Sunday, August 19, 2001

Land shifts for a landlord


He gathered a big block of low-income housing with federal help, but now the government is changing the rules

By Cliff Peale and Ken Alltucker
The Cincinnati Enquirer

        Stand on the corner of Race and Liberty streets in Over-the-Rhine, and Tom Denhart is everywhere.

        On one corner is Hart Realty Inc., his management company. On another is Elm Industries, whose wares include furniture and iron bars for protecting windows. Turn to look north, and there are many of the apartments that house more than 1,000 low-income families in Cincinnati's most downtrodden neighborhood.

        Last week, Mr. Denhart's company filed for Chapter 11 bankruptcy, blaming changes in the laws governing federally subsidized housing.

        Starting in the 1970s, those laws allowed Mr. Denhart to accumulate one of the largest blocks of low-income apartments in the nation, collecting millions of dollars in federal subsidies each year. Nearly 30 years later, he is Over-the-Rhine's largest apartment owner and low-income landlord.

        “The federal government spent several million dollars making Over-the-Rhine a poverty reservation back in the 1960s and 1970s,” said developer Chris Frutkin, president of the Over-the-Rhine Chamber of Commerce. “Even the federal government has a vision that this is bad for people and bad for cities. They are the ones who spent the money to make Tom Denhart's properties possible and are now spending the money to allow people to move where they want to live.”

        For years, advocates of new development in Over-the-Rhine have called Mr. Denhart's solid block of buildings — more than 200 with 1,089 apartments were placed in the bankruptcy last week — the biggest impediment to market-rate housing and other projects that might bring new investment into the neighborhood.

        As long as Mr. Denhart's properties are tied in Section 8, little chance exists that other developers could attract a wider base of tenants to that part of Over-the-Rhine.

        In an interview last week, Mr. Denhart agreed that concentrations of low-income housing, while good for his business, are bad for the city at large.

        “It hasn't worked,” he told the Enquirer. “It's made Over-the-Rhine the drug capital of the area. But this is the business we're in. We went where the city wanted us to go.”

        Now 70 and recovering from the death of his wife last year, Mr. Denhart remembers when his father Al opened Denhart Candies at 1534 Race in 1947. Back then, he says, “People used to scrub the steps and the sidewalks. You don't see that much anymore.”

        Instead, Over-the-Rhine has become a living example of a poor, crime-ridden urban neighborhood. In April, people all over the world saw race riots explode on the historic neighborhood's streets after a Cincinnati police officer fatally shot an unarmed black man.

        Longtime residents who have worked to improve the neighborhood say years of poor decision-making by federal and Cincinnati officials are the chief culprit for the neighborhood's decline.

        Linda Brock, a neighborhood resident for 17 years, is frustrated daily by the violence and abundant litter.

        “The type of housing he's had has been deteriorating in our neighborhood,” said Ms. Brock, a former tenant of Mr. Denhart. “When you overpopulate a neighborhood (with Section 8 housing), you set it up for failure.”

Building an empire

        Mr. Denhart bought his first apartment building on Race Street at age 17. Straight out of Hughes High School, he worked in insurance for several years, then eventually moved into real estate.

        In the early 1970s, the landscape changed in Washington, D.C. Lawmakers wanted to stabilize poor neighborhoods by encouraging developers to buy and develop property into low-income apartments.

        The U.S. Department of Housing and Urban Development in 1974 settled on a program called Section 8. It would provide housing assistance payments directly to property owners based on the renter's income and budgets submitted by the building owner.

        In return, property owners could rent only to low-income tenants who met HUD's criteria.

        By then, Mr. Denhart and his brother Norbert had formed many of the 42 limited partnerships that own nearly 1,600 apartments today.

        Investors included local businesspeople, eager for the tax shelter pitched by Mr. Denhart.

        Jack Maier, chairman of Frisch's Restaurants Inc., was one of those early investors. He said he knows little about the apartments in which he's invested.

        “I have no idea where it's at,” he said.

        The buildings are spread throughout Over-the-Rhine, but concentrated along Race, Elm and Pleasant streets, straddling Liberty.

        The limited partnerships contract with Hart Realty to manage all of the apartments, paying a management fee approved by HUD. The limited partnerships then pay another company owned by Mr. Denhart for services. That company, Liberty Cos., provides maintenance, and a division called Elm Industries sells furniture and security equipment.

        Mr. Denhart is the general partner of all 42 limited partnerships. Through direct Section 8 payments from HUD, Mr. Denhart collected more than $7 million during the 12 months that ended in September 2000, according to HUD records acquired by the Enquirer through a public-records request.

        “When folks say there's no money in subsidized housing, well, Mr. Denhart has made quite a bit of money,” said Alicia Beck, executive director of the Greater Cincinnati Coalition for the Homeless, which has criticized Mr. Denhart.

        Mr. Denhart denied the accusation that he is more interested in profit than in housing people. He noted that he works on-site at 1534 Race, and has spent plenty of time in the apartments, although not as much lately because of his health.

        “You make a living,” he said. “It's not a lucrative business. You don't get fat.”

        Some would disagree. Mr. Denhart has critics who claim he earns big money while stifling development in the neighborhood and resisting the chance to sell his properties.

        In the mid-1990s, he talked to the city of Cincinnati about selling his interest in the limited partnerships, but his asking price of more than $30 million was more than $10 million above the offer.

        Those requests have left current city leaders skeptical of helping Mr. Denhart out of his financial jam.

        “I certainly hope nobody is looking for (Cincinnati) to put money in, or purchase part of his (property),” Cincinnati City Councilman Pat DeWine said.

        And there has been controversy. In 1978, Hart Realty paid a fine on charges of filing false rent-supplement applications with HUD. Mr. Denhart's brother Norbert, who was then a partner in many of the ownership groups, was convicted on the fraud charges.

        HUD charged that Hart Realty had understated some families' incomes, or falsified information on applications. Norbert Denhart is no longer a partner in the limited partnerships that own the properties.

No-win situation

               Now many Section 8 landlords are grappling with whether to keep their properties or to sell. They are finding a renewed interest in urban neighborhoods that were all but abandoned 30 years ago as people left for the suburbs.

        That is driven by changes in the laws governing low-income housing. Instead of direct Section 8 payments to property owners, HUD now is offering vouchers to residents. They can take the vouchers and move anywhere that will accept them. And owners now have to justify their rents against comparable properties around the neighborhood.

        That leaves property owners the choice of continuing in subsidized housing — with drastically lower rents — or “opting out” of Section 8 and getting whatever rent they can for the residential units.

        “Many owners of Section 8 properties are interested in converting their properties to market-rate housing, and getting out from Section 8 housing because they believe they (market-rate) are more profitable,” said John K. McIlwain, senior resident fellow for housing at Washington D.C.-based Urban Land Institute.

        Mr. Denhart's partnerships are the first and largest Section 8 owners in the country to opt out of Section 8 and then file for bankruptcy, HUD said. He foresees marketing to a wider spectrum of tenants, perhaps even some market-rate housing.

        “Let's be realistic,” he said. “The marketplace determines what's going to happen.”

        Mr. Denhart had known for years that the changes were coming, but the decision came to a head starting in May and June, when HUD Section 8 contracts with about 28 of the partnerships came up for renewal.

        When he decided to opt out, many residents took the vouchers and moved away, Mr. Denhart acknowledged in federal bankruptcy court last week. April's riots only made the exodus worse as residents looked for other neighborhoods, he said.

        Vacancy rates have more than doubled to about 35 percent, taking valuable revenue. But Mr. Denhart said he could eventually replace those residents.

        “They literally forced everybody to go voucher,” he said.

        “If people move, we'll be marketing to wherever the market is,” he added. “My hope would be that they get rid of Section 8, they give everybody vouchers, then it's going to be an even marketplace, who delivers the best product with the best service.”

        Mr. Denhart said Hart Realty will run out of cash by the end of August, leading to the bankruptcy filing.

        A HUD spokesman in Cincinnati disputed Mr. Denhart's claims that the changes in HUD programs forced the bankruptcy.

        HUD officials tried to persuade Mr. Denhart to stay in Section 8, accept the lower rents and restructure his debt for easier payment.

        “We're trying to provide housing without bankrupting the government,” the spokesman said. “We encouraged him to stay in the program. He made a business decision to opt out.”

        Since October 2000, HUD has converted more than 1,500 units in Greater Cincinnati from Section 8 to “tenant-based” housing that uses vouchers.

        Residents in Section 8 properties can take those vouchers and use them anywhere. Many are choosing to leave Over-the-Rhine and the West End and use the vouchers in neighborhoods like Westwood and Avondale.

        “People are mobile and they have vouchers,” the HUD spokesman said. “The vacancy experienced by these projects is an example of what can happen, but the rental market was already a bit soft. We don't think there will be a shortage (of low-income housing) in the Greater Cincinnati area.”

Neighborhood's future

        Because he owns a huge concentration of buildings in Over-the-Rhine, Mr. Denhart's bankruptcy case could have a profound impact on the downtrodden neighborhood.

        Mr. Denhart emphasized at a public meeting Thursday that the bankruptcy case will not affect his tenants. In fact, he said “30 to 40 percent” of those who get vouchers choose to leave his Over-the-Rhine properties — because of April's riots, a desire to move to another neighborhood or personal reasons.

        Cincinnati City Planning Director Liz Blume and Over-the-Rhine community leaders aim to halt the neighborhood's population loss. They're charting a plan to revive Over-the-Rhine.

        The planning process illustrates long-standing differences between low-income housing advocates who fear the poor will be pushed out of the neighborhood and developers who want to build more housing for different income levels.

        Ms. Blume believes there's room for people of all income levels. She cites a recent study showing the neighborhood has 493 abandoned buildings, including a large concentration in the Findlay Market area, as proof there's enough room for new market-rate housing.

        All sides say the flawed policies of the past must be improved.

        Ms. Brock advocates more resources to encourage residents to invest in their neighborhood. The former Denhart tenant plans to open a neighborhood store at her home off Lang Avenue.

        “You can't do anything until you address the cause — poverty,” said Ms. Brock.

        Mr. Denhart said he provides a valuable service — housing.

        “The toughest thing about this is the concern about what happens to the residents,” he said.

       



- Land shifts for a landlord
MBA no longer a job guarantee
A sure-bet degree: paper science
P&G, Kroger in brand battle
Cabaret coming to Newport
What's the Buzz?
Wal-Mart now a player in online textbook sales
Cleaning service cleans up
Be specific in setting goals
CD copy business expands
Business meetings, seminars
Commercial real estate projects
Commercial real estate transfers
Tristate Business Notebook
Bankruptcies