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City spends $205,838 on 2 rowhouses Housing commissioner pushed for added aid to complete renovation; 'Taxpayers getting hurt'; Funding provided to judge to convert former bar he owns

THE BALTIMORE SUN

With housing inspectors and the neighborhood association demanding action on his vacant and crumbling West Baltimore building, Judge Askew W. Gatewood Jr. found help at City Hall.

But when $175,838 turned out to be insufficient to convert the former restaurant and lounge into two small rowhouses, the Schmoke administration came through with another $30,000.

Championed by Housing Commissioner Daniel P. Henson III, the Gatewood project overcame complaints about its high cost and a warning that it didn't fit into the housing department's master plan.

The two-house project hardly makes a ripple in the vast pool of taxpayer- financed construction and rehabilitation in Baltimore -- more than $300 million worth in the past five years. On its own, however, it offers a glimpse into the high cost of publicly financed rehabilitation and the use of taxpayer funds to rescue owners of decaying properties in the name of housing the poor.

In the midst of a demolition campaign to rid a city with a shrinking population of thousands of vacant houses, Henson's agency is adding two houses to the inventory through this conversion.

The project, which was begun in December, won the additional funds April 8 after major problems surfaced. Among them was the belated discovery that a second set of utility lines -- gas, electric, water and sewer -- had to be installed in order to provide separate services to the two houses being fashioned from a single building.

That increase restored money that Henson had cut last year to win approval at City Hall, where skeptical aides were raising questions about the high cost of the project.

Low-income tenants

Gatewood complains of the "horrendous paperwork" and lengthy approval process needed to get the rehabilitation going. Still, he says, he is stuck with these houses "in a neighborhood no one wants to come to in the first place."

The building is on a short, narrow alley in the 1800 block of McKean Ave. that contains four other houses -- one of which Gatewood owns -- a handful of garages, and backyards of houses on adjacent streets in Sandtown-Winchester, a neighborhood targeted for major redevelopment efforts.

With the $205,838, Gatewood is producing a couple of two-bedroom houses of about 1,000 square feet each that will be occupied by low-income tenants whose rent is expected to be paid largely by the government.

About half the money -- $104,997 -- is a 20-year loan at 7.25 percent interest from the Baltimore Community Development Financing Corp., a city-backed loan agency created by Mayor Kurt L. Schmoke and chaired by Henson.

The other $100,841 is a conditional grant from Henson's Department of Housing and Community Development. The grant was $70,841, until City Hall increased it last month by $30,000 -- 42 percent.

Gatewood won't have to repay those funds if low-income tenants occupy the houses for 10 years.

Experienced developer

Gatewood, a Baltimore District Court judge, isn't new to the real estate business. A broker, developer and appraiser, he has been a property investor since his law school days in the mid-1970s. He is president and sole owner of Monumental City Realty Corp., a 12-year-old company that is the borrower and developer on the McKean Avenue project.

"Well over 100 units have been purchased, sold, rehabilitated, renovated, leased and developed," says a company document submitted to the city.

Together, Gatewood and his company have a real estate portfolio valued at more than $2 million.

For years, Gatewood's father operated a restaurant and bar called the Red Rooster in the McKean Avenue building. After his father left the business, Gatewood leased it to other tenants. But by 1994, the place was empty and crumbling, and city inspectors were demanding that it be repaired or demolished. The Sandtown-Winchester Improvement Association was complaining.

'That's too much'

"What the city should have done -- between you and me -- it should have torn down those two houses and built new houses," said one person familiar with the project.

Gatewood acknowledges that the costs are "tremendous" and that demolition might have been preferable.

"It's a shame that all that money has to go into those two tiny houses," he says. "I share everyone's sentiment that that's too much."

Gatewood's contractor, Remi Alowode, says he could build new rowhouses for $50,000 or $60,000 each. He is slated to receive $167,000 for his work, according to records. Still, said Alowode, "I may end up losing money."

Gatewood, too, says he is digging into his own pocket for some of the costs.

Mired in controversy

The project has been controversial almost from the day Gatewood sought city help in 1995, a year after he was cited for housing code violations. CDFC quickly granted preliminary approval, but the housing department was slower to act.

"We do not play favorites," Henson said in a statement faxed to The Sun. "Keep in mind that, judge or not, his family has owned this property for a very long time. I really don't care who owns a vacant property, so long as we can get them to fix it up."

In March 1996, Henson asked the Board of Estimates, the five-member panel that approves all city expenditures, for authorization to provide Gatewood with $100,000 in federal funds that had been lent to the city -- and that the city must repay with interest.

The request ran into immediate trouble at City Hall. There were complaints about the high costs and about "discrepancies" in figures submitted to the board.

In the face of these questions, Henson withdrew his request. A year later, he came back to the board, saying costs had been reduced. He sought $70,841 -- nearly $30,000 less than he had first requested.

The deal was approved on a 4-1 vote in April 1997. City Comptroller Joan Pratt was the lone dissenter. She complained that $50,000 in nonconstruction costs -- often called "soft costs" -- were "exorbitantly high." These include fees for lawyers, architects, consultants and marketing, among other things.

"The taxpayers are getting hurt on this deal," Pratt told the board. "Something is wrong here."

Didn't fit plan

The Sun reported in December that soft costs often eat up 25 percent of a project's budget. The Gatewood project was one of the many examined by The Sun for its report. In Gatewood's case, soft costs included nearly $20,000 in legal fees.

Board of Estimates approval didn't end the controversy about the project. On Sept. 7, weeks before the settlement that sealed the deal, a city planner and Dennis F. Taylor Jr., a Henson aide, both signed a document declaring that the project didn't fit in with the housing department's master plan -- which calls for homeownership development, not rental units, in Sandtown-Winchester.

Taylor, however, quickly reversed course and certified that the project conformed with agency plans.

Henson said Taylor was unaware that the project had already been approved by the housing agency and gave his assent after learning that.

Taylor did not respond to three phone messages seeking comment.

Henson, too, refused to talk to The Sun. In a prepared statement, he said, "HCD allowed the project to move forward as a rental to stabilize the block." He insisted that the project is consistent with agency plans and asked, "Why leave a property vacant when it can become livable again and be restored to the tax roll?"

Unforeseen problems

Work began shortly before Christmas. Within weeks, Gatewood asked for another $47,000. A consultant who examined his request said the actual cost should be closer to $32,000.

The overruns resulted from three major problems: the need for additional roof work, the need to install a second set of utilities, and the need for a $15,500 masonry fire wall to separate the two houses, even though a fire wall was included in the contractor's price.

Henson and Gatewood said the original plan -- approved by the housing department -- called for a fire wall of fire-resistant Sheetrock. A city building inspector, who also works for Henson's department, would not accept that and insisted on the block wall, said Gatewood.

Facing some opposition inside the housing department to a bailout, CDFC warned that the project would fail without the extra money. Wayne R. Frazier Sr., executive vice president of CDFC, said his agency would not increase its loan to Monumental because the company would be unable to meet the higher mortgage payments with its rental income.

At Henson's request, the Board of Estimates approved the extra $30,000 last month.

"I'm happy because, as a lender, our position has been improved," said Frazier.

"The city did the right thing."

Pub Date: 5/25/98

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