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What's the future of Fayette Place?

A tenuous deal would convert a former housing project into off-campus apartments

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A baby doll peeks through lace stockings and a dark overcoat, surrounded by shattered glass. A single silver flat shoe lies a few feet away and, on a nearby staircase, a plastic safety cap preserves a half bottle of children's cough syrup.

From the late 1960s until 2002, this two-story apartment was one of 200 the Durham Housing Authority rented to low-income families, clustered across 20 acres of sloping, mostly treeless fields behind Fayetteville Street. In 2007, after DHA lost more than $800,000 in a failed attempt to convert the aging complex into for-profit, Section 8 housing, Philadelphia-based Campus Apartments bought the property for $4 million with its own plan for low-income housing: off-campus apartments reserved exclusively for low-income students at nearby North Carolina Central University.

The project could revitalize the northern end of Fayetteville Street, alleviate N.C. Central's overcrowded dorms and relieve DHA of some of its debt. Yet, there are several hitches in the deal that could jeopardize the project's success.

  • N.C. Central officials say the university didn't sign on to the 2007 purchase agreement between DHA and Campus Apartments. It's no wonder: N.C. Central and the company have clashed over a separate deal that cost the university millions of dollars.

  • Campus Apartments, with the federal government's blessing, can convert part of the complex to "general commercial uses" including shops and resturants, as long as it contains beds for 168 low-income residents. However, the company must first get rezoning approval from the City of Durham. It hasn't yet contacted the city-county planning department.

  • If Campus Apartments can't meet these terms, the property—the sale of which helped DHA pay down its substantial debt—could revert to the housing authority, leaving the blighted property's future in doubt.

A prepared statement from N.C. Central Public Relations Director Miji Bell said, "We have had exploratory dialogue with Campus Apartments about how the property might be developed and, as Campus Apartments plans for development of the site, we look forward to further discussions."

Campus Apartments spokesperson Erin Allsman noted that "some of the details are not yet final," but declined to elaborate. The company, which owns or manages more than 21,000 "off-campus" beds loosely affiliated with 50 universities, bills itself as one of the largest student-housing companies in the United States.

Backed by that clout, Campus Apartments contracted with N.C. Central on another dicey—but, for Campus Apartments, lucrative—project: Campus Crossing. Under that agreement, the university paid the company to lease all 564 units in the apartment complex, even if there were vacancies. N.C. Central terminated that agreement earlier this year, after acknowledging it had cost the school more than $5 million over four years.

However, DHA supports the idea of offering student housing on the site. "We made a really good deal for that property. We acted as quickly as possible to get what was necessary for the taxpayers and to do the right thing for the property that suited everybody involved," said Jean Bolduc, DHA director of communications.

Fayette Place's recent troubles began in 2002, when DHA sold the project for $1 to its for-profit (but tax-free) subsidiary, Fayette Place, LLC, which planned to convert the community to Section 8-subsidized housing. Under Section 8, qualified low-income families rent from landlords who agree to participate in the program. The public housing authority covers part of the rent.

Yet, without authorization from the U.S. Department of Housing and Urban Development, DHA financed its business venture by "inappropriately advancing funds and guaranteeing loans for nonfederal development" totaling more than $700,000, according to a 2004 HUD audit. Within two years, Fayette Place, LLC had defaulted on its loans; HUD found that DHA owed roughly $829,000 on the property.

Mired in debt as a result of the botched deal and other unapproved financial transactions totaling $5.3 million, DHA never renovated the apartments. Nevertheless, a few dozen residents stayed in the mostly abandoned complex, until Campus Apartments agreed to purchase the property in 2007.

"We had all this debt," Bolduc said. "If we feel that housing is going to start costing tons of money to maintain, and keep to a certain standard, then you reach that fish-or-cut-bait stage."

There were other bidders for the property, but DHA got a waiver from HUD to negotiate exclusively with Campus Apartments. Its proposed conversion of Fayette Place from public to student housing is possible only because of a contractual obligation to reserve at least 168 beds—or 84 two-bedroom units—for students who are "designated and qualified by NCCU as deserving of need."

If N.C. Central does not participate in the deal, Campus Apartments must instead offer a housing complex with the same number of beds for other low-income people.

"It had to be reused for affordable housing purposes," Bolduc said. "That required that HUD sign off on the sale. If we wanted to sell it to McDonald's for them to build a restaurant, we wouldn't have been able to do that."

Already, DHA has used roughly half of the money from the $4 million sale to pay off the debt on Fayette Place and to reimburse HUD an additional $1 million for "inappropriately advancing funds" to other projects. Bolduc said the amount of DHA's remaining debt to HUD is "in dispute." The remaining money from the Campus Apartments sale—$2.1 million—can't be used to pay off that debt.

"It's not something we know yet," Bolduc said. "It [the debt] may outlive us all."

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