing circles: Do complex financing structures and profit-driven partnerships -- in which each player has its own attorneys and accountants -- threaten to make low-income housing too expensive to build, perpetuating a shortage of affordable rental homes?
Mr. Binion said the Housing Authority will eventually build replacements for every unit of Addison that was occupied six years ago. He also said it’s unfair to call Skyline a $400,000-per-unit project, because the costs include $25 million for infrastructure, utility work and massive earthmoving, plus $2 million for community centers.
“Though affordable for residents, Skyline is unusually expensive for taxpayers.”
Remove those costs, though, and Skyline would still exceed $344,000 per townhouse. “It’s unusual that we have a development come in that high” in the state, said Brian A. Hudson, Sr., executive director of the Pennsylvania Housing Finance Agency. PHFA decides which projects in the state get low-income housing tax credits, and tells developers to keep total costs below $250,000 per unit, unless they face unusual environmental, topographical, infrastructure or historic preservation concerns.
It’s unusual nationally, too. A 2014 study by the California Department of Housing and Community Development, which looked at 400 low-income housing construction projects done in that state over a decade, found a median cost per unit of $276,000. Only the San Francisco area saw per-unit costs above $345,000.
Data assembled by the National Housing Conference on low-income housing construction in Denver “works out to about $200,000 a unit on a 100 unit property,” and lower costs when the unit numbers rise, said Mr. Handelman.
Skyline is “a great development,” Mr. Hudson said. He said PHFA approved tax credits in the hope “that this will revitalize that area and our units will still be there to maintain the affordability aspect.”
However, the high cost “does concern me,” he added, because with limited funds, fewer units can be built. “We’re fortunate that we do not have that happening on a consistent basis.”
Also, check out all the conflict of interests that went on with the project. Hint: Developer also part of LHWG (decision making group). To all who don't know, when URA is involved, they do not follow the guidelines. They let community group make decision who wins all the contracts. The entire Pittsburgh purchasing dept does it wrong, though. Each acquisition needs a source selection that details how contractor will be selected with a plan in place on how each bidder will have equal opportunity. The Source Selection Plan is more detailed the more expensive and complex the requirement. Unfortunately, I have found so many conflicts of interest
For example, District 2 Services Coordinator RFP was awarded to Neighborhood Learning Alliance, yet had conflict of interest considering Councilman Daniel Lavelle was/is on NLA Board? The RFP cover page states, "Office of Management & Budget on behalf of Pittsburgh City Council. Mr. Lavelle failed to release this position on Disclosure of Interests. The mayor was made aware and did nothing
The city (& URA) also refuses to award any contracts to veteran owned small business, even though it is a requirement. Each proposal includes a requirement for MWBE (Minority Woman Business Enterprises) which veterans are also supposed to be held equal yet they refuse to include veterans as an equal, even after t hey were made aware that past decade less than 1% were awarded when requirement is at least 5%. The state government is just as bad.
Also, check out all the conflict of interests that went on with the project. Hint: Developer also part of LHWG (decision making group). To all who don't know, when URA is involved, they do not follow the guidelines. They let community group make decision who wins all the contracts. The entire Pittsburgh purchasing dept does it wrong, though. Each acquisition needs a source selection that details how contractor will be selected with a plan in place on how each bidder will have equal opportunity. The Source Selection Plan is more detailed the more expensive and complex the requirement. Unfortunately, I have found so many conflicts of interest
For example, District 2 Services Coordinator RFP was awarded to Neighborhood Learning Alliance, yet had conflict of interest considering Councilman Daniel Lavelle was/is on NLA Board? The RFP cover page states, "Office of Management & Budget on behalf of Pittsburgh City Council. Mr. Lavelle failed to release this position on Disclosure of Interests. The mayor was made aware and did nothing
The city (& URA) also refuses to award any contracts to veteran owned small business, even though it is a requirement. Each proposal includes a requirement for MWBE (Minority Woman Business Enterprises) which veterans are also supposed to be held equal yet they refuse to include veterans as an equal, even after t hey were made aware that past decade less than 1% were awarded when requirement is at least 5%. The state government is just as bad.
I dont think most people are going to read though it. gotta summarize and link.
People need to complain. This is tax money that is being stolen in a legal loophole. This project picked a developer who appears to get every city development contract that is set-aside only for minorities even though he is ridiculously loaded and has shown to cost twice as much as it should.
There continue to be conflicts of interest with these same players.
"Skyline’s costs exceeded the averages found in the few studies of the cost of low-income housing. KBK, though, chose the Key/Mistick firm Alliance as its general contractor, and Mistick Construction as a major subcontractor. Experts said that’s unusual, but not unheard-of. “If you’re a developer who has a contracting arm, there are two advantages. One, you make more money. Two, you have more control over the product,” said Chris Hornig, a former HUD official who is now an attorney specializing in housing transactions. Such arrangements trigger extra scrutiny. “Alliance is my company, I’m the majority interest owner, and Bob [Mistick] is a partner,” Mr. Key said. Alliance, he added, doesn’t do the work itself, hiring Mistick and others for that. “All of our work is hired out to the lowest bidder.”
Mr. Mistick did not grant an interview despite a half dozen requests.
Above-average costs
Though affordable for residents, Skyline is unusually expensive for taxpayers. It epitomizes a big question in low-income housing circles: Do complex financing structures and profit-driven partnerships -- in which each player has its own attorneys and accountants -- threaten to make low-income housing too expensive to build, perpetuating a shortage of affordable rental homes?
Skyline a $400,000-per-unit project, because the costs include $25 million for infrastructure, utility work and massive earthmoving, plus $2 million for community centers.
“Though affordable for residents, Skyline is unusually expensive for taxpayers.”. “It’s unusual that we have a development come in that high” in the state, said Brian A. Hudson, Sr., executive director of the Pennsylvania Housing Finance Agency. PHFA decides which projects in the state get low-income housing tax credits, and tells developers to keep total costs below $250,000 per unit, It’s unusual nationally, too. A 2014 study by the California Department of Housing and Community Development, which looked at 400 low-income housing construction projects done in that state over a decade, found a median cost per unit of $276,000. Only the San Francisco area saw per-unit costs above $345,000.Data assembled by the National Housing Conference on low-income housing construction in Denver “works out to about $200,000 a unit on a 100 unit property,” and lower costs when the unit numbers rise, said Mr. Handelman."
Lower Hill Working Group (LHWG) created as Government/Community Decision Maker for Redevelopment. Minority owned developer chosen is Intergen, owned by owner of KBK Enterprises (company at fault above for doubling prices) and Bomani Howze. However, Mr. Howze is also part of the LHWG. So decision maker choosing self as developer. But no conflict of interest?
Names I have found a lot popping up where something seems very wrong:
Marimba Milliones
Kevin Keys
Councilman LaVelle
Rev Ricky Burgess
Ralph Falbo / Mike Polite
Not accusing the above issues of anything, just saying that their names are included in stories that seem like possible ethic violations at a minimum were in play.
People need to complain. This is tax money that is being stolen in a legal loophole. This project picked a developer who appears to get every city development contract that is set-aside only for minorities even though he is ridiculously loaded and has shown to cost twice as much as it should.
There continue to be conflicts of interest with these same players..
We all knew this would happen because the city will cater to any minority group regardless of it if makes sense or not. The pressure from the Hill District has killed the great plans. It is just the way it is. It is a shame this is going to be a horrible mess and a lousy job, but a cash cow for a few players. Nothing anyone can do now though. Gotta give away the farm on this one. Such a great location with wonderful views. Oh well, at least it isn't a destination area up there and it will just be some dump like it has been for decades anyway. People will walk up to the Pens games and walk back to the city just like they have even when the Civic Arena was wonderfully sitting there hosting concerts with a retractable roof. Sure were great memories. Now? Nothing. Wish they would have gotten a real developer and went with those cool modern plans, but some big section 8 thing will be fine. Not that big of a deal really.
No government body can be perfect - people are too imperfect. Multiply the levels of responsibility in a governmental body by thousands, and there are sure to be bad examples.
I honestly do not think the City is THAT corrupt. They get on my nerves having to deal with them, but that is just one department. Overall, they try to be helpful. (Hey, it's government, they aren't going to move fast on anything.).
I've heard horror stories of business' dealings with District of Columbia, Philadelphia, Cleveland, Toronto, even Winchester, VA....and of individuals having to deal with their respective local government.
It's fun to just say "well, pffft, they are the same old rotten system", when the City isn't really that at all.
If there is goings on w/ the Lower Hill that people scoff at, its because there ISN'T ANY OUTRAGE. So yeah, the "corruption" that there is will continue because they know that despite scant media coverage, it will go away, and people will forget.
Quite good thanks. I have lived here for many decades and can honestly say there are more people riding bikes in our city than ever. Truly amazing to see people actually get in some kind of shape and enjoying themselves doing it. Very good investment indeed.
Now back on topic. It is a shame the Hill District killed that wonderful plans that were first laid out. They sure were exciting. Ah well more low income stuff with wonderful panoramic views. Why not? The jail has nice views and is right on the river. Great stuff.
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