Councilmember Jim Graham
Letter to Mayor Anthony Williams on Office of Property Management issues
June 9, 2003

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JIM GRAHAM
COUNCILMEMBER, WARD ONE
COUNCIL OF THE DISTRICT OF COLUMBIA
WASHINGTON D.C. 20004

June 9, 2003

Honorable Anthony Williams
Mayor
1350 Pennsylvania Avenue, N.W.
Washington, DC 20004

Dear Mr. Mayor:

As you know the Council has authorized our subcommittee pursuant to COW Res. 15-3 to conduct an investigation into the lease management practices of the Office of Property Management, an agency within our oversight jurisdiction. As you also may know, the first of the hearings pursuant to: that authorization occurred on June 6, 2001 (Our subcommittee and the Committee on Public Works and the Environment, however, have previously held a total of 5 hearings on these matters:)

The recently released DC Auditor's report focused almost entirely on the 4800 Addison Road transaction. Our investigation has included those matters but has been extended to a review, of lease management and other property matters of the Office of Property Management. As such, we are investigating leases or work at 77 P Street NE (a.k.a. 64 New York Ave NE), 450 H Street NW; 607 K Street NW, Reeves Center, 438 Mass. Ave NW, and 441 4th Street NW. Other properties may be added as the investigation proceeds.

While. we are just at the beginning of our formal investigation, it is now clear that. there is evidence of fraud as well as theft. It is also clear that our systems and our personnel have failed us.

The evidence of both corruption and system failure warrants this letter, recommending that you take certain actions without delay. These recommendations are based on our subcommittee findings, to date. These recommendations follow:

1. On October 26, 2001, pursuant to vouchers that are fraudulent on their face, the District of Columbia paid $929,299.28 to Douglas Development in connection with a contemplated but not executed lease arrangement for space at 77 P Street NE. A lease agreement was signed on July 19, 2002 (ten months later). That agreement (an addendum to the DOES lease for 77 P Street NE) did not reference this payment, nor was this payment in any way acknowledged until May 7, 2003, just a couple days after I raised the issue with you. Had I not raised the issue with you, and had you not made inquires, thereafter, one .wonders whether the payment. would have ever been acknowledged by Douglas Development. Of course that would constitute theft recommended: Request the immediate refund of $929,299.28 with interest from Douglas Development.
2. In 2001, the Council of the District of Columbia approved a lease for DOES for 77 P Street NE. This lease proposal was properly submitted to Council because it had an annual obligation in excess of $1 million. However, subsequently, lease addendum #l; #2 and #4; each of which had an annual obligation in excess of $1 million, were executed without submitting them to the Council for review and approval. In late 2002, a modification to Addendum #4 and a new Addendum #5 were submitted to the Corporation Counsel for legal sufficiency. The Corporation Counsel properly rejected both agreements, unless they were submitted to the Council, stating that contracts such as this with .annual obligations in excess of $1 million must be submitted for Council review. As such, lease addendums numbers 1, 2 and 4 are not valid. Two agencies (Department of Human Services and Department of Health) have plans at this time to move offices into 77 P Street pursuant to Addendums 2 and 4. Action recommended: Instruct Corporation Counsel to conduct a legal analysis of the District's obligation if any for occupancies at 77 P Street NE pursuant to Addendurns numbers T, 2 and 4. (2) Suspend any further move into 77? Street NE unfit such time as the legal uncertainties associated with these addendums is clarified, or until such time as the lease arrangements have Council approval.
3. The District has entered into a lease with Douglas Development for the historic firehouse at 438 Mass. Ave NW. There are a number of problems associated with the relationship with Douglas Development on this. and other matters: Action recommended: Until such time as these matters are clarified, do not grant any lease extension for this property
4. Douglas Development has .purchased for an amount of $636,000 (with a 50% deposit) furniture from Global Furniture Resources, a company solely owned by the owner of International Builders Inc. The ostensible purpose of this purchase is to provide furniture far DHS offices at 77 P Street NE. However, we are unable to locate any document obligating the District to purchase this furniture. Moreover there are a number of serious allegations concerning corruption by IBI at 441 4th Street NW, as well as unanswered questions concerning why we purchased furniture from Italy and what role was played by Michael Lorusso in that purchase. Action recommended: Until these matters are resolved, the District should not enter into any agreement to buy this furniture.
5. The first appraisal for the impoundment lot at 4800 Addison Road, a property owned by Douglas Development; was based on a fraudulent assumption, intentionally prepared to defraud the District of funds. The new, second appraisal initially concluded a value of between $4-5 million (about the same amount as the first appraisal before the fraudulent assumption was provided by Douglas Development and Mr. Lorusso.) The second appraisal was subsequently modified to a much higher amount, following a very questionable meeting with DC government officials, and based on probably inaccurate information again provided by Douglas Development. In addition, some key assumptions in that modification are not valid, e.g., the initial appraisal established the build out cost for a warehouse on the property at $29 SF, but in the modification that amount was lowered without explanation to $9 SF. Action recommended: Since two separate appraisals have concluded that 4800 Addison Road has a value of between $4-5 million, no purchase of this property should be made for an amount in excess of the appraised value. Further, since Prince George's County is determined to block the use of this land for this purpose, it really makes sense on all counts to not pursue this property and to find other options.
6. The Director of DCRA at our hearing on Tune 6 stated his conclusion that the certificate of occupancy for 450 H Street NW (a property owned by Douglas Development) ought never to have issued and was thus invalid. DCRA's conclusion comports with a fifteen year experience from 1986-2001, when prior owners tried without success to get an "all office" CofO for this property. Their efforts .were in vain, and the building remained vacant until Douglas Development bought it. Then, contrary to Zoning rules and law, the CofO was issued. We are still investigating this matter. Action recommended: The certificate of occupancy for 450 H Street should be promptly revoked, and DCRA should join with us in conducting a thorough investigation to see if there was corruption involved in the granting of this certificate.
7. The DC Auditor has found that the build out costs associated with 4800 Addison Road violated the terms of the lease. Our investigation has already resulted in the rent credit of $100,000 which Douglas .Development has acknowledged was improperly, retained by the Company from payment in September 2001. It is clear that other amounts are due the District from the build out. Action recommended: the 4300 Addison Road invoices should be carefully reviewed, and amounts owed the District should be requested with interest. Also, the rent credit acknowledged to us should be verified.
8. We have uncovered the fact that International Builders purchased, and the District paid for; furniture costing $179,.100. We are told hat this furniture was not used and is now in storage at the Adams Place warehouse. Action recommended: Investigate this information, and see whether this furniture might not be used for other government purposes including DHS.
9. Following 9/11, Michael Lorusso arranged for the use by the Metropolitan Police Department of a Douglas Development property at 607 K Street NW, for processing mail. There is no clarity on the terms, since no document exists. MPD claims it would be rent free. However, Douglas Development is now claiming back rent in the amount of $30,000. Action recommended: Since there is no lease, the District should either negotiate a lease at a fair rent or move out of the space.

I recognize that some months ago your administration referred some of these matters to the Inspector General. Much more has been revealed as a result of the Council's efforts. It is clearly time for you to speak out on these issues, and to take specific and. concrete action to address these identified concerns. As I have from the outset of these: issues, I will continue to bring my concerns to you directly.

Sincerely,
Jim Graham

cc. Councilmembers
John Koskinen, City Administrator
Herbert Tillery, Deputy Mayor for Operations
Tim Dimond, Director, Office of Property Management