Twice-Bankrupt Developer Figures in N.Y. Deal

When a Cheektowaga, N.Y., landlord approached the town board with a plan to revitalize a depressed area along the Buffalo city line, they jumped at the opportunity. In just three months, the plan, which includes selling up to $100 million of tax-exempt bonds through the Village of Kenmore Housing Authority and selling two town roads to turn the Kensington Village Apartment complex into a gated community to house up to 1,208 college students, had a conditional go-ahead from the local government and a bond issuing authority. What didn’t seem to garner much notice was that the owner of the project would not be the current landlord, Ken Vill Associates, but a nonprofit headed by California real estate developer Charles G. Oewel. While Oewel boasts that he has built 4,000 apartments during his career as a developer, he is reticent about two bankrupt real estate developments to which court documents connect him. Nor did presentations to the town board highlight the fact that the nonprofit, Mustard Seed Housing Inc., ran operating deficits for three straight years in the only project it owns, a single house near the University of California at Berkeley valued at $1.5 million, according to tax filings. Today, Mustard Seed is seeking up to $350 million of tax-exempt bonds in three states for student housing projects in partnership with Capstone Development Corp. Capstone has developed more than 40,000 beds of student housing both on and off campus since it was formed in 1990.One of those projects would use up to $160 million of tax-exempt bonds to build student housing for Arizona State University in Phoenix — that deal is set for a vote by the Phoenix Industrial Development Agency on July 24. Another project seeks about $90 million of tax-exempt bonds for housing for students of Marshall University in Huntington, W.Va. Subsidiaries of Mustard Seed would be the obligor in all three developments, though in the ASU and Marshall projects the universities would own the housing after the bonds are paid off. Capstone would construct or renovate the properties and manage them under contract with Mustard Seed, Oewel said.The Cheektowaga town board approved the student housing project, called Collegiate Crossings, on June 26.Cheektowaga agreed to sell two roads that serve the apartment complex to the current owner, Ken Vill Associates, thus allowing the 51-acre site to become a gated community. Ken Vill in turn would lease the land for 48 years to a Mustard Seed subsidiary, which would lease the property to the housing authority, which would then lease it back to the Mustard Seed subsidiary. The lease payments to the housing authority would pay for debt service on the bonds. The town’s approval of the deal is contingent on Mustard Seed’s subsidiary getting approval as a nonprofit low-income housing developer from the New York State Board of Real Property Services.Tenants in the one-, two-, and four-bedroom units would rent by the bed rather than apartment, with most beds going for $742 per month on a 12-month lease, according to project materials. Mustard Seed would also offer a $100 discount to 20% of the students based on income. The attraction to this model of student housing is that rent includes all utilities, Internet access, and furniture, Oewel said. The student is responsible only for rent on the bed, not the entire unit, he said.“It’s a market that is woefully underserved,” Oewel said of the student housing market in the Buffalo area. “There is a significant demand for that product.” But the price he’s asking may be too steep in an area where two-bedroom apartments tend to rent in the $650 to $950 range. Beds at the residence halls at nearby University at Buffalo rent for about $100 less per month than they would at Collegiate Crossings and the rooms listed on the university’s off-campus housing Web site tend to run from $200 to $600. “It’s not really cheap,” said town attorney Kevin Schenk about the Collegiate Crossing rents. “They claim these are low-income students who are coming in there, [who] are referred by colleges in the area. I mean, that’s our concern. If [the developer is] making that kind of money, are they really a not-for-profit?”Oewel projects that the apartments will bring in $10 million annually when the project is completed in 2009. But that calculation assumes 100% occupancy 12 months a year, minus the $300,000 of discounts. He is also counting on growth in enrollment at eight local colleges to spur demand. Cheektowaga Town Council member Thomas Johnson Jr. said the planned housing would revitalize the area and bring the town $678,000 a year in a payment in lieu of taxes. But he didn’t know much about Mustard Seed.“Who’s Charles Oewel?” he asked. The town had only had dealings with Ken Vill Associates and had deferred to the housing authority’s vetting of the project, Johnson said. RBC Capital Markets is underwriter on the Cheektowaga deal and Damon & Morey LLP and Hiscock & Barclay LLP are co-bond counsel for the housing authority. Robert Spangler, managing director at RBC, declined to comment on the deal or bankruptcies.Ken Vill Associates did not return repeated calls asking for comment on the project. Schenk said he didn’t know much about Mustard Seed’s history or details of the plan. “We haven’t seen a lot of documentation from them, it’s all been verbal presentations for the most part,” he said. He also said that Ken Vill had declined to show them details of the lease, which the assessor had wanted to help calculate PILOT payments. The project would be an unusually large one for the Kenmore Housing Authority, which has only issued bonds twice in the past 20 years, according to Thomson Financial. The authority sold $19.2 million of bonds in 2002 and $21.8 million in 1999. Calls to Capstone for comment were referred to president and chairman Michael Mouron, who did not respond to repeated calls. Mustard Seed has been involved in only one project since it was founded in September 2000. In a collaboration with the nonprofit Westminster House, which provides housing in a religious setting, Mustard Seed renovated a house across from the University of California Berkeley campus with room for 46 students. The house, called Le Conte house in Mustard Seed filings, is valued at $1.5 million and ran deficits of $137,107 in 2003, $58,464 in 2004, and $205,191 in 2005, according to Mustard Seed’s 990 federal tax forms. Revenue during those years was volatile, ranging from $103,578 to $262,041, according to tax filings. A significant portion of those deficits was from depreciation claimed on the property. Rents at Le Conte house currently range from $835 to $1,210 per bed. At the current rates, the house should bring in annual revenue of at least $307,280, using the lowest rental rate and assuming 100% occupancy eight months out of the year. In 2006, the California Municipal Finance Authority issued $16.2 million of refunding bonds for Le Conte house renovations and another building, but the debt was sold on behalf of Westminster, rather than Mustard Seed, and the Presbyterian Church acted as guarantor to the debt. The bonds were privately placed.Mustard Seed and Westminster operate closely together, with two Westminster employees on the board of Mustard Seed, and Westminster’s executive director and pastor Randy Bare is a partner with Oewel in the consulting firm Student Center Associates, which operates out of the same office as Mustard Seed. Oewel ran into trouble on two real estate developments near Sacramento in the past 10 years, according to court documents. Oewel was named as one of two responsible individuals in the bankruptcy case of Creekside Colony LP that was developing 201 residential lots in El Dorado County, Calif. Creekside sought Chapter 11 bankruptcy protection in 1998 and later converted to the case, which closed in 2001, to Chapter 7, according to court documents.Oewel said he had no knowledge of the partnership, even though California records show that he registered it with the state in 1996. Peter Maurer, principal planner for the county, said he had dealt with Oewel on that project as well as another bankrupt project in the adjoining Alpine County called Timber Ridge. “It was the same Charles Oewel,” Maurer said in an e-mail. When a reporter pointed out to Oewel that his name appeared on court documents and read the address, Oewel said he had “no comment.”In the fall of 2000, Oewel registered two new entities with the state. One was the nonprofit Mustard Seed and the other was the for-profit Provident Pacific Corp., which later operated out of the same Belvedere, Calif., address, according to state filings and court documents. The Timber Ridge project was to build a 28-unit luxury condo development in the town of Kirkwood. Creditor MKA Capital Group Inc. brought foreclosure proceedings against Provident. Provident claimed it owed creditors MKA and IndyMac Bank $21.7 million for construction loans as well $6.8 million to unsecured creditors, according to court documents. Provident also claimed that the unfinished Timber Ridge project that primarily secured the debt was worth $37.5 million. But in July 2005, MKA challenged that and an independent appraiser put that value at $15.5 million or up to $25.6 million if completed, according to court papers. MKA took possession of the property as part of the settlement. Asked about what went wrong at Timber Ridge, Oewel initially claimed ignorance. “I don’t have any relation to Provident Pacific Corp. so you must have the wrong connection there,” Oewel said. He eventually admitted to having been involved with the project in 2001 and 2002. When a reporter pointed out that the court documents stated that he was the responsible party in the bankruptcy, he said, “I have nothing to say about it.”But MKA chief executive officer Michael Abraham did have something to say about the project, which he said cost his firm an estimated $12 million. “He came to us and borrowed money and did not pay it back,” he said. “It’s just been a very costly event that never had to happen except for Charlie Oewel.”