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Posted by Manolo on May 01, 2003 at 17:04:44:
A Tale of Two Harveys -- Look What You Can Do With No Money Down
Urban Times News
April 25 - May 1, 2003 By Steven Glazer Jersey City-It looks like a duck, it
quacks like a duck, but officials of the
Housing Trust of America are adamant that
their company is not a renamed Lafayette
Manning. That company, now bankrupt,
was controlled by a New York Developer
named Harvey Shapiro who has established
a claim of ownership on a key piece of
Jersey City real estate, by unprecedented
means. The property was once known as
Whitlock Cordage and was once a major
employer in Jersey City, located at Lafayette
and Manning Streets, hence the name
Lafayette Manning.
But Wallace Scruggs, CEO of
Housing Trust of America, says that Shapiro
approached Housing Trust of America last
November already in bankruptcy. Housing
Trust was the only bidder and was awarded
the property by the Bankruptcy Court for
$4.3 Million. Housing Trust of America will
also pay some additional amounts for dem-
olition and clean up on the site that will ulti-
mately bring the all-in total to about $4.75
Million.
It is unclear why Shapiro would
represent the sale of the property to Scruggs'
syndication effort while the property was in
the hands of a trustee of the bankruptcy
court. It would be the job of the Trustee to
find a buyer for any assets of the bankrupt-
cy estate. Now that Housing Trust has
bought the property, Scruggs said in a tele-
phone interview, Shapiro is out of the pic-
ture completely as far as any claim of own-
ership that he might have.
Scruggs' statement is in sharp con-
tradiction to representations made in
Housing Trusts' disclosures to the Federal
Bankruptcy Court and also sharply contra-
dicts the Trustee in Bankruptcy. Robert
Pimienta, the court appointed Trustee said
that Housing Trust's filings with the court
clearly disclose that Shapiro has an owner-
ship interest in the project with Housing
Trust. Pimienta also said that though the
fmancial distributions of the bankruptcy are
largely concluded, they are not complete.
Pimienta will continue to monitor
the progress of the transaction for the con-
tinued benefit of creditors, including the
City of Jersey City. The price paid will be
sufficient to satisfy most of the claims of
creditors, but if Shapiro does have a carried
interest in the resulting project, the Trustee
would pursue recovery efforts, possibly
attaching those assets of Shapiro's IF need
be.
Pimienta also said that he intended
to look further into the sale of the one build-
ing, 160 Lafayette, sitting on a landlocked
parcel in the middle of the site. Pimienta
said that the sale was suspect, possibly not
an "arm's length" transaction, and had at
least the appearance of a fraudulent transfer
of ownership.
Housing Trust says it will renovate
the buildings on the site of the former rope
factory to include 330 housing units, includ-
ing 198 affordable housing units and 132
market rate units. The site includes roughly
6.5 acres and ten buildings, one of which
had been subdivided and sold by Shapiro.
But that building will also be included in the
historic designation and the renovation,
although it is currently under separate and
independent ownership.
Dan Wrieden, the city's historic
preservation officer says that the site quali-
fies for historic landmark designation by the
city pm a number of different parameters.
Wrieden says that if the developers careful-
ly adhere to requirements set out in federal
guidelines, not very different than the
municipal code modeled on those require-
ments, state and national historic designa-
tion would probably follow.
This makes a much more attractive
proposition for the investors whom Housing
Trust will rely on to finance the project in
their syndications. Historic designation
would provide an additional tier of tax cred-
its, dollar for dollar credits, not deductions,
to investors. These tax credits would sub-
stantially increase the return to investors in
the property, if the project qualifies.
Housing Trust has previously completed
similar size projects including one in
Atlanta with 356 units, according to
Scruggs, so this should be no great leap for
the syndicator.
Scruggs said unequivocally that
Shapiro had no carried interest in the project
or the property going forward. The court
awarded the property to Housing Trust who
now has until June to get their final prepara-
tions ready to close, and with that, says
Scruggs, Shapiro is out of the picture. The
plan is almost exactly the same idea that
Shapiro first proposed when he initially
became involved with the property, includ-
ing affordable housing, and historic preser-
vation, although Shapiro added the embel-
lishment of housing for seniors.
Smack in the middle of the Morris
Canal Redevelopment plan area is a 6.5-
acre site that once housed an industrial mill
in the Pittsburgh rustbelt school of industri-
al revolution architecture. With the aid of
some Hudson County employees moon-
lighting as Jersey City Council members, a
New York developer got a one-of-kind pay-
ment plan to rescue the property from auc-
tion sale to clear up tax arrears. Kindly
council members then helped the developer
get a special zoning classification for the
property; the only one of its kind there is or
has ever been in Jersey City.
When a property owner falls
behind in property tax and water and sewer
assessments, the amounts owed build until
the city executes a lien on the property. That lien puts a cloud on the title so the owner
cannot sell or mortgage or transfer the prop-
erty without first paying the amount owed.
This is what happened in the case of 170
Lafayette Street. Harvey Shapiro, the
developer, wanted to acquire the property
by paying the tax arrears and satisfying the
lien. Only, Mr. Shapiro did not have the
cash to pay all the money owed.
City officials with 20 years service
to the city spoke for the record on the con-
dition that their identity not be disclosed.
"Mariano Vega was the ramrod for this proj-
ect for Shapiro. He took point. He ran this
thing around like it was his baby. Vega took
very good care of Mr. Shapiro. He probably
gave Shapiro one of his Mariano Vega
Medals of Honor." Vega has occasionally
passed out as rewards Olympic style medals
with his likeness, on a ribbon, bearing the
legend, "Mariano Vega Medal of Honor."
Helpful Council members, includ-
ing L. Harvey Smith, Mariano Vega, E.
Junior Maldonado, William Gaughan, and
then-council president Tom DeGise affixed
their signatures to a council resolution giv-
ing Mr. Shapiro the right to pay off the lien
over a period of three years. "This is always
cash on the barrel head, almost without
exception," said the city official. But this
time the Council gave its approval.
Approval in hand, Mr. Shapiro went straight
to the planning board and, using the Council
resolution in lieu of a deed, asked planning
board members for a zoning approval of a
type not seen before. **Shapiro got it.
City officials said that the planning
board suspended normal requirements for
such action since Shapiro could not repre-
sent clear title to the property and could not
document paid up status as to city taxes
owed. Normally, lack of either clear title or
paid up taxes are non-starters for property owners seeking zoning approval,. Shortly
after getting the zoning he needed, Mr.
Shapiro was able to subdivide the parcel in
a way that carved out a landlocked lot exact-
ly equal to the footprint of one of the build-
ings on the site. Shapiro then sold that
building and the land it sat on for $300,000.
Sources in city government who
watched the progress of the property over
the last 15 years said that there has been no
comparable exception made for a property
in their collective memory. "There have
been payment plans permitted to clear up
property taxes in arrears to help individual
homeowners avoid foreclosure in cases of
extreme duress and hardship. But here we
are talking about homeowners in owner-
occupied housing who have fallen on hard
times. Serious illness, disability and such
things were the handful of exceptions in all
these years, when a payment plan was per-
mitted. It has never happened with a com-
mercial property like this one," say city offi- cials. Shapiro never made any payment on
cials. Shapiro never made any payment on
the payment plan.
Mr. Shapiro apparently seduced
Council members Vega and others with a
strong pitch how intended to renovate the
structure and turn it into either low-income
or affordable housing for seniors and try and
landmark the former sweat shop as historic
landmark. Some Council members were a
little more seduced than others like Harvey
Smith who received cash from Shapiro.
Smith's campaign finance disclosure reports
show cash contributions from Mr. Shapiro.
Mr. Smith was not available for comment.
Council members were so taken
with Shapiro's persuasiveness that they did
not look very critically or deeply into the
developer's track record. Had they done
more due diligence they would have found
that are similar scheme by Shapiro in
Syracuse, NY wound up a spectacular fail-
ure with a $15 Million bankruptcy. Not
only did Shapiro not make a single payment
on the payment plan granted by council
members, but now Shapiro's development
corporation, Lafayette Manning, is itself in
bankruptcy. Shapiro never paid the city a
penny for the property, but did have suffi-
cient control over the property to sell the one
building and renting another for amounts
variously reported as "between $17,000 and
$20,000 a month."
Now, the council has initiated
steps to apply for a grant for affordable
housing for the benefit of Housing Trust,
through the city's HEDC, according to
Doug Greenfeld of the HEDC. The grant is
what Greenfeld called a "pass through"
meaning only the municipality can apply for
it but the developer, in this case, Housing
Trust of America is liable for the repayment.
The grant, says Greenfeld, is for $4.5
Million although it could wind up being
more than the purchase price of the proper-
ty. A spokesperson for Housing Trust said
that the ultimate investment will be more
than $50 Million. Scruggs said that the bal-
ance of the financing would include tax free
loans through the New Jersey Housing
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