On Dec. 30, the city of Phoenix Housing Department purchased an apartment complex near the Paradise Valley mall for $1. The 206 unit complex will serve as affordable housing for working families, but not everyone is cheering the purchase.
The deal generated criticism from private investors and nonprofit organizations, who had hoped to buy the property themselves, as well as from government watchdogs, who say the city is spending money where it should not.
The investors and nonprofit's had also agreed to keep the complex affordable for low-income families. They offered to pay $4 million for the complex and add additional money for renovations.
"If they know that the private sector is willing to do something, they need to just get out of the way," said Byron Schlomach, an economist with the Goldwater Institute.
The complex at issue, known as "The Summit Apartments," was owned by the U.S. Department of Housing and Urban Development or HUD, because the previous owner defaulted on the government-backed loan.
According to documents obtained by CBS 5 News, the outstanding balance on the loan was $8 million. Officials from HUD and the city of Phoenix came to an agreement to transfer title to the property for $1, as long as the city dedicated Summit to affordable housing and agreed to invest $4 million in stimulus money to renovate it.
The total cost to taxpayers is $12 million when the cost of the loan write-down is taken into account. CBS 5 News analyzed the cost to taxpayers if the private investors or nonprofit offers would have been accepted. The result would have been a $3 million cost to taxpayers.
"Look, the city got the good deal, and then it could turn around and sell the property to someone else, nonprofit's or for-profits. That would have been the good deal," said Schlomach. He argued that the city should use the money for other, more urgent needs.
None of the private investors or nonprofit's agreed to speak to CBS 5 News about their experiences, but one letter written by an investor to HUD stated, "It didn't make sense for the city to purchase this property when a private investor was willing to pay significantly more...and this is not a distressed area."
The source of the funds the city is using is the U.S. Neighborhood Stabilization Program. According to the program's website, the funds are meant to "stabilize communities that have suffered from foreclosure and abandonment."
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