The struggle, says Denice Irwin, began soon after rain poured through her windows and ceiling, drenching the living room in her Uptown apartment. Within a few months, Irwin, a mother of three, had helped organize a tenants’ group in the 22-story federally subsidized building at 920 W. Lakeside Place. And now, after three years of court cases, protest, and threats of eviction, they stand on the verge of a major victory: a $12.5 million deal (the money to be raised over ten years) that would retire past debt on the building, rehab it, and leave it under tenant management.

Irwin contends that the project–backed by Associated Financial Corporation, a California-based manager and builder of low- and middle-income housing–is a model of the kind of private-public partnership the Bush administration claims will revive the inner city. And yet their efforts are being stymied, Irwin and her allies charge, by the Department of Housing and Urban Development. Although the tenants are desperate for a one- or two-month delay, so they can bring their case before their alderman and the Daley administration, lawyers for HUD are pressing for urgent resolution of a federal bankruptcy case that will determine whether HUD can foreclose on the building, which could kill the deal.

Irwin is struck with the irony of HUD wanting to act quickly. “We’ve suffered through years of bad HUD management,” she says. “And now–after five years of fighting–we’re ready to take control and clean this place up. But HUD won’t cooperate. Worse than that, they’re working against us.”

HUD officials insist that they’re only following proper procedures–which dictate that bankrupted buildings, like Lakeside, be auctioned for sale. They add that the tenant-AFC proposal is too costly, that the AFC estimate for rehab is too high. Worse yet, instead of punishing the heirs of the original owners (both deceased) for neglect, the AFC and tenants are offering to retire their debt to HUD by paying it in full.

“We want to move to a foreclosure sale, so that we can return this property to the private sector,” said HUD attorney John Mahoney in a recent court hearing. “As we have said on several occasions, the property will be sold with a requirement that repairs be made to bring the property into compliance with all state codes and to meet housing quality standards.”

HUD officials hope that a foreclosure and advertised auction will bring a higher price for the property than AFC has offered to pay. On the other hand, if there are no bidders at the auction–which is highly likely–HUD is stuck with a nearly $6 million debt, and the building’s tenants are stuck with HUD as their landlord.

“As long as the building remains in court, everybody loses,” says Anthony Fusco Jr., president of Chicago Community Development Corporation, AFC’s local affiliate. “HUD loses money if they don’t sell to us, because no one will repay the unpaid mortgage. And the residents miss an opportunity to take control of their situation.”

The building itself dates from the days when HUD had a genuine commitment to providing affordable housing for the poor. It was erected in 1969 as part of a program that offered developers below-market interest rates on federally insured mortgages; in return, the developers were required to rent to low- and moderate-income families at rent levels regulated by HUD.

Despite the subsidy, 920 W. Lakeside’s original owners fell behind on mortgage payments. Basic repairs were not made. At any given time, at least one of the building’s three elevators would be broken. Leaks in the roof got leakier, and eventually the top two floors were closed because of flooding.

In June 1987, residents received notice that the building’s electricity, water, and gas would be shut off unless management paid over $100,000 in overdue utility bills. “We had to go to court,” says Irwin, “and ask the judge to appoint HUD the utility receivers of the building. The owners just weren’t paying their bills.”

“It was chaos,” says Inez White, a resident of the building since 1982. “Management was trying to evict people who were paid up on their rents. You would show up to court with your rent receipts, and they’d throw the case out. I don’t know why management did that; probably they were keeping lousy records.”

It turned out that the owners had not made a mortgage payment to HUD since 1979. But HUD didn’t start foreclosure proceedings until September 1987. When HUD announced that the building would probably be auctioned, word leaked that some big-time real-estate operators intended to buy it, evict the current residents, and rent or sell to wealthier tenants eager for an apartment near the lakefront. At that time developers could do that, because federal restrictions on tenant income were eliminated when subsidized property was sold at a HUD foreclosure auction.

“In 1987, HUD [wanted] to sell the building at a foreclosure sale without any rent restrictions,” Irwin recalls. “We and our lawyers went to court to block that sale.”

That same year the tenants won a reprieve of sorts when Congress passed a law that requires subsidized property sold at HUD foreclosure auctions to retain its low- and moderate-income use restrictions.

Meanwhile, late in 1987, the residents joined forces with Voice of the People–an Uptown-based nonprofit community-development group–and began looking on their own for a developer interested in raising the cash needed to rehab the building. Within a few months of meeting Fusco, their deal was on.

“We are the Chicago affiliate of AFC, which manages or owns about 45,000 units nationwide,” says Fusco. “We were formed last year. We are in the business of developing low-income housing.” Like his Chicago partner Daniel Burke, Fusco is a former legal-aid lawyer new at the development game. Still, they knew from the outset that they would be up against the age-old problem of developing low-income housing: construction costs far exceed any rents the poor can afford.

But don’t assume that the money to rebuild Lakeside will come from private philanthropy. Bruce Rozet, Fusco’s California boss, has made his millions by building housing, not by giving housing away. And it won’t come from the government–or at any rate, not directly. Under Reagan, HUD stopped building and rehabbing low-income housing. Instead, the federal government devised a complicated tax-write-off scheme that in effect subsidizes investment in low-income housing. Each year the state of Illinois is allowed to issue qualified developers about $15 million in federal low-income-housing tax credits. These credits are sold on the market to small investors, who can deduct the credits directly from their taxes. So people who would not otherwise invest in housing for the poor are induced–or bribed–to do so now.

“An investor buys the tax credit [from us]; in return for that contribution, they reduce the amount of money they have to pay in taxes,” says Fusco. “These investors won’t manage the building. Most of them will never see the building. It’s like buying into a mutual fund. Of course there’s a risk. For a housing unit to qualify for the tax credit, there are income requirements–a family of four, for instance, must make less than about $24,000. If we don’t operate in compliance with the law–if we rent to over-income people–the IRS can come after our investor.”

CCDC plans to raise $2.4 million for Lakeside through the sale of tax credits. They will use $1 million as a cash payment to HUD to pay off part of the debt of the original owners (the rest will be paid later). The remaining $1.4 million will serve as a down payment to obtain a $5.7 million second mortgage to rehab the building.

To qualify for tax credits, a developer must not only actually provide low-income housing but also purchase the building from a local government entity or a nonprofit group. “The deal requires what the IRS calls a ‘bargain sale,'” says Fusco. “The original owners sell the project to the city, which then sells the building to us. Since the city is involved, we are allowed to finance the deal with tax credits.”

In April, just a few days before Mayor Eugene Sawyer stepped down, the city’s Department of Housing proposed that the City Council approve the bargain sale. There was only one problem. Until then, 48th Ward Alderman Kathy Osterman had known nothing of the proposal. This was a political problem of some magnitude.

“The day before the City Council meeting, I received word that an ordinance would be introduced about our ward,” says Osterman. “It was embarrassing. An alderman shouldn’t have to learn about something in her ward at the last minute. It’s more than protocol. There’s a lot of community and business groups in the area who should get a chance to review the plan–it’s their community, too.

“There are a lot of legitimate questions and concerns that have to be answered. I asked Fusco: ‘How old’s your company?’ He says: ‘Six months.’ I asked: ‘Have you ever done a project like this before?’ He said: ‘No.’ Then he tells me about his affiliate in California. Now we have a California angle to cover. He tells me the Voice of the People is involved. Well, I have a lot of respect for the Voice–but they mostly do three-flats. This is a big building with elevators. Fusco said they plan to contract out the renovation of the building. I said: ‘Who are the contractors? And what is this bargain sale? And how come you didn’t keep the community posted?’ I tell you, there are a lot of questions.

“Alderman Osterman is absolutely the key link to getting city approval for our bargain sale,” says Fusco. “If she says, ‘This is good for my ward,’ the City Council will support it. And it will be very hard for HUD to say no to a project that has the support of residents, alderman, and the City Council.

“Not telling Osterman earlier was an oversight on my part, and one I deeply regret. We were moving quickly on a lot of different fronts, and it got away from us. I assured her that we respect her concerns and will meet at her office and formally present our plans to groups from the area.”

Fusco says that, if necessary, representatives from the California office will meet with ward residents within the next few weeks at Osterman’s office. As for the expertise of Voice of the People, their spokespersons point out that they’ve developed several courtyard buildings in Uptown.

“We’ve developed 151 units in 13 buildings since 1968,” says Judy Meima, development manager of Voice of the People. “All of these units are tenant-managed. Yes, there are new things to learn with overseeing a high rise. But the key to development is knowing who to hire. We aren’t going to do the construction ourselves; we’ll bring in qualified people for that.”

Fusco is confident he can answer Osterman’s concerns–but he’s well aware that winning HUD’s support may be another question.

“A cost estimate for completion of the repairs has been established [by HUD] at $4,008,539. This is substantially less than the $5.8 million CCDC indicates is needed,” Edward Hinsberger, chief property officer for HUD, wrote in a recent letter to Fusco. “We do not consider your proposal either workable or preferable to our plan.”

“We have had top-flight architects look at the building, and they concur that it needs major rehabilitation,” says Burke, Fusco’s partner. “There’s damage in the walls and roof. If you do a cosmetic job, then you’ve essentially wasted your money because the problems will come back later.

“The worst thing is if it goes to an auction at a HUD foreclosure sale. For one thing, the auction wouldn’t be for another 60 to 90 days, which means the building will be that much worse for the wear. And it’s likely that no one will bid for the building at the auction, because you have to bid 90 percent cash on the indebtedness, which in this case is $6.1 million.

“Remember, the law requires this building to remain for low- and moderate-income tenants. The rent restrictions won’t enable the new owner to generate enough income to cover this up-front payment plus rehab costs.”

If an auction is held, HUD will most likely take title of the building. “That means HUD loses a chance to recoup its debt,” says Burke. “The tenants lose because there will be more delays on repairs. And the community loses because the building remains an eyesore–like many other HUD-owned properties in Chicago, including one a few blocks away from Lakeside.”

Federal judge John Nordberg should decide in a few weeks on HUD’s request for a foreclosure auction. The tenants have now taken their case to HUD secretary Jack Kemp.

“We have requested a meeting with Secretary Kemp because from what we hear, he believes in residents taking control of their destiny,” says Irwin. “This is a perfect opportunity for Mr. Kemp to practice what he preaches. Here he has a group of residents, backed by a respectable community organization, who want to turn their community around. We want to stay here. We want to make 920 Lakeside work.”

Art accompanying story in printed newspaper (not available in this archive): photo/Bruce Powell.