Monday, January 04, 2010

Thoughts on Nehemiah, Rollingwood, Township 9, and the Sacramento Bee

The Sacramento Bee has run a two-article special segment investigating Nehemiah Corp. of America and its various dealings in Sacramento. The first article details Nehemiah's involvement in a heavily taxpayer-subsidized for-profit development in downtown Sacramento near the railyard called Township 9, and the second article takes a look at the failed Fair Oaks/Orangevale condo conversion known as Rollingwood. While the Bee reporters appear to have gone to great lengths to provide factual background and highlights of Nehemiah's involvement in local realestate developments, they merely hint at the deeper underlying issues that might paint Nehemiah in a more troubling light.

First of all, the two articles were printed out of order, starting with a discussion of the Township 9 project, then finishing with Rollingwood. If you wish to question the judgement of Nehemiah and its partners over the stewardship of tens of millions of taxpayer dollars, you should start with the company's track record, then move forward. Face it, more people read the Sunday edition. (Honestly, the piece seemed artificially divided anyway, and was short enough to be one long article anyway.)

Secondly, although the timing of Rollingwood story straddles the market peak and subsequent crash, the fact is over 30% of the units were sold before the end of 2005. The market did not begin crashing in earnest until the middle of 2006, which coincides with the IRS ruling taking away the tax-exempt status of DPA organizations. Was the failure of Rollingwood an unfortunate result of a bad real estate market, or due to the end of DPA? The fact that the project was undertaken to satisfy Community Reinvestment Act requirements suggests the latter, but the question could be easily answered with a little investigative reporting: how many units were purchased using DPA programs, and were any funded through Nehemiah's non-profit arm? Syphax claims to not have been directly involved in the project; all you need is one buyer that used Nehemiah DPA before the 2006 IRS ruling to prove him wrong. Were the 100 or so buyers that did make purchases recruited in any way? How many loans were made using FHA guarantees? (You could also question the wisdom of what was essentially a profit-making condo flipper project being done under the guise of the CRA; the developer paid an average of $144,000 per unit, and was selling them for $250,000+, but like the HOA looting story, this distracts from the overall Nehemiah/public trust narrative.)

Thirdly, as the Bee has extensively reported, Sacramento has a long history of poor development decisions, and Township 9 should be put into that context. From the K Street failures to the botched condo tower deals, the Natomas flood plain disaster-in-waiting and the ever present railyard debacle, the county and city have a history of sacrificing public money on poor planning at the alter of Public Private Partnerships. The fact that a slick, well-connected, politically astute guy like Syphax is leading the Township 9 effort should give the public pause, especially with demonstrated failures like Rollingwood.

I applaud the Bee for taking on a hard target like Nehemiah/Syphax, although I suspect, knowing Jeff Horwitz, the pulled punches in these two articles are more a result of the Bee's editorial decisions than a choice by the writers. Hopefully this is not the last we'll hear of this story, and the Bee will take a harder approach next time.


RV6Flyer said...

I think Township 9 is the worst possible use of taxpayer or investor money at this time.

What on earth will attract people to buy homes in the middle of an industrial pit. Is a light rail station going to really connect all those residents to downtown? It is destined to fail and become a 300 unit homeless shelter for all the less fortunate living along the river and surrounding area.

If there must be some development, I would rather have my tax dollars put towards the rail yard project.

Perhaps when the rail yard is developed and flourishing, Township 9 can become a topic.

Max said...

Seems to me if the project was such a great idea, the developers would put up their own cash rather than depend on public generosity.

Buying Time said...

Wow Max, you read my mind. I was highly skeptical when I skimmed these articles. Based on my very limited knowledge of Nehemiah, I am not a huge fan. I get the feeling they put profits ahead of people (despite their origins as a faith based organization).

I wrote a post a while back questioning some of their tactics:

Max said...

It's easy to get drawn into the CRA is good/evil/cause of the bubble debate, which seems to distract a lot of otherwise very intelligent debaters on both sides of the issue. (See Matt Taibbi's latest post on this issue.) The fact is, downpayments exist for a reason: they give buyers some skin in the game, and they prove to the lender that their borrower can handle their money responsibly. DPA perverted that relationship.

Just because something is legal doesn't make it right. Or as Taibbi put it: "My own personal feeling is that our recent bubbles weren’t much different than pyramid scams and lotteries; they’re the handiwork of an essentially regressive and deeply cynical political organization that systematically hoovers up taxes and investment money mainly from middle-class suckers, where it eventually gets eaten in short-term cashouts and mostly blown on sports cars and tropical vacations and eye jobs for the trophy wives of Wall Street executives. Crackonomics: take literally all the spare money from four square city blocks and turn it into one tricked-out Escalade."

Buying Time said...
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Buying Time said...

Oh..sorry I wasn't implying CRA is to blame. I think that is a total red herring argument as your link implies.

Personally I blame lax regulation/oversight, perverse system incentives, and Wall Street for the bubble. None of which have fundamentally changed at this point..sigh.

(by perverse incentives I mean brokers put people in loans that made them the most commission, appraisers had no incentive to say a home was overvalued etc.)

smf said...

Who in the whole Real Estate chain is interested in the buyer paying the cheapest price for his house?

Broker? Agent? Seller?

Or for that matter, why would government entities be interested in buyers paying the least, when their taxes are essentially a yearly commission on price paid?

No one, save the buyer, was interested in prices staying down.

patient renter said...

Or for that matter, why would government entities be interested in buyers paying the least

Because it is the stated mission of certain government agencies to promote affordability. But one has to assume that their definition of affordability varies from the common one :)

PeonInChief said...

Rollingwood is not the only county condo development in trouble. Alicante Villas has had several foreclosures, and units there are selling for 40-60% off their original selling prices. The City of Sacramento was largely spared the condo conversion debacle, as the city has a good set of rules to protect low-and-moderate income tenants, as well as seniors and single mothers. Who knew that regulation could save you from economic stupidity?