Developer cries foul on 40B probe

Bovenzi halts affordable housing project

Leominster developer Peter Bovenzi say he’s so "disheartened" by what he calls unjust and inaccurate criticism from the state Inspector General of his company’s Chapter 40B affordable housing project in Leominster, he’s put on hold a similar development in Lunenburg. Instead, the outspoken developer, who has long championed affordable housing, says he may develop the 10-acre parcel for commercial use.

Bovenzi says he recently cancelled the start of site work on the 64-unit Lunenburg 40B project in response to IG Gregory Sullivan’s accusations in a Feb. 4 report in The Boston Globe that his company was among those that allegedly concealed profits on five 40B developments reviewed by the IG’s office.

Bovenzi joins several developers targeted in the probe and the experts who work with them who say the IG’s charges are overblown and based on unfairly applying Chapter 40B regulations retroactively. Affordable housing agencies that deal with 40B also question the IG’s tactics.

Bovenzi’s Lancaster Estates, completed in October 2003, was audited by the IG as part of an ongoing probe into what Sullivan claims are abuses of 40B by developers who have skirted a 20 percent profit limitation by misrepresenting costs and understating revenues. Under the law, which exempts developers from local zoning provided they set aside 25 percent of the units they build as affordable, profits beyond the 20 percent limit are to be turned over to cities and towns for affordable housing.

Blindsided after IG praise

Lancaster Estates not only fell well within the 20 percent profit limit but had a loss of $6,308, based on project financial statements Bovenzi provided to the state. What’s more, the contracting arm of Bovenzi’s company made only a 9 percent margin on the work to build the project, lower than any other development audited by the IG. Sullivan even "commended" Lancaster Estates for its lows costs and well-kept books in a Nov.13, 2006 letter to Leominster Mayor Dean Mazzarella detailing his probe findings.

So, Bovenzi says, he was taken aback when his project was included in the Globe report on the probe in which Sullivan reportedly claimed developers of all five projects, including Bovenzi, concealed some $4 million in profits. The article noted the IG’s contention that Bovenzi should have included some $1 million in profit allegedly made by the previous owner of the 7.2-acre site on the sale of the land to Bovenzi. While that would up Lancaster Estates’ profit to 14 percent, it is still well within the 20 percent limit.

Bovenzi says the IG arbitrarily came up with the land value he used to increase the Lancaster Estates’ profits, that the value made no sense and was not spelled out in regulations at the time. As a result, he says, his company has been hurt by Sullivan’s unfair and unfounded public accusation that Lancaster Estates’ understated profits.

"He really wants to make a name for himself so badly that he’s indifferent to the truth and is willing to disparage the law-abiding citizen," Bovenzi says. "It goes to show that the IG wanted to make his case more than he wanted to do the right thing, which is not healthy."

State Inspector General Gregory Sullivan’s ongoing probe into whether developers skirted profit limits of the state’s 40B affordable housing program is either a long-overdue step to stop abuses or an overblown and unfair analysis of regulation problems that were solved long ago, depending on which side of the housing debate you talk to.

But even the executive director of a housing agency that "sees both sides" of the 40B argument, says he hasn’t seen anything in the IG’s findings thus far that shows developers are engaging in the "pig fest" that Sullivan described last fall. Clark Ziegler, executive director of the Mass. Housing Partnership, a quasi-public agency that helps towns negotiate with 40B developers and helped forge 2005 guidelines for the program, says probe findings don’t indicate to him that the system to oversee 40B "is largely broken."

Sullivan says his yearlong investigation into 10 Chapter 40B projects has called attention to a lack of state oversight of the program, and that some developers have been taking excess profits that should have gone to cities and towns. His findings on five projects thus far cite what he says is a pattern by developers of overstatement of land costs and hiring companies in which they have an interest as subcontractors and overpaying them to inflate profits.

But Ziegler says the key question is whether any of those charges, which have drawn objections from targeted developers, would arise today under the current regulations and guidelines put in place in 2003 and 2005. All of the projects investigated predated the current measures.

Sullivan says he’s still evaluating what regulation changes are needed. And a spokesman for Tina Brooks, who Gov. Deval Patrick’s recently named to head the Department of Housing and Community Development, says she hasn’t yet met with the IG on the matter.

Meanwhile, Matthew Feher, legislative analyst for the Massachusetts Municipal Association, says the IG probe has shown flaws in the 40B cost certification process. MMA is backing legislation to make cost regulations part of the law rather than relying on separate rules and guidelines. Among provisions the MMA wants is for communities to act as project monitors.

Mark Kablack, a director of the Homebuilders Association of Massachusetts, says Sullivan may have identified some incidents of 40B abuses but that his "alarming" rhetoric about a supposed "pig fest" has cast a cloud over the only state program that has produced any substantial affordable housing. And, he says, Sullivan’s questioning of developers using their own construction companies for project work shows a "lack of understanding" of the building industry, in which such a practice is commonplace and creates efficiencies.

Kablack says the IG investigation has given rise to new discussion among his members about alternatives to the 20 percent profit limit not set for 40B developments. One possible alternative is establishing a flat fee that developers would pay per unit rather than the profit limit, he says. Another would be to increase density for 40B projects but to also increase the number of units required to be affordable beyond the current 25 percent level. Kablack says his organization is just throwing such ideas out there for discussion.

Ironically, 40B attorney and Boston University faculty member Peter Freeman, who represents a developer targeted by the probe and who also served on the committee established by Mass. Housing Partnership to establish 40B guidelines, says the IG’s "inappropriate" characterization of the 40B process may finally inspire the state to get rid of the profit limit. "If a developer can supply affordable units at the density required, who cares what they make?" he says.

Clark Ziegler notes that if the state addressed the larger issue of how to get towns to embrace affordable housing, "then 40B issues would largely fade away."

– M.B.

Sullivan’s letter contends that previous landowner Jay Casey set the land value before the 40B permit at $100,000 in a financial analysis of the Leominster project. He then received $1.3 million from Bovenzi several months later for the permitted site. The IG calculated that the difference in value should have been included in the project profits. Sullivan’s letter went on to say that the auditor in the IG probe used the 2003 assessed value of the land, or $261,800, instead of $100,000 to calculate land costs minus related fees, reflecting a $1,038,200 profit that should have been included.

But Bovenzi says that when the project was permitted in 2002, there were no rules specifying what he should use as land acquisition costs. A 2003 regulation that dictates that 40B developers have a pre-permit appraisal of project sites to calculate land acquisition costs to insure that 40B sites aren’t flipped to conceal profits came after Lancaster Estates was approved.

Bovenzi says he never saw the pro forma from Casey until last week when he managed to acquire it from Casey’s lawyer after being unable to obtain it from the town or Casey’s bank. It listed the cost of the land at $100,000, which was what Casey had paid for it in 1985. Bovenzi adds he did not assume Casey’s 40B permit on the land after he bought it, but reapplied to the town for his own 40B permit, reducing the project density from 52 to 50. He says he submitted his own pro forma and listed what he paid for the land, $1.3 million, as its pre-permit value.

Bovenzi insists he only bought the Casey property because it was ready to develop, and because he was between projects at the time and wanted a job to keep his crew busy over the winter months. It was no more valuable to him with the 40B permit than without, Bovenzi says, and he considers the pre-40B-permit value of the land to be $1.3 million. To prove it, Bovenzi is having a state-approved appraiser calculate the value of the land prior to the 40B approval. He also points to a 2002 bank appraisal that set the permitted value of the land at $2.2 million.

Sullivan told WBJ he sticks by the findings in his letter on Lancaster Estates. The IG would not comment on whether the comments attributed to him in the Globe story were accurate. He did acknowledge terming the Chapter 40B program a "pig fest" for some unscrupulous developers last fall.

Agencies question IG tactics

Bovenzi has plenty of company in challenging the IG’s evaluation of land acquisition costs in his probe. The developers of Sumner Cheney Place in Reading and Cedar Farm Estates in Wareham also objected that the IG was applying the 2003 regulation retroactively in investigating those projects, as does the Homebuilders Association of Mass. The Citizens Housing and Planning Associations, a nonprofit housing advocacy group that, until fall of 2005, reviewed the finances of 40B projects built under the New England Fund Program for the state Department of Housing and Community Development, has also challenged the validity of Sullivan’s land cost calculations. And the Mass. Housing Partnership, a quasi-public affordable housing agency, also says the probe is applying standards retroactively.

CHAPA had previously reviewed all five of the projects in the IG probe, including Lancaster Estates, and had not found the alleged abuses pinpointed by the IG. While it had discussed with Bovenzi how he should calculate the land acquisition costs for the project, it concluded that it was moot what figure was used since the project would still remain within the 20 percent profit limit.

Bovenzi says he would have used whatever figure he was directed to use, but stayed with his $1.3 million purchase cost based on CHAPA’s conclusion. For Sullivan to select another figure and then publicly allege that his project overstated expenses is simply unfair, he says.

Sullivan insists that the land value requirement "never changed" and that the land acquisition cost debate is a "red herring." The IG has been critical of CHAPA’s oversight of 40B projects, accusing the non-profit of being to favorable to developers. His letter on Lancaster Estate, he says, didn’t accuse Bovenzi of concealing profits.

Bovenzi says the inspector general’s comments in the paper were inconsistent with his written letter and he won’t go ahead with the Lunenburg project because "it’s too dangerous" not knowing what the regulations are or how they will be changed. He says he has had to do "damage control" on the IG’s comments and even had a community that indicated it didn’t want him to build a 40B because of the news reports.

Bovenzi says he won’t rest until he clears his company’s name. He delivered a letter to the IG on Feb. 22 objecting to Sullivan’s damaging comments and requesting a meeting with the IG. "I am not a pig in his pig fest," Bovenzi says.