Records show landlords, real estate investors largely make up SCAD proponents
The average SCAD proponent owns 11.8 properties in Durham with a tax value of $2,103,840 and the average SCAD opponent owns 0.9 properties with a tax value of $277,228.
Bull City Public Investigators is launching a new collaboration, BCPI Open Sources or BCPI.OS that will leverage public data to help Durham residents better understand our city. The new team is dedicated to uncovering trends and patterns hidden in the incredible trove of data maintained by local, state and federal government agencies. The BCPI.OS team is made up of Lucia Constantine, Chris Fedor and Tate Halverson.
On the heels of yet another delayed Council vote on the proposed changes to Durham’s development code billed as “Simplifying Code for Affordable Development,” or SCAD for short, a detailed assessment of public records found proponents of SCAD are much more likely to own investment properties and register businesses related to real estate than opponents of SCAD. And if SCAD were to pass, proponents would stand to make significant returns on those investments, based on potential for redevelopment and rise in land values.
Significant differences in property ownership
Both sides have expressed their views on SCAD though public hearings, at community engagement sessions and across online platforms. Using speaker lists from three public hearings and top advocates on neighborhood listservs, 23 proponents and 20 opponents were identified and included in this analysis.
The gulf of ownership stake is especially evident when the affiliated properties from the two groups are mapped. Relying on tax records available from Durham County, BCPI.OS created interactive maps showing which parcels are owned (excluding primary residences) by proponents versus opponents. Selecting a marker shows the individual, any affiliated business registration and the parcel’s tax value.
Described another way, the average SCAD proponent owns 11.8 properties in Durham County that, on average, have a cumulative total tax value of $2,103,840. By comparison the average SCAD opponent owns 0.9 properties for a total tax value of $277,228.
The proponent with the most extensive property holdings is Thomas Hennessey, the co-founder and manager of West 4th LLC, a real estate investment company. According to Durham County tax records, West 4th LLC has 94 properties in the county that add up to over $16.5 million of tax value and over 18 acres of land area.
Tax valuations typically run short of market valuations. According to their own website, West 4th LLC holds assets totaling over 170 units and $35 million in holdings, more than twice the value demonstrated by tax valuations alone.
Hennessey, a current resident of New Jersey, describes himself as a public supporter of SCAD and has made numerous pro-SCAD postings on neighborhood listservs and Twitter.
“SCAD will be a great benefit to Durham,” he wrote in an email to the Cleveland-Holloway listserv, “Infill standards have been very troubling to the growth of Durham and I’m glad to see SCAD address that.”
Hennessey has been purchasing properties in Durham since 2012 when he began purchasing courthouse mortgage foreclosures and bank-owned properties. A closer look at West 4th LLC properties on the map shows a tendency to cluster ownership on similar blocks.
He is not alone in that approach with some proponents purchasing entire city blocks. Approximately 130 out of 218 known SCAD proponent investment properties are contiguous to at least one other SCAD proponent owned investment property. Assembling contiguous parcels allows developers to envision larger projects that can have a transformative effect on the surrounding neighborhood.
Among the public SCAD proponents, business and property records show 70% own rental or investment properties. The majority of those properties are owned by Limited Liability Corporations (LLCs), a type of business structure that provides limited liability, tax benefits and in some cases, anonymity, for owners. In total, there are 23 SCAD proponents who have documented affiliations with at least 142 unique active organizations (LLCs or other corporations) filed with the North Carolina Secretary of State. There are three instances of multiple SCAD proponents jointly owning a real estate-related company.
Only 10% of SCAD opponents own investment properties for a total parcel count of three rental or investment properties among the 20 opponents who have spoken against SCAD at public hearings or who signed up to speak March 20. Collectively, the SCAD opponents are affiliated with a total of six unique active organizations registered with the State. None of those six are known real estate companies.
LLCs make ownership harder to track
Of the 142 unique business registrations for the SCAD proponents, 125 are registrations for Limited Liability Companies (LLCs). LLCs are an increasingly attractive vehicle for small-scale owners and private equity firms alike to acquire properties across Durham. By using an LLC, an individual owner or group of investors can access certain tax and liability benefits. But from the perspective of residents, researchers and city officials trying to understand who owns properties, the LLC structure can obscure the individuals behind them.
“The main reason they're using LLCs is because they are asset protection tools. If the LLC owner of one home or building is getting sued, then the LLC structure separates those assets so that the suing party can't go after their other properties. They have a secondary function, which is that the use of LLCs reduces transparency,” says Mad Bankson, a researcher with the Private Equity Stakeholder Project..
Despite careful searches of public records, the lack of transparency enabled by LLC registration means it’s possible that all parcels were not included in this assessment.
Activity concentrated in red-lined areas
SCAD has been described by the developer-applicant as “Phase 2” in a series of text amendments to the development code that would loosen building rules to allow for added density and housing types such as duplexes, triplexes and accessory dwelling units. The first “phase” engaged by the City came with the Expanding Housing Choices (EHC) text amendment, which passed City Council in September 2019.
Research on the impacts of Expanding Housing Choices showed 77% of new EHC-inspired development that occurred within historic neighborhoods was found in areas once denoted as “Definitely Declining” (C) or “Hazardous” (D) in historic redlining maps created by the Home Owners’ Loan Corporation, suggesting that the majority of EHC-related development was happening in historically under-invested communities that still experience persistent economic inequality.
Similar spatial analysis of rental and investment properties owned by SCAD proponents and opponents showed that 95% of those owned by SCAD proponents are found in areas once denoted as “Definitely Declining” (C) or “Hazardous” (D). 50% of those owned by SCAD opponents are found in those same areas.
This suggests that, as Bob Chapman, an applicant for both EHC and SCAD, told BCPI last month, many real estate investors seized on property “bargains” that were perceived to exist in historically under-invested neighborhoods to catalyze development and increase their returns on investment.
Next Steps for SCAD
At the August 21 City Council meeting, Jim Anthony, the developer applicant, unexpectedly requested a 90-day continuance. This pushes the anticipated vote on the proposal to the November 20 Council meeting. The vote will take place during the Council’s “lame-duck session” - the meeting which immediately follows the November 7 municipal election but precedes the inclusion of any new council members who would take their oath of office later in December.
Between now and then, BCPI is planning a series of articles to delve into additional housing data and housing policy discussions between both sides.
Disclosure: Several members of the BCPI.OS team have expressed public views in opposition to SCAD. This article was researched and written by the BCPI.OS team with contributions from Brian Callaway, who has also spoken publicly against the SCAD amendments.
If you have a tip for a story or are interested in joining the BCPI team of contributors and researchers–either with named or unnamed contributions–please email us at bcpi.durham@gmail.com
Thanks for researching and putting together this highly pertinent and informative article. This is just another example of those with means trying to manipulate a situation for the purpose of serving their own interests, rather than to "solve a problem" as they so claim. It was just posted on the Morehead Hill Neighborhood list serve. As I commented, Hennessey exemplifies the phenomena that's the subject of a "how to" book titled: "Long Distance Real Estate Investing: How to Buy, Rehab, and Manage Out-of-State Rental Properties" by David Greene. These are folks whose only roots lie in profit with no authentic ties to community or social equity.
I really like seeing this kind of thing, but what is the source of data for "proponent" or "opponent"? This is the type of analysis that's easy to spoof in either direction without a clear understanding of what data is used and how it was gathered. The links just generally point you to a list of tax records and then pins on a map. How specifically were the "proponent" and "opponent" determined and who are they?