40B Developer Draws Scrutiny From AG
Mass. Housing Opportunities Corp. faces questions, lawsuit
A North Andover organization that has several Chapter 40B housing projects completed or underway in Central Massachusetts has drawn scrutiny from the state Attorney General's office for its financial filings dating back to 2003.
The organization - Massachusetts Housing Opportunities Corp. (MHOC) - is based in North Andover and is regulated by the AG's office because it is organized as a nonprofit under Massachusetts law. The AG's office oversees all nonprofits in the state.
MHOC was founded in 2003 by Gerard Welch, who says he started the organization to offer communities a way to jack up their percentage of affordable housing without taking on projects that don't fit their neighborhoods.
"I was fed up with the development scenario where it seems like all developments become adversarial," Welch said. MHOC's projects have received state funding, including $7.7 million in loans from the Massachusetts Housing Finance Agency.
Despite his good intentions, Welch is dealing with questions from the AG's office as well as a lawsuit relating to a completed 40B housing project in Sterling.
The type of projects that MHOC specializes in fall under Chapter 40B, a state law requiring each town to meet a 10 percent threshold of affordable housing.
Chocksett Crossing in Sterling was developed by the Massachusetts Housing Opportunities Corp. Itˆs at the center of a lawsuit between principals on the project.Missing Pieces
In a three-page letter to MHOC and Welch dated Nov. 2, 2007, Assistant Attorney General Sandra L. Cardone lists in detail items that are missing from or inconsistent in financial filings for two nonprofits run by Welch - MHOC and MHOC of Sterling. The letter also says that the AG's office has "no record of having received any filings for fiscal year ending 12/31/06."
Welch says he is working with his lawyers on filing the necessary documents and doesn't expect to have any trouble satisfying the requirements. He said there were delays in filings because of disagreements regarding the AG's jurisdiction on the matter.
The AG's office declined to comment on the status of discussions with MHOC.
In its conclusion, the letter calls into question provisions within the articles of incorporation for both MHOC and MHOC of Sterling.
The provisions, according to the letter, "attempt to allow self-dealing and to permit directors and offices to engage in conflicts of interest without accounting for any gains or profits realized."
While the two entities are nonprofits under Chapter 180 of Massachusetts law, they are not tax exempt in the eyes of the federal government.
For such companies, the term "nonprofit" is a bit of a misnomer, according to Peter Martin, a partner at the Bowditch & Dewey law firm in Worcester. He said Chapter 180 nonprofits that aren't federally tax exempt can act just like for-profit corporations. While they don't have stockholders, they usually have "members" who can receive profits from their activities. He said MHOC's articles of incorporation did not appear to him to contain unusual language.
Kinder, Gentler Development
MHOC markets itself to local communities as a friendlier alternative to traditional 40B developers.
When the corporation first started, Welch said, he sent letters to towns and then worked with the local officials that called him, building projects that they agreed were appropriate. With many local leaders worried about dense Chapter 40B projects being foisted on them as long as they fail to meet the state-set threshold of having 10 percent affordable housing, MHOC offered an alternative.
Welch said the company only works on "local initiative projects," which require the support of local communities but offer developers the same freedom from local zoning rules as regular 40B developments.
But not all of MHOC's dealings with towns have been positive. In Harvard, a proposed condo project is now in mediation because MHOC is appealing conditions placed on the project by the local zoning board of appeals.
In Sterling, another of the company's projects has become the center of a series of lawsuits and countersuits between Welch and one of his former partners.
According to Welch, these conflicts are relatively minor issues and have little to do with the work MHOC does, and he points to largely positive relationships the corporation has with communities where it has done business.
MHOC also seems to have a good relationship with local residents in Sterling. A 45-unit condominium complex there got local approval, went up with little public outcry, and all but two units have now been sold.
"There were no real objections from citizens or anything," said planning board member Ken Williams. "It seems to fit. A few people I know that are there seem to be happy."
Legal Squabbles
But the project, known as Chocksett Crossing, led to a storm of legal trouble between Welch and one of his partners in the effort.
Vincent CampoBasso of Sterling got involved with the project as a lawyer for MHOC of Sterling and later invested in the project. But the partnership fell apart. In 2006, Welch and MHOC sued CampoBasso and several other parties that were involved in the project, accusing him of, among other things, failing to provide money he had promised, giving improper legal advice and unethically arranging discounted prices for friends and family members buying units in the development.
The other parties named in the lawsuit include Dale Morrow, an investor, and Gibraltar Mortgage Services.
CampoBasso denied the charges and countersued, saying in legal filings that Welch and a third partner, Michael Ivas, who was employed by MHOC at the time but left the partnership last year, never provided him with good financial information about the project.
No judgments have been made on the suits so far. Court documents filed for CampoBasso refer several times to MHOC's relationship with another of Welch's companies, a for-profit entity Gerard Welch Inc. For example, the suit claims that MHOC contracted with GWI to build the project at a rate of $24,500 per month for 24 months.
The AG's office references to "self-dealing" in its Nov. 7 letter also appear to refer to GWI, which MHOC listed as its "highest paid consultant" in its 2003, 2004 and 2005 filings with the office. The payments to GWI ranged from $12,944 in 2005 to more than $187,000 in 2004, according to the filings.
Welch said there is nothing improper about the way his companies have worked together, and MHOC has never paid a related company above market value.
But state Inspector General Gregory W. Sullivan has questioned such arrangements, saying that in some cases developers make extra money on 40B projects by hiring related companies. Chapter 40B limits profits on the developments to 20 percent, but in a letter to legislative leaders last year, Sullivan wrote that the rule is not enforced well enough and that related-party transactions are a common way of abusing the system.
Welch said he is undergoing an audit now that will show the Sterling project is within 40B project requirements.
Despite the questions about MHOC, state agencies have helped to finance its projects over the years.
Massachusetts Housing Finance Agency, the independent public authority that promotes affordable housing in the state, loaned the company $4.5 million for Chocksett Crossing in Sterling, which has already been repaid, and has agreed to lend another $3.2 million for the Harvard project. Spokesman Tom Farmer said the agency will follow MHOC's discussions with the Attorney General's office as it prepares to make that loan.
Another project MHOC is planning, a 100-unit rental property in Lunenburg that is expected to be 60 percent affordable, recently won $2.8 million in federal and state funding, including tax credits and loans through the state Department of Housing and Community Development.
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