Builders forced to share profits
In what state and local officials say is a wake-up call to developers planning to use the state's affordable housing law to maximize their profits, the Town of Boxborough announced last week it will receive nearly $1.2 million from the developers of that community's first affordable housing development.
The settlement was signed about eight months after the town filed a nine-count lawsuit against the two men behind Boxborough Meadows, a 48-home development that includes 12 homes set aside for low- and moderate-income residents.
The lawsuit, filed in Middlesex Superior Court, charged Michael J. Jeanson and James D. Fenton, their wives, and business associates with fraud, civil conspiracy, and unfair and deceptive trade practices. The lawsuit alleged Fenton and Jeanson hired their own companies and companies in which their wives had interests and then overpaid the companies for work on the project. The town accused Jeanson and Fenton of defrauding the town of $2.8 million in profits and asked for the money back.
The lawsuit hinged on an agreement the two parties signed three years ago, which stated that if the developers' profits exceeded 20 percent of total development costs, the excess profits would be returned to the town, which would use that money to build more low-cost housing. Although the developers had filed a certified report showing a 13 percent profit, a town auditor said the developers earned a 45 percent profit.
Bolton Selectman Dick Heaton called the settlement a ''watershed event" in the often bitter struggle between communities required by the state to produce more affordable housing and developers who use the law as a moneymaking device.
''Boxborough pointed out that it is worth it to exercise your options," said Heaton, who helps municipal zoning boards review affordable housing developers' profit statements.
The settlement was signed in May. The town released details of it last week.
Alex Parra, the developers' Acton lawyer, refused to comment. Fenton and Jeanson could not be reached. The settlement states that the developers are not agreeing to the town's claims, but have settled to avoid the high cost of litigation.
In a statement released by the town, an unnamed developers' representative stated the $1.18 million comes from money the developers made from higher-than-anticipated sale prices of the 36 market-rate homes in Boxborough Meadows and homes in another community the two plan to build.
Little-known provisionThe dispute hinged on a little-known aspect of the state's affordable housing law. The law, Chapter 40B, was enacted in the 1970s to bolster affordable housing in the state. It states that in communities where less than 10 percent of the housing stock is affordable to low-and moderate-income residents, developers must be granted comprehensive permits. Those permits allow developers to bypass local zoning regulations in exchange for selling 25 percent of the units at below-market prices.
But the permits also require that developers form a limited dividend corporation and agree that if the corporation's profits exceed 20 percent, the excess must be given back to the community.
Boxborough is believed to be the first community in the state to take a developer to court over a profit dispute, Boxborough lawyer Jonathan M. Silverstein said.
The settlement shows that ''municipalities are not without tools to enforce this profit limitation," he wrote in an e-mail. This settlement is important, he wrote, because it may encourage other communities to scrutinize a developer's profits. If they are in excess of 20 percent, a community may demand more affordable units or more money from the developer. In both circumstances, the result would be more affordable housing, he said.
In recent years, developers have used the law to wedge apartment complexes or rows of townhouses into established neighborhoods of single-family houses. Municipal officials say the increase in population strains schools, while neighbors say it clogs roads and overworks septic systems.
The law's critics say locals don't have a voice in the process; the law's supporters say it is the only way to create low-cost housing in an out-of-control market.
The community outcry has promoted change. In the past three years, the state has adopted 17 regulatory changes to the law, said Beth Bresnahan, spokesperson for the state's Department of Housing and Community Development, which oversees the law. All the changes were designed to give communities a greater voice, she said.
Currently, the state Legislature is reviewing another batch of regulatory changes that Bresnahan called ''community friendly."
Town's first proposalAs the debate raged elsewhere, Boxborough, a quaint town of about 5,000 residents on the outreaches of Boston's northwestern suburbs, waited for its own affordable housing proposal to surface.
It seemed inevitable. Boxborough was one of many communities lining Interstate 495 where housing prices soared in the 1990s, making it impossible for schoolteachers and firefighters, young couples and others of limited means to afford homes there.
In 2000, Boxborough created the Boxborough Housing Board to maintain a community voice while welcoming affordable housing.
In February 2001, Jeanson and Fenton proposed Boxborough Meadows -- 48 homes clustered on 18 acres off Massachusetts Avenue. After lengthy deliberation, the town, through its housing board, accepted the plan. Soon, town and state officials hailed the project as a model of cooperation between a town and developers.
In January 2003, the developers filed their phase 1 cost and income statements, showing a 13 percent profit. The Housing Board turned it over to its auditor, who found that Fenton and Jeanson made a 45.5 percent profit. When all four phases were complete, the auditor continued, the excess profit would amount to $2.8 million.
According to the town's lawsuit, Jeanson sold the development's 18 acres to Boxborough Meadows LLC -- which he partly owned -- for $800,000. That's double what Jeanson had paid for the land three years earlier and $80,000 more than what Boxborough Meadows indicated it would pay in a purchase and sales agreement.
The auditor reported that the first nine market-rate units sold for an average price of $406,438, not the $319,900 the developers told the town they would charge. The auditor found that after the original proposal, developers added a ''construction management fee" of $37,950 for each of the 48 units. Distinctive Acton Homes, which Fenton and Jeanson own, did the work.
James Fenton & Sons Contracting was hired to do individual site work and was paid $23,583 per unit, well above the industry average of $15,000, the auditor reported.
Colonial Homes Real Estate Inc., which is owned by Jeanson's wife, Debra, earned a 6 percent commission on the homes it sold, even though the developers listed a 5 percent commission in original estimates. Colonial Homes even took commission from the affordable units, which were awarded by the town through a lottery.
All of these items were included in the town's computation of a 45 percent profit.
Victory for communitiesBoxborough Housing Board Chairman Channing Wagg said he's pleased with the outcome, because the money from the settlement will eventually bring more low-cost housing. The housing board is about to begin planning for it.
He said the town never suspected that there was a disparity in profits. ''Boxborough simply did what was required in [the agreement] and this is what came out," he said.
Westwood Town Administrator Michael Jaillett called the settlement a victory for communities that need and want to build more affordable housing, but want more voice in the projects. ''It is sending a signal that this will be monitored, and followed through on. . . . We are very encouraged," he said.
Jaillett said the region's still-hot housing market demands such scrutiny.
Often, a developer will state plans to sell a home for a certain amount, but years later, when the home is sold, the price is much higher, he said.
Westwood has asked the state for help in reviewing the profits of two of its 40B developments, Jaillett said.
Boxborough Town Administrator Natalie Lashmet said people from at least four communities had asked her about the dispute. Challenging developers' profits, she said, ''was something people had wondered about for a long time . . . . A lot of towns have been waiting to see how this will end up," she said.
Heaton said many municipal officials never thought Boxborough stood a chance. ''For a developer to be told by a community, 'We want a few million dollars [from] that 40B,' people never thought it would happen . . . . This is empowering for communities.
''What Boxborough has pointed out is, that there is an opportunity to participate in this process," he said.
Christine McConville's e-mail is email@example.com.
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