(CRAINS) Joe Anuta, June 21, 2018 — In July 1997 a sales representative from Rubbermaid Commercial Products met in Boston with a man calling himself Steven Kraus. Kraus, who was in the medical-supply business, had a problem: One of his wholesale companies had its Rubbermaid account suspended because of outstanding bills, but he needed to get his hands on more goods.
Hoping the sales rep could help reopen the supply chain, Kraus embarked on what Rubbermaid would later describe as one of several bribery attempts: offering a 1% kickback on all sales, New York City theater tickets and a trip to Europe. To keep the deal from upper management, at the end of the meeting Kraus told the sales rep their talk “did not happen.” A handwritten memo detailing the conversation was included in a federal lawsuit later that year.
“We need to know that this man is trying to trap someone,” Dennis Swanton, the Rubbermaid employee, scrawled on a slip of paper that was entered as Exhibit D. The case was ultimately settled. But twenty years later, its paper trail provides a link between an asset management company involved in problematic homeless housing and a nonprofit that recently won a $369 million contract to provide services in hotels from the Department of Homeless Services, the agency’s second-largest award under the de Blasio administration.
Kraus’ real name is Peter Weiser, now the head of a company called Apex Asset Management. One of his co-defendants in the case was an employee going by several names, including Ruth Mandelbaum, who would go on to become a founding board member and the chief operating officer of Childrens Community Services, a little-known charity in Queens that has quietly become a major player in the homeless services industry.
Over the last several years, the two organizations have partnered to provide homeless services in private apartments as part of a controversial program called cluster housing. And tenant attorneys who have encountered them in housing court said their relationship should give city officials pause about awarding Childrens Community Services such a large contract. Homeless experts, on the other hand, said that because few traditional charities have been willing to participate in hotel and cluster programs, officials have in some cases had to rely on more opaque players to run significant portions of the homelessness agenda.
Apex serves as a broker for cluster apartments, connecting homeless organizations with landlords and then taking a portion of the money. Theoretically, the city is supposed to cut a check to a service provider, which passes money to Apex, which pays the landlord. The tenant signs a sublease with Apex and receives supportive services. But things did not always work out so neatly.
The Daily News reported that Apex was involved with a nonprofit that was siphoning off tax dollars and operating cluster apartments in such poor shape that officials shuttered them en masse, creating chaos for 171 families. In other cases, some involving Childrens Community Services, rent money that was supposed to pass through Apex was not making its way to the landlord.
At the unit along Decatur Avenue owned by Eisenstein, for example, Apex and Childrens Community Services failed to pay more than $15,000 in rent, even though case files show the city issued thousands of dollars’ worth of checks to cover the cost. In another instance on East 190th Street, court documents indicate Childrens Community Services cashed $20,000 in city checks, but tenant attorneys say the money was not used to pay the landlord. At an apartment on Grand Avenue in the Bronx, another owner said it was owed $15,000 for nearly a year’s worth of back rent.
In total, Bronx Housing Court records listed 234 eviction cases against Apex this spring. The proceedings were brought by property owners ranging from mom-and-pops to big developers such as The Related Cos., suggesting ample amounts of unpaid rent and hundreds of households with disrupted living situations. With Apex now being pushed out of many of these units, the city will likely pick up the tab for some of the unpaid rent to keep the tenants there, rather than cycle them back into the shelter system.
“Essentially, the city will end up paying double,” said Lucy Newman, an attorney with Legal Aid who has been involved in several cases.
A consultant for Childrens Community Services said the city and the comptroller have been slow to pay the organization, a recurring problem for many of the city’s contractors. And because this has strained its budget, the nonprofit has sometimes taken checks meant for one apartment and used the money to pay for another that is in greater need. Once the charity receives a new tranche of cash, it said, more back rent can be paid off. In addition, Thomas Bransky, the organization’s founder, has hired a number of nonprofit and legal experts to professionalize Childrens Community Services and rectify a number of puzzling aspects about its financial structure highlighted in an earlier Crain’s story.
Regardless, the city said it is investigating the missing rent checks and further scrutinizing the nonprofit. “We have directed an independent audit of this provider and are scaling back their portfolio to ensure they’re delivering the services our homeless neighbors deserve,” a spokesman said.
Experts in homeless services said the city sometimes has little choice regarding whom it works with. Most established charities that the city relies on to build and operate homeless facilities do not run the sort of ad-hoc programs in budget hotels and rundown apartments that can house shelter seekers in a pinch.
“Who the hell do you think is lining up to do this?” asked one policy expert, requesting anonymity to protect potential future business dealings with the city.
And despite the red flags, the contract with Childrens Community Services actually represents a step forward in transparency. In the past, the city did not sign formal contracts at all, instead striking handshake deals with hotel operators. The $369 million contract will, for the first time, wrap all of the payments and requirements of the job into a legally binding document, an indication the de Blasio administration is attempting to enhance accountability even as it washes its hands of cluster sites by 2021 and hotels by 2023. Until the administration makes substantial progress on its plan to build 90 shelters or pumps enough money into hotel programs to attract traditional providers, it is unlikely to be picky.
“The need is so large and the number of rooms and services is so enormous that, if the city can craft a relationship that meets the bare-bones requirements, they are going to work with essentially anyone who comes forward,” the expert said. “The alternative is to work outside the contracting process, where there are no rules at all.”
This is the second half of a two-part story on a little-known nonprofit that recently won one of the city’s biggest contracts. Part one can be found here.
A version of this article appears in the June 18, 2018, print issue of Crain’s New York Business as “Any port in a storm”.