Urban Edge, the non-profit developer with a key role in Jackson Square and other local projects, is in “fiscal crisis,” according to strongly worded internal documents obtained by the Gazette. The documents appear to show operating budget losses of more than $1.75 million over the past two fiscal years.
Executive Director Mossik Hacobian told the Gazette that the community development corporation (CDC) indeed faces “a serious challenge, but we do have a plan and a solution.”
Extensive internal reviews are under way, and a financial recovery plan may be finalized by the end of the month, Hacobian said.
He said he expects Urban Edge to survive, and predicted no changes to current development projects, including the massive Jackson Square redevelopment.
“We’re not envisioning scaling any project back [that] we’re working on now,” Hacobian said.
But change is in the air. Urban Edge has already begun asking other CDCs to pick up business loans—many of them bad—as part of the dissolution of a collaborative investment program. Urban Edge may also seek third-party companies to help its affordable housing management business, which includes scores of units in Jamaica Plain.
And in general, Urban Edge’s future decision-making will make sure that “financial performance is at the forefront,” as the documents say. It remains to be seen what that will mean in practice.
“We’re a very leveraged organization. We can’t really keep up at this scale and keep leveraging like this,” said Hacobian, referring to the practice of reinvesting borrowed money or other debt. “I think we are going to be much more disciplined about how much we get leveraged. What we’ve done in the past is invest in projects…and defer what we get out of it over time.”
Urban Edge has been working on a recovery plan for at least a year, with an outline recently circulated to its various partners and investors, Hacobian said.
“We’re looking at everything and how can we do thing better,” he said, adding the organization is “not presuming what the outcome will be.” Still, he added, the focus will be “to improve the performance of our properties substantially.”
The documents obtained by the Gazette include an “Urban Edge Financial Plan” dated December, 2007. It appears to be a draft recovery plan outline. It also describes the financial situation in strong, soul-searching terms.
“Urban Edge is currently in a fiscal crisis that has been developing for several years,” the document begins. It notes the organization went through a similar crisis 20 years ago and got out of it when “we reduced our operations by 75% over a twelve month period.”
The document continues: “To find ourselves in this situation again indicates to us that the problem is much larger than insufficient resources or several bad deals. The simplest description of the problem is that Urban Edge’s leadership, both board and staff, have consistently made decisions which are more focused on mission impact than on financial performance. While this has resulted in substantial achievements it is also at the root of the organization’s current financial challenge.
“Urban Edge is appropriately named in that we have always been on the cutting, and often uncomfortable, edge of change, growth, and social justice. There is no lack of imagination or vision at Urban Edge.”
According to Urban Edge’s web site, its mission is “to help develop and sustain stable, healthy and diverse communities in Jamaica Plain, Roxbury, and surrounding neighborhoods.”
A summary at the end of the document says that Urban Edge faces “deep, recurring, and debilitating issues” in the long term and “immediate and urgent issues confronting us on a daily basis” in the short term. It pledges a plan to address both scenarios, avoiding “Band-Aid” or “ostrich” approaches.
“Simply stated, our goal is that by the time we celebrate our 35th anniversary in 2009 we will have ended two years (FY 2008 and FY 2009) with operating surpluses and built a three-month operating reserve without having compromised the quality of service and the impact we have on our constituents,” the document reads.
Various versions of the recovery plan’s details have circulated and are still in flux, Hacobian said. Generally speaking, internal review—including of the board and executive director—is a common theme in the version obtained by the Gazette. Specifically mentioned are the hiring of a chief financial officer and board review of decisions involving potentially large financial impacts.
Past and future
Headquartered in Jackson Square, Urban Edge started out rehabbing relatively small-scaled properties into affordable housing. The CDC grew over the years to become a major player in local housing and commercial development. It has particularly helped transform Egleston Square, from bringing in the YMCA in the early 1990s to creating a new home for BNN-TV last year.
Urban Edge is active in other parts of JP, too. Sometimes it is low-profile, such as its ownership and management of affordable housing along Washington Street and in Forest Hills. Sometimes it is high-profile, such as its team-up with the Hyde Square Task Force and fellow CDC the Jamaica Plain Neighborhood Development Corporation (JPNDC) in the forthcoming Jackson Square redevelopment.
Along the way, it has earned many accolades and wielded political influence. Hacobian was honored in 2005 as a winner of a prestigitious Barr Foundation fellowship for his non-profit work and has served as an Urban Land Institute adviser on the rebuilding of New Orleans.
Urban Edge has also been controversial over the years—sometimes even among its usual allies. While Urban Edge is blaming a focus on ideals rather than on profits for its financial situation, critics have often claimed that the focus was the other way around. Major controversies included a successful attempt to bring McDonald’s to Egleston Square and a failed attempt to bring Kmart to Jackson Square. Also controversial a few years ago were evictions and building conditions in some Urban Edge affordable housing units.
Hacobian said Urban Edge’s existence is not threatened by the crisis.
“All indications are very positive, and we expect to be around,” he said, referring to the circulation of draft plans among partners and investors.
The revelation of the financial situation comes as the first phase of the Jackson Square redevelopment is poised to begin. Hacobian said that project—the reconfiguring of Urban Edge’s 1542 Columbus Ave. headquarters and a related state Department of Youth Services facility—won’t be altered. Indeed, the plans indicate that expected returns from various elements of the Jackson Square redevelopment are part of the recovery plan.
The Boston Redevelopment Authority (BRA) is overseeing the Jackson Square redevelopment. BRA spokesperson Jessica Shumaker said Urban Edge has not communicated directly to the BRA about its financial situation, though BRA officials heard rumors about it.
“We’re still hopeful that the project will move forward,” Shumaker said, noting, “It’s a team project” among various developers.
The impact may be greater in the long term, as Urban Edge considers the types and scales of projects it undertakes.
Urban Edge’s 20-year history of managing hundreds of housing units is also on the table for change.
“In various periods…we have teamed up with other management companies to improve our properties,” Hacobian said, explaining that is possible again. “It is an area of activity we intend to remain engaged in and continually improve.”
The financial plan document obtained by the Gazette indicates that all property management is being reviewed and that handing it off entirely to another management company was at least up for consideration.
Already under way is dissolution of the Business Loan and Equity Fund (BLEF). Created through a 1990s federal tax credit program, BLEF is a business loan/investment fund operated by a collaborative of Boston CDCs and administered by Urban Edge. Through BLEF, the CDCs—including Urban Edge and JPNDC—helped fund various start-up businesses in JP and other neighborhoods.
In practical terms, the tax credit program expired in 2005, and requests for business investments have dried up in recent years, Hacobian said. But the real bad news was that many loans were not paid back, or investments did not pay off.
In a November, 2007 memo to BLEF member CDCs obtained by the Gazette, Hacobian said that “we [Urban Edge] have had to write-off close to half a million dollars in non-performing loans and investments and will likely have to write off an additional $200,000 to $230,000.”
The memo was part of a plan to ask member CDCs to take over various loans—whether current, in default or scheduled to be written off. They include loans to some local businesses.
Meanwhile, according to the memo, Urban Edge invested the more than $500,000 remaining BLEF funds into its Jackson Square projects.
While the Urban Edge documents reflect a self-critical approach, Hacobian noted the larger context of the modern CDC.
Thirty years ago, rehabbing a triple-decker into affordable housing would be a significant CDC project. Today, particularly in JP, CDCs are virtually expected to take on massive, complex redevelopments, including some of the neighborhood’s largest and most expensive.
Shortly after joining the Jackson Square redevelopment team, the JPNDC took on the ambitious redevelopment of Hyde Square’s former Blessed Sacrament Church complex. Urban Edge recently lost a bid to redevelop another former church, St. Andrew the Apostle in Forest Hills.
Even as the scale of projects grows, so do economic challenges, Hacobian said.
“The [CDC] field as a whole, I believe, is going through some changes,” he said. “There are funding sources that are different, constraints that are different, costs that have gone through the roof.”
He recalled the good old days, when an affordable housing unit could be subsidized for a few thousand dollars. Now, it might cost $150,000 to $200,000.
Urban Edge is one of the few CDCs involved in property management—which also is “an increasingly complex field with increasingly complex regulations,” Hacobian said.
As the Jackson Square project or the BLEF indicate, CDC coalitions and partnerships are becoming more common, Hacobian said.
“Real estate and community development is a very complicated and risky business,” he said.