Residents question financial analyst’s bias, developer’s nonprofit status
Citizens hoping to exert more influence over the financial analysis of an Ayer Road 40B development project left last Wednesday’s Zoning Board of Appeals meeting disappointed. The board voted down their request to replace the ZBA’s financial analyst with a person the citizens believe is more impartial than the current consultant. Board member Steve Moeser was alone in abstaining from the vote.
Speaking for 31 petitioners, Tony Marolda of Jacob Gates Road questioned the ZBA’s choice, Edward Marchant, a professional in analyzing the financial side of 40B projects. “In the past, he was an employee of affordable housing developers. He is now a lecturer and consultant for affordable housing and is engaged by both towns and developers. This … creates the perception of a possible conflict of interest and a possible bias in his work,” the petition stated. According to Marchant’s biography, he teaches a course at Harvard’s Kennedy School of Government on the development, financing, and management of affordable housing.
— Mike Ivas, Mass. Housing Opportunities Corporation
Vice President
Petitioners recommended the public accounting firm of Melanson Heath & Company, the firm that audited 40Bs for the state inspector general’s office, exposing discrepancies in several towns between developers’ actual costs and their profits. The petition recommended that Melanson’s fraud-investigation practice analyze the pre-construction financial information and perform a post-construction audit. “The developer would have a strong incentive to be scrupulous in [its] accounting,” the petition asserted.
The developer for the Ayer Road project is Massachusetts Housing Opportunities Corp., which is working with the housing authority to build affordable housing in town.
Discussion of the topic moved swiftly. “I have consulted on over 100 projects, for both developers and towns. I tell you what I think, objectively, and I don’t mix working with a municipality and a developer within a town,” said Marchant. He answered “yes” when Steve Moeser asked if he was an advocate of affordable housing and 40B projects. “I’m in favor of quality 40B housing,” he emphasized, pointing out that he has recommended against building when the land was unsuitable for housing.
In turn, Town Counsel Mark Lanza advised that professionals are routinely hired by towns and developers, adding, “It’s not unusual and there is no legal conflict, but it is a judgment call. There is always a possibility of bias.”
In a phone interview the next day, Selectman and housing partnership member Lucy Wallace agreed with the board’s decision: “Somebody who is well-qualified and understands the 40B process will be an expert in the field and is bound to be in demand by both towns and developers. An expert is tied to his profession, not to a particular point of view,” she said.
After the vote to retain Marchant, board member James DeZutter suggested an independent, post-construction audit to ensure that developer profits fall within state guidelines. State law limits profit to 20 percent; profit in excess of that goes to the town.
The petition also made a detailed case for hiring attorney Jon Witten, an advocate for 40B reform. At the hearing, spokesman Marolda withdrew the request because Lanza, taken ill in March, had returned. [The attorney’s entrance to the hearing that evening prompted applause from the audience.]
The board’s action on Wednesday will not end the scrutiny. Marolda said that he and a group of other interested citizens will continue to monitor the permitting process, especially the town’s evaluation of the developer’s financial information. “MHOC needs to understand we are watching and want what is due Harvard,” he said.
Nonprofit status questioned
Zoning board Chairman Chris Tracey addressed another concern of the petition: the developer’s nonprofit status. “There is a marketing impression created by your website that because MHOC is a nonprofit, a town will probably get more than the minimum required 25 percent affordable,” he said. The website contains a 2003 Boston Globe article stating that the developer could “make a greater percentage of units in any one development affordable if so desired by the community.” It also says that it might “return to the community income that exceeds costs.”
Petitioners said that there is a disconnect between the developer’s nonprofit status and the March 21 announcement by its attorney, Mark Bobrowski, that the developer would create a for-profit limited liability company to take the comprehensive permit. Petitioner spokesman Marolda said he understood that it is common for a 40B company to create a limited liability company right before getting a permit but “that is not the issue,” he said. “The issue is that MHOC represented itself to the town as a nonprofit for two years, and implied the attendant benefits to the town as outlined on their website.”
The developer will not provide those benefits and, according to selectmen Lucy Wallace and Randy Dean, had never promised to. Minutes for ZBA hearings and forms on file at Town Hall show that the developer did not offer more than 25 percent affordable housing. Returning any profit above cost—an expectation created for petitioners by statements on the developer’s website—was also not mentioned in any record.
Asked whether he had expected more, Dean was concerned but philosophical. “Even the best 40B, if it’s only 25 percent affordable, is perhaps not good for the town. Some take the position that there’s no such thing as a friendly 40B, but we need to deal with what’s in front of us, too.” Dean added that his board relied primarily on its subcommittee, the Harvard Housing Partnership, to decide whether a developer would be a good partner in a local initiative project, or “friendly” 40B. In a local initiative project, developers and towns agree to work cooperatively and consider the town’s wishes. The permitting process and regulations are the same for both “friendly” and “unfriendly” projects.
Town opted for lower density
In an interview after the hearing, Massacusetts Housing Opportunities Corp Vice President Mike Ivas expressed surprise at the petition’s complaints. “We never promised the town more than 25 percent affordable, because doing that would mean more density, and the town didn’t want it.” By law, a developer can propose up to eight units per acre, which would have made the 13-acre Ayer Road site open to a proposal for 104 units. “That was never our intention, because everyone we worked with, Harvard’s selectmen and housing partnership and ad hoc committee, wouldn’t tolerate that density, or the septic plant we’d need to build for it,” Ivas said. The original plan for 44 residential units was also low-density for a 13-acre 40B site, he said. “It was at the suggestion of selectmen that we reduced the units [to 32] and included the commercial part.”
Wallace verified the town’s request for the commercial space, and said that reduced density was the main benefit of the Ayer Road local initiative. She conceded that, ideally, the town would build its own affordable housing on land it owns, but cited real-world budgets. “Would people support the overrides we’d need?” she asked.
Nonprofit versus for-profit
Asked for reaction to the petitioners’ claims, Ivas strongly defended the company. He offered reasons for creating the for-profit subsidiary, and explained why the four-year-old developer was incorporated as a nonprofit in the first place.
Profits would be modest for Ayer Road due to “difficult site development,” he said, but some profit was needed to build the project. “We still need to qualify with a bank,” he said. The developer’s financial consultant, Mike Jacobs, said at the hearing that the affordable units were priced too high for the market. “We will reduce those prices and adjust the pro forma, probably,” he said.
Ivas also said the company was originally set up for projects that required a nonprofit company, such as HUD-funded housing. According to company President Gerard Welch, though, the company has never worked on the kind of zero-percent-profit project that its website mentions. “If the town donated land, and we got HUD funding, then we could do a zero-percent-profit project,” he said at the hearing. According to Welch, the company has so far built projects that are best managed by a for-profit comapny.
At the hearing, the developers and town officials reminded the audience that nonprofit does not necessarily mean zero-profit. A nonprofit’s gains are simply plowed back into the company, in pursuit of its mission. The question is moot now that the developer plans to create a for-profit to manage the Ayer Road project. “The LLC is owned by MHOC, which is still nonprofit. We can direct profits from the LLC into the nonprofit,” said the developer’s attorney, Adam Costa.
Costa succinctly explained the legality of it all, citing Chapter 40B, sections 20 and 21, and Lanza confirmed it. Board member Robert Capobianco, however, had the last word on the matter, “I still cannot understand why the nonprofit MHOC needs to create a for-profit LLC, even if they can.”
