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The nation's biggest player in the apartment rental business has found huge profits in low-income housing

Wednesday, Feb 21 2007
For the better part of a decade, Dorothy Peterson has been skirmishing with AIMCO, a Colorado-based real estate behemoth that bills itself as the "largest owner of apartment homes in the U.S." and boasts a portfolio of some 240,000 apartment units scattered across 47 states, the District of Columbia, and Puerto Rico.

Just last week, Peterson sat down at her iMac and tapped out a string of letters opposing a complicated and little-noticed piece of local legislation that she thinks will further enrich the firm, which owns her apartment, in one of a cluster of utilitarian two-story buildings just off Ingalls Street atop the Hunters Point hill. (The ordinance, a rewrite of some abstruse rules regarding tax-free government bonds, was passed unanimously by the San Francisco Board of Supervisors Feb. 13).

Hers is a quixotic campaign to be sure, a lopsided conflict pitting Peterson, an elderly black woman from southeast San Francisco, against a publicly traded outfit with $12 billion in assets, a stock price hovering north of $60 per share, and an absurdly wealthy, politically connected boss at the helm.

"I've been fighting them every step of the way," she says while sitting in the family room of her immaculate apartment as gospel music wafts from a radio.

While Peterson may not have a prayer of stopping AIMCO, it's worth taking a look at the company, which has largely eluded any serious media scrutiny despite its massive scale and persistent legal problems. In recent years the corporation has run afoul of three different federal agencies — the Environmental Protection Agency, the Department of Labor, and the Department of Housing and Urban Development — as well as San Francisco City Attorney Dennis Herrera, who squeezed a $3 million settlement out of AIMCO in 2004 for scores of severe housing code violations.

AIMCO Chairman and CEO Terry Considine, who took in more than $18 million in executive compensation in 2005, is an intriguing figure. He's a conservative Republican Party stalwart who raises cash for anti-tax, small-government political candidates and intellectuals while his corporation gobbles hundreds of millions of taxpayer dollars in subsidies.

Although AIMCO is a massive enterprise composed of a confusing web of inter-related companies, both nonprofit and for-profit, the basic business model is fairly simple. The company owns and manages apartment complexes, ranging from the luxurious ($3,000-per-month flats in New York City), to the cheap (government-subsidized units like Peterson's place).

Roughly 40,000 of AIMCO's units are underwritten by the federal government through an array of programs including Section 8 dollars and tax-free financing, and are reserved for poor and working-class renters. Money generated from both sides of the business is funneled toward the bottom line.

Just how AIMCO manages its money, in some cases, is murky. Tipped off by a well-placed source, SF Weekly obtained documents raising questions about the firm's financial practices — practices that are overseen by the Department of Housing and Urban Development (HUD), which funds AIMCO's San Francisco developments.

Several audits conducted by HUD during 2002 and 2003 suggest AIMCO may have misspent government funds earmarked for the corporation's Hunters Point properties.

In a July 2003 letter to an AIMCO subsidiary, HUD manager J. Patrick Goray claims HUD auditors uncovered numerous billings "that do not appear to be reasonable or necessary for the operation" of the Bayview Apartments. The charges included expenses generated by apartment complexes not in San Francisco, but in Illinois, New York, Florida, North Carolina, and Wisconsin.

When auditors looked at the apartment complex in which Peterson lives in June 2003, they also found legal expenses of $324,236 that "appear excessive," according to the audit.

Hoping to learn what happened with the money, SF Weekly, using the Freedom of Information Act, made a formal request to HUD for more documents regarding AIMCO and its auditing issues. HUD rejected our request, saying such information was a "trade secret," and as such was confidential.

"We did receive repayment of the charges we believed to be excessive," says HUD spokesman Larry Bush, noting that AIMCO blamed "an accounting error" for the misspending. Bush, however, is unclear about just how much money was in dispute.

Peterson's acrimonious entanglement with AIMCO dates back to 1990, when the company purchased about 600 aging, government-subsidized apartments stretching across the Hunters Point hill, including her place in the Shoreview development.

Built cheaply in the 1970s, the properties were deteriorating and riddled with flaws by the time AIMCO bought them. Rot permeated decks and porches, rain dripped in from leaky windows and roofs, and, most worryingly, clumps of mold, which can cause respiratory ailments and other illnesses, speckled the walls of many units. "You can't lock the windows. You can't lock the doors," Peterson complains. She added that at one point her toilet "was about to fall through the floor" because the floorboards were collapsing.

Inspections conducted by both HUD and city building inspectors backed up the complaints of Peterson and other tenants. In one inspection, HUD investigators found 43 percent of the door locks in one complex didn't work properly; another HUD inspection concluded that 71 percent of the apartments surveyed were beset with "defects." City housing inspectors were even harder on AIMCO, documenting scores of code violations throughout the properties during the early 2000s, including "rodent infestation," broken windows, busted plumbing and numerous leaks, and mold.

By 2002 the San Francisco City Attorney's Office was blitzing AIMCO with legal briefs accusing the firm of flouting the "state and local laws applicable to residential housing"; the city's legal complaint, which chronicles the history of code violations at the properties, runs 111 pages. The courtroom drama ended in 2004 with AIMCO agreeing to pay the city $2 million, pour another $1 million into renovating a nearby Boys and Girls Club, and perform extensive repairs at its Hunters Point apartments.

At AIMCO, Cynthia Eichner clearly doesn't want to discuss the corporation's track record in San Francisco. "Why do you want to write about this?" demands Eichner, the vice president for communications, when asked about AIMCO's regulatory troubles. "What's your point? You just want to trash us." She continues, "These cases are sort of old. These issues are not uncommon" among large-scale property-owners.

Today the repairs are finally underway, funded by more than $82 million in tax-exempt construction bonds handed out by the California Statewide Communities Development Authority. Peterson, though, still isn't happy. She doesn't trust AIMCO, which has a history of selling off its low-income properties, and claims the corporation has hired a construction firm from out of state to do the rehab work. "The bond money," she argues, "is welfare for the rich."

Tenant organizer Sara Shortt, an expert on low-income housing, also isn't a huge fan of AIMCO, although her critique isn't as scathing as that of Peterson. "We need to bring private interests into the role of providing affordable housing," says Shortt, who works for the Housing Rights Committee of San Francisco, and is charting a steady decrease of federal dollars flowing into inexpensive housing. "This type of subsidized housing could work" with stronger government oversight, day in and day out.

Peterson's friend, Espanola Jackson, a longtime neighborhood activist, is more blunt: "Why should we support some suckers the city just sued for $3 million? Why should we do anything for them?"

Certainly, AIMCO's reliance on taxpayer funds is somewhat ironic, considering CEO Considine has a penchant for bankrolling conservative political candidates who detest government spending, people like Michigan Rep. Tim Walberg (who "believes the federal government is too large," according to his campaign Web site), Colorado Rep. Marilyn Musgrave (who says "government bureaucrats cannot control their thirst for gratuitous spending"), and former Pennsylvania Sen. Rick Santorum, according to campaign finance records.

A former Colorado state senator who campaigned for U.S. Senate in the 1980s, Considine also sits on the board of the Lynde and Harry Bradley Foundation, a well-endowed, paleo-conservative think tank based in Milwaukee, Wis., which isn't particularly big on federal programs for the poor.

Michael Kane, head of the Boston-based National Alliance of HUD Tenants, has been following AIMCO for years, and wonders "if Considine's cynical, or if he somehow reconciles" his politics with his feed-at-the-trough business approach.

"There's a whole industry that's grown up around building this type of housing," says Kane. "It's a very profitable field. For one thing, these are secure investments — there's a guaranteed source of income in the form of government dollars."

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