The Corruption

Facts behind the proposal to run a shelter at 165 West 9

1. Who are the owners of 165 W 9th Street?

On the deed of sale, which dates back to February 2001, the owners are Tunnel Condos LLC and 544 Court Street Inc.—two shell companies. [1] According to the NYT, Alan Lapes is the owner of one of the shell companies listed as an owner of the building. Lapes is therefore the landlord of the building. [2]

On DOB filings in 2001 and 2004, Stuart Podolsky was listed as the owner. [3]

2. Who are Alan Lapes and Stuart Podolsky?

For more than a decade, Lapes been one of the most active—and controversial—players in the industry surrounding the provision of beds to society’s most needy. While the service is vital, people who have dealt with Lapes say his record is troubling, littered with complaints about poor supervision and lousy living conditions.

Despite multiple scandals—a 2007 Daily News article about one of his facilities dubbed it the “Hell Hotel”—Lapes has steadily, stealthily managed to build a shelter empire. During the last year, as demand for beds increased due to cutbacks in other City programs, the landlord has opened multiple facilities while working in concert with a newly formed, politically connected nonprofit, Housing Solutions USA/Aguila, Inc., headed by Robert Hess, the Bloomberg administration’s former head of the Department of Homeless Services (DHS).

To advocates for the poor, Lapes is part of a wave of profiteers who rousted long-term, low-paying tenants from the kind of SRO (single room occupancy) buildings that dotted the City during the Ed Koch era. In some cases, these flophouses were gainfully repurposed as tourist hotels; at the other extreme, some landlords found the buildings could be more profitably rented to the City as shelters. [4]

Podolsky is a convicted felon with a history of a dirty tactics and scandalous management of homeless shelters with a long term relationship with Alan Lapes. [5] Nearly 30 years ago, he pled guilty—along with his father and brother—to participating in a criminal conspiracy to empty several rent-controlled buildings they co-owned on the Upper West Side. On the front page of the New York Times, then-district attorney Robert Morgenthau described the scheme as “a routine of terror.” [6]

Both men have been employed by the Amsterdam Hospitality Group: Lapes was listed as a “general manager” for Amsterdam Hospitality as recently as last year. [7] Stuart Podolsky was the CEO of Amsterdam Hospitality. [8]

3. What is Housing Solutions USA/Aguila, Inc., the outfit chosen to run the proposed shelter at 165 W 9th Street

Housing solutions USA/Aguila, Inc. is a 15-month old nonprofit headed by Robert Hess, former commissioner for the DHS. [9] Board members include:

- Charles Wertman – a man who, according to public advocate Bill deBlasio’s list of worst landlords in the city, ranks at #80. Coincidentally, he also represented Lapes in his purchase of 165 West 9th Street (see below for more details). [10]

Daniel Murphy—is said to have provided security at other Lapes facilities, including the Aladdin Hotel, a shelter for homeless couples. The Daily News called the Aladdin a “hellhole” because it was a venue for rampant criminal activity, including prostitution, gunrunning and counterfeiting. Lapes was being investigated in connection with the Aladdin for defrauding the City, although the case fell apart after a key informant quarreled with prosecutors. Lapes denied wrongdoing. [11]

Housing Solutions USA merged with Aguila, Inc. last year. Late last year, Aguila, Inc. was accused by City Comptroller John Liu of over-billing the City by nearly a million dollars for its services (DHS generally disagreed with the report’s findings and recommendations. Nevertheless, DHS stated that it would strengthen its monitoring of Aguila’s fiscal and programmatic performance). [12]

Aguila, Inc., by the way, was running the Aladdin Hotel (aka the “hellhole” hotel) until just after news of the criminal investigation broke. [13]

4. Is there is a connection between Lapes and Podolsky (the landlords) and Housing Solutions USA/Aguila Inc (the service provider of shelter services)?

Public records suggest Hess and Lapes have formed a tight partnership. When Housing Solutions USA filed incorporation papers last year, it listed its address as 317 West 95th Street, a property controlled by Lapes. This August, that building was converted into a homeless shelter, over neighborhood objections. [14]

According to the public record of the sale of 165 W 9th Street, Charles Wertman was the attorney for Lapes. In response to questions about his connection with Lapes in the sale of the property, Wertman “called it a ‘coincidence’ that he also happens to be a board member of Housing Solutions USA.” [15]

Podolsky also has a relationship with Housing Solutions USA/Aguila, Inc.—he or his family members own several of the properties where the outfit operates shelters under contracts with the city. [16]

The relationship between Lapes, Wertman and Podolsky has been longstanding. All three men have been employed by the Amsterdam Hospitality Group, Wertman as general counsel, [17a] [17b] while Lapes was listed as a “general manager” for Amsterdam Hospitality as recently as last year. [18] Stuart Podolsky was the CEO of Amsterdam Hospitality. [19]

5. What’s the big deal if there is a close relationship between the owners of the property and the outfit chosen to run it?

City policies prohibit board members of City contractors from having “any interest” that “directly or indirectly conflicts with the performance of its contract.” [20] In this situation, a landlord stands to profit —likely to the tune of millions of dollars—from the deal to shelter the homeless. He in turn has a close, longstanding and lucrative professional relationship with at least two of the board members of Housing Solutions that will run the shelter. Does this close relationship somehow hinder the performance of the contract? More information is needed to make a determinative decision. Given the troubling history of both Lapes and Aguila, Inc., which merged with Housing Solutions USA last year, the City should launch an investigation into these serious allegations to ensure that there is no conflict of interest before awarding any money to Housing Solutions USA/Aguila, Inc. Millions of dollars are at stake. The taxpayers deserve nothing less than transparency.

6. How much money is really at stake here?

Potentially millions of dollars. As demand for space has risen, the homeless crisis has created some unusual opportunities for landlords to profit by packing poor people into their buildings. At a controversial shelter on 95th Street on the Upper West Side, for example, the city is paying $3,300 a month per unit, including services—more than the current median rent for market-rate apartments in Manhattan. That shelter is also operated by Aguila, which appears to be one of the most aggressive players in this lucrative low-end real estate market. [21]

7. How did Housing Solutions USA/Aguila, Inc. get chosen to run the proposed shelter at 165 W9th Street?

Normally, the City engages in a “request for proposals” (RFP) process when it needs work performed. In the RPF process, companies have to disclose their owners, any conflicts, and ability to do the work. City Contracts MUST be vetted before being awarded and receiving parties must be judged fit to perform the task, with sufficient business integrity to receive taxpayers’ money. [22]

To date, we do not know if a contract is in place. If it is, it has gone through with a no bid process using emergency powers. Indeed, there are reports that Housing Solutions USA/Aguila, Inc. will be awarded the contract on a no-bid basis.[23]

8. Is this the first time this has happened?

No. The Emergency contracting rule has been used by the DHS to open a wave of shelters across the City. Many of these shelters have resulted in the City awarding lucrative contracts to many of the same individuals with no community notice and input.

On October the 17th, a Councilmember, State Senator and the Manhattan Borough President sent a letter to the DHS voicing serious concerns about the lack of due process, the potential conflict of interest, and the poor planning and logistics taking place at a shelter that opened on 95 Street on the UWS. Again no contract can be found, meaning millions of dollars are changing hands without any vetting and city governance to oversee this.

The practice of skipping the contracts process—and forgoing the checks and balances built into the system to prevent wasting money and corruption—are clear. In a November 4, 2011 audit report on DHS lack of control, over billing and payments to Aguila, the Comptroller found that Aguila received over $470,000 in improper payments from DHS for per diem rates and that Aguila had previously billed the City for nearly $1 million in unsupported administrative and legal costs, out-of-state meals, personal vehicle expenses and undefined Board of Directors fees. [24]

Given Aguila, Inc.’s alarming track record, why is the City willing to forgo its demands of transparency and accountability when it comes to spending taxpayer dollars?

9. What should the City do?

Leaving aside their incredibly troubling track records when it comes to running homeless shelters, the key players—Lapes, Podolsky, Wertman, Murphy—have close personal ties which raise serious concerns about a potential conflict of interest. The City, through its Department of Investigations, should immediately launch an investigation into whether these ties violate existing rules and regulations relating to conflict of interest/corruption to protect taxpayer interests.

When it comes to awarding contracts to service providers of services to the homeless, the DHS should:

      • Take immediate steps to come into compliance with New York City rules and regulations by entering into contracts with all shelter operators and following standard procedures for processing provider payments;
      • Ensure standardized operating regulations for all service providers including uniform reimbursement rates per room, other allowable reimbursable costs, billing procedures, reporting requirements, and minimum safety conditions for facilities, among other standards;
      • Develop criteria to guide the selection of service providers that operate shelters. Past performance should be taken into account, along with ability to comply with all standardized operating regulations.

[1] http://a836-acris.nyc.gov/Scripts/DocSearch.dll/ViewImage?Doc_ID=FT_3110007563611

[2] http://www.nytimes.com/2012/10/18/nyregion/carroll-gardens-brooklyn-residents-outraged-by-homeless-shelter-plans.html?_r=0

[3] http://a810-bisweb.nyc.gov/bisweb/JobsQueryByNumberServlet?passjobnumber=301820876&passdocnumber=1; http://a810-bisweb.nyc.gov/bisweb/JobsQueryByNumberServlet?requestid=2&passjobnumber=301184518&passdocnumber=01&restore=1

[4] http://www.capitalnewyork.com/article/politics/2012/10/6538441/controversial-landlord-behind-mystery-shrouded-carroll-gardens-shel?page=all

[5] NYTimes, March 17, 2002 “Morningside Heights: Overnight a Quaint Hotel is Home for the Homeless http://query.nytimes.com/gst/fullpage.html?res=9A04E3D71038F930A15752C0A9639C8B63

[6] http://www.capitalnewyork.com/article/politics/2012/10/6538510/hidden-carroll-gardens-shelter-project-owner-terror-his-resume?–bucket-headline

[7] http://www.capitalnewyork.com/article/politics/2012/10/6538441/controversial-landlord-behind-mystery-shrouded-carroll-gardens-shel

[8] http://www.citylimits.org/news/articles/757/short-on-shelter-the-city-puts-families-in-a-felon-s-hotel

[9] http://www.housingsolutionsusa.org/about-us

[10] http://www.nytimes.com/2012/10/18/nyregion/carroll-gardens-brooklyn-residents-outraged-by-homeless-shelter-plans.html?_r=0

[11] http://www.capitalnewyork.com/article/politics/2012/10/6538441/controversial-landlord-behind-mystery-shrouded-carroll-gardens-shel

[12] Liu’s report can be found here: http://www.comptroller.nyc.gov/bureaus/audit/audits_2011/11-04-11_FK10-130A.shtm.

[13] http://www.capitalnewyork.com/article/politics/2012/10/6538441/controversial-landlord-behind-mystery-shrouded-carroll-gardens-shel. Lapes then hired a respected service provider, the Bowery Residents Committee (BRC), which cleaned up the shelter’s operations. However, BRC filed suit against Lapes last year, claiming he had refused to pay more than $1.5 million in fees due to the agency under its contract. The agency’s complaint portrays Lapes as an erratic landlord who conducted most of his business from his car, frequently engaged in “arguments and altercations” with vendors, and often made payments “by pulling bills out of a large wad of cash that he kept on his person.” The suit was eventually settled.

[14] http://www.capitalnewyork.com/article/politics/2012/10/6538441/controversial-landlord-behind-mystery-shrouded-carroll-gardens-shel

[15] http://www.capitalnewyork.com/article/politics/2012/10/6538441/controversial-landlord-behind-mystery-shrouded-carroll-gardens-shel

[16] http://www.capitalnewyork.com/article/politics/2012/10/6538510/hidden-carroll-gardens-shelter-project-owner-terror-his-resume?–bucket-headline

[17] See for instance: http://independentlodgingindustryassociation.com/about/board-of-directors/ and http://www.capitalnewyork.com/article/politics/2012/10/6538441/controversial-landlord-behind-mystery-shrouded-carroll-gardens-shel.

[18] http://www.capitalnewyork.com/article/politics/2012/10/6538441/controversial-landlord-behind-mystery-shrouded-carroll-gardens-shel

[19] http://www.citylimits.org/news/articles/757/short-on-shelter-the-city-puts-families-in-a-felon-s-hotel

[20] http://www.capitalnewyork.com/article/politics/2012/10/6538441/controversial-landlord-behind-mystery-shrouded-carroll-gardens-shel?page=all

[21] http://www.capitalnewyork.com/article/politics/2012/10/6538212/new-carroll-gardens-homeless-shelter-built-old-relationships

[22]http://www.nyls.edu/centers/harlan_scholar_centers/center_for_new_york_city_law/cityadmin_library/cityadmin_help/: Pursuant to the Procurement Policy Board Rules, the City may award contracts only to responsible contractors. A responsible contractor is one that has the capability in all respects to perform fully the contract requirements and the business integrity to justify the award of public tax dollars. For a list of some of the factors that affect a contractor’s responsibility, please consult the PPB Rules § 2-08. Pursuant to the Procurement Policy Board Rules, the City may award contracts only to responsible contractors. A responsible contractor is one that has the capability in all respects to perform fully the contract requirements and the business integrity to justify the award of public tax dollars. For a list of some of the factors that affect a contractor’s responsibility, please consult the PPB Rules § 2-08.).

[23] http://www.capitalnewyork.com/article/politics/2012/10/6538441/controversial-landlord-behind-mystery-shrouded-carroll-gardens-shel?page=all

[24] http://www.ccgbrooklyn.com/letter-from-elected-officials-regarding-the-95th-street-shelter-10-17-12/