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Mayor Anthony A. Williams
Reply to Councilmember Jim Graham on Office of Property Management issues
June 11, 2003




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Letter from Jim Graham

June 11, 2003

The Honorable Jim Graham
Councilmember, Ward One
Council of the District of Columbia
1350 Pennsylvania Avenue, N. W
Suite 406
Washington, DC 20004

Dear Jim:

This letter is in response to your letter of June 9, 2003, which raises numerous concerns about a range of actions taken by the Office of Property Management (OPM).

Before addressing these issues individually, I would like to thank you for your continued diligence in pursuing these matters and uncovering these issues. Let me assure you that I take these issues very seriously. You should also know that we have already initiated action in a number of these areas.

At your May 19, 2003 hearing, Deputy Mayor Herbert Tillery stated that concerns about operations within OPM had prompted him to refer several matters to the Office of the Inspector General (OIG). This referral occurred on December 2, 2002. The referral supplemented a referral made on or about October 28, 2002 by the Office of Corporation Counsel (OCC) relating to the possible manipulation of the appraisal prepared for the District in connection with property located at 4800 Addison Road, in Prince George's County, Maryland.

On December 31, 2002 the Inspector General responded to Deputy Mayor Tillery's request indicating that his office would conduct preliminary investigations into the potential irregularities within OPM, but that matters involving the proposed purchase of 4800 Addison Road would be referred to the Office of the DC Auditor as that issue was already the subject of an investigation by that office. As you know, the Auditor's report on this matter was released on May 15, 2003.

The Deputy Mayor for Operations (DMO) has worked diligently with OPM management to identify structural weaknesses within that agency, and to take corrective actions where necessary. Steps taken to date include:

  • completion of an organizational assessment of OPM. Recommendations from this assessment are in the early stages of implementation; 
  • appointment of a new Deputy Director within OPM to oversee day-to-day operations; 
  • appointment of a Chief of Staff within OPM to implement reforms identified in the organizational assessment;
  • restructuring in management (through the appointments outlined above) that will allow the Director to focus mote closely on real estate activities;
  • development of an RFP to review the business terms of all in-leases entered into by OPM, and
  • a request to the CFO to obtain assistance from the Office of Integrity and Oversight in conducting a complete financial records review.

These measures are an indication of our ongoing commitment to address problems within OPM.

I will now address the issues raised in your June 9, 2003 letter.

1) Refund of $929,299 from Douglas Development

As you indicated, we discussed your concerns over the transfer of $929,299 to Douglas Development during a recent meeting. Since becoming aware of this transfer, we have worked diligently to have these funds returned to the District. The Office of the Deputy Mayor for Operations, the Office of the Deputy Mayor for Planning and Economic Development, OPM and OCC are in the process of negotiating a settlement agreement under which the Third Addendum to the DOES lease would be terminated and these funds would be returned to the District. As these negotiations are ongoing, I am not at liberty to discuss specific provisions of the agreement, but am confident that the bulk of this money will be returned to the District.

2) 64 New York Ave. Lease Obligations

With regard to the addenda to the DOES lease at 64 New York Avenue, NE (formerly 77 P Street, NE), I am advised by the OCC that the controlling statute in this instance is D.C. Code § 1-204.51(b)(1) (2001). As you were advised at last Friday's hearing by William Howland, Chief of Staff in the Office of the Deputy Mayor for Operations, we are in the process of repackaging the DOES lease and placing the First, Second and Fourth Addenda into a single package for Council approval. All pending agency moves into 64 New York Avenue, NE have been suspended until these matters are resolved.

3) 438 Massachusetts Avenue, NW (Historic Firehouse)

The third issue deals with Douglas Development's desire to extend its lease at 438 Massachusetts Avenue, NW. While OPM has been in negotiations with Douglas Development, to date a lease extension has not been executed. As previously stated by Mr. Howland, the Administration will delay the execution of an extension until the above-outlined matters are resolved.

4) DHS Furniture Purchase

With regard to the purchase of furniture for the Department of Human Services at 64 New York Avenue, NE, the District has no . financial obligation as it relates to this purchase. This matter will require additional attention in that the bulk of this furniture has been assembled and installed in the space and will most appropriately be paid for by tenants for that space. In any event, the District will not sign any agreements obligating us to the purchase of this furniture until such issues have been resolved.

5) 4800 Addison Road Appraisal and Proposed Purchase

The second appraisal of the impoundment lot at 4800 Addison Road, prepared by Millennium Real Estate Advisors, Inc., was dated March 2, 2003. It was subsequently modified by the appraiser on May 14, 2003, for the following reasons stated by the appraiser:

We have determined that the warehouse lease between GSA and Douglas Development (#GS-I 1B-01549) was technically in effect as of March 1, 2003, the date of value, despite issues of intent to void the lease ...Notwithstanding this observation, the updated report value will be based on the actual legal status of the lease as of the date of the value and not the apparent intent of the parties.

We have no reason to believe that the General Services Administration (GSA) lease to which the appraiser referred is anything other than a legitimate lease voluntarily entered into by the parties to that lease for its intended purposes, nor have we heard any allegations from any source whatsoever to contradict our belief in the legitimacy of the GSA lease. Hence, we are of the view that the appraiser had a professional obligation to consider the GSA lease, which bears date of October 1, 2002, in determining the value of the impoundment lot, as demonstrated by The Appraisal of Real Estate, published by the American Institute of Real Estate Appraisers, universally considered to be the authority for the appraisal of real property.

The eighth edition of The Appraisal of Real Estate discusses the requirements for appraisal of income-producing property as follows:

An appraiser's first step in determining a property's earning power is performing an analysis of net operating income expectancy. The appraiser begins such an analysis by estimating income and expenses after researching and analyzing the (1) subject property's history of income and expenses, (2) histories of competitive properties, (3) recently signed leases. . .

It should be noted that both the first appraisal, by Cushman & Wakefield of Washington, DC Inc., and the second appraisal, by Millennium Real Estate Advisors, Inc., based their valuations of the property on its industrial zoning, not on whether it was suitable for the District's use as an impoundment lot. In addition, as of this date, we are not aware of a final appellate decision revoking the certificate of occupancy issued to the owner.

It is important to remember that the OPM Director withdrew the resolution authorizing the execution of this purchase when concerns over the valuation of the property were raised by Councilmembers. The District procured another appraisal to compare it with the first. At this juncture, we do not see any other options available to resolve our immediate and pressing need for an impound lot, but would be happy to consider other options if you have any suggestions. We are also amenable to suggestions of how the District might approach alternative use of the 4800 Addison Road site. In any event, Council approval would be required for this purchase, so nothing will happen without such review and approval.

6) 450 H Street, NW Certificate of Occupancy

The Department of Consumer and Regulatory Affairs (DCRA) will initiate action to revoke the Certificate of Occupancy for 450 H Street, NW. As stated by David Clark on Friday, DCRA is also conducting an investigation into the matter.

7) 4800 Addison Road Build-Out

I am advised by Deputy Mayor Tillery that he has directed OPM to review all invoices submitted by the landlord for tenant improvements at 4800 Addison Road. In the event that discrepancies are identified, OPM has been instructed to seek either a credit or reimbursement of these funds. We became aware of the rental credit as provided by the landlord in a letter to OPM dated April 8, 2003 (see attachment). Also attached is a rental invoice providing evidence that the credit is reflected and taken by the District.

8) IBI Furniture Purchase

On the issue of the International Builders, Inc, furniture purchase in the amount of $179,100, OPM is in the process of determining how and why this furniture was purchased and the extent to which this furniture can be used for other governmental purposes.

9) 607 K Street, NW (MPD Mail Processing Facility)

As you indicate in your letter, there is no governing lease document as it relates to MPD's occupancy and use of 607 K Street NW for its mail processing activities. Since no written lease exists, it is OCC's opinion that the District has no legal obligation to pay the $30,000 in "backrent" recently requested by Douglas Development. In addition, MPD still requires space for this function and may need to continue to utilize this site. If so, OPM will work with the landlord to negotiate a lease agreement reflective of the market. Otherwise, OPM will work with MPD to review and identify other potential locations.

Finally, upon discussion and consideration of numerous issues with Mr. Dimond, we have mutually agreed that it is in both his and the District's best interest that he step down as the Director of the Office of Property Management. The effective date of Mr. Dimond's separation is Friday, June 27, 2003.

Once again, I would like to thank you for your diligence as it relates to the issues outlined above and look forward to working with the Council to continue to address these areas of common concern.

Anthony A. Williams

cc: Councilmembers
John Koskinen, City Administrator
Kelvin Robinson, Chief of Staff
Herbert Tillery, Deputy Mayor for Operations
Eric Price, Deputy Mayor for Planning and Economic Development
Tim Dimond, Director, Office of Property Management
David Clark, Director, Dept. of Consumer and Regulatory Affairs Enclosures

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