Philly developer Chris Rahn shirked deal to construct reasonably priced houses as metropolis officers stood by

The deal was simple: Property mogul Chris Rahn got to buy a bundle of 22 vacant, publicly owned lots on the cheap. In exchange, records show he was expected to build homes for the financially needy on eight of them.

Five years on, most of those 22 lots — including one of the parcels where he’d agreed to build affordable housing — have been developed into apartments pulling in big rent checks.

The other properties where Rahn was to build affordable homes, however, remain empty, weed-filled eyesores. That’s because the officials who arranged the sale let him shirk his end of the bargain.

As has happened in deals with other developers documented by The Inquirer, officials sold the publicly owned real estate with little oversight and at a sweetheart price $267,300 for properties valued at perhaps three to six times that.

This time, the deal was consummated by an increasingly powerful quasi-governmental agency, the Philadelphia Housing Development Corp., that holds no open hearings and records no votes for citizens to review, circumventing what is typically a public process for such transactions.

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In the deal with Rahn, PHDC also dropped deed restrictions that could have been a tool to force him to build at least some housing for the poor.

With one parcel, Rahn simply bypassed another key restriction that said the lot could only be used for low-income housing. He sold it off for a high-end apartment building — and the action went unchecked.

Now, PHDC officials won’t talk about the sale. Jamila Davis, a spokesperson for PHDC and the city’s other landholding agencies, said the Rahn story was just one more case among “multiple projects” for which “records and justifications were unclear.”

Rahn said he never sought, and does not believe he received, any special treatment from city officials or PHDC staff.

He portrayed himself in an interview as the unwitting beneficiary of a chaotic process, in which the terms of his purchase were in constant flux as he dealt with a changing roster of city contacts.

“It was one of the craziest things I ever went through,” he said.

Chris Rahn and his wife, Christine Pasieka, both 42, started off as home flippers in South Philadelphia, before zeroing in on neighborhoods around Temple University, where they have assembled ever-bigger pieces of land for development into new apartment buildings.

Since 2005, they are recorded as having spent at least $57 million on 80 properties, many of which they’ve flipped to better-known developers such as BG Capital, co-owned by Daniel Govberg, the jewelry and luxury-watch tycoon.

Rahn and Pasieka are facing a fusillade of lawsuits, seven at last count. The couple says the suits are groundless and is fighting them in court.

The 22 city properties that the couple bought in 2015 are on and around the 1500 blocks of Seybert and Ingersoll Streets, not far off Broad Street, between Temple and the largely gentrified Fairmount neighborhood.

Rahn said he became interested in the parcels because he intended at the time to buy two other lots on that block of Seybert Street and wanted to combine them with the city properties to develop a large apartment building, he said.

A now-retired PHDC official was able to process his application for three of those properties, since the agency — then under the leadership of housing expert Michael Koonce — already owned them, according to emails provided by Rahn.

The remaining parcels, however, were under direct city ownership. To buy them, Rahn said, he was told to seek a letter of support from the office of City Council president Darrell Clarke, the Democrat in whose North Philadelphia district the properties lie.

Under what was then the customary process for selling much public property, buyers needed such support to have a purchase approved by the Vacant Property Review Committee (VPRC), the since-decommissioned panel tasked with recommending sales to City Council.

Rahn said he got his letter of support from Donna Bullock, then a Clarke aide, now a state representative whose district encompasses Strawberry Mansion, the Art Museum area, and parts of West Philadelphia. Rahn had no prior relationship with Clarke or any member of his staff, he said.

During a March 2014 VPRC hearing where the sale of most of the Rahn-bound properties was reviewed, board chair Susie Jarmon said the land was to be transferred to PHDC for what she called the “Seybert Street Project,” providing few other details, a meeting transcript shows.

This was an unusual turn of events, since, at the time of the hearing, PHDC — whose board consists primarily of city officials and mayoral appointees — was far removed from its past role as a conduit for selling vacant, city-owned land.

By then, it had evolved into a quasi-governmental contractor for the city, tasked with managing publicly funded programs that help mostly low-income Philadelphians maintain or fix up their homes. The last time that public property had passed through PHDC to a private buyer was in 2008, records show.

Still, board members at the hearing approved the transaction, enabling the city’s law department to issue Rahn’s business — CRP Builder’s LLC — a set of documents letting him apply for building permits before formally taking ownership of the land.

The documents also spelled out the path that the properties would take through the city’s landholding agencies: After City Council approval, they would be transferred to the Philadelphia Redevelopment Authority, the public agency that typically completed most vacant land transactions with private buyers at the time.

But in Rahn’s case, the properties were to be transferred on to the less-disclosure-bound PHDC, which “will transfer the properties to CRP for nominal consideration to be used in its mixed income development project,” an attorney for the law department’s housing division wrote in the documents.

PHDC’s deed to CRP would also contain restrictions on the land’s use and sale “to ensure that the affordable units are built,” the lawyer wrote.

Rahn said it had not been explained to him why PHDC was tasked with finalizing the deal and that nobody at the agency told him he was expected to build affordable homes as a prerequisite to selling the market-rate ones, although such an arrangement had been discussed earlier in the negotiations.

Davis, the PHDC spokesperson, also offered no explanation for the unusual process used for selling the land. PHDC is not a public body, but rather a quasi-governmental nonprofit, she said. As such, it is exempt from laws that require open meetings and public votes.

The final deal between PHDC and Rahn in December 2015 charged him $267,298 for the 22 properties, which remains the largest number of properties to be sold by PHDC in one shot in two decades, records show.

The lots together covered 16,334 square feet of real estate, records show, working out to an average sale price of just over $16 a square foot.

A search of other transactions involving empty lots in the surrounding area — bounded by Broad and 17th Streets, between Jefferson Street and Girard Avenue — between the start of 2014 and the end of 2016 turned up final prices ranging from $44 a square foot to $94 a square foot, across seven deals, according to an Inquirer analysis of city records.

Rahn’s price was based on an automated analysis, called the LAMA system for “land management,” Davis said.

Officials had abandoned LAMA two months before the sale to Rahn in favor of independent appraisals after realizing that the system’s valuations were often erroneously low.

While the deal had been in the works before the change, other developers concluding deals that were negotiated before the new pricing process did not, unlike Rahn, end up paying the earlier LAMA prices.

In one well publicized case, an Inspector General’s report concluded that developer Shawn Bullard had gotten a large discount on land he bought from the city near Temple, relative to its appraised value. But the price he paid was still about three times what he had been told was its LAMA value.

One big difference between Bullard’s case and Rahn’s: Bullard was buying his land directly from the Philadelphia Redevelopment Authority, rather than through PHDC.

Bullard’s price rose after PRA staff ordered an appraisal for the land he was to buy, believing that that agency’s board, which meets publicly, would not approve a sale without one, according to the IG report.

Joe Grace, a spokesperson for Clarke, did not directly answer questions about the Council president’s support for the sale to Rahn.

“While it is unfortunate that these eight units of affordable housing have not yet been built, we’re confident that the thousands of units of affordable housing which Council President Clarke and his staff have advocated for and seen built are helping Philadelphians every day,” Grace said in a statement.

Late last year, amid reports of suspicious deals involving politically connected buyers and profitable land flips, City Council passed legislation sponsored by Clarke that abolished VPRC and empowered another agency, the Philadelphia Land Bank, to serve as the city’s main seller of vacant land.

The Land Bank’s chief, Angel Rodriguez, has also vowed that his agency would more carefully police whether buyers of public property are living up to the commitments that they make.

“We have continued to work toward a clear, transparent, and predictable process in land in disposition,” Davis said.

But even with those reforms, publicly owned land still cannot be sold without a City Council resolution, leaving largely in place the oft-criticized tradition of councilmanic prerogative that grants Council members singular authority over real estate activity in their districts requiring legislative approval.

In an unrelated change, the city also late last year merged its landholding agencies, making Rodriguez and PRA director Gregory Heller subordinate to PHDC president David Thomas.

Thomas had taken over from Michael Koonce as the nonprofit’s acting director in 2015 when he signed the deeds to Rahn, as well as documents both enacting and dropping Rahn’s development restrictions.

The consolidation, which also places PRA and Land Bank staff under PHDC’s direction, “was necessary to increase transparency and efficiency,” PHDC wrote in its most recent annual report.

Release from restrictions

When Rahn closed on the PHDC properties, his contract with the agency stipulated 14 addresses where he was permitted to build market-rate housing and seven — increased to eight in a revised agreement that he later signed — where only affordable homes must rise within three years.

The contract also barred him from selling any of the properties without PHDC’s consent, a commonly imposed mechanism that gave the agency leverage to make sure Rahn lived up to his end of the bargain.

Rahn sold nine of the properties about one month later to jewelry magnate Govberg’s BG Capital without consent. That could have triggered PHDC to seize back those properties.

Instead, it began releasing the buildings from the restrictions entirely, despite Rahn having taken no steps toward developing any affordable units. By the fall of 2016, PHDC had entirely given up its right to take back any of the parcels designated for market-rate development.

Davis said some PHDC documentation surrounding the relaxation of the restrictions could not be found, but among the records that could be located were some merely requiring that the land be used for housing.

Rahn built and sold duplex and triplex apartments on five lots within a year and a half of purchasing them. One of them went for $800,000.

BG Capital, meanwhile, put up three four-unit apartment buildings on the properties it bought from Rahn.

Joseph Byrne, who cofounded BG with Govberg, said he hadn’t known about Rahn’s agreement to build affordable housing when BG bought its properties from him, but that “from our perspective, that has nothing to do with us.”

Rahn and Byrne both said they worked independently of one another with PHDC to have the restrictions lifted.

Rahn said it had been a straightforward process, requiring little more than a phone call to the agency and documentation that he’d received certificates of occupancy for the buildings he wanted to sell.

Concerning the affordable homes, he said, “I have no problem building them, if someone gives me some direction.”

He met with a PHDC official about the project in 2016, but there was no subsequent follow-up, he said.

Then, early this year, Rodriguez asked him for a meeting, saying Koonce, who is now a Clarke aide, wanted to discuss the project and the restrictions that Rahn had agreed to in his deal with PHDC, according to an email shared by Rahn.

Those plans were derailed by the coronavirus, Rahn said.

The agency still hopes to build affordable housing, Davis said. “PHDC and the developer continue to discuss ways to bring affordable housing to the undeveloped properties.”

While most of the parcels earmarked for affordable homes remain vacant, one — at 1540 Ingersoll St. — was merged into a lot where a new apartment building marketed to Temple students now stands.

The action conflicted with another specific prohibition in Rahn’s deal with PHDC that forbade him from consolidating lots pledged for affordable housing unless he had the agency’s permission.

There’s no record of that permission having been granted, or of the restriction being otherwise lifted. Davis did not directly respond to a question about the transaction.

The property’s merger was a collaboration between Rahn and longtime business associate Earl Sheeley, who had made loans to Rahn for past acquisitions.

Around the same time that Rahn bought 1540 Ingersoll in his deal with PHDC, Sheeley’s company, Cobblepot Services LLC, acquired the lots on either side of that parcel from prolific Philadelphia flipper Gary Murray.

In early 2017, the city’s Department of Licenses and Inspections issued a permit to Cobblepot merging the three properties into one for zoning purposes despite the restriction. L&I spokesperson Karen Guss said that examiners with her agency would not have considered PHDC approvals in their “workflow for lot adjustment.”

The properties’ consolidation and sale were also recorded by a title agency, whose job is generally to identify factors that “cloud” a property’s title, such as tax liens or restrictions on use.

Title agencies typically won’t process deals involving such factors without disclosing them under the insurance policies that cover most deals handled by such firms.

Matz Land Transfer Service, the Wayne-based title agent that handled the Ingersoll Street tract, included records describing the restriction on Rahn’s property among the documents it filed with the city to consolidate the three parcels.

About a week later, Matz recorded the consolidated parcel’s $220,0000 sale to real estate investor Plutushen Properties, without noting the restriction in documents filed for that transaction.

Daniel S. Sweetser, an attorney for Plutushen, said his client had not been informed of the restriction and that it hadn’t been disclosed on paperwork received from the title agent.

Matz owner Karen Matz did not respond to telephone and email messages seeking comment.

Rahn said he did not recall the specific details surrounding the property, but that he may not have known at that point that it was supposed to have been used for affordable housing.

Sheeley, however, said he had been aware of the restriction, though it hadn’t concerned him since the 10-foot-wide parcel was too narrow to be developed into a desirable living space.

And if there were any legal obstacles to the consolidation, they should have been caught by L&I, he said.

“They certainly had the right to reject what we submitted,” Sheeley said.