At most of Lapes’s facilities, the city reimburses the landlord directly via uncontracted “per diem” payments. Facing criticisms, DHS has recently been shifting to formal contracts with nonprofits, often under emergency procedures allowing expedited approval. Perhaps as a result, Lapes has ceded his emissary role to Housing Solutions USA. Its chief executive, Robert Hess, served as Bloomberg’s commissioner of homeless services until 2010. “As Jay [Podolsky] is using Alan to be his front man,” said Jae London, the former manager of a Podolsky shelter called the Washington Hotel, “Alan is using Robert Hess.”
Although Hess said in an interview that he had “no knowledge” of involvement by the Podolskys in the nonprofit, the board roster listed on its tax return consists entirely of their business associates. Via a complicated merger, Housing Solutions took over contracts belonging to Aguila Inc., a troubled nonprofit tied to a Bronx politician, which oversaw services at almost all the Lapes shelters. Hess and Lapes were often seen visiting the Amsterdam Hospitality offices during Housing Solutions’ launch, and Blabbermouth Social, an Internet firm co-owned by the sons of Stuart and Jay Podolsky, designed its website. “There were so many places to connect the dots,” said Will Felcon, a former Blabbermouth employee. “Hess couldn’t be in the dark.”
Hess, who earns at least $250,000 annually, has since capitalized on city demand for new shelters, boosting the nonprofit’s revenues to $57 million last fiscal year. DHS officials have said there is no conflict of interest in his dealings with the agency he ran for four years.
The Podolsky shelter business has two prongs. There are a dozen or so Manhattan hotels, some of which the Podolskys have owned since the Koch era. Then there is a collection of outer-borough residential buildings that operate as “cluster” sites—basically, apartments rented by the city to house homeless families. The city’s largest shelter cluster encompasses fourteen locations in the Bronx. All but one of the buildings are owned by the Podolskys.
The cluster shelters still typically open under per diem arrangements, providing minimal social services. In a deposition last year, Hess said that the approach circumvents a “rather lengthy and cumbersome procurement process,” allowing the shelter system to expand and contract “like an accordion.” But it’s controversial, because clusters usually operate with scant oversight. In a recent decision, a state judge likened the city policy to “a CIA black op, spending unbudgeted funds without apparent restraint.”
Typically, cluster units are mixed into rent-regulated buildings. At 941 Intervale Avenue, a six-story apartment building in the Bronx cluster, news of the impending arrival of the homeless came abruptly one day in 2009, with a superintendent’s knock at the door. “I knew that they were going to throw me out,” tenant Carmen Torres told me later. She could do the math. An unemployed health aide who had lived in the building for decades, she used a Section 8 subsidy to pay the $800 rent on the three-bedroom that she shared with her two children, which was brightened by plastic flowers and a menagerie of caged tropical birds. The city was offering the landlord about four times that for shelter units.
Torres tried to organize her neighbors. The landlord countered with buyout offers and eviction notices. The buyouts started at around $1,000, hardly enough to pay for relocation, but most tenants left, weary of conflict and shoddy maintenance. The elevator broke down so frequently it made the Buildings Department’s list of worst offenders. Torres’s elderly mother fell on the stairs and broke her hip.
“The living situation there was not suitable for any human being,” said Andrew Webster, who arrived at the building on Intervale Avenue in 2010, during his senior year in high school. Garbage was piled to the second floor of the courtyard, and there were giant rats everywhere. But the Websters had no choice about the living situation: They were homeless owing to eviction from a former rental. Shelters are supposed to be for emergency stays, but the family ended up staying for more than two years. Like all the shelter residents, Webster possessed an acute awareness of his economic value. “I know they put a price on us,” he said. We were $3,200, I believe, $3,200 a month.”
Of course, for much less than that amount, the city could have rented the Websters a modest but decent apartment. In fact, the city’s approach to homelessness used to include rental subsidies for its poor residents, allowing the homeless to jump to the head of the line for federal Section 8 vouchers. But Bloomberg ended the policy, believing that it created an incentive for poor households to enter the shelter system. The administration’s replacement, a short-term subsidy, was eliminated owing to state budget cuts in 2011.