Developers' profits in Chapter 40B project questioned Who's profiting?
Housing development, begun on $800,000 parcel, sells for $80m
The loft-style apartments in Billerica, 324 of them, are tucked behind glossy black gates. Gold-embossed signs announce "The Villas at Old Concord Road."
Outside the imposing gates, though, past the signs and down a bumpy road, there is another side of this proudly blue-collar town that is neither proud nor happy about the villas and the impact of Chapter 40B, the state's affordable-housing law.
Seven years ago, a developer bought the land where the housing complex stands for less than $1 million. On July 24, 2003, he won approval to build on the parcel under Chapter 40B. A week later, he sold the property for $5.4 million.
Now, the property has changed hands again. The finished Villas, glossy black gates and all, just sold for $80 million, raising more than a few eyebrows in town, and beyond, for its stunning turnaround.
"Someone is making an awful lot of money on these projects," said state Representative William G. Greene Jr., a Billerica Democrat who has followed the history of the development, where some one-bedroom units rent for $1,800 a month, since it was first proposed six years ago. "I want to know why we aren't seeing any of it."
Others are asking the same question. Michael Rosa, chairman of the Billerica Board of Selectmen, said he plans to bring up the Villas and other local Chapter 40B developments for discussion at an upcoming selectmen's meeting.
"We need to take a look at all the 40Bs in the town, to make sure the developers are complying with profit limits" under the affordable-housing law, Rosa said.
Located in the Riverhurst neighborhood, the Villas project started in 2000 when David Veo, then a Belmont home builder, began buying houses and vacant lots in the area near the Route 3 north exit.
Veo initially told neighbors he planned to demolish the houses and build an office park on a 9-acre parcel that he had assembled. But because local zoning allows only dwellings on the property, he needed the town's permission to put offices there. Several months later, at a crowded Town Meeting, Veo's lawyer said if Town Meeting didn't approve the zoning change, Veo would build a low-income housing complex on his land, according to town officials.
Outraged, Town Meeting members rejected his request.
But Veo made good on his housing plan. By agreeing to set aside 25 percent of the proposed units for low- and moderate-income people, as called for under Chapter 40B, he was able to bypass various local zoning restrictions. In July 2003, he was given a comprehensive permit to build 180 apartments, on the parcel that had cost him about $800,000 to assemble, according to state records.
Six days later, he sold the land and permit for $5.4 million.
"It looks like he made millions," Greene said.
Typically, what developers make on a real estate deal is no one's business but their own.
But in Chapter 40B developments, profits are a community concern, because the developer has received a reprieve from local zoning rules, which is considered a public subsidy. In accepting that subsidy, the developer agrees to limit his or her profits to no more than 20 percent; in most cases, the developer's excess profits are supposed to be handed back to the community, and used to create more low-cost housing.
Because 40B developers can control their project costs, the state has imposed strict guidelines for those costs. When stating the value of the project's land, for example, the developer is required to use the property's pre-permit appraised value, because the permit -- as evidenced in the Villas project -- tends to add tremendous value to the land.
Last year, as Massachusetts Inspector General Gregory W. Sullivan began investigating the profits of various 40B developments, he noticed a pattern that he has since called "profiteering." The original developer would pay a certain sum for a piece of land, then obtain the 40B permit. That developer sells the permitted land at a significant markup to a second developer, who then uses the marked up price in calculating the project costs.
Speaking generally, Sullivan says, this practice is an abuse of the 40B law, because two sets of developers extract incremental profits at taxpayers' expense. The first developer profits from obtaining and selling the permit, and the second developer bolsters the overall project costs -- and allowable profits -- with the higher land cost.
"It's a massive fraud on the public," Duxbury Selectman Jon Witten, a lawyer who has helped dozens of communities fight 40B developments, said of such practices.
Witten did not comment on the Villas development in Billerica. And a spokesman for Sullivan said the inspector general had no comment.
Sullivan has advised communities to be on the lookout for profiteering when determining a project's profits, and several municipalities have taken developers to court, accusing them of withholding money owed to the community. Some cities and towns have also begun issuing "nontransferable" 40B permits.
In Billerica, officials say they are astounded at the amount of money that has changed hands in the Villas project, and wonder why none of it has come back to the town. With the Villas, the town increased its affordable-housing stock by 81 units, but it's still short of the 10 percent threshold set by the state for communities to be exempted from 40B rules.
"As far as I can see, the only thing all this has done is made a couple of developers rich," Rosa said.
Laura Veo, David Veo's wife and business partner, told the Globe recently that she and her husband did not make any money on the deal. She refused to comment further, and said her husband would not discuss the deal either.
State records show that within a year of selling their Riverhurst parcel to the Hanover Co., a Texas-based real estate investment firm, the Veos bought a $2.5 million home in Acton.
The Veos' lawyer, Robert Buckley, of the Burlington law firm Riemer & Braunstein, said in an interview last year that his clients spent "hundreds of thousands" of dollars to get the permit. He did not respond to several calls seeking comment for this story this month.
Brandt Bowden, a Hanover Co. executive, said his firm has complied with the terms of the 40B permit, but he refused to discuss the matter in any detail.
State records show that after the Hanover Co. bought the Veos' parcel, it acquired additional land and was able to modify the accompanying permit to encompass a larger building area and add 144 apartments to the original 180.
This past February, when the complex was complete, the company sold it for $80 million to 4 Riverhurst Road Apartment Investors LLC, a private real estate investment trust managed by the international financial services firm UBS.
When contacted by the Globe, UBS spokesman Kris Kagel said, "We are aware of the property's 40B status, and we will comply with the local requirements."
According to Billerica officials, those requirements include making all financial records available for a review of the entire development.
Many in town are upset over the Villas, and some hope local and state officials will take a closer look at the financial aspects of the project. Two years ago the town formed a 40B Audit Committee, which recently released its first report. Some residents want the panel to audit the Villas project next.
Al Ramos, vice chairman of the panel, called the financial history of the development "astounding."
"It sickens me to see how our town is getting exploited," he said.
Committee chairman Ronald Diorio said the group will meet in June to determine its next steps.
Maryann Ardell can see the four-story complex from the kitchen window of her home on Kirk Road, where she has lived for 33 years.
After the Villas were built, she said, her home's value decreased, but the taxes she pays to the town have continued to climb.
"My taxes have been going up, $220 to $300 a year, in the last couple of years," she said. "There's something wrong here. Why should their gain be our loss?"
Christine McConville can be reached at cmcconville@ globe.com.