Grand Jury After Records in Housing Agency Deal
A federal grand jury in San Diego has subpoenaed San Diego Housing Commission records in connection with a controversial 1985 housing project that federal officials once warned might appear as “favoritism” toward the developer.
Commission spokesman Ken Guyer said Friday the agency received the subpoena this week for records pertaining to the 122-unit Island Gardens Apartments, located in the 3500 block of Island Avenue. Guyer said the agency has until Feb. 25 to turn over the records to the FBI.
In addition, the subpoena asks for all other commission documents pertaining to any other dealings with the developers of Island Gardens. The developers, in a partnership called Conruba, are state Coastal Commission member Gilbert R. Contreras; his brother, Salvador, and business partner Robert Rubalcaba.
The grand jury’s subpoena indicates the investigation into the Island Gardens deal has widened considerably, but Assistant U.S. Atty. Lynne Lasry, in charge of the grand jury probe, declined to comment on Friday.
The Times reported Jan. 28 that the U.S. Department of Housing and Urban Development decided to investigate the Island Gardens matter after Housing Commission officials barred a HUD employee from Los Angeles from examining files on the project. HUD officials said they have asked the FBI for help, and an FBI spokesman confirmed Friday that his agency is looking for signs of fraud in the deal.
“We are looking into some aspects of that matter as a possible fraud situation,” said the FBI’s Jim Bolenbach. “That’s all you can say. In other words, there’s hasn’t been anything proven so we’re investigating a possible fraud. We certainly haven’t developed an opinion yet and won’t until an investigation has been completed.”
The Times reported that the Housing Commission apparently violated federal guidelines by not advertising the housing rehabilitation program before including Island Gardens for the subsidy benefits. The guidelines require that every local housing agency advertise the availability of the program--called Section 8 Moderate Rehabilitation--in a newspaper of general circulation, a requirement Housing Commission officials say they meet in spirit by using “word of mouth” in the development community.
The Times also reported that Contreras hired the teen-age son of Housing Commission Executive Director Ben Montijo to work briefly on renovation of the apartments. The younger Montijo was paid approximately $600 a week for three weeks’ work--an arrangement Montijo said Housing Commission attorney Larry L. Marshall advised posed no conflict of interest.
Following those disclosures, the city’s housing commissioners, led by Mayor Maureen O’Connor, voted in closed session to begin their own investigation to see if federal guidelines were violated in the Island Gardens deal. Marshall was asked to review the deal and report back to commissioners on Feb. 18.
Guyer said the grand jury subpoena this week is the second from the federal panel in recent months. The grand jury also ordered records pertaining to the complicated purchase-lease transaction for the Housing Commission’s new headquarters at 1625 Newton Ave.
The Island Gardens project first came to the commission’s attention in late 1984, when the developers asked the agency for help in acquiring and renovating the Southeast San Diego apartment complex. Because of financial deadlines, the agency agreed to buy the apartments for $4 million and hold on to them for nine months while Conruba found adequate financing.
The agency sold the complex to Conruba in September, 1985, for $4.2 million, but also agreed to loan the partnership $709,000 at 16%. The interest rate was subsequently lowered to 8% upon Montijo’s recommendation.
In the interim, Montijo and his staff helped Conruba qualify for a rehabilitation allocation for 121 of its units. The agency never advertised the availability of those units.
HUD agreed to include Island Gardens in the rehabilitation program, but it drew attention to the extent of the commission’s involvement in the Island Gardens deal.
“While we do not wish to take the position of advising you on the use of your non-moderate rehabilitation funds, this involvement could be construed as an identity-of-interest transaction or favoritism to an owner,” a HUD official wrote in a February, 1986, letter.
Commission officials have also acknowledged the Island Gardens deal violated their own guidelines for the rehabilitation program, which called for preference to be given to projects of seven units or less. They also released figures that showed Contreras and his partners are the biggest beneficiaries under the rehabilitation program, capturing 32% of all available housing units awarded to the local agency since 1979. In addition to Island Gardens, the businessmen have the 52-unit Fairmount Gardens project in the federal subsidy program.
Housing Commission officials defended their involvement in the Island Gardens deal as necessary to clean up blight and get rid of crime at the Southeast San Diego complex. They said including Island Garden in the Moderate Rehabilitation Program was consistent with city redevelopment goals.
