What Happened at the Community Preservation Corporation?

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March 15, 2012; Source: New York Times

The New York Times headline (“Lured by Visions of Real Estate Profits, Nonprofit Group Stumbled”) doesn’t tell the whole story. Even if the Community Preservation Corporation (CPC) has been on “the brink of collapse,” it seems unlikely that it would be solely because of the “lure…of visions of real estate profits.” CPC has long been one of the nation’s top nonprofit players in the world of housing and community development, particularly in metropolitan New York City. CPC’s website indicates that the organization has financed 144,000 new and rehabbed units during its 27 year history. The Times reports that CPC’s problems are due to its having “strayed far from its traditional mission.” In stating this, it basically follows the analysis of City Councilor Brad Lander that CPC, under longtime director Mike Lappin, had expanded from financing the construction or rehab of rent-regulated apartments for lower income families to investing in middle-income and market-rate condominiums through a for-profit affiliate.

Lander might very well be correct about the flaw in CPC’s strategy, having had an inventory of mixed-income and market-rate investments to tend to during the nation’s worst housing market in decades. But CPC’s problems may have been structural and organizational, not just a matter of having made some bad investments. At least three additional questions must be asked.

First, what might have been awry with board composition and board guidance? CPC is a partnership, of sorts, of dozens of major banks and insurance companies, created to provide financing for affordable housing development. A look at CPC’s board of directors suggests that the same banks that were leading the nation into unfortunately speculative, unsustainable investments were providing somewhat untempered direction to CPC. That isn’t to say that the board members weren’t capable of providing good analysis, but they and their institutions were part of an overenthusiastic read of the real estate markets that few, if any, were wont to challenge among the larger institutions—until it was too late. The board’s uniform composition of banking and finance experts suggests that it needed skeptics and critics in the mix to challenge what might have been CPC’s irrational exuberance for riskier investments.

Second, what was the relationship between the CEO and the board? The Times reports that Mike Lappin, the CEO of CPC for 31 years, was receiving salary and bonuses from CPC and from its for-profit arm totaling more than $1 million. The article comes with the intimation that the enormous salary indicated something, but doesn’t explain what that might be. Our knowledge of Lappin, based on very limited interactions, is that he was a brilliant visionary. But sometimes, an organization needs a bit more turnover in its executive leadership than once every three decades, no matter how visionary the CEO. Even high-powered banking board members can be entranced by a longtime visionary leader. Without blaming Lapping for CPC’s problems or without suggesting CPC’s history of accomplishments should be discarded, sometimes boards and executives become co-dependent, symbiotic, and unable to step back and see the need for backing off some strategies and rethinking.

And third, what is the role of scale? The Times doesn’t address one of the underlying issues concerning CPC’s inexorable movement toward growth. In the community development world, some of the older, larger nonprofits have suffered precipitous, unexpected collapses (for example, People’s Housing in Chicago and Eastside Community Investments in Indianapolis). Oddly, in past years (we haven’t seen very recent data), the housing and community development productivity of smaller, newer community development corporations (CDCs) has been comparably as good as the larger, older CDCs. CPC is a financing tool, not a community developer, but there might be lessons about the unexpected and expected dangers of scaling up in the CPC story.

CPC is still alive and just hired Rafael Cestero, a former commissioner of New York City’s Department of Housing Preservation and Development, to succeed Lappin, who retired in November. For nonprofit analysts, consider this: if CPC is really teetering and hoping for a Cestero-led revival, what should have been spotted a year ago that would have predicted CPC’s problems of today? Two years ago? Five years ago? And had those problems been spotted, what corrective actions might have been taken?—Rick Cohen