Blue Hills Blues: Why did four unfinished houses on the East Side cost the city $725,000?

More than two years ago, the city of Kansas City, Missouri, allocated $725,000 in federal funds for the construction of four new homes in the Blue Hills neighborhood.

Today, the homes are unfinished, some subcontractors have not been paid, and a nonprofit agency charged with building the houses has been sued by the original general contractor.

The city says the homes are mostly complete and efforts are being made to work with Blue Hills Community Services, the community development corporation, to finish the job. But as it stands, the project is stuck in purgatory: out of money but not far along enough to attract buyers. In May, the city notified Blue Hills Community Services that it would conduct an internal audit of the contracts awarded on the project.

The empty, single-family homes stand on three sides of one block near Prospect Avenue and East 50th Street. The block has a round edge in one corner to accommodate a curve in Bruce R. Watkins Drive, which it overlooks.

Information fliers posted outside the houses describe the homes as three-bedroom, two-bathroom charmers. The houses list for $125,000, which is below cost; they are intended for buyers with incomes below 80 percent of the area median income.

But given the homes’ incomplete state, even the subsidized price is aspirational. Two of the houses lack driveways between the garage and the curb.

On April 17, 2014, the City Council passed an ordinance allocating $725,000 to Blue Hills Community Services to develop the four houses. To fund the project, the city tapped into a U.S. Department of Housing and Urban Development block-grant program.

Blue Hills Community Services hired Entrepreneurs Enterprises to serve as the contractor on the four houses, known as Wabash Village. (Two of the houses are on Wabash Avenue.) Work began in the spring of 2015.

By fall, Entrepreneurs Enterprises was off the job.

In a termination letter to Entrepreneurs Enterprises, Cliff Pouppirt, then the director of planning and development at Blue Hills Community Services, said Entrepreneurs Enterprises had failed to supply enough properly skilled workers or materials, failed to pay subcontractors and failed to document that subcontractors had been paid.

A few weeks after Entrepreneurs Enterprises was dismissed, McCray Lumber Co., in Olathe, filed liens against Entrepreneurs Enterprises and Blue Hills Community Services totalling $80,900.

Entrepreneurs Enterprises chief executive Maximillian Howell tells The Pitch his company was dismissed without cause. He says the project was on schedule and on budget. “There was never any cause for us to get terminated from the job, which is why we will be successful in litigating this in court,” he says.

Entrepreneurs Enterprises filed a lawsuit against Blue Hills Community Services in June. The suit says the company paid subcontractors until the point it was dismissed. Entrepreneurs Enterprises says it’s owed $72,773 and is seeking an additional $50,000 for defamation and $50,000 for interference. The suit claims that Erika Brice, the agency’s interim executive director, and other Blue Hills Community Services employees have told city officials that Entrepreneurs Enterprises misused funds.

In an answer to the lawsuit, Blue Hills Community Services reiterates its reasons for dismissing Entrepreneurs Enterprises. The agency says it paid twice for the same work, and has accused Entrepreneurs Enterprises of burdening it with liens, delays and extra costs.

Brice, who joined Blue Hills Community Services after Entrepreneurs Enterprises was dismissed, tells The Pitch that the agency has worked to pay the subcontractors who were hired for the project. “As a nonprofit, we don’t want anybody out there not paid,” she says.

McCray Lumber released its liens on the project last month. But some subcontractors are still waiting for their money. In July, a mechanical services company filed $13,120 in liens against Blue Hills Community Services.

Brice says there is an “exceedingly low margin for error” on affordable-housing projects. Budgets are tight, and federal funding means additional compliance. 

One complication for Wabash Village was the limestone that excavators hit while digging out a basement. Brice says hitting the rock caused delays and increased costs.

“We do not build these homes for profit,” she says. “We build them to serve this community, so delays and challenges can cause a domino effect that impacts the entire project.”

Citing the lawsuit, city officials are reluctant to speak at length about Wabash Village’s problems. But there is an awareness that the status quo is unacceptable. “We need to make four houses,” Stuart Bullington, assistant director of neighborhoods and housing services, says.

Blue Hills Community Services began in 1974 as the Blue Hills Homes Corporation. The founders included the Rev. Norman Rotert, a Catholic priest who had marched in Selma, Alabama, with the Rev. Martin Luther King Jr.

Rotert and others organized in response to the blockbusting that had begun taking a toll on neighborhoods east of Troost Avenue. A Great Society program intended to make it easier for poor people to buy homes had opened a “flood of credit to neighborhoods susceptible to panic selling and racial turnover,” as Kevin Fox Gotham, a sociologist at Tulane University, wrote in his book Race, Real Estate, and Uneven Development: The Kansas City Experience, 1900-2000.

Many properties went into foreclosure. Blue Hills Homes Corporation started buying and renovating homes and then renting or reselling them. The agency, which eventually branched into new single-family and multi-family home development, says it has created nearly 1,000 units since 1974. 

Stabilizing the Blue Hills neighborhood is an ongoing struggle. The empty lots at 63rd and Prospect speak to the colossal failure of the Citadel retail development. In 2008, The Kansas City Star reported on the difficulty that Blue Hills Community Services was having in selling five new houses, which came on the market as the financial crisis hit.

As for Wabash Village, city officials say Blue Hills Community Services has indicated that each house needs an additional $50,000 worth of work. With the HUD money depleted, the city is looking at more creative solutions. Bullington says the city has considered trying to complete one home by enlisting city staff as volunteers, or challenging one of the city’s larger construction companies to donate materials and time.

The homes are far enough along that a group like Habitat for Humanity might be also able to complete the work, Bullington says. “This would be, in my opinion, a really great Habitat project,” he says. “You don’t have to get up on ladders — the roofs are on. All they have to do is finish them.”

A nearby neighborhood shows that such affordable housing projects are difficult but not impossible.

The Ivanhoe Neighborhood Council used public money and donations to build three duplexes at 38th Street and Euclid, near where the Horace Mann School once stood. Five of the units have been sold. 

Margaret May, the Ivanhoe Neighborhood Council’s executive director, says the duplexes are “not extravagant, but they’re nice.”

The original plan called for seven duplexes. Ivanhoe hopes to break ground on the empty lots next spring.

Ivanhoe hired a project management consultant to work with the general contractor and perform other functions. Brice says it’s her understanding Entrepreneurs Enterprises was hired to both build and manage the Wabash Village project, with the designing architect providing additional oversight.

May says building new housing on the East Side is a rigorous process. “It’s really hard work,” she says. “But it’s work that’s got to be done.”