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Incentives, Investigations And The Growing Distrust Of Real Estate Campaign Donations

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Development, politics and money have been cozy for decades, but Amazon's decision to pull HQ2 out of New York was a stunning reversal after unprecedented public backlash. If ever there was a time for such a response to become a nationwide trend, it might now be at hand. 

Incentives, Investigations And The Growing Distrust Of Real Estate Campaign Donations

The city governments of Los Angeles, Chicago and Philadelphia are reeling amid ongoing FBI investigations. Their counterparts in New York and Atlanta are grappling with public sentiment rising against the standard practice of exchanging tax breaks for development. 

For years, money has flowed easily between developers and local politicians’ election campaigns, and in many cases was sent right back in the form of real estate deals. In the wake of the HQ2 fiasco in Long Island City, that status quo is in danger of being upended.

“The local, political and public response to tax incentives and other inducements to private developers has changed very significantly across the country," New York University's Schack Institute of Real Estate Dean Sam Chandan told Bisnow. “What may be characterized in the political discourse as a donation will strike at the community’s perception of fairness.”

While frustration with public money flowing toward private companies is evident, the FBI investigations are shining a bright light on how money flows into local politics to influence such decisions.

“I think there is a growing public call for [reform] because real estate money has played such a significant role in shaping city politics,” said Munira Lokhandwala, who works for economic advocacy research group Philadelphia Power Research.

In New York, a city known for its warm embrace of big business, word began to spread Nov. 5 that the city would receive half of Amazon HQ2, hours before the Atlanta City Council awarded CIM Group $1.9B to develop the Gulch in a late-night vote. The site was reportedly the centerpiece of Atlanta's HQ2 proposal. The deals sparked protests in both cities.

The next day was Election Day, when Alexandria Ocasio-Cortez won a seat in the House of Representatives after winning a nationally covered primary with a campaign that refused all corporate donors. A week later, it was revealed that Amazon would receive $3B in tax incentives to bring 25,000 jobs to Queens.

Less than two months later, members of the Los Angeles, Philadelphia and Chicago city councils were all issued search warrants by the FBI within a two-week span. In Philly and Chicago, council members have already been indicted; in all three cases, investigations are ongoing and experts expect more indictments to follow.

Real estate money has found its way into politics with little public outcry for decades — President Donald Trump used to brag about controlling politicians with donations when he was a developer, and New York developers John Catsimatidis, Scott Rechler and Gary Barnett gave more than $400K combined to local and state campaigns in the last election cycle alone.

New York's swift defiance of Amazon was a notable break from the norm, but whether other cities will follow suit in response to their own controversies remains to be seen.

“I have not seen a particular, widespread voter mobilization against developers or to limit their role in politics,” University of Pennsylvania political science professor Daniel Hopkins said. "If something specific happens in a city like a scandal, people will take notice. But, by and large, fewer people read the local papers [than in decades past], and there’s not a lot of political activity among voters directed at city hall.”

Los Angeles

Los Angeles Mayor Eric Garcetti at an event in Watts, California
Los Angeles Mayor Eric Garcetti

In October, the Los Angeles City Planning Commission proposed what would be the first all-encompassing changes to the city’s zoning code since 1946.

The last 73 years have seen only patchwork changes, resulting in a process that requires as many as 100 project reviews, some of them redundant and others at times contradictory, a spokesperson for the LA Department of City Planning told the Daily Bruin.

Such a complex process is bound to be opaque, and when a process loses transparency it becomes more vulnerable to manipulation. In LA, a developer will go through several closed-door project reviews, often attended by Mayor Eric Garcetti or his aides, before said project is ever seen by a community group, according to city records obtained by The Coalition to Preserve LA.

“We’ve seen [projects spend] two years behind closed doors, with all kinds of different meetings while the developer is giving money [to city officials],” Coalition Executive Director Jill Stewart said. “And it’s a lie when it’s announced on Curbed or whatever.”

The doors have begun to crack open at City Hall since the FBI raided the offices of Councilman Jose Huizar in November, carrying out materials that included a box labeled “fundraising,” the Los Angeles Times reports.

Incentives, Investigations And The Growing Distrust Of Real Estate Campaign Donations
Los Angeles City Councilman Jose Huizar and his family during a 2006 Chinatown parade

Last month, the FBI issued search warrants for more council members and other city employees, including Raymond Chan. Before he left public office in 2017, Chan had served as head of the Los Angeles Department of Building and Safety and deputy mayor for economic development under Garcetti.

The Coalition to Preserve LA published a research report alleging widespread kickbacks between city officials and real estate executives, titled Pay to Play, in 2017. Using official city records, the Coalition found that between 2011 and 2017, a group of 12 developers with active projects in the city donated $11.1M to elected city officials.

Since that report was published, public backlash against developer influence in local politics has grown substantially, and the FBI investigation has thrown gasoline on the fire.

“We got a huge response from people, an explosion of people demanding more accountability,” Stewart said. “People are now demanding that those elected officials stop taking developer money.”

In the weeks since, a small group of council members led by David Ryu has reintroduced a bill that would ban developers from donating to council members when they have projects proposed in their districts.

A previous version of the bill was officially tabled this past summer after Council President Herb Wesson kept it in committee for two years. Among the targets of the search warrants issued in January was Wesson’s chief of staff, Deron Williams.

“Now more than ever, trust [from citizens] is the fundamental pillar, and we need to do something to gain back that trust,” Ryu told the LA Times.

Philadelphia

Incentives, Investigations And The Growing Distrust Of Real Estate Campaign Donations
Philadelphia City Councilman Kenyatta Johnson at a ribbon-cutting in 2014

In October, Philadelphia City Councilman Kenyatta Johnson awarded his childhood friend Felton Hayman the rights to purchase three vacant plots of land owned by the city for well below market value despite the presence of four other bidders, PlanPhilly reported. The Vacant Property Review Committee, established to oversee the valuation and sale of city land, would normally initiate a bidding process, but Johnson’s selection of Hayman took precedence.

“The role that council members play in reviewing proposed development means there are particular incentives here in Philadelphia that entangle developers with local politicians," Hopkins said.

The tradition of “councilmanic prerogative” dictates that a council member has final say over any land deal within their district, an authority that goes unchallenged by either the mayor’s office or the rest of council. It is also not an official part of Philadelphia law, and Johnson’s use of it to deprive the city of revenue from a fair-market sale triggered a federal investigation.

Though Hayman, who donated $9,300 to Johnson’s campaigns between 2012 and 2016, promised to build affordable housing on the lots, he sold two of them for more than twice his purchase price just one month later — right around when the FBI subpoenaed documents from Johnson’s office, and not for the first time. Johnson did not respond to multiple requests for comment.

Real estate is among the three biggest industries in terms of donations for citywide elections, according to Philadelphia Power Research researcher Lokhandwala. Thanks to councilmanic prerogative, sometimes the relationship between developers and the council members they contribute to happens in plain sight.

Councilwoman Jannie Blackwell had been delaying a vote to approve the redevelopment of the vacant, historic Provident Mutual building in her district for months, reportedly at the behest of neighborhood developer Michael Karp (who had bid to develop the project and lost). Blackwell only allowed it to move forward on Friday after receiving a personal letter from Mayor Jim Kenney assuring her that Karp’s concerns would be addressed, PlanPhilly reported.

Yet the council member who was indicted in January is neither Blackwell nor Johnson.

Incentives, Investigations And The Growing Distrust Of Real Estate Campaign Donations
The Provident Mutual building at 46th and Market streets in West Philadelphia as of September 2017

Councilman Bobby Henon was charged in January by the FBI in connection with a bribery, kickback and embezzlement ring centered around John “Johnny Doc” Dougherty, the head of Philadelphia’s electrical workers union and building trades and an influential figure in Philly real estate.

Unions donated almost 16 times more money to local PACs than the real estate industry in 2018, according to the Philadelphia Ethics Board. Henon and Johnson were the two council members who raised the most money from PACs over that same period.

The potential conflicts of interest have grown so obvious that the city of Philadelphia has halted all land sales that would go through the VPRC until a thorough review of the system can be completed, the Philadelphia Inquirer reports.

No city politicians have publicly refused developer or union donations on any level, to the best of Philly Power Research’s knowledge. Although Johnny Doc’s popularity among Philadelphia’s union workers makes criticizing the system a tricky subject, it appears to be wearing thin on Philadelphians as a whole, Lokhandwala said.

This year, the mayor's office and every City Council seat are up for election, which Lokhandwala and Philadelphia Office of Government Ethics Director of Enforcement Michael Cooke believe could foreground campaign finance as an issue.

“It wouldn’t surprise me if [real estate donations] became a thing in this year’s election,” Cooke said.

Chicago

Incentives, Investigations And The Growing Distrust Of Real Estate Campaign Donations
Chicago Alderman Edward Burke

Three days into 2019, Chicago City Council President Edward Burke was indicted for corruption charges. Until the indictment, Burke’s tax law firm had represented the developers of a multibillion-dollar project that locals have fought tooth and nail, and which still remains before the City Council.

In the federal indictment leveled against Burke, the FBI revealed that Alderman Danny Solis had worn a wire for two years to help build the case against Burke, the Chicago Sun-Times reports. The feds used information about Solis’ own bribery and money laundering activity as leverage, and he is still the subject of his own investigation.

After the wire revelation, Solis resigned his position as chair of the council’s zoning committee. Alderman Scott Waguespack expects more dominoes to fall.

“Everybody knows it’s sort of the tip of the iceberg; that the more [evidence] they roll out, the more aldermen will be pulled into the federal case,” Waguespack told Bisnow.

All the while, developer Sterling Bay has spent months planning and fighting neighbors for a $5B megaproject on the North Side called Lincoln Yards. Sterling Bay had retained Burke’s law firm as its representation in tax matters for years, only severing ties the day after he was indicted. He was stripped of his position as chair of the council’s Finance Committee the same day.

Lincoln Yards was once tied to Chicago’s Amazon pitch, then for a soccer stadium and a Live Nation entertainment complex. Alderman Brian Hopkins rejected the latter two elements to replace them with a public green space and a more diversely owned retail footprint, respectively, using Chicago’s own version of Philadelphia’s tradition — in this case, “aldermanic prerogative.”

Waguespack is among the critics within and without City Council calling for the Lincoln Yards permitting process to be paused while the investigation plays out, although it is unclear how much money, if any, Sterling Bay has donated to city election campaigns.

The Solis/Burke investigation has revived calls for an end to aldermanic prerogative, but Waguespack defended the practice even as he acknowledged its problems, saying he uses it to “balance” development in his district to maintain neighborhood fabric.

Sterling Bay's Lincoln Yards
Sterling Bay's vision of Lincoln Yards

“Even the good parts of aldermanic prerogative go by the wayside because of the unscrupulous things other aldermen are doing,” Waguespack said. “And they’re pretty heinous crimes, if you look at them.”

Aside from removing decision-making from the official with the most direct ties to the neighborhood, some worry that the end of aldermanic prerogative will transfer that power to the mayor’s office — not an enticing proposition for those worried about real estate’s influence.

“[Mayor] Rahm Emanuel definitely has a reputation for being cozy with developers; they were his top donors and they certainly benefited from a lot of his decisions,” Reform for Illinois Policy Director Alisa Kaplan said.

Aldermen in Chicago are by and large “enthusiastic recipients of donations” from real estate, Kaplan said. Waguespack said he refuses all donations from developers who have projects or proposals active in his district, but he acknowledges he is in the minority.

“There was a story in about 2008 or 2009 called ‘Neighborhoods for Sale’ in the Chicago Tribune, and it showed a pretty consistent pattern and record of many aldermen essentially receiving a quid pro quo for development,” Waguespack said. “A lot of aldermen continue to do the same stuff that was going on back then.”

Atlanta

CSX CNN
A CSX coal train travels underneath CNN Center's parking deck in the Gulch in this 2013 photo

Kasim Reed left office as mayor of Atlanta at the start of 2018, leaving a trail of scandal and investigations behind him related to kickbacks and bribery over the awarding of city contracts. In August, his former chief of staff pleaded guilty to accepting bribes from contractors and other business contacts.

But by that time, Keisha Lance Bottoms had been mayor for seven months, during which time she focused on keeping a squeaky clean image. She also had ambitions to usher in a flagship development downtown, one that could possibly lure Amazon after Atlanta landed on the tech giant’s 20-city shortlist for HQ2.

In Atlanta, the City Council is the only body able to fully strike down a project, with no system of deference like those in Philly, Chicago and New York. But before a proposal even makes it that far, it has to navigate multiple levels of input. Local neighborhood groups, business improvement councils and the Office of Zoning & Development all weigh in before a project gets to council, and universal disapproval from those bodies is rarely overruled.

When Bottoms brought to council plans to hand developer CIM Group a nearly $2B incentive package to buy a 40-acre plot in Midtown Atlanta and build 9M SF of offices, 1M SF of retail, 2,100 apartments and 1,500 hotel rooms, she was met with fierce opposition from many residents and some council members.

Norfolk Southern, which owned part of the land wrapped up in the sale, only agreed to move its headquarters from Virginia to Atlanta on the condition that the deal was pushed through, but the windfall it will bring pales in comparison to the jobs Amazon pledged to create.

Midtown Development Review Committee Cousins Properties Norfolk Southern
Rendering for Cousins Properties' twin-tower Norfolk Southern headquarters in Midtown

“There was a lot of opposition from the community about getting the incentives developers needed to bring [The Gulch] forward,” Dentons Senior Partner Steven Labovitz said. “Obviously, the council members listened to the community, but also made their own decisions when it came down to moving forward with the project.”

For weeks, a council vote was delayed as the finer points were adjusted and readjusted, until Nov. 6, when the council voted to approve a $1.9B incentive package.

Bottoms pushed the deal through that night, rallying the council even though some in her majority were having second thoughts. It was just a day after news had leaked that Amazon would not be choosing Atlanta, which had positioned the Gulch as HQ2’s ideal landing spot.

In her three most recent campaign finance disclosures, though Bottoms received several thousand dollars from various real estate sources, she did not declare contributions from CIM Group or any of its major executives. Councilwoman Cleta Winslow, whose district encompasses the Gulch, did not report individual sources of donations over her three most recent disclosures.

No movement to ban developer donations has gained traction despite the drawn-out conflict over the Gulch subsidies, according to Julian Bene, a former board member of Invest Atlanta, the city’s economic development arm.

“[Developer money in politics] hasn’t become really a partisan issue; [local politicians] are able to sort of walk past it,” Bene said. “People in the mainstream of both parties are sort of fine with it.”

Perhaps the lack of outrage relative to cities in comparable situations is due to the early input citizens have into the process, or perhaps it is due to complacency. But the Gulch may have stretched Atlantans’ tolerance for close developer-government relations.

Labovitz, who Bene called one of the key figures in negotiating incentives between developers and politicians in Atlanta, does believe his job has gotten a little harder recently.

“I think [communities] are a little bit tougher on [developers] now because there has been such incredible growth in Atlanta,” Labovitz said. “It’s been much more difficult to get the incentives you could have gotten in years past.”

New York

Incentives, Investigations And The Growing Distrust Of Real Estate Campaign Donations
The Gantry Plaza in Long Island City, Queens

When the biggest city in the country has a massive shortage of affordable housing and needs over $1B to repair its decayed public housing system, a multibillion-dollar tax break for one of the richest companies in the world is not likely to go over well.

Fury over the incentive package promised to Amazon in exchange for Long Island City’s selection for half of HQ2 erupted immediately after the announcement, and did not let up until the corporate giant backed away. 

“We were invited to come to New York, and we want to invest in a community that wants us,” Amazon Vice President of Public Policy Brian Huseman said in the days leading up to the retreat announcement.

That anger’s starting point coincided with the election of an overnight political sensation in Ocasio-Cortez, an avowed Democratic Socialist who refused all corporate donations. In this case, citizen outrage was joined by aggrieved council members and state representatives who also felt steamrolled by the Amazon recruitment process.

State Senate Deputy Majority Leader Michael Gianaris, whose district includes the HQ2 site and overlaps with Ocasio-Cortez’s House district, publicly pledged to refuse any more real estate donations on Nov. 30, The Real Deal reported. Between his election to council in 2010 and the end of the 2018 campaign, Gianaris received over $100K in donations from the real estate industry, according to TRD.

Councilman Corey Johnson announced in January his intentions to run for mayor in 2021, claiming he would be refusing all donations over $250, and all money from corporations and PACs entirely. In his announcement, Johnson drew a direct line between rising housing costs and gentrification in New York to the city’s eroding trust in developers.

Incentives, Investigations And The Growing Distrust Of Real Estate Campaign Donations
Rep. Alexandria Ocasio-Cortez

Part of the equation could be recent campaign finance reform in New York, which lowered the cap from $5K to $1K for personal donations and promised an 8 to 1 public matching system for donations of $250 or less. In response to Johnson and others’ criticism of developer influence, Real Estate Board of New York President John Banks told Bisnow he believes the cause is something else entirely.

“I don’t think it’s either [Ocasio-Cortez or HQ2],” Banks said. “I think it’s a cyclical phenomenon in real estate because of the difficulty in providing the number and type of affordable housing units we want. Residents want change in that dynamic, and unfortunately they have decided to blame developers.”

Though Gov. Andrew Cuomo and the real estate community are enraged over losing out on Amazon HQ2, community activists, Ocasio-Cortez and local representatives like Councilman Jimmy Van Bramer, whose district Amazon would have moved to, are celebrating. 

Citizens and activists in other cities, disillusioned by local government’s cozy relationship with real estate, are crossing their fingers that their own movements can be inspired.

“Scandals do prompt reform, like in New York with campaign finance,” Kaplan said. “So our best hope is that these scandals will put that much more of a spotlight on these issues and ignite a desire for reform that we haven’t seen in a while.”