Baltimore’s federal housing officials didn’t think building a luxury apartment complex in the Poppleton neighborhood was a good idea. New York federal housing officials overruled them and insured the project.

The Baltimore office may have had the right idea: Not a penny of the $56 million construction loan that was insured by the federal government has been repaid on the two-building complex that opened in 2018, according to a federal database and the developer’s own financial disclosures.

The developer, New York-based La Cité, is potentially in danger of defaulting on the loan, which could result in the bank’s repossession of the complex. La Cité controls Park Square Homes I, a limited-liability company that was created to own the complex.

“I don’t know how long they can hold on like that,” said Mary Ann Henderson, who retired from the Baltimore office of the U.S. Department of Housing and Urban Development in 2014.

In a recent interview, Henderson said that she and other housing officials in Baltimore were dubious of La Cité's pitch for the apartment complex. The New York-based developer had no track record of major projects when the city picked the firm to redevelop nearly 14 acres in Poppleton in 2005.

In 2011, La Cité approached Baltimore’s HUD office about insuring the loan for the first phase of construction. Officials told the firm politely, but firmly: Don’t bother applying.

“This is a gigantic parcel in the middle of a wasteland,” Henderson recalled thinking.

HUD’s mortgage insurance program was meant to boost areas where the local government was already heavily investing, but Henderson said Baltimore didn’t have a cohesive plan for West Baltimore’s Poppleton.

But in 2016, HUD officials in New York overruled Henderson and her colleagues and approved insurance on the construction loan. The decision shocked local officials. At the time it was the largest such loan ever insured by HUD for a development in Baltimore, the department’s database shows.

The apartment complex is the only project La Cité has completed in its plan to revitalize the majority Black neighborhood. The city grew so frustrated with the developer’s inability to obtain additional financing that in June it canceled La Cité's development deal. More than $500,000 in unpaid water bills also contributed to that decision, emails show.

Open for about six years now, Center\West hasn’t achieved financial solvency. It is struggling to find renters. The first-floor commercial space sits vacant. La Cité has invested millions of dollars to fund repairs and improvements and keep the project afloat.

In a statement last week, La Cité said its apartment complex has led to a drop in crime in Poppleton, created dozens of affordable housing units for low-income residents and increased nearby property values.

The developer said that the city was holding up further development by not helping La Cité obtain financing, a violation of their contract, and argued in the statement that the unpaid water bills involve a “separate corporate entity” and should not obstruct redevelopment from progressing.

Even though the city is trying to cut ties with La Cité, the developer retains the ability to move forward on its planned age-restricted apartment tower for older adults — if it can secure financing.

Henderson and her colleagues predicted that redevelopment in Poppleton might struggle in this way.

Henderson oversaw the financing arm for HUD’s multifamily program in Baltimore, and over her decades-long career she helped developers across the region finance major housing projects and rebuild urban neighborhoods.

HUD does that primarily through its mortgage insurance program. Rather than lend money directly to private developers, HUD insures the loans that fund those developments. The bank takes care of the paperwork and services the loan, while HUD takes on the risk.

The result is a low-cost, long-term loan that is highly coveted by developers. Since the very beginning of Poppleton’s redevelopment — when La Cité sent an unsolicited bid to Baltimore in 2003 — the developer’s plan hinged on getting mortgage insurance from HUD.

But when it came time for La Cité to secure financing for the first project, the Center\West complex, Baltimore’s HUD officials quickly spotted problems.

Sticking luxury apartments next to a public housing project on one side and vacant land on another side didn’t make sense, Henderson said, because people who could afford those higher rents would want to live elsewhere.

That’s not what city officials wanted to hear.

In November 2011, Henderson took an elevator up to a conference room in City Hall to meet with then-City Council President Jack Young and then-Housing Commissioner Paul Graziano.

When the officials from HUD broke the news that the feds would not finance this deal, Graziano seemed to understand, Henderson said. Young, she said, was “devastated.”

But in 2013, the developer caught a break.

That’s when HUD started a years-long reorganization that put Baltimore’s multifamily housing office under the purview of New York’s HUD office. La Cité floated its plan again.

At the time, Henderson was out of retirement working as a trainer in New York’s HUD office. When she learned that the New Yorkers were considering the application, Henderson said, she met with the office’s multifamily director, Arden Sokolow.

She made the case that putting luxury apartments next to public housing might work in New York where space is incredibly limited, but not in Baltimore. According to Henderson, Sokolow wouldn’t hear it.

“She was so adamant about it,” Henderson said. “It really disturbed me.”

The New York office approved the application for mortgage insurance in 2016, paving the way for a $56 million construction loan from KeyBank. La Cité has only made interest payments on the loan, financial disclosures show. The developer claims it has a COVID-19 forbearance, but a database for HUD lists the loan as delinquent. Representatives of the Ohio-based bank declined to comment.

Sokolow, who no longer works at HUD, said she didn’t remember the conversation with Henderson and that she barely remembered the project in West Baltimore.

“I had a lot of projects across seven states,” Sokolow said, “and it was eight years ago.”

In a statement, HUD said there was nothing unusual about the decision to reevaluate La Cité’s proposal. But Henderson, who worked at the agency for four decades, said officials in Baltimore couldn’t believe it.

“In my entire experience in HUD, I cannot recall having an office overridden,” Henderson said. “That was a very unusual thing to do.”

La Cité’s president, Dan Bythewood Jr., would later boast that the financing was approved in record time, calling it the “fastest HUD application.”

“I know all of you have heard HUD takes forever,” Bythewood said. “We did it in seven months.”

Bythewood, who declined an interview request for this story, was speaking at a 2018 ribbon-cutting for the apartment complex in Poppleton. Several politicians made remarks, including Young, who was still City Council president.

Young told the crowd he was enchanted by “the heavy hitters” on Bythewood’s development team, including Essence Magazine’s longtime editorial director Susan Taylor and the actor Malik Yoba. Both Taylor and Yoba are investors in La Cité. ­

“I’m like, ‘Wow,’ I said, ‘OK, I get it,’” Young said. “We are going to do everything we can do to make this project happen — and it happened.”

But despite that fanfare, Center\West wouldn’t open until the following year because of a pervasive mold problem. Even after the mold was removed, the new building struggled to attract tenants.

By the end of 2019, just two of the 262 units had been leased, according to public financial documents from La Cité. The apartment complex reached full occupancy by 2022, but later that year the developer disclosed that it was performing an “internal occupancy audit.”

Occupancy levels dropped after the audit. Some of the units were being used as short-term rentals on platforms like Airbnb, a violation of both city law and HUD’s regulations. La Cité reported last summer that 78% of the units were occupied.

More residents have been displaced since then, the developer reported, after a faulty water sprinkler flooded three floors. And the first-floor commercial spaces are vacant.

In a statement, La Cité said it “remains committed to bringing modern, safe, and high-quality housing to the deserving residents of Poppleton.”

“Projects of this scale and complexity, with many moving parts, across multiple administrations, require patience, collaboration, and resolve,” the developer said.

In a recent interview, Young doubled down on his support for La Cité and Black developers generally — saying Baltimore HUD officials erred by not financing the deal in 2011.

The power structure in Baltimore was biased against Black-owned firms and developers from outside the city, he said, favoring well-connected white developers instead.

“I support minority developers getting some of the pie in Baltimore. They get crumbs from the pie,” Young said. “I tried to level the playing field.”