Oh, THAT money we were supposed to collect: Part 3, An abject mess

September 10, 2014 | Affordable Housing, Audits, Boston, Boston Redevelopment Authority, BRA, City Government, Corruption, Development, Eminent domain, Housing, Inclusionary zoning, Linkage fees, Local issues, Martin J. Walsh, Politics, Thomas Menino, Urban planning, Urban renewal, Zoning | No comments 77 views

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

By: David A. Smith

No transparency, no records, no tracking systems – is it any wonder that the Boston Redevelopment Authority (BRA) has been leaving money on the table, and agreements unenforced or even unmonitored?

homer_asleep

Just collecting the overtime, sir

Sources used in this post

The KPMG audit of the BRA’s procedures (July 11, 2014; blue font)

The Boston Globe (July 17, 2014; black font)

The Boston Herald (July 17, 2014; red font)

Boston Herald (September 6, 2014; green font)

For my very long February, 2014 post on everything wrong with the BRA, see Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8.

As we’ve seen in the two preceding parts of this multi-part excoriation, Mayor Marty Walsh has an enormous challenge on his hands in addressing the BRA, because not only has the BRA been the nexus of every bit of economic development in Boston for nearly half a century, I have yet to find anything the BRA does well.  No BRA process withstands scrutiny; no BRA outcome is benchmarked.

But at least its management and employees are capable … aren’t they?

i_see_stupid_people

Please tell me they’re capable … at least some of them.

D. The BRA had no internal accountability (employees)

“How many people work at the BRA?”

“Oh, maybe half of them.”

Old corporate joke, updated

at_least_you_tried

BRA employee review?

Amazingly, no one actually knows how many people draw paychecks form the BRA and its related entities, because what appears from the outside to be monolithic is actually an agglomeration of entities that have never been integrated:

The Boston Redevelopment Authority (BRA) was formed in 1957 and merged with the Economic Development Industrial Corporation (EDIC), a quasi-government non-profit corporation, in 1995.

Additionally:

1. The activities of the City’s Office of Jobs and Community Services (JCS) (formerly housed in the Mayor’s Office) were added in 1990 under EDIC.

2. The Boston Local Development Corporation (BLDC), a 501(c)(3) non-profit corporation was created in 1978 and is considered an ‘affiliate’ of EDIC.

3. The Friends of Youth Opportunity Boston, Inc. (FYOB), a 501(c)(3) non-profit corporation, was created in 2007 and is also considered an ‘affiliate’ of EDIC and was created to support the activities of Youth Opportunity Boston, a JCS program (now called Youth Opportunities Unlimited).

Beyond those three entities, which KPMG was able to connect to the BRA, it then listed three more as sentence fragments, as if to avoid any responsibility for figuring out how they connect to the BRA, if at all.

stumped_man

We have to finish the report, so just list ‘em

4. The Boston Industrial Development Financing Authority (BIDFA), an industrial development financing authority created in 1971 under Chapter 40D of the Massachusetts General Laws.

5. Boston Connects, Inc., a 501(c)(3) non-profit corporation, created in 1999 to oversee and implement the Empowerment Zone Strategy Plan.  [Apparently now defunct – Ed.]

6. WriteBoston, Inc., a 501(c)(3) non-profit corporation, was formed in 2012 to support the activities of WriteBoston, a JCS program.

It is possible that other affiliates and/or related entities may exist that have not been identified.

EDIC has approximately 120 employees and the BRA has approximately 78.

On the working hypothesis that the average BRA employee makes $75,000 a year, and that the non-employee costs equal the employee costs, that’s at least $30 million in annual running costs (and I found a four-year-old reference to a $50 million budget).  With a thirty million dollar employee compensation and benefits line, you’d expect employee performance to be reviewed annually and in a structured fashion.

urquhart_you_might_think

You might think they would have a system … but you’d be wrong

While the ‘Salary Structure’ indicates that it covers both BRA and EDIC non-union employees, we were provided with little documentation supporting the salary amounts included on that schedule.

Evidently the BRA staff, realizing the auditors’ disbelief, scrounged up a feeble justification:

watson_disbelief

Can’t you do better than that?

We were told that the schedule is based on information extracted from a document titled the “Municipal Position Evaluation Manual” –

Translation: This sounds to us no more than a clumsy fib, as the KPMG auditors carefully explain with non-libelous circumlocution:

– which is undated and therefore may not be relevant in the current environment.

Additionally, the document did not appear to contain any addressee or any reference to the EDIC, BRA or City of Boston.

Translation: there’s no indication it was ever used by the BRA.

Finally, in the Introduction section of the report, the author indicates that the Manual “has been carefully designed to enable a trained person to effectively evaluate and rank all levels of positions found within the health care organization” [emphasis added].

Translation: They didn’t even bother to update the copy.

Without some type of timely job performance review and feedback mechanism, it is unclear how high performers are distinguished from low performers and what rewards/sanctions.

In short, there is no institutional record of what anyone in the BRA does, nor whether they are good at it, nor whether their pay correlates with performance or job responsibilities, nor anything else relevant to employee performance.  And why is that?  Interim CEO Brian Golden, appointed to that role by Mayor Walsh, had this to say:

“The organization historically has paid more attention to its external mission, urban planning and real estate development, than to its internal operations,” said Brian Golden, the BRA’s secretary and executive director under former mayor Thomas M. Menino, who is now heading the BRA under Walsh.  “So decades of this neglect of the internal operation has created an abject mess.”

Even the Globe was skeptical of Mr. Golden’s statement, adding this:

Brian Golden has worked at the BRA since 2009, serving as executive secretary, a top-level position. But Golden said the problems flagged in the audit were in areas he had not previously managed.

not_my_area

Well, what about this area?

In addition to the compliance items noted above, the BRA/EDIC has many other agreements requiring compliance that may or may not be tied to amounts owed to the organization. Many of these requirements are programmatic in nature and systems are not in place to effectively ensure that the requirements are being met.

Perhaps Mr. Golden believes that negotiating the agreements is all that matters, and having them adhered to is unimportant.

KPMG then concludes, as lamely as it must:

The BRA/EDIC needs to begin a process of identifying those employees performing key functions for the organization –

dog_tennis_balls

Are any of these performing key functions?

Good luck finding them.

– identifying a replacement establishing a transition plan to ensure that currently undocumented information gets memorialized.

Such as, all information, as there appears to be nothing actually documented.

E. The BRA had no external accountability (private partners)

Ordinarily one would expect that a public entity failing its responsibilities would be subjected to withering criticism, but such was the BRA’s power over all development that those who knew were too cowed to criticize.

dog_chained

I’m not saying anything

Basically, everyone who did business with the BRA had strong reasons to be silent.  Some people had developed property in Boston, hence they had done business with the BRA, and the BRA’s laxity was reason enough to be silent:

Jeff Wallace of the Zoom Group, which owed the BRA nearly $280,000 in unpaid rent, said the two sides settled for $500,000 of the $1 million owed for past refinancing fees. “The lease was ambiguous on how to calculate a number. It’s a very complicated formula,” he said.

Other people had property in Boston, and wanted to develop, hence they knew they would have to engage with the BRA, and as the BRA followed no rules, no timetables, and no accountability, there were no good transactions or bad transactions, only the mayor’s friends and his non-friends. 

mayor_menino_angry

You wouldn’t like to develop in Boston when I’m angry

So everyone kept silent – everyone, that is, except courageous and stubborn Don Chiofaro, who said in 2010:

“We intend to keep the pressure up until we get honest answers from the person pulling the strings on this process, and we all know who that is,’’ he said –

And when Mr. Chiofaro said that, he was greeted with:

– to stunned silence.

{object}

I’m used to stunned silence

The reason was simple: With the BRA having a unilateral say or veto over any downtown development decision in Boston, every developer of property, and every potential developer of property, knew that to speak against Tom Menino was to assure one’s property would never, ever move forward, even as the mayor would threaten to mis-invent eminent domain to get his way.  Only when Mayor Menino’s power finally waned were some willing to speak:

The audit is validation of critics’ long-held concerns –

Never voiced in the Boston Globe, at least as far as I could ascertain.

 that the BRA approves major building projects without ensuring developers follow through with promised community benefits, such as building more affordable housing.

We were all silent sheep.  Some of us were more cowardly sheep than others.

sheeple

It’s not my issue

[Continued tomorrow in Part 4.]

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Oh, THAT money we were supposed to collect: Part 2, Incapable of performing basic functions

September 9, 2014 | Affordable Housing, Audits, Boston, Boston Redevelopment Authority, BRA, City Government, Corruption, Development, Eminent domain, Housing, Inclusionary zoning, Linkage fees, Local issues, Martin J. Walsh, Politics, Thomas Menino, Urban planning, Urban renewal, Zoning | No comments 96 views

[Continued from yesterday's Part 1.]

By: David A. Smith

In writing this multi-part part on the utter disgrace that is the Boston Redevelopment Authority (BRA), in contrast to the journalists who splashed out the uncollected sums as eye-grabbers for low-information voters, I have deliberately started small – with the authority’s complete opacity to any public review – so as to lay the full foundation. 

laying_foundation_blocks

If you just want to jump to the juicy stuff, come back in a couple of days

Sources used in this post

The KPMG audit of the BRA’s procedures (July 11, 2014; blue font)

The Boston Globe (July 17, 2014; black font)

The Boston Herald (July 17, 2014; red font)

Boston Herald (September 6, 2014; green font)

For my very long February, 2014 post on everything wrong with the BRA, see Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8.

Corruption that does damage is always structural, always enabled by organizational weakness; and in modern democracies, political is the natural outcome of planless administration, the more so because those who become corrupt do not realize they have done do, before, during, or after their administration.

_ELA1746.JPG

I couldn’t be corrupt, all I wanted was the best for the city

C. The BRA had no tracking systems

Just as innumeracy precedes insolvency, and opacity precedes innumeracy, ignorance enables both.

fight_apathy_or_dont

It’s too much effort

The audit of the Boston Redevelopment Authority described an agency incapable of performing basic functions, such as tracking payments, collecting rents on public property, and enforcing agreements with developers to improve roads and parks in exchange for city approval of their projects.

Just as we value what we pay for, what we do not bother to do is what we have decided is unimportant.  The BRA decided that:

Tracking payments was unimportant.

Collecting rents on BRA property was unimportant.

Enforcing developer agreements was unimportant.

so_unimportant

I’m sorry they didn’t make a big deal out of things so important

If all those things are unimportant, what was important?  Politics, and the optics of politics.

bams_golf_war

Bad optics

The KPMG audit did not address the BRA’s decision-making process or approvals of specific projects.

When a government agency is principally political, it need not be financial.

Instead it focused on more nitty-gritty operations, such as monitoring and enforcing agreements with developers, managing documents, and collecting payments from tenants.

I’m certain that KPMG and Mayor Walsh independently concluded that the audit should stay out of the mechanics of decisions.  From KPMG’s perspective, those are deep waters, hard to assess externally and quantitatively, and guaranteed to attract criticism; and I don’t know that KPMG has any particular competency to evaluate decision-making.  Simpler to duck that question entirely.

duck_and_cover

Welcome to KPMG, new MBAs, this is your first lesson in management consulting

From the Mayor’s perspective, the politics of past decisions are unnecessary to tackle at the initial stage, especially when the initial findings are so damning:

The audit found that the BRA and the Economic Development Industrial Corp. could not provide a list of properties in the city with deed restrictions that preserve affordable housing or require a payment to the agencies upon the sale of the property.

Think of the KPMG report as the initial indictment that enables the cops to hold the prisoner in the cell for questioning. 

sweat_box

You ready to tell us how the deals went down?

• The agency does not have a written policy for evicting deadbeat [commercial] tenants who rent property owned by the BRA and its subsidiary, the Economic Development Industrial Corp., which resulted in the agency racking up $800,000 in unpaid rent, including $295,908 from real estate developer Pappas Enterprises; the EDIC also accrued $4.3 million in outstanding rent for space leased in the Seaport District and Boston Marine Industrial Park; and

Why would we want to evict people who don’t pay their commercial rent?

why_do_that_cat

• The BRA has failed to keep a list of leases with escalating terms that trigger payment increases, which ended up costing the agency $500,000 from Zoom Group, a large landlord that rents space in the Industrial Park.

Why would we want to send rent increase notices when we’re entitled to them?

why_do_that_bro

The auditors said they asked the BRA to provide a written policy on “how and where” it spent the affordable housing funds it collected, and a schedule of compliance but was told none existed.

Why would we want a strategy for spending the affordable housing money?  That might crimp the mayor’s freedom to hand out cookies to his friends.

menino_grinning

Want a cookie?  Then be my friend

As a result, of course, millions of dollars (or more) are overdue, and who knows how much more should be due?

Overall, the audit found, the EDIC as of April 2014 was owed more than $4.3 million in overdue rent payments, while the BRA was owed almost $800,000, including more than $295,000 from Pappas Enterprises Inc., which has developed several large projects in South Boston.

tim_pappas_green_building

I built this cool green building; you mean I have to pay the BRA too?

Then too, there’s lots of idle assets and hence lost opportunities:

The audit also noted the BRA has a substantial portfolio of property in the city but is not generating revenue from many of these parcels, nor does it have a plan for selling or developing them.

Again, why do anything to crimp the mayor’s freedom to be arbitrary?

menino_trash

You know where I put my enemies, don’t you?

KPMG recommended a real estate management team be established within the BRA to monitor leases and oversee its properties.

You mean the BRA doesn’t have one?

bogart_rick

You’re not joking, are you?

Evidently not:

One item tested, the Fenway Triangle Project/Van Ness project, was signed off by BRA/EDIC management in June 2013, but it was not captured by the Compliance Department in its database for approximately 10 months.

Having worked for equity syndicators, directly or indirectly, for just shy of four decades, I can attest that the handoff between origination (wining, dining, and consummation) and asset management (incubation, birth, rearing, and compliance) is very often dropped.

drop_baton

That’s embarrassing

Developers know this, and they use the interregnum or amnesia to take advantage:

During this 10 month period, construction had started but no evidence of a building permit being provided by ISD to BRA/EDIC could be provided.

Under the terms of the DIP Agreement, a payment of almost $300,000 should have been made by the developer to the City Treasurer when the building permit was issued and another $300,000 payment should have been made one year after the building permit was issued.

How convenient; we ‘forgot’ to send you the building permit, and we figured you’d thus forget to invoice us for the $600,000 you so brilliantly negotiated.

tiger_shh

Don’t tell anybody, okay?

As of June 1, no developer payments have been made, although negotiations are being held with the developer to satisfy all obligations due under the developer agreements.

In other words, the KPMG audit got somebody scrambling inside the BRA, and they had to do something to look less like total fools, so the developer got called to account.

tarot_rider_fool

I know, I’ll take decisive action!

Nor is this the only example of blatant laziness and incompetence throughout the BRA.  Here’s another that KPMG cited:

Over the years, the BRA/EDIC has placed deed restrictions on many properties in the Charlestown Navy Yard as well as other parts of the City. The restrictions:

Often place limits on future transfers of the properties (i.e., affordable housing restrictions) or

Require a portion of future sales proceeds to be remitted to the BRA/EDIC when a property sale occurs.

And I believe as a (remembered) fact that buyers and sellers of Charlestown Navy Yard condos have been ignoring the affordability restrictions for decades.

heads_in_sand

We’re checking the files

Without comprehensive listings, it is unclear how the BRA/EDIC could ensure that such restrictions are being enforced and that BRA/EDIC receives all funds it is entitled to when a deed *restricted transaction occurs.

We inquired and were told that such restrictions have been in place for many years and the BRA/EDIC staff has relied on the restrictions having been properly recorded sometime in the past and that the legal department would be responsible for enforcing deed restrictions when a current transaction occurs.

Translation: Some other guy was supposed to do it … and we assume he didn’t … but if he didn’t, then it’s not our job to find out … and so we can do nothing.

sloth_what_do

What can I do?  I’m the least offensive deadly sin

We have no idea how mulch money has been overlooked, never invoiced, and simply lost (as in ‘lost opportunity’) over the two decades that Mayor Menino had been using the BRA as his personal development police.

Because no comprehensive listing of restrictions is maintained, we could not test whether:

• Deed restrictions related to property sales were in place and being collected (Note: BRA/EDIC receives 2% or 4% of gross proceeds from the sales of certain properties.)

• Deed restrictions related to long term land leases were in place.

• Deed restrictions related to owner occupancy and non-monetary mortgages were in place, or

• Compliance with affordable housing restrictions for both rental housing and condominium sales were effective.

Those are all the things we know we don’t know.

things_that_you_know

What the BRA doesn’t even know it doesn’t know would boggle your mind …

… if anyone knew how much the BRA didn’t know that it needed to know

[Mayor Walsh] has ordered a deeper review of the agency’s agreements, leases, and contracts and will target how the BRA reviews projects and other planning functions.

A deeper review is fine, but fixing the BRA will require a top-to-bottom makeover – and even that might not be enough.

not_enough

We shall see … starting tomorrow

[Continued tomorrow in Part 3.]

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Oh, THAT money we were supposed to collect: Part 1, “We’re not enforcing”

September 8, 2014 | Affordable Housing, Audits, Boston, Boston Redevelopment Authority, BRA, City Government, Corruption, Development, Eminent domain, Housing, Inclusionary zoning, Linkage fees, Local issues, Martin J. Walsh, Politics, Thomas Menino, Urban planning, Urban renewal, Zoning | No comments 67 views

By: David A. Smith

With former Mayor Tom Menino fighting cancer but maintaining his immensely cheerful and upbeat self, new mayor Marty Walsh, firmly in charge of Boston City Hall, must clean up the organizational mess he left behind – the Boston Redevelopment Authority (BRA) – and that will be an immense task. 

hercules_augean_stables

After Hercules was finished cleaning Augeus’s stables, he killed the man who had made him do it

 [For my very long February, 2014 post on everything wrong with the BRA, see Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8, summarized below. – Ed.]

bra_chronicle_of_descent

As reported in The Boston Globe (July 17, 2014; black font) and The Boston Herald (July 17, 2014; red font), what has already been revealed in the KPMG audit of the BRA’s procedures (July 11, 2014; blue font) is enough to make clear that for the BRA, the issue is not how to reform it, but whether it deserves to exist at all.

A. The BRA is an organizational catastrophe

Boston’s chief development agency failed to collect millions of dollars in lease payments and fees owed by developers for affordable housing, according to an audit that uncovered deep problems in the agency that has controlled building projects in the city since the 1950s.

bulfinch_1950s

Downtown Boston when the BRA was established (Custom House at far left)

The Fifties aren’t relevant. The Nineties and Oughties are.

chicolini_groucho

That’s irrelevant!

That’s-a-right

The review was ordered by Mayor Martin J. Walsh, who said he was shocked to learn an agency that oversees billions of dollars in development keeps most of its records on paper –

That by itself is grounds for terminating all the former executive leadership and looking with suspicion at every contractor who worked for the BRA.

– and has not collected huge sums of money because it does not have a centralized system for monitoring its contracts.

“That should not happen,” the mayor said in a briefing Wednesday. “If somebody gets a parking ticket we put a boot on their car for $30. And here we have multimillion-dollar deals where money is left on the table.”

booted_car

Enforcement for $30; how about for $300,000?

Of course he’s right.  The private sector automated all these processes thirty-five years ago, and even Massachusetts’ Registry of Motor Vehicles made it into the modern century a while back.  This is disgraceful.

For example, the BRA did not know for seven years that a developer leasing property at the government-run Marine Industrial Park in South Boston owed the agency nearly $1 million.

dont_ask_dont_tell

In another case, the agency failed to collect $600,000 in affordable housing funds and other fees from developers of a massive project in the Fenway.

The BRA’s performance is so bad it indicts every aspect of Boston city government.  The BRA is an entity with a stranglehold on every development decision in Boston, an authority that was a personal fiefdom for a vindictive micromanaging mayor, and because it could print money simply by deciding which verticality to allow and which to prevent, it was financially autonomous of any other city control.

City officials are attempting to collect the owed funds, but they acknowledged Wednesday they do not know how much more is lost in the system.

“There is a distinct possibility we’re not enforcing the terms of leases in other instances,” acting BRA director Brian Golden said.

Brian P. Golden Paul D. Foster Timoth J. Burke Michael P. Monahan Consuello G. Thornell architech David Manfredi developer Steven Samuels

There’s a distinct possibility the BRA isn’t enforcing anything

I have will have more to say about Mr. Golden a few parts hence; for now, let his feckless comment stand unchallenged.

hackworth_feckless

Something to bear in mind

In some respects, Walsh said, the audit uncovered more urgent problems than he had anticipated.

drebin_scuba

In some respects the problem is more urgent than I anticipated

From reading the report, I cannot think of a single area that wasn’t worse, and more urgent, than could have been known beforehand.

bg_01_walsh

Mayor Walsh is maintaining his when-you-can’t-say-something-nice face

“I would like to be further along than we are today,” Walsh said. “We’re going to step through this very carefully to make sure that, as we make adjustments, we don’t hurt the growth of the city.”

Also got other political priorities, and it’s hard to do right, because as far as I can tell, the BRA has been doing everything wrong.

doing_it_wrong

B. The BRA has no transparency

george_reeves_x_ray

Maybe if Superman had headed the BRA we’d have some transparency

When Mayor Menino controlled the BRA, everything it did was completely opaque (for instance, it had no annual report for four years), which enabled it to be arbitrary.  That we knew, and that was bad enough … but we did not know that in addition to arbitrariness, the BRA was also comprehensively incompetent:

never_said_incompetent

In one section, the audit said the BRA lacks … accurate records showing what it did with [its affordable housing linkage] funds.

Why would you want to keep track of money?  Maybe to collect it?

In some cases, the BRA did not collect the money in a timely manner.

fenway_triangle

See any affordable housing here?

It cited the Fenway Triangle project being built on Boylston Street, where Samuels & Associates was supposed to pay the city $600,000 for affordable housing and other benefits, but no payments had been made as of June 1.

steven_samuels

“I never paid them because they never asked for the money.”

In a statement, Samuels & Associates said it is negotiating [sic] a lump sum payment to cover its obligations to the BRA.

Not negotiating, calculating – and that’s another problem, overly complex formulas that no one bothered to institutionalize.

“We expect to make the payment immediately upon agreement on the final calculation,” Samuels said.

So, aside from not getting the money when it was due, the city may well get less than it should, if only to close the embarrassment of being caught with the developer’s hands already emptying the cookie jar.

kid_cookie_jar

Now wait, Mom, let’s calculate how much you think I owe

An official at the Fenway Community Development Corp., which advocates for the construction of affordable housing in the neighborhood, said the audit raises questions about whether the BRA has failed to collect money from other major development projects.

OLYMPUS DIGITAL CAMERA

Giordano’s frightened by the thought

“If it’s true on one case, we certainly need to know how many other cases it’s true for,” said Richard Giordano, director of civic engagement for the Fenway CDC. “It’s a very frightening thought. If you spread this across five or ten major projects, that could be millions of dollars not paid and how would we know about it?”

You wouldn’t.  You don’t.

no_idea_dog

Maybe I’ll find out tomorrow

“If the past BRA didn’t follow through on them, well, they didn’t,” Walsh said. “It’s my job now to clean up their mess and collect on that money and, moving forward, make sure this does not happen again.”

And that’s just the beginning.

going_to_get_worse

[Continued tomorrow in Part 2.]

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The ultimate hideaway

September 5, 2014 | Ownership, Structures | No comments 536 views

By: David A. Smith

Somehow I doubt that this little adventure, reported in Popsci, is the solution envisioned by the Department of Homeland Security:

The World’s First Everything-Proof Underground Luxury Community

Survive the end of the world for just $5,000 down

Popsci everything proof underground community entrance 101015

What lies beneath?

Robert Vicino at the entrance to his Terra Vivos underground shelter network near Barstow, California

To reach the world’s first everything-proof underground luxury community, I drive east out of Barstow, California, 50 or so miles into the Mojave Desert, then turn down an unmarked gravel road, park in a barren lot surrounded by razor wire, enter what appears to be a small cinderblock garage, and walk down two steep flights of reinforced-concrete stairs, at which point the project’s enthusiastic promoter, Robert Vicino, greets me with an outstretched hand, slams a 3,000-pound blast door behind us, and asks this question: “Do you have a family?”

Always be closing, eh? 

Then: Do I have life insurance? Would I like to have 10 times the life insurance I already have? Would I like to have something even better? Because I can. 

And all for one low, low price …

The structure in which we are now standing was built by AT&T in 1965 to protect telephone infrastructure from a nuclear attack, but now it can protect something far more important: me and my loved ones.

We buy homes to protect our lives and our families. That is the soundest of reasons for the most curious of choices. 

For just $50,000 each—half off for kids—I can buy a fractional share of the Terra Vivos underground shelter network, a project that will include at least 19 more “community bunkers,” each of them located within 150 to 200 miles of a major American city.

Fallout shelter 01

And after we eat the jam, we can use the jars as chamber pots

Terra Vivos’s web site is deliberately scarifying: 

People around the world are sensing that a global life-changing event is just ahead. With the current international political unrest, a possible economic meltdown, the holy war between radical Islam and Christianity, the cluster of large earthquakes, potential near Earth object impacts, threats from a nuclear Iran and North Korea, the extreme solar maximum coming in 2012, and countless predictions as old as the Bible and the Mayans, the increased chances of a major catastrophe in our time are now quite evident. 

The site also includes a helpful Stargate-style dial with Home, Prophecy, Scenarios, Chosen, Timeline, and Preserve and asks the ominous question, Where would you go with three days’ notice?

Vivos is the life assurance solution for you and your family to survive the next earth devastating catastrophe that either nature or mankind may create.  Vivos hardened, nuclear blast-proof community shelters will provide you and your family with up to one year of autonomous underground survival.  Where else would you go with just a few days’ notice?  Enter Vivos to learn more about joining our turnkey international shelter network for thousands.

Stargate spader

Personally, I’d like an interdimensional jump … but if that’s not available, how about a two-bedroom?

Not a community model, but certainly a bolt hole.

Popsci everything proof underground community plan 101015

Each Vivos bunk, Vicino says, will allot 100 square feet of space to each resident.

Terra Vivos is a concrete-and-steel solution to the end times, whether brought about by climate change or nuclear war or even an unavoidable realignment of the cosmic order. Wherever I happen to be at that terrible moment, I’ll have a place to live the morning after. “I’m not selling life insurance,” Vicino explains. “I’m providing life assurance.”

Well, it’s a hook.

The physical specifications required to assure life are striking. The Barstow bunker was built to withstand a 50-megaton nuclear blast 10 miles away, 450mph winds, a magnitude-10 earthquake, 10 days of 1,250°F surface fires, and three weeks beneath any flood.

You’ve got to admit, that’s engineering.

Vicino says that a soon-to-be-installed air-filtration system will also neutralize any biological, chemical or nuclear attacks. 

I mean, why pay less?

The Barstow branch will stock enough food and clothing to sustain 135 people for at least a year, and in a lifestyle that Vicino describes as compact but luxurious, like being on a cruise ship.

Strangelove vimmen

“There would be much time, and little to do. Ha, ha. I hasten to add that since each man will be required to do prodigious…service along these lines, the women will have to be selected for their sexual characteristics which will have to be of a highly stimulating nature.”

Getting on board requires a $5,000 deposit, he says, to be held in escrow until the bunker is ready to move into, at which point the remainder is due. As of August, several hundred people had put their money down for a spot in one of his bunkers, he says; 75 for Barstow thus far. 

Popsci everything proof underground community bedroom 101015

Each 8-by-10 bedroom sleeps four. 

Are the deposits refundable, I wonder? To which comes the answer, If you have to ask, you’re not our customer type. 

Vicino has always had a taste for offbeat business ventures. In 1977, at the age of 22, he pioneered the “giant inflatables” advertising medium by building a giant inflatable Jose Cuervo bottle for the liquor company to display at events. Within five years, he says, he had 200 Fortune 500 clients. After he had done everything he could do in the inflatables sector, he sold his company –

After the inflatables business, there’s nowhere to go but down.

Inflatable gorilla

Who can top that?

and began a new venture, speculating in fractional shares of resort homes from Europe to Hawaii. (A fractional share is like a timeshare, except that buyers actually own a piece of the title.) 

Way down.

The idea to build and sell post-apocalyptic bunkers weighed on Vicino for many years before he acted. In 1980 he saw a replica of the Mayan calendar, the ancient stone carving that predicts that the world will end on December 21, 2012.

I trust he’s selling for cash.

Vicino recalls the moment clearly. “It just gave me this gut-wrenching feeling that I needed to convert a mine to a shelter for a thousand people with everything you’d need to survive for a long period of time.” 

Canticle leibowitz map

After the disaster, a long time to write canticles

The decades passed, however, and it wasn’t until this year, the end times fast approaching, that Vicino purchased the Barstow bunker for an undisclosed amount. He has six more under contract: one in North Carolina, one in Pennsylvania, two in New York, and two in “the Midwest.”

Now remember, end of time or no end of time, he’s a real estate developer and he’s selling interests.

(Vicino won’t give precise locations, citing the need to stay hidden from intruders.)

Having seen every grave or tomb robbed and plundered, I understand his concern.

Now, as 2012 approaches, Vicino says he is actually more worried about 2013, when solar activity is expected to increase significantly. He says an extreme solar storm could fire a catastrophic electromagnetic pulse at Earth, crash the power grid, and thereby trigger anarchy.

Yes, you wouldn’t want to pin all your marketing hopes on a single cataclysm, would you? If the day passes without incident, what is your next pitch?

Even if the world escapes that fate, it could still face an asteroid, or a plague, or a war. Anything could happen.

Act now!

Act now 02

Supplies are limited.

Twenty-twelve is just the impetus to bring the project forward because there’s a great deal of concern now, but these bunkers could be of use anytime in the next 200 years,” Vicino says. “We’re building for whenever.”

What do you give to the family who has everything?

Vicino leads me into a smaller room, and the scent of old diesel recalls the bunker’s Cold War vintage. Vicino points to a flip switch marked “nuclear blast detector.” It activates a gamma-ray detector that will spot a nuclear blast as much as 100 miles away and instantly shut all the air vents. He had it tested before moving in. “This is the real thing,” he says. “It still works!”

Just out of curiosity, does this house come with a warranty? How would it be enforced?

And how do the fractional shares work? Wouldn’t you want your own home?

Bialystock 01

Think of it! All the comforts of prison without any of the showers.

Until recently, the construction of large bomb shelters was mainly the work of governments. In 1962, for instance, federal authorities completed construction of a massive “continuity of government” bunker beneath the Greenbrier resort in West Virginia. The nuclear-fallout shelter, code-named Project Greek Island, packed enough supplies to keep all of Congress plus another 600 staff members alive for 45 days. 

Greenbrier bunkers

Working triple shifts protecting America: Greenbrier bunk beds

That’s sensible in a Herman Kahn thinking about the unthinkable way – one must protect the government. It makes less sense, except perhaps personally, for a particular individual – unless you live mighty close to Barstow.

Now smaller entrepreneurs are getting involved. Some are building from scratch—Texas-based Radius Engineering, for instance, offers fiberglass shelters that it says can support 2,000 people for five years underground—and others are taking over Cold War relics. “The critical infrastructure is there,” says Larry Hall, the project manager of Survival Condo Project, which is converting abandoned Atlas missile silos in Kansas into seven-floor fallout shelters at $1.75 million a floor. 

Actually, the project is more a concept-seeking-money than a development: 

This Survival Condo project is a multi-phase development. We have multiple silos that are available for conversion. We are seeking buyers and lenders for this project. [Heck, with buyers *and* lenders yet to be secured, what's to worry about?  -- Ed.] 

We are accepting non-binding “Letters of Intent to Purchase” from interested buyers. If a buyer wants to guarantee a unit in a specific silo, a sales contract MUST to be signed and a deposit will be put in escrow until your unit is complete. 

Silo cutaway

All for only $1,750,000 a floor!

Note to Lenders: We are seeking a construction loan for each of these silos. We will also consider a Joint Venture deal. In addition to the construction funding, we have a number of “high net worth” buyers who are interested in obtaining a mortgage for these units. Please contact us at (321) 795-8432 if you are interested in lending for this project.

I remember fallout shelters. Friends of ours had one. But a fallout shelter against a kiloton bomb is a lower-tech construction within a household’s reach.

Fallout shelter 02

Like a tornado, only worse?

Now it takes quite a bit more.

Popsci everything proof underground community entertainment 101015

When disaster strikes, Vicino says, you won’t have time to pack, so Vivos bunkers will be stocked with casual attire, shoes and plenty of underwear. When it’s time to leave, you’ll get sturdy outdoor apparel to survive the wilderness. 

Brian Camden, the CEO of the Colorado firm Hardened Structures, says his bunker sales have increased by 40 percent since 2005. He is also helping Vicino renovate his older bunkers and build 13 more bunkers from prefabricated units that Vicino is ordering from a yacht manufacturer in Taiwan. 

My God, outsourcing our post-apocalyptic defense technology? Is that strategically sound?

Buyers are drawn to Vivos for a variety of reasons. Jason Hodge, a 40-year-old former mechanic, says the promised air-filtration system was a major attraction: “I live 123 miles from Los Angeles, and I’m on the windward side of town. If a dirty bomb goes off in L.A., the fallout’s hitting my neighborhood within a couple of hours.” 

Steve Kramer, a 56-year-old respiratory therapist from Palos Verdes, California, is more concerned about post-apocalyptic raiders. He made his deposit, he says, after inspecting the bunker’s hardened-steel doors, which are strong enough to repel a tank blast.

End of days 1

Yes, but can it cope with Satan’s return?

Even if it is purely psychological, there is some value in reducing neurosis. I suppose.

Building the Vivos society requires complicated engineering too. Vicino says he has 5,000 additional applicants on file but that he is being selective in order to create a balanced community. “You wouldn’t want 200 doctors in one facility and no plumbers,” he says. “If the toilet breaks, that could be a real disaster.”

Somewhere, Jockin Arputham is cackling.

People can bring guns, but they must check them at the door. If someone misbehaves, the security staff will lock him in a detention center. 

Yes, you can’t fight here, this is the post-apocalyptic command post

Travolta brokenarrow

Would you mind not shooting at the thermonuclear weapons? 

Vicino is also thinking about survival of the species, not just his customers. He plans to stock each Vivos bunker with a freezer full of DNA samples of as many species as he can collect. 

Give Mr. Vicino credit – that is thinking ahead in a truly science-fictional manner. 

Orphans of the sky

I’d like a better legacy, please

Whether it’s preserving humanity or reseeding a scorched planet, he asks, “don’t you want to be one of the guys repopulating the Earth?”

As our tour nears its conclusion, Vicino shows me an old control panel that indicates which bunker systems are still functioning. Only a few of the dozens of lights are blinking. The wiring is shot, the toilets don’t flush, and the 750-kilowatt diesel generator is so environmentally unsound that California law forbids him to run it.

Still, there’s presumably no law against restoring to working condition – just in case.

Vicino says he will need at least three more months to get the premises up to cruise-ship standards; the other 19 bunkers could be ready in 18 months.

Popsci everything proof underground community bunker 101015

Vicino’s repair list for the Barstow bunker is extensive. Before he can start redecorating, it needs new wiring, a new generator, air filters and more. Projected cost: $3.5 million.

The good news is that most scientists aren’t predicting any immediate trouble.

Whew – I was worried there. You’d certainly have wanted them done by the Mayan Apocalypse.

2012 movie

I’d get paid up front if I were you

Regarding the Mayan prediction of a planetary alignment that would catastrophically reverse the Earth’s magnetic field, Tom Bogdan, the director of the National Oceanic and Atmospheric Administration’s Space Weather Prediction Center, notes, “The planets have lined up plenty of times in the past, and we haven’t detected any associated catastrophe.” And in any case, no planetary alignment is expected in 2012.

There you go again, using science against fear. Have you no sense of folly?

Perrotts folly

No more foolish than any other architectural folly

The only asteroid projected to come near Earth is a 1,000-foot-long rock called Apophis, and that won’t be until 2029. Steve Chesley, a scientist with NASA’s Near-Earth Object Program, says that even then, the odds of it hitting Earth run 250,000 to 1, adding, “There’s nothing that looks particularly threatening out there.” Climate change, meanwhile, will probably take several decades to create truly apocalyptic conditions, and in January the Bulletin of Atomic Scientists actually set its doomsday clock back by a full minute. 

A full minute!

Doomsday clock

The apocalypse approaches, and we’re just frozen

When I relate such findings to Vicino, he is unmoved. He says disaster is always imminent, that someone could explode a nuclear weapon at any moment, that two asteroids had only just recently come this close to slamming into the Earth. “Do you have a fire extinguisher in your home?” he asks finally. “Do you think it’s crazy to have it? Do you feel bad if you don’t get to use it to put out a fire? You just don’t know what’s heading our way.”

A fire extinguisher doesn’t cost fifty grand. 

Fifty grand jfk

Don’t worry, we’ll inflate its value down to zero

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Beats the alternative

September 4, 2014 | Homeownership, House prices, Markets, Recovery, Rental, US News | No comments 224 views

By: David A. Smith

george_burns_100

Beats the alternative

Interviewer: How does it feel to be 100%?

George Burns: “Beats the alternative.”

Demonstrating the journalist’s precept that an ominous warning always trumps a happy event, Fortune (July 18, 2014) manages to bypass the real story in favor of a scaremongering headline:

Why the housing recovery is over, in four charts

‘Over’, as in ‘about to plunge again’?

stealth_coaster

Downward rush inevitable?

Instead of answering, Fortune taunts us with the opportunity that we just missed.

grail_french_taunting

Stupid Forrtyune rrrreaders!

The housing recovery that began in 2012 came on almost as quickly and forcefully as the real estate crash that preceded it.

Low interest rates, investor interest, and good, old-fashioned confidence –

The author is air-grabbing because he has no clue: low interest rates persisted well before 2012, investor interest is an effect not a cause, and good old-fashioned confidence is not something injected into a marketplace – it too is an effect, not a cause in itself.

injecting_drugs

A self-confidence injection is what I need

– conspired –

Schurz_conspirators

Et tu, interest rates?

Conspired?  Are journalists incapable of straightforward prose, or did the writer’s brain mean to type ‘combined’ but his mental auto-correct substituted ‘conspired’?

– to cause a rapid and vigorous turnaround in home prices after years of tumbling or stagnant [How do you have a turnaround from stagnant? – Ed.] home values.

Thank goodness we made it through that horrible sentence. 

rous

We can outwrestle sentences of unusual size

Can we now settle down to an examination of the evidence?

Actually not, because I have omitted to provide Fortune’s even more ominous subheading:

If you’re waiting to sell your house because you think prices will continue to rise, don’t.

dont_be_a_robot

I tell you, don’t do as I say!

More scare tactics: people who weren’t selling their homes either (a) enjoy living in them (the vast majority, or (b) had negative equity and were unwilling to pay cash to escape.  From what I’ve seen of the statistics, home prices have largely regained their pre-2008 levels (Detroit and a few other too-frothy places being exceptions), and in the meantime the Group b owners will have paid down some principal on their homes, so they now have practical liquidity …but maybe that old-fashioned confidence is more rare than the author presumed.

But a number of key metrics suggest that the party is over –

Did the last two years feel like a real estate party to you?

fat_lady_sings

Turn out the lights

– and any future home price appreciation will be slow and steady from here on out.

no_loitering

Just get to the facts, okay?

Readers, I beg your pardon for loitering on the opening paragraphs, except that they’re the only ones normal people read, and they’re so full of nonsense as to offend logic.

offended

It’s not easy to be offended like this

Finally, finally we get to data – data which doesn’t support any of the hyperbole that preceded it.

Here are four charts showing why the housing recovery has ended:

fortune__02_price_rent_140718

Estimate of the Price-Rent Ratio for Homeowners, 1975:1 – 2013:3

1. Price-to-rent ratios are near their long-term average. Price-to-rent ratios are an important housing indicator that can tell you whether the housing market is overvalued. During the housing bubble, this metric skyrocketed –

It did, though the graphic is misleading because that cuts off the bottom 16 percentiles, making a 60% rise in ratio (from 20 to 32) look like a 300% rise (from one box to four boxes).

marilyn_big_head

Does this picture make me look smart?

– as speculative fever led people to believe that housing prices would always rise.

Sure, that was a cause, but not the principal one.  Monetary policy and excessively generous (foolish) lending was.

But the fact that rent rates didn’t rise with purchase prices should have been a warning that the underlying demand for shelter hadn’t increased as much as the demand for owning property as an asset.  

That’s easy to say now as an explanation of the past, but it’s wrong: more likely is that people who should have been renters were sucked into being homeowners, leading to weakness in the rental sector.  Home prices rose, rents didn’t, and the ratios widened. 

In the last few years, rents have strengthened significantly, and they are likely to continue to strengthen.

franco_lifting

No capital gains without rent increase pain

As you can see, price-to-rent ratios have snuck up [More market skullduggery, all right – Ed.] above their historical averages, meaning that home values are already a little pricey relative to rents in many markets.

sneaking_in

I’m sneaking up on you

There’s a massive amount of evidence, which the margin is too small to contain, that with long-term American urbanization the price of housing (measured as percentage of income for housing costs) is steadily rising, and that the old 30%-of-income rule of thumb may need updating, so a blip from 22.8 (historical average) to 23.5 (now) is inconclusive as to anything.

fortune_03_home_ownership_rate_140718

Home Ownership Rate, 1975:1 – 2013:4

2. Homeownership rates are also near their long-term average. In the decades leading up to the housing bubble, politicians pushed policies that would increase the homeownership rate.

This statistic is much more significant (though again note the chart’s visual exaggeration, as it omits the bottom 63 increments of a range whose variance is 6 increments).  The top (2005-06) came just when I called it at the time (much good though it did me), and was the triumphant (oops) culmination of national policy efforts, led by ever-expanding Fannie Mae, to push people – in the event, five or six million households – into homeownership, and as events proved, many of those induced into homeownership were taking unreasonable household/ macro risks.

The theory was that homeownership gave people a vested interest in the economy and in their neighborhoods, and that would lead to greater prosperity. But giving out credit to those who didn’t have the wherewithal to afford a home was one factor that led to the failure of the subprime mortgage market.

We don’t really know the ‘equilibrium’ American homeownership rate, and we do not know it’s context-dependent (varying from 40% in Germany and Saudi Arabia, two countries otherwise utterly unlike) to level up to 80% (the UK) based on national policies on land use, development, financing, and labor/ job mobility. 

quien_sabe

What is the equilibrium homeownership rate?

It’s likely, now that policy makers are more aware of the dangers of pushing homeownership, that those rates will remain in the 64% or 65% historical average.

True enough, though there are two big undropped shoes:

shoes_dropping

Eventually, shoes drop

1. The eventual ‘exit strategy’ for Fannie Mae and Freddie Mac, though ironically (bitter irony, for those who lost their equity), Fannie/ Freddie have made back all the profits they lost up through their conservatorship, and have in fact cost the taxpayers nothing.

2. The interest-rate Day of the Tryffids, when Janet Yellen finally throws off the expansionist cloak and starts cutting into our money supply.  She and her predecessor Ben Bernanke have been exceptionally fortunate so far (the geopolitical mess making the United States a capital haven), but sooner or later rates will have to rise to keep the dollar from plunging, and when that happens, either inflation kicks up as well (my bet) or the violent contraction of credit drives many people back into parlous low-equity or no-equitty territory.

fortune_04_structures_gdp_140718

3. Ratio of housing wealth to GDP has normalized

Before interpreting this strategy, it’s worth observing the ratio’s incongruity in that it mixes two types of metrics:

Housing value

Gross Domestic Product

The numerator (housing value) is a snapshot-in-time (balance sheet); the denominator (GDP) is an interval-of-time (operating statement).  Or said more metaphorically, housing value is a telephone pole in the ground, and GDP is the wire strung between one’s telephone pole and the next.  Still, the poles and the wires are linked, and changes in one do create changes in another:

As any resident of a big city can tell you, the value of real estate [Urban real estate, that is – Ed.] is tied to the strength of the surrounding economy. The stronger the economy, the more valuable the real estate will be. The chart below shows that for the past 30 years, the value of housing wealth has hovered around 1.4 times annual GDP, except for a huge deviation from that during the housing bubble.

To grow the housing asset value, grow the economy.  How’s that working out?

obama_puzzled

Is the photographer done yet?

4. Paying in cash takes a tumble. 

fortune_05_share_cash_sales_140718

Ratios of Housing Wealth (black) and Structures (orange) to GDP, 1975:1 – 2013:3

Meanwhile, according to real estate data site Zillow, the share of buyers paying for homes in cash has fallen year-over-year in 102 of the 126 biggest metro areas. That the number of cash buyers is declining shows that investors no longer believe that buying residential real estate will continue to provide big returns.

Well, that conclusion comes completely out of left field – and it’s wrong in many ways.

To begin with, look at the baseline going back to 2005.  The ten-year trend line is, if anything, rising.  In both volatile markets (Sacramento) and strong ones (Seattle), from 2005 to 2014, the percentage of cash buyers is up. 

Next, look at Detroit, which is 50% cash buyers, and Miami, which underwent a shift in 2008.  Detroit’s percentage has always been high – roughly one home in two – and Miami’s percentage reflects its status as a great bolt hole for capital, especially Latin American (Argentinian?) capital.

Third, the percentage of cash sales is a big baseline.  Today one home in three is bought for cash; in Miami, two homes (condos, more likely) in three.  Given the liquidity now flooding (drowning?) the market, that’s amazing, and I wonder if all the new Qualified Mortgage Standards underwriting rules have been unintentionally neutralizing the Quantitative Easing stimulus.  That wouldn’t be the first time two arms of the government produced two different policies entirely at odds.

Fourth, perhaps the percentage of cash sales is down because the total sales volume is up, as a result (say) of low interest rates coupled with stabilized home prices, making it possible for lenders to find values whose LTVs yield debt worth borrowing. 

Finally, if we’re seeking to extract a trend, one needs a theory to explain how the long-term percentage of cash buyers is up both in volatile markets (Sacramento) and persistently strong ones (Seattle).  And we may also observe that cash buyers stayed constant or rose in two places where home prices never really crashed – they stalled and wheezed grumpily, but never crashed – namely San Francisco and Boston.

Phoenix, in short, is the only market that shows return from a cash-sale plateau (2009 to 2013).  Tell me again where this national trend is?

boat_wake

No bubbles here

In the wake of the housing bubble [Block that metaphor! – Ed.], we should be suspect of trends in the real estate market that deviate greatly from historical norms, and if they do, it is cause for worry more than celebration.

Ah – everything is cause for worry.

worried_kid

Maybe I shouldn’t learn to read

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