Norcade Circle Renovations Advance Despite Watchdog Findings

A squalid and crime-ridden cluster of homes on the Rosemont border is getting a major facelift, but federal inspectors will soon decide if the redevelopment agency funding the renovations will have to return nearly $2.5 million in federal loans used to fund the project.

The pending decision comes months after investigators found that the developers purchased ineligible properties, budgeted for unnecessary repairs and raked in excessive profits.

While the local agency overseeing the federally funded project disputes the U.S. Department of Housing and Urban Development (HUD) Inspector General’s findings, there’s no arguing that Norcade Circle, a small street north of Folsom Boulevard, needed fixing. The boarded-up fourplexes lining the street are vandalized, trash-filled examples of the real estate boom and bust that’s left Sacramento County struggling with one of the highest foreclosure rates in the country.

The bust has been a boon for EPO Development, a small company owned by Sacramento natives Erik and Paul Olson, which has received $4 million in federal loans and about $3 million more in local dollars to buy 10 of the fourplexes on Norcade Circle, repair damage done by previous tenants and squatters, and bring them up to modern standards. Construction began last month and is expected to last about a year, with the first units being completed this summer.

The project moves forward despite accusations that millions of dollars from the federal stimulus package are being misspent. Last year, the U.S. Department of Housing and Urban Development’s Inspector General followed up on anonymous tip to look more closely at EPO Development’s projects on Norcade Circle and Lerwick Road, a street near Watt Avenue and Highway 80. The inspectors didn’t like what they found.

The Sacramento Housing and Redevelopment Agency approved a $500,000 budget to buy and renovate each of the buildings on Norcade Circle, but according to the audit, each property was worth about $200,000 and repairs should have only cost $100,000. EPO Development also should have salvaged bathtubs, cabinets and refrigerators where it could, the audit said.

Watchdogs were also irked by the fact that one property was purchased months before it had been valued by an appraiser. EPO Development is slated to earn 10 percent profit and will have a 10 percent overhead, according to the audit.

The Sacramento Housing and Redevelopment Agency rejected the audit’s findings, saying that the repairs are necessary to make the properties meet a federally required 15-year lifespan, and the Olsons say their profit margins are standard for a private company.

The housing and redevelopment agency’s board also launched its own investigation and rejected the claims of overspending, then-board chair Bill Chan said.

“[There was] question of whether things were overspent or went way over and beyond, and we didn’t feel that was the case,” Chan said by phone. “If you do it, you do it right. It’s not [wise to] replace one item and not replace another … You’re not going to try to save a cabinet and put a new top on it.”

It wasn’t just cabinets that needed saving on Norcade Circle. The Olsons aim to bring stricter management and tenant screening policies that they say have been lacking. They say many of the fourplexes on are owned by would-be real estate investors who bought during the boom. They realized too late that they owned a property that couldn't be sustained by its cheap rent.

"It was a matter of time before they went back to the bank," Paul Olson said.

All of the fourplexes purchased by EPO had been foreclosed on, and several others on the street are currently bank-owned, Paul Olson said.

That scramble to earn some kind of income on the properties led the owners to lease to anyone who could pay the rent, and conditions plummeted, magnified by the lack of on-site property management.

"If you're not here, you don't know what's happening," Paul Olson said. "Things can get away from you really quickly."

The Olsons have experience with this kind of renovation. They point to the south Sacramento development of Fruitridge Vista, where they say units they renovated anchored a revival in the neighborhood.

Norcade Circle awaits its renaissance. According to Sacramento County Sheriff’s Department records, there were more than 50 crimes reported on Norcade Circle from January to November 2010, the most recent month available. They included a man shot in the leg in August, a suspect arrested on crystal meth charges in November, and a washer and dryer stolen in October.

Ray Santos, a maintenance worker at the Cypress Meadows apartment complex on the inner curve of the street, said transients and squatters often try to sleep in their vacant units or the apartment laundry rooms. The complex hired a private security firm about nine months ago, and Santos said transients chased out of the apartment complex often flee into the fourplexes across the street.

In September 2009, a parolee on the run from law enforcement reportedly tried to hide in the closet of a vacant fourplex on Norcade Circle.

Brad Cook, a member of the Rosemont Neighborhood Watch, said he’s seen a “disproportionate” amount of crime in the area, including some on Starfire Drive in Rosemont.

“Originally when the area was developed it was considered a very nice place to live with affordable homes for starter families, singles and students,” Cook said in an e-mail. “Obviously it shares many of the geographical pluses that Rosemont has, but unfortunately it has now slowly deteriorated into a particularly bad area directly on our front doorstep.”

The Olsons are moving forward without much concern for the pending decision from the U.S. Department of Housing and Urban Development and its inspector general, saying that the responsibility falls on the local agency that approves their funding.

“[This is] a food fight between [the Sacramento Housing and Redevelopment Agency] and the inspector general’s office about whether they followed their guidelines appropriately or not,” Paul Olson said. “From our perspective, our budgets are actually quite tight.”

Correction: An earlier version of this story incorrectly identified who could be forced to return funding to the federal government. The U.S. Department of Housing and Urban Development audit of the Norcade Circle project recommended that the Sacramento Housing and Redevelopment Agency, not EPO Development, return funding to the federal government. Rosemont Patch regrets the error.