BACKSTORY: Investigation shows system failed to protect low-income complex
by: JIM CLARK, Former Rose City Village resident Sarah Nordbye decried the upheaval in the lives of her neighbors, most of them low-income and many of them immigrants, as they were forced to move out in the face of a renovation.

The folks at Portland's City Hall have spent much of the last year talking about building new affordable housing. But how about preserving the affordable housing we already have?

Five months ago, walking around her Northeast Portland neighborhood, state Sen. Avel Gordly noticed that the Rose City Village apartments - a mammoth 18-building complex that was home to hundreds of low-income Latino and Southeast Asian immigrant families - had become a ghost town practically overnight.

Research by the Portland Tribune found that most of the inhabitants had left to avoid months of dislocation due to renovation by new ownership, as well as rents that were swelling by $200 to $300 a month.

Neighbors and residents told of families and friends being scattered around the city, of tenants crying as they packed their bags to go.

The news, broken in an Aug. 31 article, was softened by an announcement by the new owner, Tom Brenneke, president of Guardian Management LLC, that he intends to maintain a large portion of apartments as affordable - although not nearly as affordable as they were in the past.

Since then, investigations by Gordly, the nonprofit Oregon Law Center and the Portland Tribune, however, have shown that the story goes much deeper than that. Documents and interviews show how this property slipped through the cracks of the city's housing preservation system - and how it could have been prevented.

The story of Rose City Village includes a landowner who appears to have failed to obey the city's affordable housing preservation ordinance, city officials who were unaware that Rose City Village was a publicly funded complex, and state officials who rewarded past bad behavior by releasing the property from 15 years' worth of legal obligation to keep the entire complex affordable.

'This is really bad,' city Commissioner Erik Sten said, when told what the documents show. 'The whole thing is really disappointing, and it's a lot more than disappointing to the people who lost their homes. … I think the system failed on this project.'

'This is terribly troubling,' Gordly said, adding that the documents describe 'a seriously flawed process … (with) no transparency, and no accountability.'

'It feels wrong'

In August, when the 264-unit complex was largely vacated, Sarah Nordbye - who lived there with two friends - felt as if her community was destroyed.

'It feels wrong,' she wrote in an e-mail to the Portland Tribune, recalling the day she asked the property manager what was happening. 'On the way to the office we passed a Spanish-speaking family having a garage sale on their front lawn. In another apartment we could hear a large group singing hymns in Vietnamese and holding a small church service. … Our next-door neighbors are refugees from Laos and have lived in their small apartment for 10 years.'

Then when the news broke of what happened, Will White, the city's director of the Bureau of Housing and Community Development, decided to check it out for himself - on his own time during an early September jog.

There at the complex - which occupies a swath bounded by Northeast Halsey and Tillamook streets and 65th and 67th avenues - White found an immigrant family preparing to move. 'It was clearly a disheartening situation,' he recalled. 'For me to see it, and for the residents to be in that situation.'

Another person who took note of the project was Micky Ryan, a crusading lawyer for the Oregon Law Center, which advocates for low-income people. She began amassing documents in order to figure out what happened and who was responsible.

She found evidence that the complex was not, as city officials initially thought, merely private property whose owners could do with it as they wished. Rather, documents and interviews show, in 1991 the apartment complex was funded with state low-income-housing tax credits of at least $2.3 million.

The Portland Development Commission, meanwhile, provided a $1 million rehabilitation loan as well as $7 million in bond financing.

The original owner bought the property for about $4 million in 1989. In May 2003, he sold it to Steve Rose, a Portland developer, and a limited-liability corporation called Dylan/Bristol, for $11 million. In June 2006, Rose sold it to Brenneke of Guardian Management LLC, which was partners with a California investment company, for $16.5 million.

Ordinance was skirted

Because of its history of PDC funding, city officials decided the complex fell under the city's affordable housing preservation ordinance - and furthermore that the previous owner, Rose, apparently had not complied with it.

The ordinance requires that the landowner notify the city of plans to sell or otherwise make the project no longer affordable, giving the city a chance to buy the property rather than lose it to market-rate housing.

'The property falls under our local preservation ordinance, requiring a 90-day notification to both the city and tenants,' wrote Andrea Matthiesen of the city Bureau of Housing and Community Development in an Oct. 2, 2006, e-mail to her counterpart at the state. 'We did not actually get notification.'

Rose, contacted by the Tribune, said he was not aware of the city's preservation ordinance. He declined to elaborate, saying, 'I don't know what to say about that.'

City officials told the Tribune that the city's affordable housing preservation ordinance is largely unenforceable anyway. In part, that is, because state law may pre-empt it. Also, the city never developed the regulations called for by the ordinance.

Ryan said she is concerned that the city was not even aware that Rose City Village was a publicly funded project.

White, the city's housing director, said he tracks local and federal housing projects within city limits, but not state-funded ones. 'We're too overwhelmed, with a small staff, to keep track of what the state is doing,' he said.

State actions questioned

Ryan's bigger issue is with the state. In order to receive the tax credits, the original owner of Rose City Village signed a complicated agreement that, among other things, committed the property for 30 years to offer 100 percent of its units at rents that are affordable to people earning only 60 percent of median income, as determined by the U.S. Department of Housing and Urban Development.

But in March 2005, citing 'noncompliance' with program requirements, Marlys Laver, the property management administrator for the state, signed an agreement that released Rose from his obligations under the agreement, essentially 'kicking them out' of the program, as one of Laver's co-workers put it in an e-mail.

The state also turned to the Internal Revenue Service to recover the tax credits. The IRS does not comment on such cases, but Rose said that he has been informed that the credits were recovered.

Still, Ryan likens lifting the affordability requirements to 'punishing' a parole violator by releasing him from parole. She was echoed by housing advocate Ian Slingerland of the Community Alliance of Tenants, who said the rationale 'seems asinine.'

Laver, however, said that her agency had no choice, and that the previous owner had ruined things by letting tenants move in who did not meet income restrictions - meaning, in her analysis, they could not then be evicted. 'Ask anyone in Legal Aid' to confirm her view, she said.

But Ed Johnson, a tenant-rights specialist and former Legal Aid lawyer who works with Ryan, disagreed. Echoing several housing lawyers interviewed by the Tribune, Johnson said, 'That's simply not true.'

Furthermore, an expert in federal tax law, speaking on condition of anonymity, said that just because the previous owner was in violation of the law and the tax credits were recovered did not mean that the state had no choice but to let the owner out of the 30-year contract requiring the apartments stay affordable until the year 2021. Rather, the state could have renegotiated the contract.

Told that the state canceled Rose City's contract because the property owner did not comply, Sten, who oversees the city's Bureau of Housing and Community Development, said: 'That's pretty crazy; that's really not our philosophy on these deals. If people are not in (compliance with an agreement) we take legal action. Why else have lawyers?'

Introducing the Ellington

Today, according to Brenneke, his company has invested $5 million in making repairs and renovations to Rose City Village. Now renamed the Ellington, the complex's exteriors and interiors have been repainted and mold has been removed.

According to an onsite property manager, about 80 percent of its units are being offered at rents that the federal government considers affordable to households earning 60 percent of median income. For example, to qualify, a family of four must have an income of $40,740 or less.

The Elllington's low-income rents, which do not include utilities, are $729 for a two-bedroom, and $838 for a three-bedroom. For people who do not qualify, the same apartments rent for $795 and $950.

'We're committed to preserving affordability,' Brenneke said, adding that he planned to own the property for seven to 10 years before reselling it. 'We really feel that we'd done a lot of good here and improved the property.'

Brenneke said the affordability was being maintained in part to qualify for the city's affordable housing tax-exemption program, which records show lessens his taxes by approximately $100,000 a year.

This, of course, was scant consolation for displaced tenants such as Van Vu, a former South Vietnamese Army captain who fought alongside the Americans in the Vietnam War.

Interviewed in August, he said he and his daughter had paid about $600 for their two-bedroom apartment, but would move east of 82nd Avenue since they couldn't afford the $200 rent hike planned by the new ownership.

Ryan, for her part, echoed housing officials who said the new, increased rents at the Ellington are not that far below market rates for that area of Northeast Portland. An even bigger problem, however, is that the state and city have lost their control over the property, meaning Brenneke can remove its affordability provisions any time the market improves. 'That's what we're losing, is any legal assurances,' she said.

Officials vow action

For planning consultant and housing activist Peter Finley Fry, Rose City Village is the story of a missed opportunity, of what could have happened if the city had received proper notice from the landowner about the property's sale.

Instead of paying $90,000 to $120,000 for a new unit of housing, he said, the city could have gotten itself a bargain by buying the property itself - or bringing in a nonprofit to do so. Brenneke, after all, bought the property for an average of $62,500 per apartment - the vast majority of the units being two- and three-bedroom.

The story may not be over. Sten, the city commissioner in charge of housing, said his staff will put systems in place to ensure a story like Rose City Village's does not happen again. Gordly has promised to introduce legislation in Salem to accomplish the same thing.

State Housing and Community Services Director Victor Merced has promised Gordly a full investigation. The city also is investigating to see whether Brenneke will continue to qualify for his tax exemption.

Meanwhile, Craig Colby, one of the city's most prominent tenant-rights lawyers, has offered his assistance to Ryan, saying he thinks the displaced tenants at Rose City Village have a valid legal claim.

'I think (Brenneke) should give it to the (city) Housing Authority,' he said.

Ryan said she has heard from low-income lawyers around the country eager to join any legal action that arises from the situation. She agrees displaced tenants have a legal cause of action - but she's still researching how to approach it. 'We're investigating,' she said.

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