America’s Greece? Part 1, Bypassing the rights of voters

August 3, 2015 | Capital markets, Default, Euro, Finance, Greece, Immigration, Municipal bankruptcy, Puerto Rico, Recapitalization, Sovereign bankruptcy, Sub-sovereign entities, US News | No comments 75 views

By: David A. Smith

History does not repeat itself, but it rhymes

Attributed to Mark Twain

No sooner had the cacophonous European financial orchestra put down its instruments after playing its discordant improvisation – not the end of the Grexiad symphony, mind you, merely an intermission where too many people will be queuing for the crowded loo – than the melodies and chords of sub-sovereign default have been taken up over here, for the time is nigh for America’s Caliban, Puerto Rico, as reported on last week’s Wall Street Journal (July 30, 2015; gray font):

It seems the bottom only because the chart cuts off at that point

Deadline Draws Near for Puerto Rico

By Aaron Kuriloff

When its history is finally written, this era will be seen remembered as the decade of defaults, where a whole theory of government finance and budgeting was exploded by bankruptcies, one after the other, from small (Prichard, AL) through medium (Scranton PA, Harrisburg PA, Stockton CA, Jefferson County AL) to large (San Bernardino, Detroit) and leviathan (Chicago? Greece? Puerto Rico? Illinois?).  As Greece’s travails are still fresh in our minds [No, they’re not over; Yes, Grexit is still coming; Yes, I’m working on a major post covering the subject; and No, it’s not done yet – Ed.], it’s well worth comparing the looming Puerto Rican “bankruptcy” (either by that name or another) with Greece’s externally imposed and unbelievably bungled (in totality, not individually) “austerity” financing extension.


Statistics compiled by David Smith

Hey, I got them from the Internet – they must be true!

A. Greece’s doppelganger

Both Greece and Puerto Rico are economic islands relative to their sovereigns, buffeted by forces set in motion hundreds of miles away by those for whom their insolvency is a sideshow to other political and policy issues.  Also, both situations are unprecedented: Greece, as a sovereign nation with a non-sovereign currency, had an independent polity that nevertheless could and did run out of money.  Puerto Rico, though a sub-sovereign entity independent from the Federal government, can’t actually file bankruptcy the way US cities can:

Under US law, Puerto Rico, unlike cities such as Detroit, can’t seek protection under chapter 9 of the US Bankruptcy Code.  All states are barred from filing for bankruptcy protection. Puerto Rico is lobbying Congress for a law to allow some of its entities to access chapter 9 protections.

We’ll also see that the approaches being taken could scarcely be more different – whereas Greece’s latest bout of mud wrestling was dominated by high abstruse policy and politics and resulted in a cluster duck, Puerto Rico’s recapitalization is shaping up to be, if nothing else, at least professional:


“Tell Puerto Rico it was only business.  I always liked it.”

Investors are bracing for Puerto Rico to miss about $58 million in bond payments in coming days, as the US commonwealth attempts to restructure $72 billion of debt.

The Journal is careful to avoid the term ‘default’, even though you or I would call failure to pay a default, because the bonds are an unusual form of financing, moral obligation bonds, as pointed out by the New York Times (July 29, 2015; blue font):

The payments coming due are on so-called moral obligation bonds, which the government can issue without any legal requirement to repay.


Moral obligation bonds were created by John Mitchell in the 1960s when he was counsel to Gov. Nelson Rockefeller of New York.

Principal sources used in this post

America’s Cyprus, America’s Caliban (March 4, 2014; Part 1, Part 2, Part 3, Part 4; grayblue font)

New York Times (July 29, 2015; blue font)

Wall Street Journal (July 1, 2015; brick-red font)

Wall Street Journal (July 30, 2015; gray font)

The moral obligation bond was invented in 1960 by John Mitchell, back then merely a municipal bond lawyer, so that Nelson Rockefeller could sell state bonds without obtaining voter approval (via referendum) because the state was not legally obligated to pay them (Cranston Herald, June 12, 2013; magenta font):


I’ve got so much money I don’t actually have to guarantee to pay you back

With moral obligation bonds, Rockefeller could incur debt for a housing authority and numerous other programs without obtaining voter approval through a bond referendum.

We certainly wouldn’t want the voters to have a shot at a referendum about the obligation of their future tax payments, would we?

Governor Rockefeller was trying to fight the loss of manufacturing jobs by mounting huge building projects –

Too bad the Olympics were unavailable.


Mexico had already grabbed ‘em

– and did not want to go through the unpredictable process of letting voters approve general obligation bonds.

As we saw in (of all places) Harrisburg, when elected officials start dreaming of large-scale development projects to reverse economic decline in their town, voters should lock down their wallets and not let themselves be bypassed because most of the time they get stuck with a much bigger bill.

Years later, after Mitchell was released from prison for his crimes associated with Watergate, he was questioned as to whether moral obligation bonds were simply a means of bypassing the rights of voters to approve debt in a referendum, and Mitchell admitted that this was “exactly the purpose” of moral obligation bonds.

The Watergate Scandal

Why invent a workaround unless you’ve got an obstacle you want to work around?

So handy was the voter-avoidance workaround that it was later picked up by Rhode Island so it could get rapidly into the business of financing housing:

In 1973, James Skeffington, a lawyer eager for bond work, drafted legislation that created the Rhode Island Housing and Mortgage Finance Corporation (RIHMFC). This legislation avoided the need for a referendum by giving RIHMFC the authority to issue moral obligation bonds.

[As far as I know Rhode Island Housing never defaulted on any of its bonds. – Ed.]

Saturday’s deadline could mark the first skipped payment to bondholders since Gov. Alejandro Garcia Padilla last month said that the island’s debts were unsustainable and urged negotiations with creditors.  Because Saturday is a weekend, payment can be made Monday, a spokeswoman for Puerto Rico said.

But it won’t be, because there’s no money in the bond-paying entity:

Public Finance Corp., a financing unit for Puerto Rico’s government, this month notified holders of appropriation bonds, typically those backed by funds set aside by the legislature, that it hadn’t transferred money to a trustee to pay the debt due at the beginning of August.


CC is the lowest rating possible

None of this, mind you, comes as the least surprise: PFC never got the money because the legislature didn’t appropriate it.

The corporation said the legislature never actually appropriated the funds. The missed transfer led some ratings firms to say the island was highly likely to default.

Fortunately [Yes, fortunately! – Ed.], the resale price of Puerto Rico’s outstanding debts has dropped and dropped, concentrating the debt in the hands of those willing to settle it at a discount.  As I wrote a year and a half ago (America’s Cyprus, America’s Caliban, Part 1, Part 2, Part 3, Part 4; grayblue font), the hedge funds are Puerto’s new best friends:

Puerto Rico doesn’t have the recourse to file for Chapter 9 bankruptcy protection that other troubled U.S. municipalities (like ones named Detroit) do, and it remains completely unclear how any bond default would get resolved, should it come to that. The good news is that by now, most of the muni market, particularly its more conservative players, have gotten out of the way of any further damage.


‘Gotten out of the way’ means ‘sold for losses.’


‘More conservative players’ means public municipal funds.


As I said above, when it comes to insolvency, hedge funds may be your best friends.



Kiss a hedge fund manager today


[Having Puerto Rico cut off from the capital markets would] paralyze its efforts to dig out from under its mountain of debt.


If that happens, Lamba-Nieves, the director of the Center for a New Economy, said the federal government could feel pressure to step in with some type of bailout.  “Puerto Rico might be a little too big to fail,” he said.


The Administration had better root for the hedge funds.



Like it or not, you want me on that buy side, you need me on that buy side

[Continued tomorrow in Part 2.]

No rules, no process, no strategy: Part 3, “Utilize outside political channels or threaten to leave”

July 31, 2015 | Boston, Boston Redevelopment Authority, BRA, Development, Government, Housing, Marty Walsh, Policy, Redevelopment authorities, Tom Menino, Urban development, Urban planning | No comments 114 views

[Continued from yesterday’s Part 2 and the preceding Part 1.]

By: David A. Smith

As established in the two preceding parts, inspired by a recent article in the Boston Globe (July 16, 2015) covering a McKinsey report commissioned by the Walsh Administration on the state of the Boston Redevelopment Authority, the authority had no rules except one (please the mayor), no processes but one (respond to whatever interested the mayor), and evidently no priorities but one: downtown development. 


How many square feet in that cornice easement?

Principal sources used or referenced in this post

Boston Globe (June 29, 2008; cobalt blue font)

Boston Globe (July 16, 2015)

Major AHI posts on the Boston Redevelopment Authority

How to lose friends and influence people (June 1, 2010)

Now that it is safe to do so (February 10, 2014); Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8

Oh, THAT money we were supposed to collect (September 8, 2014); Part 1, Part 2, Part 3, Part 4

Boston Mayor Thomas Menino waves to the crowd during a Christmas tree lighting ceremony in the North End neighborhood of Boston, Sunday, Dec. 3, 2006. (AP Photo/Michael Dwyer)

Boston Mayor Thomas Menino waves to the crowd during a Christmas tree lighting ceremony in the North End neighborhood of Boston, Sunday, Dec. 3, 2006. (AP Photo/Michael Dwyer)

A quintessential mayor

Opening this post, I said the BRA had no rules, no process, and no strategy.  That’s technically not quite right: the BRA had:

No rules … except Make the mayor happy.
No process … except Ask the mayor want he wants

No strategy … except Whatever the mayor likes this week


What’s wrong with that?

Despite Mayor Menino’s mantra of serving “the people of the neighborhoods of the City of Boston,” the BRA during his tenure was far more interested in downtown commercial development than in housing or jobs in Roxbury, Dorchester, and Jamaica Plain.  As slide 48 of the report (displayed above) states:

“Planning projects go last on each meeting agenda, sending the signal that planning is not as important as current development projects.”

Mayor Walsh appears to be seeking to change that:

In addition to the first comprehensive citywide plan in 50 years, the Walsh administration has initiated smaller community planning efforts for individual neighborhoods, such as Dorchester Avenue in South Boston and Washington Street in Jamaica Plain.


The Jamaica Plain neighborhood of Boston


Dorchester Avenue, looking north, 1925

Dorchester Avenue was built as a turnpike, then overtaken twice, first by the railroad/ subway, and then by the Central Artery/ Southeast Expressway, which rerouted all the traffic away and killed the original economic purpose of Dot Ave (as many people call it).  Some serious planning to revitalize the area, preferably with more housing and more affordable housing, would make a great deal of sense.


Spaces looking for a character: Dorchester Avenue today

To help the effort, the BRA plans to hire six new planners and is starting a nationwide search for Shen’s replacement.

Golden said he plans to fund those new jobs by maximizing rents on BRA properties.

How about trimming staff first?  Fewer staff = better decisions.


Somehow, this is owned by the BRA

Renovations and better management of the China Trade Building in Downtown Crossing and the Boston Marine Industrial Park could generate an extra $6 million to $8 million a year for the BRA, McKinsey estimates.

Forget the cash flow management – BMIP is on the cusp of being worth a fortune, and the BRA has only the flimsiest idea what to do with it:


A huge flat triangle … but smack on the waterfront

The Boston Marine Industrial Park (BMIP), owned by the city’s Economic Development and Industrial Corporation (EDIC), is a 191-acre site on the South Boston Waterfront. Formerly an Army/Navy base, the site was nearly empty and abandoned until the property was granted to the EDIC between 1977 and 1983.

Back almost four decades ago, when the harbor was polluted and downtown Boston was a residential ghost town, that third-of-a-square-mile triangle was an isolated eyesore, very likely contaminated environmentally, and of negative economic value.  The BRA inherited it via its merger with Boston EDIC – EDIC doubtless a political orphan being foisted on the BRA as a price of doing business – and through patience, the urban revival, and all the development occurring outward from the Fort Point Channel in what has cleverly been named Boston’s Innovation District, the site is now at the edge of development appeal. 


BMIP is basically under the words ‘Harpoon Brewery’


BMIP was a blighted district (hence the formation of Boston’s EDIC) but the money tide is coming in

Give it another decade and it’ll be worth a mint:

Since then the BMIP has been identified as a prime location for consolidating, preserving, and growing Boston’s ocean trade, maritime industries and industrial uses. It is also intended to create and protect decent wage jobs for a variety of skill levels. Based on the BMIP Master Plan, at this time 74% of the BMIP is used/reserve for maritime industrial purposes, 22% is used for industrial, and 4% is commercial. A wide variety of tenants occupy the area including beer brewers, research facilities, and seafood processing and wholesaling facilities.

The BRA director should be spending a huge amount of strategic planning resources developing a vision/ use for the site, because as the Innovation District and Seaport District expand, BMIP will be the next to pop.  (I’m surprised nobody’s suggested it as an Olympic venue.)  Clearly, it is not:

Indeed, the audit found that the BRA has no comprehensive list of its own properties, and recommended that the agency create a new position, director of real estate, to manage its assets. Golden said he plans to hire for the job soon.

Director Golden is probably waiting for his boss to decide an overall strategy.

Then there are deeper issues of morale among the BRA’s 220 employees, which McKinsey repeatedly described as “poor.”

Judging by the comments McKinsey excerpted, ‘poor’ is a kind word:

About 70 percent of BRA employees said the agency lacks a clear vision, and they described the organization’s culture as “hierarchical, siloed, and not transparent,” according to the McKinsey audit.


“Utilize outside political channels or threaten to leave.”

“We’ve been at this 18 months,” said director Golden.  “We’ll be at it many more.”

Very discouraging but probably true.


Long way to go

No rules, no process, no strategy: Part 2, “Endlessly tied up until they just fade away”

July 30, 2015 | Boston, Boston Redevelopment Authority, BRA, Development, Government, Housing, Marty Walsh, Policy, Redevelopment authorities, Tom Menino, Urban development, Urban planning | No comments 166 views

[Continued from yesterday’s Part 1.]

By: David A. Smith

As established yesterday, the report received by the Boston Redevelopment Authority (BRA) and published with commendable transparency performed one of the functions for which management consultants are classically hired: to document via a third party what the client itself believed but would prefer not to say – namely, that under the late Mayor Tom Menino, the BRA had become ‘the mayor’s development police’, in which there were no rules but one: please the mayor.


We are not amused

Boston (CBS) – Boston Mayor Thomas Menino isn’t very happy with the business improvement district that encompasses Downtown Crossing.

He says the owners of several big buildings and three McDonald’s franchises are refusing to participate.

By law, participation in business improvement districts is strictly voluntary.

In Mayor Menino’s development world, nothing was truly ‘voluntary’, because one never knew what would put one on the mayor’s bad side, and when on the bad side one could seldom escape.

Principal sources used or referenced in this post

Boston Globe (June 29, 2008; cobalt blue font)

Boston Globe (July 16, 2015)

Major AHI posts on the Boston Redevelopment Authority

How to lose friends and influence people (June 1, 2010)

Now that it is safe to do so (February 10, 2014); Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8

Oh, THAT money we were supposed to collect (September 8, 2014); Part 1, Part 2, Part 3, Part 4

While on the one hand the Walsh Administration’s commitment to transparency require no great courage, criticizing as it does only the prior administration, it sets the Walsh folks a standard to which will be forced to live up:


So set a standard you’re unable to meet

BRA director Brian Golden acknowledged the audit’s tough tone — “This isn’t a valentine to the agency or to its leadership” — and said there is much that needs to improve.

(Boston, MA, 01/16/14) Boston Redevelopment Authority board member Brian P. Golden listens to plans for an expansion of the Landmark Center in the Fenway during a meeting of the Boston Redevelopment Authority Board of Directors' meeting at Boston City Hall on Thursday, January 16, 2014. Staff photo by Christopher Evans

(Boston, MA, 01/16/14) Boston Redevelopment Authority board member Brian P. Golden listens to plans for an expansion of the Landmark Center in the Fenway during a meeting of the Boston Redevelopment Authority Board of Directors’ meeting at Boston City Hall on Thursday, January 16, 2014. Staff photo by Christopher Evans

I’m not hearing a valentine

“This agency is 60 years old and has had a radically different culture than the one we’ve been trying to foster,” said Golden, who was appointed BRA director last year by Mayor Martin J. Walsh with the charge to modernize its operations.

While the statement is true, it’s a bit too self-exculpatory for my taste; the BRA didn’t get the way it is now over the course of sixty years, but over the course of a single mayoralty, and while Mr. Golden wasn’t the director, he is hardly an outsider:

Golden worked in a top position at the BRA for six years before Walsh named him permanent director in December. Many of the issues raised in the audit date to his predecessor, Peter Meade, BRA director during Menino’s final three years in office.

This is the second deep review of the BRA ordered by Walsh

When the first audit was released last September, I reviewed it at length in Oh, THAT money we were supposed to collect: Part 1, Part 2, Part 3, Part 4) and for the life of me I can’t imagine how the second report could have taken ten months. 


I want you to witness this paper

Perhaps it took the Mayor’s office several months to bid the contract and get the consultants signed up.


It couldn’t have taken months to interview 56 people

– and again is an implicit rebuke of his predecessor, Thomas M. Menino, who critics say was too involved in deciding what got built in Boston.

Mayor Menino was far too involved in choosing, and far too personally vindictive.


The first audit found an agency still living in an era of paper records, with sloppy accounting that lost track of rent payments from tenants on its properties and of commitments and fees made by developers to build affordable housing.

Bear in mind that, to do such a poor job of administering the few and highly valuable assets it has, the BRA employs roughly 240 people.

Walsh has promised to clarify the review process at the BRA and to make the agency more open to the public and accountable for its decisions.


Apparently it takes 240 people to approve 52 properties a year

He has also launched a sweeping new master plan for the city, dubbed Imagine Boston 2030 –

Not to diminish the publication, but rather for clarity, Imagine Boston 2030 isn’t actually a master plan, it’s a broad sketch of the elements that should be in a master plan. 

– and said the findings by McKinsey point out how much more the BRA needs to improve.  “In order for the city of Boston to continue to grow and prosper, we need the BRA to be in the strongest possible position — getting community input, guiding Imagine Boston 2030, and making the most of this historic building boom,” Walsh said in a statement.

In some ways the most damning of the many McKinsey slides is this one:


Master plan?  We don’ need no steenking master plan!

The empty space where everyone else has a check mark speaks volumes: no planning at all.  Who needed a plan when you had a mayor who decided everything based on what he liked?

On Wednesday, Golden said he’ll replace the BRA’s head of urban design, promoting senior architect David Carlson to the job.

Mr. Carlson has been at the BRA since 1984, so he too is an insider’s insider.  No breath of change is yet blowing through the BRA.

The additional design work and added time pushes up the already steep price of developing a project in Boston, costs that are passed onto building tenants and their customers, said Barry Bluestone, director of the Dukakis Center for Urban and Regional Policy at Northeastern University.

“A lot of developers will tell us they’d rather get a quick no than a slow yes,” Bluestone said.


Barry Bluestone believes what developers say to him

Actually, no; developers would rather than a slow Yes than a quick No, but what they cannot endure is a slow Maybe followed by another slow Maybe followed by a Manana.  There’s only one reason a developer would want a quick No:

It is conventional wisdom that Menino wields the power over which projects get built, how they get built, and which get, well, not ‘rejected’ so much as endlessly tied up until they just fade away.

You see, if a proposal were actually rejected, then the BRA would have to explain why, and as any explanation would imply the existence of a rule, the rejected developer could then have sued the BRA by showing that another proposal which violated precisely the same implied rule was nevertheless approved. 

A quick No, in other words, would be a useful device only for litigating, not for processing.

The trick, said Greg Galer, executive director of the Boston Preservation Alliance, is having a review process that gives developers enough certainty while also allowing neighbors and other community members a meaningful chance to weigh in on projects before they’re approved.


The passionate preservationist

All right, let’s start with some defined process and go from there.  Later on we can worry about whether the ‘weigh-in’ should be a veto, a public-consultation process, or something in between.


All recursive paradoxes are false, including this one

[Continued tomorrow in Part 3.]

No rules, no process, no strategy: Part 1, “Essentially no zoning rules”

July 29, 2015 | Boston, Boston Redevelopment Authority, BRA, Development, Government, Housing, Marty Walsh, Policy, Redevelopment authorities, Tom Menino, Urban development, Urban planning | No comments 137 views

By: David A. Smith

Even as a candidate Marty Walsh had to have known that upon becoming mayor he would have to reform the Boston Redevelopment Authority, which over the two decades of Tom Menino’s mayoralty parlayed its monopoly over all development approval in the City of Boston into a personal fiefdom that not only did the mayor’s bidding, and paid for its own operations by capturing a piece of the value it created by allowing some properties – and not others – to develop upward, but also effectively silenced all opposition.  But even he should be discouraged by the recent McKinsey report he commissioned; as reported in the Boston Globe (July 16 2015):

The agency charged with overseeing the real estate boom coursing through Boston is a dysfunctional bureaucracy, its system for reviewing projects erratic, with just a few powerful staffers deciding how new buildings will look using “unwritten rules,” according to a highly critical audit (link in pdf) being released by City Hall Thursday.


“Organizational health is bottom-quartile”

Simply put, the BRA had no rules, no process, and no strategy.

Candidate Walsh also presumably knew that the BRA was a mare’s nest of tangled reporting relationships, business processes, sub-fiefs and personal rivalries, and at the same time it would be running a pipeline of properties involving communities, neighborhoods, developers and bankers.  It would, in a word, be touchy.

The conclusions are particularly troubling given the key role the BRA plays in guiding Boston through a remarkable economic period, with the agency approving almost $5 billion in new developments citywide over the past 18 months.

Much of this development is pent-up demand that was stymied under Mayor Menino’s BRA, so simply the scale of development is itself welcome.

Organizationally, the mayor has proceeded cautiously.  From within he promoted Brian Golden to director, and messily fired former planning head Kairos Shen [Subject of a flattering Boston Globe profile, Boston Globe (June 29, 2008) profile, The Shaper of Things to Come; cobalt blue font. – Ed.] only in May:

Walsh has already broomed out key Menino holdovers.

In May, as McKinsey was finalizing its report, the mayor forced out [Fired – Ed.] Kairos Shen, the longtime planning chief under Menino. 


Over 20 years, he worked for seven directors but only one mayor.

No mere planning chief, Mr. Shen was effectively Mayor Menino’s personal architect, as illustrated by the vignette with which the Globe opened its laudatory 2008 piece:

The architect unfurled his thick stack of drawings and designs on the table in Kairos Shen’s office. Five minutes after seeing the preliminary and confidential ideas for a new public building, Shen grabbed a red felt-tip pen and began drawing his revised version of the building on one of the now-irrelevant plans the architect had arrived with.  Once finished, his new furiously sketched diagram eviscerated the architect’s design while leaving the most basic elements of the building shape intact.  “When you come back,” he ended the meeting, “please bring two different versions of the ideas that we discussed,” meaning, of course, his red diagrams.

Even then, when the piece first came out, I thought it curious that the Globe would present as admirable a gross overreach of the reviewer’s responsibility – but it was entirely representative of Mayor Menino’s late-stage BRA, with results that we all knew and only Don Chiofaro said aloud: development was haphazard, capricious, and unaccountable:

The report, by McKinsey & Co., paints the powerful Boston Redevelopment Authority as short of critical staff, beset by poor morale, and unable to manage its own property. The process to review building designs can be maddeningly slow at times, driving up costs for developers, it says.


More than merely maddening, the process was spectacularly inefficient, as illustrated by slide 57 of the report deck:

“Thirty hours actual review time”

Before the developer even files its proposal, it undergoes ‘several months (highly variable)’ of ‘pre-file discussions’ whose purpose, as far as I can tell, was to find out what the mayor would like – and often that was informed by what random people who knew the mayor would like.

“You’ll have someone who says ‘we want to see a change.’ You have to redesign, go back and forth,” said David Begelfer, chief executive of NAIOP Massachusetts, a commercial real estate trade group. “It can take months.”


You can get gray hair waiting for approval

Then, after the process began, it took 8 to 20 months to complete – and this is just design review, folks, not feasibility assessment, over which interval the BRA staff actually spend 30 hours – less than one person-week doing the review itself, with the inefficiency attributable to developers have to redo, and re-redo, their designs to respond to the taste police and the ultimate taste cop himself, Mayor Menino.  Consider this indictment from 2008:

Kremlin-watching is especially crucial in the Boston development process, which is marked by a level of flexibility –

The Globe’s editorial euphemism for ‘lack of rules or transparency’.

– that many developers find infuriating, but, if used properly –

How does one use caprice properly in a democracy?

– can help a builder legally violate nearly every zoning rule that applies to a particular parcel. And if the developer is building on a parcel larger than an acre –

Any multi-story building will need more than an acre for its footings and setback requirements, so the PDAs cover basically the entire commercial potential of downtown Boston.

also known as a Planned Development Areathere are essentially no zoning rules and the whole project can be designed from scratch, governed only by the rules imposed on a case-by-case basis by the BRA on issues ranging from size to use to height to setback from the road.

All this untrammeled authority was fostered by, used by, and wallowed in by Mayor Menino, who took glee (cf. the mayor’s now-infamous Godfather video mocking his feud-unto-death with Don Chiofaro) in stymieing and humiliating those who did not kiss his ring and call him godfather.


“What does a man have to do to get the city to use rules?”

The BRA won’t agree to anything unless it has buy-in from the mayor.  Until you have a preliminary plan that can get this support, there is no point in spending millions to get the variances and the dozens of state and local approvals from agencies and boards that hold some sway over nearly every square inch of buildable land in Boston.

This is an over-encrusted and rotten process, as McKinsey alludes:


It couldn’t have taken months to interview 56 people

“Perception is that they rubber-stamp everything.”

Nor does the board’s composition inspire confidence, for best-in-class domain expertise is lacking.

The mayor won’t give his support if the neighborhood where the building will sit is unhappy.

Define ‘unhappy neighborhood’ – does that mean a majority? 


I don’t know what I want, but I know you’re not it

A vote?  A bunch of people complaining to the mayor?  One person complaining to one consigliere of the mayor?  Nobody knew.

So developers and communities do months of dances, meetings, and revisions to preliminary plans based on feedback. Then there’s – let’s call a spade a spade here – the legalized extortion known as “linkage.”  

This is a crucial part of the community buy-in process and includes developer promises of affordable housing units above the required minimums or a new park or a new firetruck or nice street lights or new sidewalks or improvements to the local elementary school – until the community is satisfied with the package being offered. Only then is the mayor happy.

Shen makes sure the entire process has happened before the developer submits what is technically the first official proposal to the BRA.

There.  Were.  No.  Rules.  There was only mayoral power (CBS Boston, November 8, 2010): 


You won’t like me when I’m unhappy

[Continued tomorrow in Part 2.]

Bon viager: Part 2, Synthesis of family

July 28, 2015 | Annuity, Apartments, Elderly, Escheat, Homeownership, Housing, Innovations, Mortgages, Paris, Rental, Tenure | No comments 162 views

[Continued from yesterday’s Part 1.]

By: David A. Smith

In exploring the en viager model of tenure, prompted by a story on BBC News (1 July 2015), we’ve established that en viager, aside from being an antiquated legal form that survives in French law (and is enjoying a revival driven by demography), also creates a synthetic family, with the elderly seller/ tenant standing in for the auntie or mother of the buyer. 

Caring for aging parents is wired into human beings.


All of us are related, or so we say!

So is greed:

It’s a sign of the inherent tensions in the system that any death involving a viager is automatically investigated by the police, to clear up any suspicions.

Earlier this year, a man was charged with attempting to poison his 85-year-old viager tenant, by putting medication in her mineral water. He denied the charges.


Here’s to back stories

It will probably contribute to a significant change in composition of the neighborhoods in France’s best cities, like Paris – and I wouldn’t be at all surprised if some enterprising French were buying them up with a view to eventual Airbnb-ing.

“Eighty per cent of French personal wealth is held in property,” Nahon says. “Liquid assets account for very little.” So when the coffers run dry, the viager system is an appealing way out of trouble.

Given the absence of alternative hybrid-tenure models as mentioned above, it makes good sense.

Genevieve Deloche is 71 and has just agreed a viager deal on her apartment in the 20th arrondissement of Paris.


Away from the tourists but comfortably in town

It’s a peaceful, one-bedroom place, with a courtyard full of greenery, a large basement and a garage.

“It sold very quickly. Too quickly!” she says. “Within three months. It was a shock.”

If I understand things correctly, the price of an en viager house price is set by the seller or the market, but the timing of payments – the 30% bouquet, the monthly stipend based on annuitized charitable remainder trust principles – are set by formula.  So yes, Ms. Deloche, perhaps your flat did sell too quickly – or maybe you’re healthier than the market actuarially expected.

After living there for twelve years, she says it was time to consider a viager buyer because she had no children –

There’s the inheritance and escheat-avoidance motivations in a nutshell.

– and turning seventy meant there were no tax barriers to receiving a lump sum.

I presume that’s a provision of French law akin to our IRA treatments, except as applied to

She doesn’t particularly need the down-payment, she says, but the monthly stipend will go towards “having fun” – trips to the theatre, travel and eating.

That’s a wonderful use of the illiquid equity; enjoy your life while you’re still cognizant and mobile enough to do it.


I sure hope to live a long time!

With her frequent laughter, jokes and energy, Genevieve isn’t quite the image of an ailing 71-year-old that her prospective buyers might have expected.

“Typically, sellers are 70-80 years old, and female,” says Mikkael Ferrand of Viager 75, an agency based in the Paris’s smart 5th arrondissement.


Don’t get too attached to the renter, keep your eye on the property

Gender difference is real: both that for many of the older generation, women live a little longer than men (whether biology or work and life cycles is beside the point), and because if this, if an elderly man outlived his wife, he would readily be able to marry another one.

GREEDY, (background): Michael J. Fox, Nancy Travis, Colleen Camp, Joyce Hyser, Ed Begley Jr., Siobhan Fallon, Jere Burns,  (front): Kirk Douglas, Olivia d'Abo, 1994. ©Universal Pictures

GREEDY, (background): Michael J. Fox, Nancy Travis, Colleen Camp, Joyce Hyser, Ed Begley Jr., Siobhan Fallon, Jere Burns, (front): Kirk Douglas, Olivia d’Abo, 1994. ©Universal Pictures

I’m giving my money to the one who truly loves me

“They come from a generation where they haven’t worked, their husband has died and they have a tiny pension. Sometimes they get landed with a big renovation bill for the building –

That is, a condo or a co-op – and both cases illustrate the ongoing challenge of elderly aging in place in an owned multi-family building: they can be asset-rich and cash-poor – so en viager is thus likely to arise only in high-value urban environments (like Paris) because those are the places with multi-unit buildings of sufficient value that people will buy them.

– or something, and selling en viager is the only way they can pay the bills and still stay in their home.”

Ironically, though we think of family as closer than strangers, en viager transactions demonstrate that the synthetic family formed by a buyer may be more comforting than the actual serpent’s teeth of thankless adult children. 


En viager it is, then!

It’s also a way of having more control over your inheritance, says Genevieve Deloche. “You can pass on your children’s inheritance to them early, at a time when they actually need it, and avoid inheritance tax too. It’s also ideal for those who don’t get on with their kidsbecause they can take the inheritance away.”

While again implied, not stated, this suggests that under French law the adult children of an elderly decedent can overturn her will and demand their blood inheritance; if so, en viager is a revenge in life, a means of spending the inheritance on oneself, or passing the proceeds to another extra-familial relative.

In around 10% of cases, says Stanley Nahon, the first children learn about a viager deal is when their parents die – and it can leave them very disappointed. But such secrecy is rare, and many children encourage their parents to release the capital tied up in their home, as a way to support themselves in old age.


I thought I was inheriting a flat; instead I’m inheriting a burden

“Buyers, too, often see it as an ethical investment,” he says, “because it allows the elderly to stay on in their own place and avoid moving to a retirement home.”


Have I the right to sell my inheritance?

A legacy bequest is the last gift elderly parents bestow upon their children, and it does raise the question – in moral children, anyhow – what did I do to earn this?  What use of the money can honor the memory of my late mother?  An en viager stands that morality on its head and tells the living children, I spent your inheritance on myself.


And yet you incessantly stand on your head–

Do you think, at your age, it is right?”

“In my youth,” Father William replied to his son,

“I feared it might injure the brain;

But, now that I’m perfectly sure I have none,

Why, I do it again and again.”

To many an adult child, that implied rebuff from beyond the grave – a secret held until it was irreversible – must sting.

But the children of the buyers can also be in for a shock, if they inherit their parents’ viager contract. Unless they keep up the regular monthly repayments, the whole investment will be written off, and the original owner-tenant will be free to sell their property again.

Property brings out the worst in families; and sometimes the best, and it has made for great drama and black comedy, via the inheritance angle (Kind Hearts and Coronets), tontines as partnerships with no transferability (The Wrong Box):


I just need to outlive my brother by one hour … or be thought to have done so

[Side note: Tontines, originally created as a pre-corporate capital-subscription mechanism akin to limited partnerships, later evolved into microcredit and microsavings cooperatives in emerging countries and are still used for that purpose today.  – Ed.]

A film released last year focused on just these kinds of tensions, with Maggie Smith playing a dowager lady ensconced in a viager deal, and Kevin Kline the penniless son of the deceased buyer, who turns up in Paris hoping to sell his inheritance.

Propinquity can foster friendship, especially if those living in proximity have age-and-gender relationships that echo familial forms (auntie-nephew, mother-daughter).  The elderly have memories and time, and want someone with whom to share them.

Contrary to the scare stories, brokers say, positive relationships often develop over the years between buyers and sellers. They may meet for tea once a year, or send over a box of chocolates.

“It was important to like the person buying my flat,” Genevieve Deloche tells me. “To have good relations, be able to laugh a bit.”

A home is an exoskeleton around a self, a soul; when one sells it, even if one remains living in it, the buyer stands in loco filis, and it would be a rare old lady indeed who developed no maternal feelings for her eventual buyer.

Maggie Smith in My Old Lady Handout

Maggie Smith in My Old Lady

“I think of you as my son.”

I think of you as my tenant

Isn’t it strange, I ask her, to meet someone who’s gambling on how long you’ll live?

“Yes, it’s true, but I don’t care.” she says. “It’s hardly a reason to jump under a car.”

One broker told me about cases when the buyer’s gamble spectacularly failed, with sitting tenants still going strong at 102 or 103.

Something in all of us makes us root for living long and prospering in old age, so the tale of the world’s oldest viager is itself sweet:


Jeanne Calment, age 50, in 1925

In 1965 Jeanne Calment, aged 90, sold her apartment in Arles to her lawyer, Andre-Francois Raffray – a man half her age. It was a viager deal, and Raffray agreed to pay her 2,500 francs (about $500) per month.  


Ms. Calment in 1897, with a century of living before her

But Calment went on to become the world’s oldest living person, dying 32 years later at the age of 122.

Raffray himself died two years before her, on Christmas Day 1995.


Ms. Calment in 1992, age 117

“On the same day, Jeanne Calment, now listed in the Guinness Book of Records as the world’s oldest person at 120, dined on foie gras, duck thighs, cheese and chocolate cake at her nursing home near the sought-after apartment in Arles, northwest of Marseilles in the south of France,” the New York Times reported, a few days after Raffray’s death.

“She need not worry about losing income. Although the amount Mr Raffray already paid is more than twice the apartment’s current market value, his widow is obligated to keep sending that monthly check. If Mrs Calment outlives her, too, then the Raffray children and grandchildren will have to pay.

“‘In life, one sometimes makes bad deals,’ Mrs Calment said on her birthday last Feb 21.”


Ms. Calment at 120

She lived to 122, and died in August, 1997.


Vive le viager!