Out of the Ballpark

13 min read

Pro Athletes and Owners Build Affordable Housing

During his playing days, Mo Vaughn, the 1995 American League MVP, was celebrated for his big bat and patrolling the first base side of the infield, at Fenway Park in Boston, Anaheim Stadium in California, and finally at Shea Stadium in Queens. But since his injury-mandated retirement in 2003, Vaughn has been dominating a substantially larger piece of real estate: the low-cost and affordable housing spheres of the Bronx, Brooklyn, and elsewhere.

In retirement, Vaughn was living mostly in Ohio and had made some investments in bars and nightclubs, without great success. But he heard that people were developing and owning real estate using tax-exempt bonds and low-income housing tax credits. He brought the idea to his longtime attorney, friend and advisor Eugene Schneur and suggested they try it in New York, where the low-income housing need was acute and much of the available stock was marginally habitable at best. Vaughn had been looking for his next career, and thought this would be a way to give back for his own good fortune.

Together, Vaughn and Schneur formed Omni New York, and brought in Rob Bennett, a developer with 25 years of affordable housing experience. Vaughn thus joined a list of people in professional sports in America, both athletes and owners, committed to building better communities via affordable housing, a practice that goes back as far as Jackie Robinson.

Omni quickly developed a reputation for taking on the most difficult, majority Section 8 projects, where drug dealers and other violent criminals, rats and vermin infestation, and near total neglect have left tenants in a state of perpetual despair. Omni’s model became to purchase, transform, and manage each building, all without displacing a single resident during the process.

“When it’s not distressed, it’s not for sale, we’ve found,” Schneur told Real Estate New York. “When there’s no way to keep it affordable, we don’t do deals.”

Omni’s first deal was Brookhaven and Thessalonica Apartments in the Bronx, involving $28 million in New York Housing Development Corporation bond financing, secured with a letter of credit from Citi, and financed via the four percent LIHTCs that had initially caught Vaughn’s attention. He and Schneur had been turned down by a number of banks prior to approaching Citi, with whom they’ve done business ever since.

The Noble Drew Ali Plaza in Brownsville, Brooklyn was so dangerous and in such bad shape that the Postal Service had stopped delivering mail. Using tax credits and other subsidies, Omni spent two years and $25 million on a total rehab, including market-rate style amenities, such as laundry, community room and upgraded lobbies, as well as adding 400 cameras and a security detail.

To date, the firm has installed more than 7,000 cameras to secure its properties and keep tenants safe.

The massive 1,654-unit River Park Towers in the Bronx required a $100 million transformation that included all new energy equipment and a conversion from electric to gas heat. Vaughn was also involved in the rehab of the 195-unit Whitney Young Manor in Yonkers, originally built by his hero Jackie Robinson’s construction company.

Omni currently has more than 400 employees and owns and manages about 12,000 low-income housing units. It has branched out to Massachusetts and Wyoming and Vaughn and Schneur want to launch their challenging, but proven, business model in other geographic areas. Tenant associations and advocacy groups, generally wary or downright hostile to landlords, welcome Omni’s involvement knowing that when Vaughn – recipient of the 2010 John W. Macy Lifetime Achievement Award from the National Alliance to End Homelessness – says things are going to improve when Omni takes over, he is as good as his word.

Triple Bottom Line
Ervin “Magic” Johnson is one of the most successful and entrepreneurial businessmen to emerge from the pro-sports ranks, having developed an empire of movie theaters, a record label and extensive real estate holdings, all bundled into Magic Johnson Enterprises, as well as being part of the ownership team that bought the Los Angeles Dodgers in 2012. He credits his business acumen to his relationship with the late L.A. Lakers owner Jerry Buss. Through his real estate partnership, Canyon-Johnson, he goes after what he calls a “triple bottom line,” of financial returns, community development and affordable housing, and environmental responsibility through LEED certification.

Well known for his AIDS activism since he courageously announced his HIV-positive status in 1991, Johnson has been equally committed to figuring out ways to improve the lives of urban community dwellers in various, often out-of-the-box ways. He created a prepaid MasterCard to help low-income people save money and obtain credit and went into a large-scale venture with Starbucks to place more than 100 stores in previously neglected urban areas. He has also championed workforce housing so that teachers and municipal employees could afford to live in the communities in which they work.

Unlike Vaughn and Omni New York, Johnson has been more involved in market-rate projects with an affordable component. Some have criticized him and his development partners for merely using it to enhance his image and get the projects through zoning and approval. His supporters say it has always been Johnson’s goal to assimilate the disadvantaged into society, where the job and opportunities are.

Canyon Johnson has employed a combination of LIHTCs and New Market Tax Credits and tax-exempt bonds, such as with 2012’s $160 million One Santa Fe mixed-use development in the downtown Los Angeles arts districts.

Reality Beyond Magic
Wanting to effect change while securing an income during their post-playing days is a natural instinct, especially considering the backgrounds many athletes come from, Johnson included. But if you don’t have Johnson and Vaughn’s sophistication and expert partners, it isn’t easy.

“I’ve seen athletes dabble in real estate while they’re still playing, but they generally have to have advisors. There is absolutely no way they can pay attention to all of the critical details while they’re still playing,” comments Marshall Phillips, partner with Cohn Reznick accounting and consulting firm in Charlotte, North Carolina.

Tate George, former guard for the New Jersey Nets and Milwaukee Bucks, received plaudits for his work spearheading affordable housing in Newark, New Jersey and Bridgeport, Connecticut. But he was then convicted of wire fraud in 2013 connected with what prosecutors said was a Ponzi scheme to defraud investors. After a year in prison, George continued to maintain his innocence.

Happily, such instances among athletes are rare, but the challenges are great. Christian Laettner, controversial forward for Duke and the Minnesota Timberwolves, and the only college player on the 1992 Olympic basketball “Dream Team,” set up a company to turn rundown industrial space near his old haunts in Durham, North Carolina into affordable housing, taking in investors, including fellow b-ballers Scottie Pippin, Johnny Dawkins and Buffalo Bills linebacker Shane Merriman. But subsequent efforts were hampered by downturns in the economy, overexpansion and disputes with partners.

“So many of these athletes come from the projects and the affordable housing environment that it’s natural that they’d want to do well by doing good,” states Brig Owens, former star safety for the Washington Redskins during the Vince Lombardi and George Allen “Over the Hill Gang” era. When he retired from the game, Owens completed law school, served as Assistant Executive Director of the NFL Players Association, and then went into business with a firm in Washington that developed commercial real estate and represented and advised professional athletes.

“I like to see these guys doing things in their communities rather than an ‘I’ve got mine; you get yours’ attitude,” Owens comments, while noting, “But as romantic as it sounds, you can lose real big, real quick, if you don’t know what you’re doing.”

As Phillips notes, “One great pitfall for inexperienced people getting into affordable housing development is that they don’t understand what they don’t understand.

“The guys who are good are relentless on details and understand the gaps and how to deal with them,” he says. “They always seem to be able to scrap and claw for that last $500,000, or whatever they need. They know how to tell their story well; they get to know people at City Hall; they get on every possible grant radar.”

Teamwork and Entrepreneurship
Owens has always stressed athletes learning to take care of their own business affairs, beginning with such basics as opening a bank account and using a credit card. From there he advises establishing a relationship with a banker and getting a lawyer and/or financial advisor, “so you can understand your own investments. What I always tell new pro players is, ‘Don’t let anyone use your status to improve their status.’

“Since high school at least, these guys have been part of an athletic system where everything was done for them and all they had to do was be team players. All of a sudden, they have all this cash and everyone is knocking on their door. Now they need a new type of education: how to be an entrepreneur, and what finance is all about. They have to understand that a real estate-based investment of any kind has to be thought of as a long-term commitment.”

Through his activities as a team player representative and a union official, Owens is one of the people who made it possible for today’s pro athletes to have “all this cash.” But he’s seen too many of them lose everything because they weren’t prepared to take on the responsibilities that go with investments.

Legendary Dallas Cowboys quarterback Roger Staubach made a second career, as well as a sizable fortune, in the real estate business. Staubach has always been known as a team player with a strong sense of social responsibility in all of his endeavors. When he sold his Company to Jones Lang LaSalle in 2008, he distributed a significant portion of the nine-figure purchase price to his employees.

The Annapolis graduate founded Allies in Service to help fellow military veterans secure employment, education, healthcare and affordable housing, and has publically encouraged a wide range of low-income housing initiatives, including President Jimmy Carter’s Habitat for Humanity. Since the 1980s, Staubach has been a vocal advocate for reforming tax laws to give more incentive and support to affordable housing.

Recently Staubach developed the 1,000-unit Trinity Groves in Dallas, with 20% of the apartments designated affordable. The mixed-use project will eventually cover
31 acres with 5,800 apartments, 1.4 million feet of retail and entertainment, and 3,000 feet of office space. And this past April, former Miami Heat Center Alonzo Mourning announced construction of the Courtside Family Apartments in the city’s Overtown neighborhood, designated for residents earning no more than 60% of area median income. Financing for the $22.8 million project includes $9 million from Florida Housing Finance Corporation LIHTCs.

It’s All Related
Most owners of pro sports teams are sufficiently wealthy and community-minded that they involve themselves and their teams in a variety of local and national charities. And as far as newer owners, they had to be pretty good businessmen to afford the stratospheric price of entry. But a few have taken on affordable housing and community development as specific passions. Now one of the largest owners of luxury rental properties in New York, as well as the Miami Dolphins football team, and a major philanthropist, Stephen M. Ross, began his real estate empire with affordable housing.

Trained as a tax attorney, Ross went out on his own after stints with Coopers & Lybrand and Bear Sterns to create tax shelter deals involving affordable housing for wealthy investors. These successes allowed him to develop deals on his own involving residential apartments, retail, office and mixed use. In 1972, he consolidated his holdings into the now international Related Companies, with 2,000 employees and more than $15 billion in assets. Its most prominent development to date is New York’s Time Warner Center. By 2008, Ross was able to purchase the Dolphins for more than $1 billion.

His philanthropic contributions to education, healthcare and urban development are well into the high hundreds of millions. And affordable housing still represents the majority of Related’s residential holdings: 45,000 below-market-rate apartments in 19 states. According to a 2006 Wall Street Journal profile, affordable housing has provided the stability Related uses to go after hugely ambitious ideas, like transforming Hudson Yards on Manhattan’s far west side into a $20 billion, 16-story skyscraper mixed-use environment.

“Behind his soaring ambitions and colossal budgets is something unusual in the world of commercial real estate: a financial engine based on government-subsidized housing that funds these risky endeavors. . . Mr. Ross turns a profit because he has mastered the complex business of tax credits that help finance the nation’s low-income housing.”

In addition, he founded CharterMac, which sells tax credits to investors and invests in tax-exempt bonds for low-income housing.

Personal Passions
Cleveland Cavaliers owner Dan Gilbert got his start selling houses, but quickly realized the real profit was in selling mortgages. Out of that realization grew Quicken Loans, one of the largest such firms in the country. Gilbert’s companies, including One Reverse Mortgage and other sports, gaming and real estate interests, were combined in Rock Ventures. He demonstrated his passion for urban redevelopment, with Quicken’s move to his native Detroit in 2010. Gilbert is currently rehabbing a vacant building in the Capital Park area using Federal Historic Tax Credits, a state loan and traditional debt. He and other area businessmen are attempting to spur a revitalization of the blighted and neglected city through use of LIHTCs and historic credits on a large scale.

The late Abe Pollin owned the Washington Wizards NBA team, Capitals hockey franchise, and Mystics Women’s NBA team. He had an enviable reputation for civic-mindedness and social conscience. His self-financed effort to locate a pro sports arena – currently called The Verizon Center – in the heart of the long-blighted Seventh Street corridor, was fundamental in transforming the area into a vibrant mixed use and entertainment district. He awarded numerous college scholarships to dedicated public school students who otherwise could not afford to attend.

Pollin and his wife Irene turned personal tragedy into public good. After their daughter Linda died of congenital heart disease in 1963 at age 16 – they’d already lost a one-year-old son, Kenneth, to the disease 11years earlier – Pollin went into a yearlong depression, emerging dedicated to build a nonprofit low-cost housing development in Linda’s memory.

According to the 2009 Washington Post, “When it was built in Southeast 45 years ago, the original Linda Pollin Memorial Housing complex ‘gave black people a new way to live,’ said Cardell Shelton, a longtime Ward 8 activist who worked as a brick mason on what many people still call ‘the Linda.’” At the time of his death, Pollin was getting ready to dedicate the Linda Joy and Kenneth Jay Pollin Memorial Community Development affordable housing project.

As Mo Vaughn would say, it’s all part of giving back.