Developer Daniel Levin, the new court-appointed receiver for the Chicago Housing Authority`s bankrupt scattered-site construction program, has told court officials that it could cost nearly $15 million to manage the program over the next five years.
Those management costs, which would include a $3.3 million fee for Levin`s firm, Habitat Co., represent an increase of nearly 50 percent over the level of such costs when the CHA was running the program.
But it was because of the housing authority`s mismanagement of the program that U.S. District Judge Marvin Aspen ordered it into receivership and, on Aug. 3, named Levin receiver.
The CHA`s inability to manage the program drove costs millions of dollars over budget and left the agency in the midst of the worst financial crisis of its half-century history.
On Friday, Aspen is to hold a hearing to discuss the agreement under which the scattered-site program will be handed to Levin.
In an interview Thursday, Levin described the $3.3 million management fee as reasonable.
”Based on what we know–and I don`t know of any other situation like this–it is on the very low end of reasonable,” he said. ”It is designed to reflect that we are not in here for the money.”
In fact, Levin said his firm will end up spending part of the fee for expenses not covered by the project`s normal administrative and operating costs.
Levin`s estimates of manage-ment costs were included in a proposal that he submitted to Aspen. They were based on a $102.6 million construction-rehabilitation program to develop 1,956 scattered-site units.
CHA officials expressed surprise Thursday when told of the program`s cost and the number of units discussed in the Levin proposal.
Douglas Guthrie, the CHA`s deputy executive director for special housing programs, said it was his understanding that Levin would be responsible for completing or developing only about 1,140 units of scattered-site housing.
According to the Levin proposal, the operating costs for developing nearly 2,000 scattered-site apartments would be $7.6 million, and
administrative costs would be $3.8 million. Levin`s $3.3 million fee would represent 3 percent of the project cost.
Together, the management costs would total $14.7 million and drive up the cost of the construction program to $117.3 million.
Of that, management costs would represent 12.5 percent of the total or, without the developer`s fee, 9.7 percent of the total.
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In comparison, the CHA`s management costs represented 8.4 percent of the total cost of scattered-site work done since 1983, according to housing authority records.
The Levin estimates are preliminary, according to the proposal submitted by the developer to the search committee on July 24. Levin said Thursday that the company`s fee was based on ”the doctrine of reasonableness” and is subject to Aspen`s review.
The construction-rehabilitation program that Levin will carry out will involve 466 units that are nearly completed, 147 under construction, 410 awaiting construction and 933 that remain to be acquired.
In the proposal, Levin assured Aspen that his firm could assemble a task force of talented professionals to complete the job, ”assuming there is adequate funding, cooperation from the city and (U.S. Department of Housing and Urban Development) officials and the ability to function almost as if we were a private developer with unlimited authority.”
The plan called for a ”team approach” with a Habitat employee as team leader. The team would also consist of one or more general contractors, a rehabilitation architect, an outside consultant and a HUD official to serve as an official liaison.
The developer warned: ”Quality rehabilitation is not enough but must be done in a reasonably good neighborhood with enough scale to make it manageable. There also must be enough money available to manage and maintain the property to an acceptable standard.”
One of the most critical elements to achieve management success, according to the proposal, is that tenants be chosen who are capable of being responsible and who will best benefit from the improvements in their living conditions. Therefore, Habitat asks to be involved in the tenant-selection process.
The proposal also said Habitat must be sure that there is adequate funding available from HUD before assuming responsibility for the project and that all funding must be done in advance to insure funds are available.
”At no time will the receiver be required to advance funds to cover the needs of the project,” the proposal stated.
The proposal also stated that the receiver needs ”the ability to resign from the receivership without penalty if we determine, after discussions, that the lack of cooperation from HUD or CHA seriously impairs our ability to perform.”