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The Big Easy, Not So Easy Case

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The Big Easy, Not So Easy Case

NOTES

  • Koo was president and CEO of Enterprise Community Partners, Inc., a national non-profit organization
  • Enterprise is devoted to building affordable housing for low-income Americans.
  • Koo was in New Orleans to evaluate a proposal on behalf of Enterprise and Providence Community Housing to redevelop the 892 units of the Lafitte public housing community.
  • The Housing Authority of New Orleans (HANO) had invited Enterprise and Providence to submit a plan to develop this project, and Koo was uncertain about how to proceed.
  • Enterprise saw Lafitte as the first step in its public commitment to construct 10,000 housing units in the Gulf area.
  • The destruction of public housing in New Orleans was an opportunity to rebuild the city, but it also posed a threat to the underlying purpose of public housing. 
  • Some organizations saw New Orleans as an opportunity to promote a new vision for public housing.
  • Others believed that the blight of public housing was best removed, such as Louisiana Congressman Richard H. Baker  
  • Housing advocates had joined former public housing residents to protest and sue HANO and the U.S. Department of Housing and Urban Development (HUD) because of the department’s plan to “deconcentrate” poverty by redeveloping public housing into mixed-income communities.
  • The parties to the lawsuit believed this plan was keeping residents from their rightful homes and would destroy the historical fabric of the community.
  • Enterprise was devoted to helping the poor, yet the very group it served was protesting these projects with such intensity that it posed a serious challenge to Enterprise’s reputation.
  • Katrina had destroyed much of the city’s infrastructure, and both contractors and supplies needed to repair it were scarce.
  • Koo wondered whether Enterprise should even take on the project, and if it did, with what resources.
  • Should Enterprise restore the old Lafitte, redevelop the site, or build anew?
  • Moreover, with concerns remaining about global warming and the safety of New Orleans, and with Enterprise having just launched an environmental commitment to incorporate green practices in all its work, how would Koo balance the need to be equitable (i.e., to replace as many homes as possible as affordably as possible) with the need to be sustainable (i.e., to rebuild to the highest environmental standards?

Doris Koo

  • Koo had seen some of these issues before in her work with low-income communities in Chicago and New York City.
  • Coming to the United States in the late 1960s as a foreign student from Hong Kong and inspired by the civil rights and antiwar movements, Koo decided to stay and advocate for social justice in the Asian community.
  • Koo and her fellow volunteers founded Asian Americans for Equality (AAFE), a non-profit organization committed to equal opportunities for this silent minority.
  • It was through AAFE that she learned about Enterprise, which helped AAFE take on the challenge of building decent, affordable housing for the thousands of low-income families in New York’s Chinatown.
  • As deputy executive director of the Seattle Housing Authority in the 1990s, Koo again saw the hardship that low-income families faced and how public housing isolated the working poor into islands of poverty.
  • Many of these families had come to the United States from refugee camps in East Africa, Somalia, Vietnam, and Laos.
  • Although they were of diverse backgrounds, one thing they had in common was being poor and stigmatized as “those people from the housing projects

Enterprise Community Partners, Inc.

  • Over the past 25 years, Enterprise had become a national leader in providing financial and technical solutions to challenges in community development.
  • It had leveraged more than $8 billion in investments and donations to help build or renovate 225,000 affordable homes and to help 40,000 hard-to-employ people find jobs.
  • As of 2007, Enterprise was investing at a rate of $1.2 billion per year in projects to support more than 23,000 affordable homes and assist more than 60,000 people.
  • Nearly 67% of the families and individuals served earned less than 50% of the median income in the United States.
  • Founded in 1982 by Jim and Patty Rouse, the then-named Enterprise Foundation had the bold mission of providing affordable housing to all low-income people in the United States and to present them with the opportunity to move out of poverty and into mainstream American life.
  • Enterprise chose to work in New Orleans and the Gulf region because the area was facing the nation’s most extensive housing crisis after one of the largest natural disasters the United States had ever seen.
  • Enterprise had several strategic priorities, including rebuilding the Gulf Coast, “green” building, ending chronic homelessness, and preserving existing affordable housing.
  • Enterprise knew it could not solve all the problems facing the Gulf region, but it could bring 25 years of experience to address some of the most pressing issues
  • Enterprise was primarily a financial intermediary, so it sought a local partner with real estate development skills.
  • At an event in Louisiana shortly after the disaster, Koo happened to be sitting next to Jim Kelly, the CEO of Catholic Charities of New Orleans, who had been working on recovery efforts since the storm hit.
  • Finding they shared a common faith and a commitment to restoring New Orleans, they began working together to form a coalition of community organizations that could respond to the many challenges of rebuilding people’s homes and lives
  • Catholic Charities had strong connections and credibility in deeply religious New Orleans, and Enterprise had an excellent reputation and access to capital at the national level.
  • Believing that more than coincidence had brought them together, Koo and Kelly named this new organization Providence Community Housing. 

New Orleans: A Delicate Saucer in a Bowl of Water

  • New Orleans was located on the banks of the Mississippi, south of Lake Pontchartrain and 100 miles upriver from the Gulf of Mexico.
  • With its proximity to the water, making it an ideal port location, and its nearby natural resources (oil and gas), the city was a prime location to settle.
  • Thus, despite its propensity to flood, New Orleans was colonized by the French in 1718 on land that Native Americans called chinchuba (or alligator)
  • Only four years after its colonization, the Great Hurricane of 1722 hit, and the town disappeared
  • Its founder, however, stubbornly refused to move to higher ground. As a port city, New Orleans played a leading role in the African slave trade.
  • As of the mid- 2000s, shipping remained the economic base of the city, bringing in about $13 billion annually
  • Due in part to the construction of shipping channels and oil and gas pipelines along the Louisiana coastline, the wetlands that once protected New Orleans from hurricanes were disappearing.
  • Between 1930 and 2005, nearly 1 million acres of buffering wetlands vanished
  • In 2005, wetlands were disappearing at a rate of one football field every 38 minutes
  • At the same time, New Orleans was undergoing a process called “subsidence,” in which the city was sinking from both natural and man-made causes.
  • The result was that much of the city was below sea level. To manage New Orleans’s high water table, water pumps drained water from under the city year-round.

Hurricane Katrina

  • To protect the city from violent storm surges and flooding, levees had been built throughout New Orleans’s history.
  • After Hurricane Betsy in 1965, the U.S. Army Corps of Engineers undertook a project to ensure that the levees could withstand a direct hit from a Category 3 hurricane.
  • These levees failed, however, when Katrina, a Category 3 hurricane, hit New Orleans in August 2005.
  • After Hurricane Katrina made landfall, 80% of New Orleans flooded, devastating his city of 450,000 residents; 1,500 people perished, and several hundred thousand fled to higher ground.
  • In the aftermath of the storm, many people sought shelter in New Orleans’s Superdome, while others clung to their lives from their roofs.
  • The less fortunate died without a proper burial; the news outlets broadcast reports of bloated cadavers floating through the flooded streets.
  • Four days passed without any aid from the federal government.
  • The world watched as New Orleans, one of the poorest cities in the world’s richest country, languished.
  • Damage was estimated in the billions of dollars, but the psychological toll on its residents was incalculable.

A Difficult Job

  • Most post-hurricane reconstruction efforts were aimed at homeowners, with renters and low- income residents receiving a disproportionately small share of resources.
  • Before the hurricane, little new construction had taken place in the city; whereas building permits rose 7.1% across the country from 2003 to 2004, they dropped 3.3% in New Orleans.
  • Historically, people in New Orleans had invested relatively little in their homes and constructed few new units because of the high level of poverty.
  • As a result, there were few local qualified general contractors. (See Exhibits 2 and 3 for demographic data.)
  • After the hurricane, uncertainty about available tax incentives and credits from various levels of government made builders anxious, while the general poverty of the city and its reduced population led to less overall demand for contractors.
  • Those contractors present to rebuild were frequently accused of violating a variety of workplace wage and safety laws.
  • The city’s levee system could not withstand another Katrina-style hurricane; flooding would reoccur with a storm of similar strength.
  • Highly expensive upgrades to protect the city remained mired in continued debate and, in any case, were years away from being built.
  • Further, the city had not yet made final decisions about wetland protection and the size of the city’s footprint; both of these decisions would influence how well the city was protected from future storms.
  • These choices would also affect both insurance premiums and overall investor confidence.
  • Entering the 2005 hurricane season, New Orleans had a long history of storms and flooding.
  • With the likelihood that hurricanes would continue to strengthen and sea levels continue to rise as a result of global warming, many wondered whether Katrina signaled that the worst was yet to come for coastal cities like New Orleans.  

The Lafitte Public Housing Community

  • The Lafitte Public Housing Community was one of 10 developments that HANO built in the 1940s for low-income, working-class families.
  • All the developments were segregated, and three were reserved for whites only.
  • Lafitte was a subdivision within the larger Treme neighborhood, which held great significance in both New Orleans and U.S. history as the first place where free African Americans could own homes.
  • Since then, Treme and Lafitte had provided homes to a poorer demographic that had shifted over time from a greatly diverse community to one that was predominantly African American.
  • The level of craftsmanship in the Lafitte buildings was thought to be very high, and preservationists and architecture critics praised both their design and architectural integration into New Orleans.
  • Both Lafitte and Treme were located at the center of the city of New Orleans.
  • Immediately outside the historic French Quarter and minutes from the central business district, these neighborhoods had easy access to the busiest parts of New Orleans.
  • This convenient location made Lafitte an ideal choice for families in public housing.
  • Pre-Katrina, HANO had considered Lafitte to be a model for vacancy reduction, as the complex boasted a 98% occupancy rate in 2005 (the average for public housing projects in New Orleans was 73% due o disrepair and safety concerns).
  • However, the living conditions at Lafitte were thought to be extremely dilapidated, and the complex was plagued with significant crime.
  • HANO had considered the complex in good physical shape relative to other projects and, as such, planned for minor refurbishing in the short term and complete phased replacement in the long term under the HOPE VI program.
  • Hurricane Katrina brought these plans to a sudden halt.
  • The hurricane pushed between one and five feet of floodwater to Lafitte.
  • Its approximately 3,000 residents were abruptly evacuated and sent to less damaged areas of New Orleans as well as to Baton Rouge, Houston, and other cities.
  • Adjacent to the historic French Quarter, New Orleans’s tourist Mecca, the Lafitte redevelopment was a high-profile symbol of the reconstruction effort.
  • HANO had not yet determined whether the physical structure of the complex had been compromised by the hurricane, so no residents had been allowed to return 18 months later becoming a ghost town

The Controversy over Mixed-Income Redevelopment

  • Public housing in New Orleans was always a target of severe criticism.
  • It was long considered the worst in the nation, with HANO regarded as “a political hornet’s nest of patronage and chronic mismanagement. HANO was placed under federal receivership in 1979 and since 2002 was under the direct administration of HUD.
  • Most New Orleans housing projects were known for their drug trade, high crime rates, and high vacancy rates.
  • Since Katrina, Lafitte had been at the center of controversy.
  • Seeing the devastation Katrina wrought on New Orleans’s public housing as the fatal blow to its long-ailing housing authority, HUD announced its plans to demolish four of the largest public housing complexes in the city, including Lafitte.
  • HUD intended to replace these housing projects with mixed-income communities.
  • It was HUD’s belief that the new housing would dramatically improve living conditions for the former tenants.
  • Some former tenants, supported by housing advocates and local community leaders, were enraged by the thought of tearing down potentially habitable housing that now-displaced residents could use.
  • Their suspicions about HUD’s motivation were stoked by HUD Secretary Alphonso Jackson’s remark that New Orleans “was not going to be as black as it was for a long time, if ever again.
  • Residents had filed a class-action lawsuit against HANO and HUD, claiming that HUD’s decision to prevent the residents from returning to their homes violated their civil rights.
  • Various tenant associations and political organizations were also engaged in community action with the goal of returning people to the original housing projects.
  • Frequent protests decried what residents saw as ill-conceived public policy; “We shouldn’t be 16 months out trying to get back into our homes,” voiced Cynthia Wiggins, president of the Citywide Tenant Association.
  • Another group, Survivor’s Village, ran a tent city as of July 2006 to protest the residents’ inability to return to public housing.
  • It claimed that HUD Secretary Jackson had “purposely failed to repair the units or take steps to mitigate further mold contamination.
  • Regarding the Lafitte neighborhood, the local African-American paper reported that many residents saw their apartments “remain shuttered to former residents with expensive steel windows and doors.
  • Another group, Advancement Project, a Washington, D.C.-based political organization that supported racial justice through communicative and legal techniques, was also a party to the lawsuit against HUD.
  • In January 2007, Advancement released a controversial documentary of New Orleans public housing.
  • The film, This Is My House, gave further voice to complaints regarding HUD and HANO’s decision making, noting “the injustice that there is a home to come home to, but somebody is saying you can’t come, because you’re not the right kind of person—you’re too poor, you’re too black.
  • Many residents also saw the threat of mixed-income housing as one of supply.
  • New mixed- income developments built with a similar number of units as the old developments would necessarily devote less space to low-income workers and the poor.  
  • Yet, the essential complaint about the handling of New Orleans’s public housing, as Advancement’s co-director, Judith A. Browne-Dianis, put it, was “if they’re habitable, let the people back.
  • Charges of classism and racism and a view of gross government neglect pervaded the commentary of former residents and protestors.
  • Any developers that took on these projects risked having their names impugned—simply by association—by these types of charges.

Moving Forward

  • Shortly after Secretary Jackson’s announcement that several New Orleans public housing projects would be demolished and redeveloped, HUD approached Enterprise Community Partners with a proposal for Lafitte.
  • Enterprise and its local partner, Providence, accepted the proposal to redevelop the Lafitte complex and worked to create a redevelopment plan.
  • The companies’ primary goal, according to project manager Christine Madigan, was “to bring people back to a healthier community.
  • Enterprise and Providence proposed three conditions to HUD.
  • First, all 892 public housing units would be replaced in phases.
  • Second, all 865 resident families would be given the opportunity to return.
  • In order to accommodate all of the families, 600 sites in the surrounding Treme neighborhood would be redeveloped, and some would be used to house former Lafitte residents and sold to first-time homebuyers.
  • Third, resident input would be incorporated throughout the project.
  • HUD accepted these conditions, and the project was launched.
  • Enterprise and Providence were awarded $12.8 million in Gulf Opportunity Zone (GO Zone) Low Income Housing Tax Credits (LIHTCs) and $27 million in Community Development Block Grant (CDBG) funds from the state of Louisiana.  
  • To avoid tying up funds in dead-end projects and to speed up the rebuilding process, the Louisiana Housing Finance Authority established a provision that 10% of the project’s expected basis plus acquisition costs had to be spent by September 30, 2007.
  • Enterprise and Providence began working with the Lafitte and Treme residents to “plan a vibrant community that is equitable, affordable and sustainable.
  • The companies projected that by summer 2007, some residents would be able to move into transitional homes, and by fall 2007, some permanent housing would become available in the surrounding neighborhoods.
  • They anticipated that the total redevelopment would take three to five years.
  • Since the redevelopment plan called for the relocation of some Lafitte residents to other properties in the Treme neighborhood, Providence and Enterprise were also in the process of acquiring adjacent land for redevelopment.
  • The companies were pursuing three channels for site acquisition: approximately 200 pre-Katrina adjudicated properties from the city (properties that the city had taken for tax delinquency), which the project had won; church-owned properties, which were acquired through private sales; and private acquisitions, which were conducted with individual property owners.
  • Providence and Enterprise had not yet partnered with a general contractor for construction.
  • To address this issue, Providence and Enterprise were evaluating different construction alternatives, including panelized and modular building, as well as bids from traditional contractors.
  • Based on Enterprise’s previous experiences with public housing, Koo had drawn up a budget for the redevelopment of the site - Proforma
  • She believed the property would cost $145 million to redevelop, although this estimate varied depending on how many Lafitte residents chose to return.
  • Upgrades to green building measures were also suggested as a type of value-added service that Enterprise had additional expertise in providing  
  • Although the units were of varying sizes, Koo figured the average monthly rent to be $480 per unit.
  • Many residents would have part of their rent subsidized. S
  • ervices such as laundry would yield additional income of $10 a month per unit.
  • A community learning center was also planned for the site and was to generate $375,000 per year in nonrental income.
  • For this first phase of construction, Koo planned to build the center and only 568 units.
  • Yearly expenses per unit were as follows: management fees at $380, administrative fees at $950, utilities at $510, operations and management at $1,850, insurance at $1,500, and other insurance and tax fees at $100.
  • To complete her analysis, Koo projected a vacancy rate of 7% and a yearly replacement reserve of $300 per unit.
  • As was standard for Enterprise’s projects, she expected rents and other income to increase at 2% per year, with expenses and the reserve to bump up at 3% per year.
  • Her local partner, Providence, paid no real estate taxes and would not take out loans on the project.

Conclusion – Use these questions for recommendation

  • Koo, Enterprise, and Providence had many questions to answer, the most challenging being: Should Lafitte be rebuilt at all? Would they be setting the stage for another disaster? Could the project even be completed on time and within budget given the state of New Orleans’s construction industry and the political pitfalls? Was New Orleans simply too difficult a location in which to rebuild?
  • If they continued with the project, it was unclear whether the flood-damaged buildings should be repaired and reoccupied or demolished and rebuilt.
  • If Lafitte were rebuilt, would residents return to this historic location with its struggling economy and lack of services and schools, or would they prefer to carry on with their lives elsewhere?
  • Should Enterprise and Providence, two low-income housing non-profits, support a project that would tear down potentially liveable buildings in order to build mixed-income communities?
  • Was “green” a viable option for retrofitting existing units or in new construction?
  • With tenants’ vocal concerns, what was at stake for Enterprise’s reputation?
  • Was there a moral imperative to build green in New Orleans in response to global warming, or was building green infeasible at present despite Enterprise’s environmental commitment?
  • And how would its actions in all these decisions impact the debate and general crisis over public housing in the United States?
  • With funding for the project tied to milestones and deadlines looming, difficult decisions needed to be made quickly.
  • Political indecision and bureaucratic red tape would feed growing concerns over mounting risks, which would drive away investors
  • Further delays might even put the project at risk of losing its tax credits.
  • Taking on a project that it could not complete would permanently damage Enterprise’s reputation.
  • It was unclear what was in the best interests of Enterprise, the residents, and the city.
  • As she picked up the phone to confer with her colleagues at Providence, Koo could not help but wonder how the city earned the nickname “The Big Easy.”

STRENGTHS

  • Over the past 25 years, Enterprise had become a national leader in providing financial and technical solutions to challenges in community development.
  • Catholic Charities had strong connections and credibility in deeply religious New Orleans, and Enterprise had an excellent reputation and access to capital at the national level.
  • With its proximity to the water, making it an ideal port location, and its nearby natural resources (oil and gas), the city was a prime location to settle.

WEAKNESSES

  • Katrina had destroyed much of the city’s infrastructure, and both contractors and supplies needed to repair it were scarce.
  • Koo wondered whether Enterprise should even take on the project, and if it did, with what resources.
  • As deputy executive director of the Seattle Housing Authority in the 1990s, Koo again saw the hardship that low-income families faced and how public housing isolated the working poor into islands of poverty. Many of these families had come to the United States from refugee camps in East Africa, Somalia, Vietnam, and Laos. Although they were of diverse backgrounds, one thing they had in common was being poor and stigmatized as “those people from the housing projects.”
  • Enterprise chose to work in New Orleans and the Gulf region because the area was facing the nation’s most extensive housing crisis after one of the largest natural disasters the United States had ever seen.
  • Due in part to the construction of shipping channels and oil and gas pipelines along the Louisiana coastline, the wetlands that once protected New Orleans from hurricanes were disappearing.
  • At the same time, New Orleans was undergoing a process called “subsidence,” in which the city was sinking from both natural and man-made causes.
  • Hurricane Katrina
  • Most post-hurricane reconstruction efforts were aimed at homeowners, with renters and low- income residents receiving a disproportionately small share of resources.
  • However, the living conditions at Lafitte were thought to be extremely dilapidated, and the complex was plagued with significant crime.
  • Public housing in New Orleans was always a target of severe criticism. It was long considered the worst in the nation
  • Most New Orleans housing projects were known for their drug trade, high crime rates, and high vacancy rates.

OPPORTUNITIES

  • Enterprise had several strategic priorities, including rebuilding the Gulf Coast, “green” building, ending chronic homelessness, and preserving existing affordable housing. Enterprise knew it could not solve all the problems facing the Gulf region, but it could bring 25 years of experience to address some of the most pressing issues
  • Enterprise and its local partner, Providence, accepted the proposal to redevelop the Lafitte complex and worked to create a redevelopment plan.

THREATS

  • The protesting group in which Enterprise was serving was posing a serious challenge to Enterprise’s reputation = Reputation risk
  • Contractors and supplies needed to repair the city’s infrastructure was scarce = Cost risk
  • Regional Risk =
  • The destruction of public housing in New Orleans was an opportunity to rebuild the city, but it also posed a threat to the underlying purpose of public housing.
  • Housing advocates had joined former public housing residents to protest and sue HANO and the U.S. Department of Housing and Urban Development (HUD) because of the department’s plan to “deconcentrate” poverty by redeveloping public housing into mixed-income communities.
  • The parties to the lawsuit believed this plan was keeping residents from their rightful homes and would destroy the historical fabric of the community.
  • Enterprise was devoted to helping the poor, yet the very group it served was protesting these projects with such intensity that it posed a serious challenge to Enterprise’s reputation.
  • With concerns remaining about global warming and the safety of New Orleans, and with Enterprise having just launched an environmental commitment to incorporate green practices in all its work, how would Koo balance the need to be equitable (i.e., to replace as many homes as possible as affordably as possible) with the need to be sustainable (i.e., to rebuild to the highest environmental standards?
  • Historically, people in New Orleans had invested relatively little in their homes and constructed few new units because of the high level of poverty.
  • As a result, there were few local qualified general contractors.
  • After the hurricane, uncertainty about available tax incentives and credits from various levels of government made builders anxious, while the general poverty of the city and its reduced population led to less overall demand for contractors.
  • Highly expensive upgrades to protect the city remained mired in continued debate and, in any case, were years away from being built.
  • Further, the city had not yet made final decisions about wetland protection and the size of the city’s footprint; both of these decisions would influence how well the city was protected from future storms.
  • These choices would also affect both insurance premiums and overall investor confidence.
  • Residents had filed a class-action lawsuit against HANO and HUD, claiming that HUD’s decision to prevent the residents from returning to their homes violated their civil rights.
  • Various tenant associations and political organizations were also engaged in community action with the goal of returning people to the original housing projects.
  • Charges of classism and racism and a view of gross government neglect pervaded the commentary of former residents and protestors.
  • Any developers that took on these projects risked having their names impugned—simply by association—by these types of charges.
  • To avoid tying up funds in dead-end projects and to speed up the rebuilding process, the Louisiana Housing Finance Authority established a provision that 10% of the project’s expected basis plus acquisition costs had to be spent by September 30, 2007.
  • If they continued with the project, it was unclear whether the flood-damaged buildings should be repaired and reoccupied or demolished and rebuilt.

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