And this was ‘68 or ‘69?
Yes. I got to know some of my friends in Washington who were running the Model Cities program out of HUD headquarters, which was brand-new at the time. They would come to town every now and then to observe and monitor and provide advice. I got recruited by Nick Farr from the outgoing administration to come to Washington in 1969 to work in the Model Cities program at HUD. Nick Farr was the assistant secretary for Model Cities at the time, and then he was replaced by Floyd Hyde when the Republicans came in, and Floyd’s deputy was Bob Baida. My job was to monitor and sort of relate to the Midwestern part of the country, which meant my territory included Michigan, Illinois, Ohio, and places like that.
I was there three years, and in ‘72 and I was offered an opportunity to move out to San Francisco by Peter Clute, the HUD regional administrator. The nice thing about being there is that you’re 3,000 miles away from Washington, D.C., and you can do what you damned well please.
Baida recruited Peter to head up the Program Planning and Evaluation office. It was really sort of PD&R at the regional level. We evaluated programs and came up with recommendations—and it was a great time. The kids were growing up. We really enjoyed the city, enjoyed working with HUD, and getting to know people up there with whom I’ve maintained friendships to this day.
A highlight was when we were designated by HUD—with Jim Lynn being HUD secretary at that time—as the responsible contractor to do an evaluation of the subsidized housing programs. So we produced something called the Subsidized Housing Evaluation that basically concluded that the programs are successful by serendipity and happenstance. Gosh, it’s amazing that some of these things are successful because they seem to be designed to fail from the start.
Then, in ‘79, Larry Simons recruited me to come back to Washington to work with Marilyn Melkonian, who was the deputy assistant secretary for multifamily activities at the time. I was asked to head up the Office of Multifamily Housing Management and Occupancy. That is today called the Office of Asset Management and it’s responsible for the management of all the [private] HUD-owned, HUD-insured, HUD-managed properties and subsidy programs in multifamily.
So I’m directing this office, having a lot of fun, meeting a lot of very, very wonderful people now at groups like the National Affordable Housing Management Association and I was recruited to join NHP [National Housing Partnership], which was sort of the outcome of the NCHP, the National Corporation for Housing Partnerships, by Lindsay Crump, who was the head of property management there.
So now we’re at about 1986, correct?
Yes, and this is not an insignificant detail because by 1986, NCHP gradually dissipated its resources. The company really built itself pre-’86. At the time, Harold, we were the largest owner-operator-syndicator-manager of affordable housing in the nation, and our goal was to be able to offer ourselves to the investors of this great nation as a company that never had a property that failed.
And so we ended up putting a lot of money into these properties. We ended up setting up our own management company because we learned that we couldn’t rely on our local partners to manage these properties the way they needed to be managed.
That’s a real interesting point, and it reminds me of some of the realities that have sprung up around NSP and the capacity issues and abilities of organizations that are trying to recover all these properties—and that’s in the nonprofit sector.
Exactly. In ‘84 or ‘85, the board of directors of NCHP decided that they needed to recapitalize themselves and bring in additional private sector investors. They brought in Rod Heller to “turn things around.” And he did. One of his first steps, very wisely, was to bring in additional investors—Weyerhaeuser, Berkshire Hathaway, Warren Buffett, Charlie Munger. Jack Creighton, our representative from Weyerhaeuser, went on to run United Airlines for a while.
We got a lot of new capital, which we used I think constructively. But we changed the organization to something called NHP, Inc., registered in Delaware. And so NCHP became the founding foundation, and we graduated into NHP, Inc., which still maintained a vestigial federal connection but was now even much more independent than before.
Then tax credits come along and we say, “Oh, gosh, what is this strange animal? We don’t know anything about it. Let’s not get involved in it,” so we didn’t. We floundered around and got involved in things like what you would now call assisted living—we called it rental retirement communities—which we did not do a very good job at, and gradually kind of spiraled down. The properties that we had were of questionable value and were not always performing all that well, particularly when we got into more conventional market-rate properties. We used the old subsidized housing syndication model and used what we would now these days called mezzanine debt in lieu of equity, the syndicated equity, and learned painfully that, when the properties start to go south, the lenders call in their mezzanine debt. So we were forced with the choice of either letting the properties go or funding them.
Rod recapitalized the company once more and brought in the Harvard Endowment Fund. As it turned out, the real value that the company had was the management company.