Smart Fights Developer’s ​“Insider Deal”

Ten years after buying a vacant city property in Wooster Square and then failing to follow through on a promise to renovate it, a developer wants to sell it and make some money. Not so fast, says Alderman Mike Smart.

Smart, who represents Wooster Square, has come out against a proposed deal submitted to the Board of Aldermen by politically-connected zoning lawyer Tony Avallone.

Avallone is representing developer Peter Chapman, who got a bargain-basement deal on a vacant, city-owned warehouse in 2002 with a pledge to turn it into apartments and commercial space. Chapman fixed up the first-floor commercial space of the property, which sits at 433 Chapel St., but never followed through with the rest.

Now Chapman wants to sell the 30,278-square-foot property (pictured) to a New York owner named Jacob Feldman. He can’t do that without city permission because he broke the terms of his original deal.

So Avallone is asking aldermen to revise a 2002 agreement in order to let Chapman sell the building to Feldman, and pass the responsibility for fixing it up to the new owner.

Smart said Avallone first tried to sneak the proposal through the board using a process that required only Smart’s signature. When Smart refused, Avallone tried to slip the deal through under a fast-tracked ​“suspension” agenda. That also failed. Then Avallone sent a proposal directly to the full Board of Aldermen.

Now the proposal, which Avallone submitted to aldermen on Sept. 16, will be the subject of much public debate as it moves to the City Plan Commission and the aldermanic Community Development Committee for public hearings.

Meanwhile, the proposal is raising questions not just about this deal, but about how the city handles developers who break promises.

“This raises serious ethical concerns for me,” said Smart. ​“As the alderman, I don’t support this.”

“Here’s a building that was here for 12 years,” he said. ​“The things that were supposed to be done, they weren’t done. … And now they can make a profit?”

Smart called for the city to demand compensation from the developer for failing to comply with the terms of the deal.

The city does plan to charge the landlord a penalty for breaking the 2002 agreement, according to Erik Johnson, head of the Livable City Initiative (LCI), the city’s anti-blight agency. He said the terms of that penalty have not been decided.

Avallone argued the deal is in the city’s interest: ​“The end result is that the city will get the property developed.”

The story begins in 2000, when the city acquired the property through tax liens. The six-story brick warehouse, built in 1870, used to be an upholstery factory. The city cut a deal with Chapman to buy it for cheap — with a promise to convert it into 14 apartments with commercial space on the street level.

The city sold the property to Chapman (pictured) on Jan. 4, 2002 for $152,000. That’s $5 per square foot.

In return, Chapman agreed to fix it up within 18 months. The March 2003 deadline to complete construction is laid out in a land disposition agreement approved by aldermen in 2001 and attached to the deed.

Chapman also agreed not to sell the property to anyone until he had completed renovations.

The deal empowers the city to take back the property or charge Chapman a penalty if he breaks the terms of the agreement.

Chapman did make some renovations. He converted the first floor into a home for the Devil’s Gear Bike Shop and a personal training studio. But he failed to follow through on converting the upper stories into apartments.

At one point, around 2007, Chapman rented out apartments to tenants even though he had no certificate of occupancy. LCI visited the site and kicked out the tenants.

Meanwhile, Chapman sought a way to reconfigure his apartment conversion plan. He got city zoning approval in 2007 to increase the number of apartments from 14 to 18. He also got approval from aldermen to change the terms of the deal at that point, according to Johnson.

Last year, Chapman returned to the zoning board with a prospective buyer. They got permission to expand the number of apartments from 18 to 22. This time, Johnson said, ​“there was a disconnect” between city entities. Chapman didn’t seek approval from aldermen to change the terms of his land disposition agreement (LDA). And LCI didn’t point it out.

Chapman broke the terms of his 2002 agreement in two ways, Johnson said. First, he neglected to tell the city when he changed ownership of the property from his name into a limited liability corporation he owns, LA SARAGHINA, LLC, in 2004. Johnson said Chapman was legally allowed to change ownership in that way, but he was required to let the city know.

Chapman also broke the agreement by failing to renovate the upper stories into apartments within the required timeline, Johnson noted.

New Deal

Because Chapman broke the agreement, the title isn’t free and clear. In order to sell the property, Chapman has to make amends with the city.

Avallone proposed amending the 2002 land disposition agreement in three ways: To forgive Chapman for changing the building’s ownership to his LLC without telling the city; to change the number of apartments from 18 to 22; and to allow the sale of the property to Feldman.

Johnson said he does not know the proposed sale price. Avallone declined to state the price. He referred comment to Chapman, who could not be reached for comment.

Avallone said he doesn’t know why Chapman failed to fix up the property over the years. He said the situation isn’t unique — developers often take on properties and are unable to make a project work.

Avallone justified his proposed deal in this way: Because of the way the land disposition agreement is written, the city ​“would have trouble claiming the title” back from Chapman, according to his legal opinion. If the city tried it, that may lead to lawsuits, he said. It’s in the city’s interest to settle the matter by agreement instead of getting tied up in lawsuits, he argued.

Instead, he said, the city should get the property moving by letting Chapman sell it, so it can be renovated according to the original vision.

“At the end of the day, the property will be developed in accordance with what the city wants,” Avallone said.

“What Is LCI Doing?”

Smart, meanwhile, said the proposal smells of an ​“insider deal.”

If the city goes forward with it, he said, it will set a precedent that developers can ​“get away with” breaking promises. ​“It’s not a fair process for people who do the right thing.”

Smart blasted LCI for failing to uphold its duties.

For a decade, LCI never issued written demands addressing the way Chapman violated the land disposition agreement.

Only recently, after Chapman started trying to sell the property, did LCI issue a notice saying the landlord was in default, according to Johnson.

“For LCI to run around and harass property owners” with its residential licensing program, yet fail to hold a developer to a promise he made after a sweetheart deal, doesn’t sit well, Smart said.

“How did this go on for 12 years and no enforcement?” Smart asked. ​“What is LCI doing?”

Johnson conceded that LCI ​“could have been more aggressive.”

“But for a while there was some development activity that was going on,” he said. Devil’s Gear provided a hub of activity on the site until three years ago, when it moved to a new location downtown.

Smart said he has been left in the dark about the terms of the deal.

“LCI did not give me a presentation. I heard there was some kind of compensation. I haven’t seen it,” he said.

Smart stopped short of urging the city to take back the title to the property. He urged the city to cite the landlord for violating its agreement with the city.

Johnson (pictured) said the city has already done so.

“They’ve already been notified that they are in default,” Johnson said. ​“Their means to cure the default is to transfer ownership to a new person.”

Johnson said Chapman has agreed to pay a penalty for his ​“inaction” on fixing up the property. He said before aldermen take up Avallone’s proposal at a public hearing, LCI will sit down with Chapman and agree on a penalty. Johnson said he would announce the amount of the penalty as part of a package of information presented at public hearings.

Johnson said he first aims to ​“work with the board to see if there is a resolution with the potential purchaser.” If not, LCI will take steps to reacquire the property through its default position, Johnson said.

Meanwhile, neighbor Harry David urged both sides to come up with some solution to revive the vacant building.

“As a property owner next door, I’d like to see the place developed,” David said. ​“It’s in everybody’s interest to have the property not lie fallow. They should find a way to move forward.”