The Habitat Company: Private Firm Keeps Tight Grip on Public Housing

By: Brian RogalFor Myra D. Silas and her family, life was far from perfect on the 13th floor of their Cabrini-Green high-rise on the Near North Side. Silas said she saw four children killed in the mid-1990s and "can’t say how many I saw actually get shot."

But the violence receded after a 1997 gang truce, she said, and her building, at 500 W. Oak St., became more of a community. "We were like a family," she said of her neighbors. "Everyone looked out for one another there."

The Chicago Housing Authority had already begun closing Cabrini’s high-rises under a plan to transform the impoverished public housing development into a mixed income community. On June 25, 1998, Silas and her four children, ages 5 to 13, moved out of Cabrini with a promise from the CHA that they could return once their replacement home was ready.

Silas, 31, used a federal Section 8 rent subsidy to move into a four-bedroom apartment at 2711 W. Jackson Blvd. The East Garfield Park neighborhood has gang problems, she said. "I’m scared to send my kids to the store on the corner."

Born and raised on the North Side, Silas wants to move back to the Cabrini area, but for now her building and two others sit vacant. Redevelopment has been on hold during a 15-month dispute between Cabrini residents and The Habitat Co., a private real estate firm that holds enormous sway over public housing.

In 1966, Dorothy Gautreaux and other CHA residents sued the agency in federal court. They charged the CHA with segregating low-income African American families in public housing developments on the South and West sides. Under the 1981 Gautreaux consent decree, the U.S. Department of Housing and Urban Development agreed to scatter public housing families—most of them black—into neighborhoods that were either less than 30 percent African American or "revitalizing"—minority areas with enough redevelopment to spur integration.

In 1987, after years of delay, U.S. District Court Judge Marvin E. Aspen declared the CHA "simply not up to the task." He appointed Habitat and its chairman, Daniel E. Levin, as the agency’s receiver, with authority over all new construction of family public housing.

But today, the company is at loggerheads with the very tenants it was appointed to serve.

In July 1998, Habitat stepped in to block a redevelopment compromise struck between Cabrini residents, the city and the CHA. Among other provisions, the agreement would have made the residents co-developers, giving them a voice in key decisions.

But the plan violated Gautreaux because it would have put too many public housing units back at Cabrini, Levin said. And a deal that gives residents equal footing may scare off investors, company officials said. "We always thought the residents should have a voice," Levin said. "The residents, of course, think that they should have a veto, so that makes them a very powerful special interest group that has slowed down the process."

Habitat has much to gain from keeping a tight rein on the Cabrini redevelopment, an investigation by The Chicago Reporter found. For Habitat’s fees at other CHA developments, HUD has budgeted about 6.6 percent of the project’s total cost. Based on that figure, Habitat’s management of the Cabrini project—hiring developers, approving plans and overseeing construction, among other tasks—would earn the company at least $3.8 million.

Residents said Habitat wants control to boost its profits. "Habitat is trying to eat up everything in this area, and wants no partnership with the residents," said Gwendolyn Merritt, 76, vice president of It’s Time For A Change Resident Management Corp., which manages 15 Cabrini buildings.

Levin rejects that charge. As receiver, Habitat’s primary responsibility is to build desegregated communities, he said. "We were required by the court to do a job, and this is what we perceive as doing the job."

After 12 years as CHA receiver, Habitat’s record is mixed, the Reporter found. While the company has successfully developed scattered-site housing in non-black communities, as Gautreaux mandates, 53.3 percent of its housing is in census tracts that are at least 60 percent Latino, the Reporter’s analysis of Habitat records shows.

And sweeping changes on the public housing landscape raise questions about whether the CHA still needs a court-appointed receiver to ensure racial and economic integration. On May 27 HUD returned oversight of the CHA to Mayor Richard M. Daley. And on Sept. 30, the new CHA Chief Executive Officer, Phillip Jackson, unveiled a plan to demolish 17,000 units, including all of its open, gallery-style high-rises, and replace them with mixed-income communities.

That plan makes integration inevitable, said Dempsey J. Travis, a longtime South Side real estate developer, writer and Chicago historian. "As I see it, the whole scenario has changed. White folks are tip-toeing back to the inner city in large numbers. It makes Gautreaux moot."

Not so, said Alexander Polikoff, a staff attorney for Business and Professional People for the Public Interest, a public interest law firm at 25 E. Washington Blvd. He has represented CHA residents in the Gautreaux case since 1966. Even in a revitalizing community like Cabrini, he said, "I don’t buy that it’s not going to be isolated as much [as it was] in the past."

But with the promise of a new Cabrini-Green merging with the mostly white, wealthier community surrounding it, public housing residents want to stay, said Wylodine Hampton, vice president of the Cabrini-Green Local Advisory Council. "Now that they’re improving it, why would [residents] want to leave?" Hampton said.

Back Seat
After Habitat intervened in the Cabrini case in July 1998, Aspen sent all the parties—the residents, the CHA, the city and Habitat—back to work out the dispute.

In March, Aspen appointed Len Rubinowitz, a professor at Northwestern University School of Law, to mediate. Four months later, Rubinowitz told the judge the negotiations had reached an impasse. He declined to discuss the mediation with the Reporter.

Court documents reveal just how far away the two sides are. While Habitat informed Aspen it was ready to "proceed with the development process," Cabrini residents asked the judge to temporarily waive the Gautreaux restrictions and allow them to hire another developer. Aspen rejected that request on Sept. 28.

"We have been given no reason to approve a plan which the Receiver does not back, even though it may otherwise adhere to the letter of the Gautreaux decree and enjoys some localized support," Aspen wrote.

On Nov. 3, Aspen ruled that Habitat could continue to develop plans for Cabrini, although the company is still limited by a 1997 court injunction blocking demolition until tenant concerns are addressed.

Habitat did everything it could to reach a settlement, but has not changed its position since before mediation, Levin told the Reporter. The Cabrini compromise would relegate Habitat to "a limited and back seat role at Cabrini, an abdication the Receiver cannot responsibly accept," the company argued in court documents.

But giving the tenants co-developer status remains the "heart and soul" of any settlement, said Richard M. Wheelock, supervisory attorney for the Legal Assistance Foundation, 111 W. Jackson Blvd., which represents the tenants. "We need to make sure that whatever dollars are made off the land goes toward rehabbing the rest of Cabrini," added Carol Steele, a member of the Cabrini-Green Local Advisory Council.

Whoever controls the project stands to profit. As CHA receiver, Habitat earns a 3 percent fee of the dollars spent on new family housing construction, plus overhead costs, according to Aspen’s 1987 order. Since then, HUD has budgeted about $21.9 million for Habitat’s services, and has paid out about $17.3 million, HUDdocuments show.

Still, the receivership "is not something that is full of joys and pleasures," Levin said. "It has gone on for a long time and the compensation is at best OK."

As development manager, Habitat will earn at least $1.4 million of the $40 million in federal funds currently earmarked for 303 new public housing units at Cabrini, in addition to a $1.2 million receiver’s fee. Those fees would rise if Habitat develops more new units. HUD has already budgeted $1.1 million in administrative and receiver fees for Habitat’s work on 190 units to be built on city and privately owned land in the area, HUD records show.

Habitat will also earn $4 million overseeing the construction of replacement housing at the Henry Horner Homes on the West Side, the Washington Park Homes on the South Side, and the West Side’s Lawndale Complex. That is in addition to the $2.5 million it would make as receiver for those developments.

"The more control over Cabrini, the more money [Habitat] can generate as profit. That’s what they’re in business for," said Peter M. Holsten, founder and president of the Holsten Real Estate Development Corp., 1333 N. Kingsbury St. The company is building the 261-unit Halsted North, a mixed-income community of town homes and mid-rises on city-owned land near Halsted Street and North Avenue. Holsten said he would like to work with residents on the Cabrini project.

Shoddy Work
Project delays and construction troubles threaten to eat away Habitat’s profits as development manager at Horner. Tenants there sued the CHA and HUD in 1991, accusing them of practicing "de facto" demolition by allowing the 21-building development to decline beyond repair. In a consent decree signed September 1995, the agencies agreed to redevelop Horner in five phases ending in April 2001.

The first phase was to be completed by July 1998, but Habitat is still struggling to finish 466 low-rise units to replace five demolished high- and mid-rises. The firm has completed 380 units so far, and doesn’t expect to finish until next summer, Habitat officials said.

A December 1996 court order by U.S. District Judge James B. Zagel provides that Habitat can be fined $6 a day for each unit it completes past the deadline. That will total more than $500,000 by December, estimated William P. Wilen, a supervisory attorney at the National Center on Poverty Law, 117 W. Monroe St., which represents Horner tenants.

The project was delayed partly because Habitat had to get "the residents’ approval, their consultant’s approval, and their lawyers’ approval," Levin said.

On March 24, Habitat asked Zagel to change the original project deadline, which would exempt it from any fines, court records show. The tenants will counter that the delays were avoidable, Wilen said.

In some instances, construction firms Habitat hired produced poor workmanship and used cheap materials, said Don Kimball, president of Oak Brook-based Crest Consulting Engineers P.C., hired by Horner tenants to inspect the replacement units.

A survey conducted in August and September 1998 by East Lake Management and Development Corp., Horner’s private property manager, found that 10 of 18 new ground-floor apartments on the 2100 block of West Maypole Avenue had suffered major leaks. Three other units on adjacent streets also had sprung leaks.

Cora L. Magit, who lived for 10 years in a Horner high-rise at 2145 W. Lake St., left in April 1998 for a new, four-bedroom apartment in a two-flat developed by Habitat at 2312 W. Monroe St. Magit, 53, brought along five grandchildren, aged 1 to 8 years.

Then, after a heavy rain last spring, "water from the street was coming up through the floor," she said. "The smell was so strong, like stinking sewer water."

The CHA moved Magit to a Horner mid-rise while her apartment was repaired. The family endured a summer of harassment, with "gangbangers knocking on our door, telling us to get out," she said. They moved back to the Monroe apartment in October.

Levin acknowledged that some Horner replacement units had been plagued by leaks, and had "water coming through the base and foundation." But they have all been repaired, he added. "We never said, ‘no’ in dealing with the problem."

Kimball predicted the leaks will return with the next big rainstorm. Wilen added: "If these units start leaking and go downhill after 10 years, what have we really accomplished?"

Fringe Benefits
While the court battle drags on at Cabrini-Green, the area is booming with development. An expanded and refurbished Seward Park sprang up this fall at the corner of Division and Orleans streets.

Across the street, a Dominick’s grocery store, complete with espresso bar, opened in September 1998. Next spring the Chicago Board of Education plans to open the new Jenner Academy of Fine Arts at 1119 N. Cleveland Ave., school officials said.

Old Town Square’s 163 new condominiums and single-family homes, near Division Street and Clybourn Avenue, are nearly sold out. Twenty-eight units were leased to the CHA; the rest sold for $130,000 to $400,000, according to Tamara Laber, vice president of sales and marketing for MCL Companies, the developer.

In 1993, the CHA’s original Cabrini plan called for demolishing 660 of 3,606 units and building 493 replacement units. Ten developers answered a request for proposals in December 1995, but all were rejected by a screening committee of Cabrini tenants, neighborhood residents, and city, CHA and Habitat representatives.

In June 1996, the mayor unveiled his proposal to transform Cabrini-Green and the surrounding area. The Near North Redevelopment Initiative called for demolishing 1,324 CHA units.

About 2,000 new homes were to be built, with 15 percent reserved for very low-income tenants—those making less than 50 percent of the area’s median income, currently $31,900 for a family of four. But the Cabrini tenant council said that wasn’t enough, and in October 1996 sued the CHA, charging the plan discriminated against low-income, African American women and children.

About 63 percent of Cabrini-Green residents are female, and 56 percent are under 19, court documents show. And 77 percent of Cabrini families live on less than $8,000 a year, according to the CHA’s 1997 redevelopment plan.

U.S. District Judge David H. Coar said the residents’ lawsuit could go forward, and in January 1997 he issued an injunction halting further demolition. In July 1998, the city, the CHA and a group of tenants reached a compromise: The CHA-owned land would contain about 923 units, with at least 472 units reserved for displaced Cabrini families, including 195 "affordable" units for those making at least $25,520 for a family of four.

In addition, they agreed that 30 percent of all housing built on city-owned land would be reserved for public housing. Residents would have a 51 percent interest in the joint venture that would build the replacement housing, with a say on issues like design and allocation of social services.

The developers, however, would probably retain financial control, Wheelock said.

Residents hailed the agreement. "We thought we had finally come to the end," Steele said. "It was a feeling of relief that after all the battles with the CHA and city, all three had finally come together."

Wary Developers
Then Habitat blocked the deal in court. In a Nov. 20, 1998, letter to Aspen, Habitat said banks and investors were reluctant to put money into a project where the residents have 51 percent control. And local developers worry that the Cabrini site will include too many public housing units, the letter states. The company declined to disclose the names of the developers.

"Ultimately, someone has to make the decisions," Levin said. "If you just listen to the residents, you do not know if you are listening to the lawyers or a small group of advisors. It’s not clear if they know the issues."

Cabrini residents would like to replace Habitat with Corcoran & Jennison, a for-profit, Boston-based developer of about 28,000 units of market-rate and affordable housing, mostly on the East Coast and in California. "We’ve had experience with [tenant owners], and they’ve worked out very well," said Chairman Joseph Corcoran. "Ownership doesn’t mean management," he said.

Residents "know what the community needs, and they should have that control," he said. "Habitat felt that if tenants had ownership, you would not get the necessary investment. That is completely not true."

Court Dates
Habitat is facing fights at other developments. On July 29 the Concerned Residents of ABLA, a tenant group at the Near West Side development, filed a federal lawsuit charging that the CHA’s plan to create a mixed-income community there is racially discriminatory. Funded in part by two federal grants totaling $59.5 million, the plan calls for demolishing 2,922 public housing units and constructing 656 units for very low-income tenants and 966 for market-rate buyers.

Habitat wants to shift the case to Aspen’s court, arguing that the tenants’ charge of racial discrimination is a rehash of Gautreaux. And Habitat has blocked a 1995 agreement between the CHA and former tenants at Kenwood’s Lakefront Properties development.

Habitat plans to build 441 replacement units, said Lawrence E. Grisham, Habitat’s vice-president for the scattered-site program. But without the agreement, tenants worry that these units may never be built, said Wheelock, who represents the Lakefront tenants. "Residents have been waiting since 1985," he added. And with their compromise plan all but dead, Cabrini residents plan to go forward with their lawsuit, Wheelock said.

The tenants "fear severance from their communities, even if these communities have awful aspects that the tenants themselves decry," Polikoff said. At Cabrini, residents are "courting trouble" if they try to hang on to an enclave of mostly public housing, he said. "There would still be an unsatisfactory degree of poverty concentration."

But Steele, who was born in the Cabrini area, said the residents won’t give up. "Either way it goes," she said, "we’re still going to be here."

This report is sixth in a series, “The Transformation of Public Housing,” an investigation of the historic changes underway in Chicago’s public housing. It is supported by the Woods Fund of Chicago.

For more information on public housing, visit the following sites:

w National Center on Poverty Law

w The Chicago Housing Authority

w The Habitat Co.

w The U.S. Department of Housing and Urban Development

w HUD’s HOPE IV Home Page

w The Chicago Coalition for the Homeless

James Boozer, Jennifer Chang, Pamela A. Lewis, Christina McClain, Nicolette L. McDavid, Billy O’Keefe, Abhi Raghunathan and C. Paul Techo helped research this article.