Commission Broke Its Own Rules in Rehab Deal

San Diego Housing Commission officials said Friday that including the Island Gardens Apartments in a federal subsidy program went against their own guidelines, but they defended the controversial project as an “exception” necessary to remove blight from a Southeast San Diego neighborhood.

The commission also released figures showing that the developers of Island Gardens, who include state Coastal Commissioner Gilbert R. Contreras, have been the Housing Commission’s biggest beneficiary under the Section 8 Moderate Rehabilitation Program, which can guarantee high rent payments to landlords for 15 years.

Of the 540 housing units that have been included in the “mod rehab” program since 1979, Contreras and his business partners own 173--or 32%, the figures show. The 122-unit Island Gardens project, in the 3500 block of Island Avenue, is the largest complex in the program.

“Island Gardens was a natural because it was one complex where, when you take the human factor into consideration, it was not a good place to live,” Housing Commission spokesman Ken Guyer said. “There were problems with crime. Problems with drugs. There were problems with residents being afraid to walk around the complex.

“You might characterize Island Gardens as the Housing Commission’s contribution to cleaning up the area. . . . That was the major consideration in taking the . . . allocation and putting it into one area. It satisfied the housing needs and it satisfied the human aspect of it.”

But Guyer and other commission officials Friday conceded that awarding mod rehab rights to Island Gardens went against the agency’s written guidelines. A September, 1984, version of the guidelines states that preference would be given to projects of seven or fewer units.

“That plan is not set in concrete. It doesn’t say this is the way we will do this, come hell and high water,” Guyer said. “We follow the plan. But when a specific thing comes about that we feel is more important, and serves the public better, then we make a decision, a staff decision, to do that project.”

The commission’s list shows that, while the commission selected mostly small properties before and after issuance of the 1984 guidelines, there were three major exceptions.

One is an 89-unit apartment complex on Del Sol Boulevard that qualified for the federal program in mid-1982. Del Sol Associates renovated the apartments and was awarded the mod rehab contract, commission records show.

The other two exceptions belong to Contreras and his business partners. Their first mod rehab project was Fairmount Gardens, a 52-unit apartment complex in the 1300 block of North 47th Street. It qualified for mod rehab in 1981.

Their second was Island Gardens, which was approved after the 1984 guidelines were promulgated. It captured nearly half of the 257 mod rehab units allocated by HUD between 1984 and 1986.

The commission’s handling of the Island Gardens deal is the subject of an investigation by the U.S. Department of Housing and Urban Development, federal officials disclosed this week. HUD officials said they asked their inspector general to investigate after commission officials refused to let a HUD employee examine their files on the project. HUD had previously warned the commission that the project had the appearance of “favoritism” to the developer.

A Times investigation of the deal revealed that the commission apparently violated HUD regulations by not advertising the availability of the mod rehab units later awarded to the Island Gardens developers, a partnership called Conruba.

The Times also revealed that Contreras hired commission Executive Director Ben Montijo’s teen-age son to work on construction crews at the apartments for three weeks. Montijo said the arrangement was cleared through the commission’s attorney, who ruled that there was no conflict of interest.

The controversy--one of several to buffet the commission recently--prompted Mayor Maureen O’Connor to call a closed session of housing commissioners for Monday to talk about Montijo’s job performance, as well as the circumstances surrounding the Island Gardens deal. O’Connor said she is particularly concerned about indications the commission hasn’t followed HUD regulations requiring newspaper ads about the program.

In the complicated deal to renovate Island Gardens, the Housing Commission purchased the apartment complex in December, 1984, and held onto it for nine months so Conruba could line up financing. Part of that included a $709,000 loan at 16% from the public agency.

The commission also put up $1.3 million in letters of credit to back the project, and it eventually lowered the interest rate to 8% on the Conruba loan.

In the interim, the commission recommended including Island Gardens in the mod rehab program. HUD approved, but one of its administrators warned in a Feb. 6, 1986, letter that the commission’s financial involvement in the deal “could be construed as an identity of interest transaction or favoritism to an owner. Therefore, the relationship between your agency, the owner, contractor and subcontractors, should be reviewed.”

Montijo and his staff have vigorously defended the project and denied they barred the HUD employee from seeing the files. The executive director said Friday that he was “looking forward to” his closed-door meeting on Monday with the commission, the majority of whom are City Council members.

Guyer said it was social good--not favoritism--that prompted the Island Gardens deal, and it was the commission staff that suggested to Conruba that it apply for the mod rehab program. A letter from Conruba in commission files shows that the partnership first inquired about the program in January, 1985.

“It was done for the people, not Gil Contreras and anybody else,” Guyer said.

The project lies within an area designated for special attention under a city program called Project First Class. The program has used extra funds to step up building code enforcement, control litter, remove abandoned vehicles, pave alleys and repair sidewalks. The project was conceived by 4th District Councilman William Jones.

Guyer also said Friday that commission officials do not believe they violated any federal guidelines about advertising the program. They have said they rely on word-of-mouth in the development community to spread the news about mod rehab.

Federal guidelines require that once the agency receives an allotment of units from HUD, it must promptly “make known to the public through publication in a newspaper of general circulation, as well as through minority media and other suitable means, the availability and nature of the program.”

But Guyer said commission officials have relied on a 1984 HUD memorandum to interpret that regulation. The memo, issued to all local housing agencies in the nation, says they have “considerable latitude” to decide “when and how often to advertise.”

Once a housing agency prints a public notice about an allocation of mod rehab funds, the memo states, “subsequent public notices would then be issued whenever the (agency) finds there are insufficient approvable owner applications in the pipelines. (Agencies) are not required to readvertise after each allocation of Moderate Rehabilitation units.”

The commission has been able to produce only one newspaper ad in connection with the federal program. It was published in the San Diego Daily Transcript in May, 1984, notifying owners about 27 mod rehab units that were available.

But that ad, paired with commission marketing efforts, has been enough to attract a long list of interested landlords, Guyer said. Since there are enough applications in the “pipeline,” he said, the commission doesn’t have to advertise every time HUD doles out another allotment of mod rehab units.

HUD Regional Administrator Duncan Howard declined to comment on the memo, or on whether the commission had interpreted it correctly. But O’Connor spokesman Paul Downey said a HUD official in Los Angeles told the mayor’s office that the Housing Commission’s interpretation is wrong and federal regulations require ads on every unit allocated to a local agency.

Contreras did not return phone calls to his office Friday, but he sent a letter to Montijo on Thursday to say he had consented to turn over all files to HUD.

“We believe that the full story about Island Gardens should be aired as soon as possible,” Contreras wrote.