Posted on Tuesday, May 22 2007 by Heather Brandon
Shalom Segelman, owner of 192 units at Longhill Gardens Condominiums in Forest Park, was handcuffed and ordered incarcerated early yesterday afternoon by Judge Henry Abrashkin in Springfield Housing Court.
Segelman was ordered held until he deposits a court-ordered $150,000 into an escrow account for repairs at the five-building condominium complex.
The incarceration took place after yet another compelling hearing in the suit filed by Concerned Citizens for Springfield (of which I am a board member; see interviews one, two, three and follow-up), recently enjoined also by the City of Springfield, and as of yesterday, additionally Citibank, the $6 million mortgage lender.
The Court previously ordered Segelman to deposit the $150,000 into an escrow account in March, and then again by April 30. It is the approximate amount of capital tax gains that Segelman would defer by doing a 1031 tax-free “exchange” on a property he was selling in Waterbury, Connecticut, and his acquistion of the 192 units at Longhill Gardens.
During a hearing the first week of May, Segelman told the Court that on the advice of his accountant, despite the court order, he would not deposit the $150,000, at that point past deadline. Segelman is on record as having recently purchased a 146-apartment complex in Windsor Locks, Connecticut, for $8.4 million.
A receiver has been appointed by the Court, Valley Real Estate, to oversee the condominium trust and other aspects of the operation of Longhill Gardens (conditions of receivership have been revised and approved). During yesterday’s hearing, VRE offered an initial report of its findings at the complex, which, according to CCS board member Russell Seelig, indicated unpaid bills in the range of over $100,000. Many records have not yet been turned over, after they disappeared from the rental office and VRE had to drill its way in through a locked door.
“There were structural problems that need evaluation. None of the records of rents, security deposits, [or] vendor contracts had been turned over to the receiver by Segelman,” Seelig wrote in an email. “In an out-of-court conversation, VRE said there are major settling issues, a couple of really bad roofs among the five buildings, and probably a history of at least two leaking oil tanks, in addition to the report’s [other] findings.”
Seelig explained that the structural issues at the complex are related to the landfill on which four of the five buildings were built in the early 1950s. CCS verified this with soil borings done about five years ago. “Remedies are very expensive,” Seelig wrote. “We knew about roofing issues from inspections done at the same time by Sun Roofing, with reports having been provided to VRE. Oil tank leakage, which is suspected but not confirmed, could cost $50,000 and up (say $100,000 to $200,000) to remedy.”
I spoke with Seelig, as well as CCS board member and attorney Bill Malloy, on May 8 to try to catch up with some of the recent labyrinthine turns in the case. Below is more of their side of the story as they reflect on VRE coming into the picture as receiver, and some speculations about Citibank’s possible role, among other things.
Russell Seelig: There was a [recent] emergency hearing that neither Bill nor I went to, because it came up very quickly. It was a motion by the receiver, by Valley Real Estate, to capture May rents and condo fees, and the judge allowed [it], even though the receiver hasn’t been officially appointed. The receiver has been designated but not appointed.
Bill Malloy: The order was a draft about the receivership, and then people made comments, and then [the judge] will send out a final order.
RS: There were two things. One was the appointment of the receiver, and that was a final document. And then there was a draft about the conditions of receivership. So the receiver has been appointed, and that’s Valley Real Estate. The conditions of receivership have not been finalized yet, and therefore, the receiver’s not in place yet.
BM: Now the receiver has this emergency order about the May rent.
Heather Brandon: So how does that strike you?
RS: Well, collecting May rents and condo fees is wonderful, because it gives the—
BM: You need money.
RS: The receiver probably won’t be in place for another week or ten days. The original draft of the receivership conditions talked about April, but April would have been inappropriate, because half of April had gone by already. One of our suggestions in the comments was, make that May instead of April, because May is more appropriate.
HB: The emergency ruling last week says that rents and condo fees for the month go to the receiver directly.
RS: That’s correct.
HB: Does that mean that tenants are writing checks to the receiver? What happens?
RS: Probably not. Any rents and condo fees the trust receives for May [must be turned] over to Valley Real Estate.
BM: Valley Real Estate has a tremendously challenging situation here.
HB: They have to make sure they’re chasing down the collection of all the rent.
BM: Citibank is involved with a $6 million mortgage. We’ve been giving them notice of this court action, but they only recently emerged in a substantive way. Their attorneys from Boston communicated with our attorneys, inquiring as to what was going on. Apparently they sent an employee from Boston to copy every court document. It seemed like they were gearing up to show up on our recent court hearing, but they just didn’t show up. Our attorneys might have heard from Citibank, but we’re not aware of what’s followed up. What they could do is foreclose, because allowing a court action against you—this would be an extreme case—is a breach of the mortgage agreement. They could step in and foreclose, and regain ownership of 192 units. I think they’re obligated to do that, as far as representing their client, but they might sit down with their client and say, do we want to get deeper into this, or do we want to just let it play out? The receivership will suspend interest payments to the bank, which is $37,000 a month, so that allows—the main of it is cash, the other nub is cash, and the other problem to face is cash. So it’s a need for cash, cash, and cash. One way to get cash is to not make a $37,000-a-month payment, but the first thing a receiver’s got to do is find out what’s going on. A receiver can’t create a plan without information; in other words, how many vacancies are there?
HB: For example what repairs are needed—which is fairly well-documented at this point—but they need to assess all that?
BM: I guess that raises a whole different issue. Getting repairs done that just get it up to code will still leave it an unattractive place. That’s probably $1 million. Another $1 million will get it to a place where people that aren’t necessarily desperate for housing would be comfortable. But that third million, or maybe more than another million, would get it to the dream location of being re-sold as condos to owner-occupants, as an attractive place. I’m not sure how many more millions that is if you go back to the fact that structures have to be shored up and everything is in need, you know, from the roof down. The biggest thing would be the heating system is crazy, to use a non-engineering term.
RS: In terms of habitability, security is the first issue, which is working locks on doors. And then the cleanliness, to get it to be attractive, the exterior appearance—to get landscaping done, to get hallways clean, to get the broken windows fixed—would be the next step. And this is just common areas.
BM: Both of those relate to management.
RS: They do. The city now, I think, has agreed to inspect the 192 units owned by Longhill Omega, so that Valley [Real Estate] will not have to do those inspections. The court, in its draft document for receivership conditions, had said they wanted an inventory of all the needs, both common area and 192 units, within 21 days.
BM: Which was burdensome for Paul Oldenburg [of Valley Real Estate].
RS: Which is, in terms of timing, impossible to do. To do that, you’d have to inspect 14 units a day for 21 days, and then you’d have to write it up.
BM: Another aspect of this is that it’s not the way they do things. In other words, the city goes in, and they have this intricate, incomprehensible methodology that’s bureaucratic triumph but not readable; whereas Paul Oldenburg—their group would go in and say, okay, this is bad; we gotta do a lot of things, or: this is halfway okay. Or: okay. You know, they have three criteria.
RS: I think the city has improved over your knowledge of their inspection operation. I think they’re using handheld computers now, for example, to detail all of—that got started back when I was in code enforcement.
BM: Super. Fabulous. I’m glad you said that, because I’m out of touch with that kind of recent stuff, so I’m still thinking about the earlier years.
RS: I think, actually, it took a couple years to get these things out into the field, but they got started very early in Charlie [Ryan]‘s administration.
BM: The other thing about starting with Charlie Ryan’s administration is they were down to impossibly few people [in code enforcement]. Things have changed.
RS: Charlie put a big priority on code enforcement and building inspectors as well. He effectively doubled the staff for both of those departments in a relatively short time. But the city would do all the interior inspections, and that’s really good news. It keeps the city much involved in this lawsuit as well, because their inspectors have seen the conditions, and they are effectively unbiased.
HB: You’re saying this is part of the receivership taking over, the city doing those inspections? Or is it because the city is joining the lawsuit?
BM: After the city has been in the lawsuit, they then made comments, and are involved in the receivership draft order.
RS: I think Valley [Real Estate] reached an agreement with the city, just in the last week, that the city would do these inspections. I’m not sure what the background arrangement is, but it’s good for Valley Real Estate; it’s also good for the complex that the city is doing this.
BM: That’s really good news. I’m glad to hear that. Here’s the process working. You could take a look at this and say, this is desperately slow. But it is getting together. It’s tremendously complex, when the judge takes ten days to write the decision.
HB: Valley Real Estate had been one of CCS’s recommended receivers?
RS: We didn’t recommend a receiver.
HB: I thought you were able to give input.
RS: We did give input. We were looking for a receiver, so we talked to potential receivers, and VRE was one of the potential receivers. Plotkin Associates was the other potential receiver. We talked to a few other people as well, but those were the two folks who agreed to become receivers, and they both made presentations to the Housing Court about their plans, if they were appointed receiver. Our position was: we wanted a receiver, but we were not recommending one over the other. We were neutral, in terms of trying to influence the Court to pick one or the other; we were very neutral. Either one would have done a good job, I think. Maybe from a little different viewpoint, but I think either one would have done a good job.
BM: It was a pretty detailed process. They had discussions in court, they submitted written documents, and the judge reviewed all of this.
RS: And questioned them in Court.
BM: Right. The other reality is that this is 211 units, and there would only be so few people that would step up, ready to do this at all—
RS: —who would have the capability, the capacity, to do that.
HB: What else has Valley Real Estate done that gives you confidence in them?
RS: Well, they own and/or manage somewhere between 1,500 and 2,000 housing units in the [Pioneer] Valley. They have handled some difficult sites, in terms of residential rentals, and their properties are well-maintained. I’ve had a lot of dealings with Valley [Real Estate] over the years. They actually managed one of my properties for about five or six years, so I got to know the operation very well. Their clientele, in some cases, is similar to the present clientele at Longhill [Gardens]—it’s a lower economic group of folks. They have done very well in terms of managing properties with lower economic tendency, with seniors, with whatever.
BM: They did quite a bit of activity when there was that era of foreclosures. They would go into the units, either two families, three families or six families, or 21-unit buildings, and have to manage a foreclosure setting, which is often somewhat similar to this, with everything going to pieces, and the tenants going in different directions, so to speak. Paul Oldenburg had been the manager of this very unit sometime around ’78 to ’83, so he’s extraordinarily familiar with the buildings; he actually was involved in demolishing a part of it, and shoring up a part of it. The fundamental issue with this place is that its foundations are shaky; they’re not on good, solid ground.
RS: It’s built on landfill.
BM: One part was built on landfill, and the other part started sliding down the west side of the hill when the toe of the hill was removed for construction of a Howard Johnson’s. So they removed the toe, and the building started sliding down the hill. You can still see the cracks. So there’s some real fundamental things about these buildings. But right now, it’s all about management: who’s in there, and who’s cleaning up.
HB: It sounds like you have some confidence that Valley Real Estate has strategies.
BM: They don’t have strategies yet. They have experience with—they have to evaluate the—they don’t have a plan yet. You were saying they have strategies. They have the expertise.
HB: They must have some strategies, in general, that inform how they manage properties, as opposed to a complete lack of experience with this type of housing complex.
RS: Right, they don’t have a specific plan in place, but they have a general approach to what they need to do.
HB: And you can’t fault them for not having a specific plan in place yet, considering the information they need. I would assume that they need to gather a lot of facts.
BM: When they’re looking at this, they know what they’re looking at, I guess is the key thing.
HB: Without having to get completely up to speed…?
BM: They’ve been through similar settings, with these foreclosure kind of settings. This is probably the best possible receiver to have in place. That’s the way we’re looking at it.
RS: Well, I think either one—when you say the best, I think Plotkin would have done a commendable job as well.
BM: Right, Plotkin has tremendous capabilities.
RS: Plotkin has managed similar properties. They’ve done a lot of work for the city in managing some of the city-owned properties. They’ve also been involved in some of the difficult condominium complexes downtown, bringing those out of chaos back to an organized, competent situation. So I think either one. But we’re pleased that a good receiver’s in place.
BM: Beyond the question of the receiver, this is going to be very challenging, because of all the questions that are open, and what the cash flow might be.
HB: You were talking about cash a few minutes ago. The possibility of foreclosure—what happens with foreclosure?
BM: That won’t generate any cash; that’s kind of a different issue.
RS: If Citibank becomes the owner of 192 units, I think, the Court could order them—
BM: They’d be under the court orders.
RS: —they’d be under the court orders to correct all the violations that exist there, to pay up. Citibank could take the position, if they’re not going to foreclose—$6 million may not mean a lot to Citibank.
HB: If they foreclose, then they take on the ownership, and then the court orders are their problem, including all the cash—
RS: —needed for repairs.
HB: So then the opposite is also true, if they don’t foreclose, Longhill Omega still has to deal with that; they’re still under court order?
RS: Longhill Omega can just walk away.
HB: Because of the receivership?
RS: They can just walk away; even though they’re under court order. They may not be able to make an appearance again in Massachusetts.
BM: Because they’re walking away, the receivership has been put in place.
HB: So Longhill Omega is effectively out of the picture at this point, with the receivership?
BM: Well, I guess the expression “out of the picture” doesn’t quite fit this picture. This is a court order; it’s taking them off the picture. The receivership is taking over the role of these two entities; the condominium association and these owners of 192 units.
RS: Longhill Omega continues to be the owner of 192 units, even in receivership. But Longhill Omega is being barred from the site. Segelman’s being barred from the site. That’s one of the conditions of this receivership.
BM: Well, he can come to the site, but he has to be in the company of the receiver.
HB: So it’s like a restraining order.
RS: It’s like a temporary restraining order, yes, that’s right. The receiver wants no interference from Segelman, and that would be part of the receivership conditions. Eventually, when things get cleaned up, Longhill Omega is still the owner of 192 units, and with leave of the Court, would again assume management responsibility for their units. That might be two, or three, or four years from now. So they’re not out of the picture on a long-term basis, but Longhill Omega’s out of the picture on a short-term basis.
HB: You were saying that one of the challenges being cash flow, there’s still no source for more cash, but it effectively, for now, becomes the receiver’s puzzle to resolve.
BM: Yeah. What you can see in the way of cash is only the rents and the condo fees, and the fact that the mortgage payment is suspended.
HB: Which saves cash, right, the $30,000?
BM: Right. $37,000, I believe, monthly. There’s insurance payments; there’s the water/sewer payments, tax payments. You know, we’re just gettin’ going here. There’s many things to pay for: the dumpsters; the oil, during the winter. The oil is just a tremendous cost at this place.
HB: Some of those are operational.
BM: There’s a tremendous number of operational costs—the people, the employees. The cost of the receiver. The big picture is that the receiver doesn’t have the capacity to borrow any money. In other words, if the receiver could borrow $1 million, then they could spend $1 million, but they have no capacity for borrowing. And so that’s why Russ was mentioning the Citibank angle. Would Citibank put the $2 million into it to try and correct the situation?
RS: One possible scenario is that, when Valley [Real Estate] gets its plans drawn up, they could present capital needs to Citibank, and Citibank could voluntarily agree that they will put up $2 million to protect their $6 million.
BM: Right, they could add it as security.
RS: It might be good business for Citibank to do that, because if they put the $2 million in, then the value of the whole place goes up. And selling these units, individually, as condos for $50,000 each—and they probably would be worth that—would get Citibank back all of its $6 million of the present note, and an additional $2 million that they would put in to get the upgrade there. So, it could make good business sense for Citibank to do that. It depends on how much Citibank values its $6 million. Citibank is absolutely huge; they have lots billions overseas, in terms of countries canceling their debt. I don’t know what they would do in this kind of situation.
HB: You’ve also been awarded damages.
RS: Yes. The damages are spelled out in one of those documents, and the rationale for them—the judge provided a rationale, as well, for awarding those damages, so that’s in those documents.
HB: Who’s meant to pay those damages to CCS and your lawyer?
RS: Who was the contempt against, Bill?
BM: Well, it’s against the three of them, actually. There’s three people in contempt, individually. And then the entities are in contempt also.
RS: The trustees of Longhill Gardens Condominium Trust, which include [Mayer] Orgel and [Moishe] Schwartz and Segelman, and Israel Ross and Beverley McClure—Longhill Omega, LLC is on here; Building Exchange Company, that has held title to the 192 units I guess for a couple of months—and then Schwartz and Orgel individually as defendants. So, who gets to pay that money? I would say that Orgel and Schwartz are not going to want to pay anything, and neither are the other folks. But I think, eventually, the trust will have enough money to pay what’s been awarded there.
HB: Which is a total of under $100,000 right?
RS: Right, it’s roughly $60—
BM: $16,000 and $45,000.
RS: Yeah, plus a little more. $60,000. So I think Concerned Citizens will eventually receive those damage amounts. Longhill Omega is there as a defendant, and, at some point, when Valley [Real Estate] gets this place straightened out, the rents that come in to Longhill Omega could pay our damages. The condo fees that Longhill Omega will pay in to the trust will eventually surpass the needs of running the operation, and we could get our $60,000 from the trust. That’s how I see it. Bill may have a little different slant on this.
BM: It’s what they call down the pike.
RS: It could be two or three years out before that happens.
BM: This is going to be a lengthy matter. It’s not going to be a six-month thing.
RS: Right. And there will be continuing, added-on damages as well. This is up to a certain point in time, and there will be further damages added on to that.
HB: So this goes back to the beginning of the case?
BM: Not exactly.
RS: I think the rents began in something like December, up through April.
BM: The rent damages, yeah.
RS: And the legal fees… it’s spelled out in that document.
HB: The dates.
BM: It’s a very thoroughly-written decision. The bottom line is that CCS has spent more than that on legal fees, actually, and has spent more time with the empty condos.
HB: As expressed by the amount of damages that you requested, right? That pretty much captured everything, and then you were awarded slightly less.
RS: We were awarded portions of what we asked for.
HB: The Building Exchange Company, what is that? I haven’t talked about that with you.
RS: Okay. There’s an IRS section called 1031, tax-free exchange. Shalom Segelman was selling a property in Connecticut for which he had a big capital gain. He didn’t want to pay the capital gains tax on that. So he bought into Longhill Omega, and if he was buying something similar to what he was selling in Connecticut, he would defer the tax liability until sometime in the future. Building Exchange Company is a vehicle that allows this exchange to take place. The property he was selling in Connecticut is effectively put into the hands of Building Exchange. This property, Longhill Omega’s 192 units, also goes into Building Exchange. Building Exchange does the swap. So Building Exchange was the owner of the 192 units for a couple of months last summer, like August, September, of last summer. And therefore, they also, as owner, are responsible for some of the—to listen to the court orders, as well.
BM: Well it was six months, and it ended on March 14 or so. That’s part of the drama of all this: the lying that goes on, on the part of Shalom, it’s phenomenal. Because he uses—see, the big picture is that they were ordered to pay in $700,000, which they simply have never done. Then it shifted to this excuse of the exchange process going on, and Shalom whining like a little three-year-old about how, you know, he’d be hurt by the IRS thing, and that would be his excuse for not making any payments. So then the judge seemed to, well he said, this is now it, you know, in playground language? This is it, put the $150,000 up. And now we see, the long and short of it, he hasn’t done that either.
RS: The $150,000 was an estimate of the tax deferral on the capital gains tax of the sale of the Connecticut property. Shalom was saying that if the exchange can’t go through, he would have to pay that $150,000 in taxes on a current basis, as opposed to deferring. And the judge grabbed onto that $150,000, and said, put the $150,000 into escrow for repairs to—
BM: But see, from our perspective, what he’s really doing is suddenly dropping the $700,000, given up on it. I mean, the judge has been pretty kindly to this young person.
RS: We have seen much more police presence there. I drove by just yesterday, and there was a cruiser sitting in one of the parking lots, obviously looking out towards Longhill Street, looking uphill.
BM: But there had been quite a presence. We learned way back that—we met this policeman—
RS: A community policeman.
BM: Drug enforcement unit police. [There were] two apartments donated to the police drug unit; they’re there from, what was it? Eight to 12? Twelve-oh-one, everyone cuts loose. So you know, the December 7 murder on the site was just terrific… terrifically…
BM: You know, I mean, the person who set fire to the woman up at 11 Warner [Street] was their employee.
RS: And a tenant, as well.
HB: Whose employee?
BM: Longhill Gardens entities. A tenant-employee. One of those deals.
HB: This is the recent fire-setting that was…
BM: It was January 7, on 11 Warner, and the building burned to the ground.
HB: The woman who went to a hospital in Boston, and then died later.
BM: It’s just chilling. And that’s the big thing, because that’s what’s driving concerns for the neighborhood, where it’s only a block, two blocks away. We’ve got four-year-olds walking around within two blocks of this. A lot of children.
HB: Yeah, and children that live there. There are four-year-olds closer than that.
BM: Yeah, I was just trying to—the impact on the neighborhood, though. The sustainability of the livability of this neighborhood.
HB: Right. It’s not on an upward trend. I noticed in the articles in the newspaper about the difficulties at the complex, or what they refer to as “lower Longhill”—the contrast is noted, every time, between upper Longhill and lower. But also, there’s no mention of the responsibility of property owners who are, for instance, absentee landlords who don’t manage well, there’s no recognition of the kind of challenge that I sense you’re up against in the lawsuit and as owners there, as well, that we’re not going to solve this problem by just increasing the police presence. Increased police presence can make a difference, right?
BM: I believe it’s all about management.
HB: In order to make it a sustainable place to live, you don’t have surges of police every three months to get rid of criminals.
RS: Police are scary; police presence is scary. If we saw police out on our streets all the time, we’d say, what’s going on here? They’re here for a reason, and that’s—to the general populace, a police presence is scary. To that populace, it’s calming down the area.
HB: The criminals, you’re saying—it snuffs out criminal activity for the time being.
RS: For the time being, that’s right. But as Bill says, it’s management that does that on a sustained basis, that keeps out, that refuses to rent to, people with bad social problems, whatever they may be, drugs, prostitution.
BM: They’re renting to the persons of last resort, and the people with the cash. The people with the cash are basically, usually drug culture involved. Valley Real Estate’s first formidable task is to figure out what’s going on there. There’s two things going on: a lot of vacancies, that’s a cash flow problem. Those that are there could possibly be candidates for eviction. That would be a cash flow problem. That’s the challenge.
HB: What makes you speculate that there’s so much money upfront?
BM: Well, there appears to be drug dealers there. The December 7 event was around a drug deal gone bad. The person that went from 37 after the murder, to 96 was, again that was a busted drug deal. The drug enforcement unit was in there—we’re talking there—for the purpose of pursuing drugs. The police department has talked about it being a center for drugs: drug sales, drug activity.
To be specific, the policeman that we talked to discussed the other reality—[they] tried to hire private guard people. One had stayed on the site for 45 minutes, but ran away kind of scared. Another one just looked around, and ran, walked away in other words. Didn’t wish to undertake the job. But the policeman’s analysis was that within whatever time that person, if that person was hired, they would be paid money to simply look the other—to not disturb the drug dealers. They would use money as their—they have a resource, money. They use it. That’s a specific thing; that’s what would occur. That’s the experience of the drug enforcement police.
RS: I think there are visible signs, when there’s drug dealing going on; there’s a lot of traffic.
BM: How about the visible signs of the paraphernalia? You ran across a person with the needle in the arm.
RS: Well-run units don’t have broken locks on all the front doors. We saw, as we toured, a bunch of broken locks, and that’s been typical. The folks who are dealing drugs don’t like entry locks, so they break them. Graffiti—and we saw a lot of it around the site—is another indication of gang activity, which, typically, is also involved in drugs. So when you see that kind of activity, you know that the clientele that is living there is engaging in these nefarious activities. A good manager does screening: credit checks, criminal backgrounds, Housing Court records through screening agencies. They don’t rent to folks who don’t have good records.
BM: That’s what Valley is challenged with; their first step is to find out the situation with the tenants. It’s housing of last resort. If you’re looking for a place to live, this is not on the top of your list; it’s at the very bottom; it’s after you’ve given up on everything else. Who would want to live in a place where the doors are broken at the common door?