Strathdale Manor deal hinders Md.'s low-income housing program


September 18, 1994|By David Conn | David Conn,Sun Staff Writer

An article in yesterday's Business section incorrectly included William Boucher III and Neil J. Ruther as investors in the Strathdale Manor apartment complex. Mr. Boucher and Mr. Ruther informed The Sun yesterday that they did not invest in the project and that they were not part of the development group.

The Sun regrets the error.

For the third time in 15 years, the Strathdale Manor apartment complex in East Baltimore is slipping toward financial failure, its owners unable to save the low-income housing project from foreclosure.

The scene has been played before, as owners, faced with escalating crime and vandalism and high vacancy rates, were unable to support Strathdale, the largest and weakest rental project in an otherwise stable East Baltimore community.


But this time is different. This time, the pending foreclosure of the 670-unit apartment complex represents the costliest failure of public housing in Maryland history.

Although estimates vary, the state will likely lose every dollar it sank into Strathdale -- more than $16 million -- and by all accounts, it has only itself to blame.

"This thing is the biggest goof-up that the state has ever done," said Baltimore developer Otis Warren, whose company has managed Strathdale for a court-appointed receiver since 1992.

Baltimore City and Maryland National Bank (now NationsBank) stand to join the list of losing investors.

The housing debacle has drawn in more than $25 million in the past six years from public and private sources, with nothing to show: The project is in worse shape and has even fewer tenants than in 1988, when the Strathdale deal was consummated.

More importantly, the expected losses on Strathdale -- combined with several previous housing failures -- could erode the Department of Housing and Community Development's ability to pursue its mission: to foster the construction, rehabilitation, ownership and occupancy of housing for low- and moderate-income people.

"We lost our shirts -- plus -- on this one, and the reason we are foreclosing is we have no interest in further financial investments," said Jacqueline S. Rogers, secretary of the housing department since 1987.

Critics of the Strathdale arrangement say there were plenty of warning signs.

Even before the deal was approved in 1988, housing officials found that the politically connected development group seeking the loan might have had less construction management experience than it claimed.

Further, the size, complexity and novelty of the deal should have suggested caution before committing to a $14.3 million loan, among the largest the state housing department ever made. But housing officials ignored their own policies for completing background checks on the group, and neglected to obtain adequate guarantees before approving the deal in August 1988.

Ms. Rogers, who will leave office at the end of Gov. William Donald Schaefer's term, acknowledged the problems. "I think we probably performed inadequately, and the record testifies to that," she said.

"If you're looking for wickedness, you're not going to find any," she added. "You're going to find lots and lots of ineptitude. But you're not going to find any wickedness."

Built in 1963, the 50 two-story buildings that make up the former East Ridge Apartments have had more than their share of troubles. They have changed hands numerous times, fallen into bankruptcy twice, been the subject of hundreds of housing violations and suffered a sharp rise in vandalism and crime.

Even so, the complex, which sits in a strong rental housing community called Cedonia, was still regarded as an important asset in the city's low-income housing market. So, after the former owners abandoned the project and declared bankruptcy in 1986, city officials urged the state to look closely into helping salvage it.

What resulted was a novel and complex arrangement.

Despite its rocky history, poor condition and a state tax appraisal at the time of only $2.1 million, a group led by Andrew H. Kaufman, a New York residential and retail developer newly moved to Baltimore, stepped up to buy the project.

The group -- which included William Boucher III, former head of the Greater Baltimore Committee; Baltimore attorney Neil J. Ruther; and the late state Sen. Harry J. McGuirk -- paid almost $8 million to the bank for the development, which was renamed Strathdale Manor Apartments.

To close the deal, Mr. Kaufman asked for $14.3 million in state financing to pay off his acquisition debt and help renovate the project. Mr. Kaufman planned to lease the apartments at market rates ranging from $275 to $410 a month, relying heavily on federal Section 8 rental assistance grants to individual tenants.

The plan was attractive to the housing agency, which saw it as a chance to cure a "blighting influence" on an otherwise stable community, according to a 1988 housing department memo explaining the project.

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