Special Report: As their landlord profits, soldiers battle unsafe Army homes

[December 27, 2018]  By Joshua Schneyer and Andrea Januta

FORT BRAGG, North Carolina (Reuters) - One set of photographs, posted on Instagram, captures a grand, crimson-colored banquet hall at a 100-acre Irish estate with two 18th Century mansions. The owner has redecorated the residence in gilded mirrors and blue damask wallpaper with the help of a renowned interior designer and is having a personal golf course installed on the verdant grounds.

Another set of pictures, taken by tenants, shows homes across the Atlantic in North Carolina, Maryland and Louisiana, plagued by flooding, bursting pipes, mold blooms, collapsed ceilings, exposed lead paint and tap water as brown as tea.

The same man is behind all these dwellings.

Ireland's historic Capard House is among the vacation properties owned by Rhode Island real estate developer John Picerne. He purchased the estate in 2015 after emerging as one of the largest private landlords on U.S. military bases. The others are the homes of his warrior-tenants, who pay hundreds of millions of dollars a year in rent to live in housing run by Corvias Group, Picerne's closely held company.

Since 2002, Corvias has acquired control of more than 26,000 houses and apartments across 13 military bases. Picerne's company runs this lucrative enterprise in partnership with the Army and Air Force through a program that enlists private-sector operators to build new dwellings, upgrade others, and manage the properties for 50 years.

The Corvias homes are among 206,000 now under private management in the 22-year-old U.S. Military Housing Privatization Initiative, the largest-ever corporate takeover of federal housing. The military says the effort has enhanced the lives of service members and their families.

Some of Corvias' tenants strongly disagree. They accuse Picerne's company of renting them poorly maintained homes riddled with health hazards that can trigger illness or childhood developmental delays.

Reporters visited three of the largest bases where Corvias operates and interviewed 30 current or recent residents who documented their battles with the landlord. At Fort Bragg, the largest military base in the United States, a tenant petition to "hold Corvias accountable" for neglecting homes has gained more than 2,000 signatures.

John Picerne declined to comment for this story. His company declined to address questions about its earnings or specific tenant complaints at its Army bases.

"While there are always several sides to a story, out of respect for our residents we will not comment on or communicate with our residents through Reuters," William Culton Jr., the company's general counsel, wrote in an email.

After Reuters detailed the findings of this article to the Army and Corvias, the company set up a phone hotline for tenants with complaints and pledged to respond within 24 hours. Kelly Douglas, a Corvias spokeswoman, said the company is launching a "comprehensive review" of its service request and resolution process.

"If there's an area where we can improve or an unmet resident need, we want to make it better," Douglas said.

CONFIDENTIAL FINANCIAL DOCUMENTS

Nearly a third of U.S. military families, some 700,000 people, live in rented accommodation on bases. Their living conditions have come into the spotlight since Reuters revealed lead poisoning risks  in Army homes, mold and vermin infestations  in Navy and Marine Corps housing, and sparse protections for tenants. Those reports have prompted Congress and the Department of Defense to order at least three investigations  and to take measures  to repair  unsafe conditions.

Despite that new scrutiny, the finances of privatized military housing have remained hidden. The Pentagon has never disclosed the precise terms offered to developers and property managers such as Picerne, deeming them confidential business transactions.

Reuters has now learned how the arrangements work for one leading private developer, obtaining thousands of pages of proprietary documents that lay out the fees and responsibilities that Picerne's business negotiated with the Army. These documents show that the landlord received iron-clad assurances of profit, often while putting up little initial cash of his own.

To grow his business, the scion of a wealthy Rhode Island real estate family has cultivated ties with military brass and politicians. Corvias has spent millions on lobbying, and Picerne has enlisted the help of his state's powerful Democratic senator, Jack Reed, an Army veteran and ranking member of the Senate Armed Services Committee.

The profits have helped afford Picerne, 56, a yacht, private jet travel, and mansions renovated by celebrity decorator Martyn Lawrence Bullard, known for his work with the Kardashian family and fashion designer Tommy Hilfiger.

Reporters reviewed the confidential framework agreements between Corvias and the U.S. Army for six of the 13 military bases where the company operates. These agreements – hundreds of pages each, known as Community Development and Management Plans – laid out Corvias' plans, responsibilities and projected earnings at bases.

From those six Army housing partnerships alone, Picerne's business stood to collect more than $254 million in fees for construction, development and management of the homes during the first decade of the deals, a Reuters analysis of the terms showed. Over the projects' 50-year duration, the fees were projected to top $1 billion. Nearly all of those fees are pure profit for Corvias, according to people familiar with the deals, because most of the projects' expenses are covered by rent income from soldiers.

Corvias also stands to earn hundreds of millions more in equity returns, the agreements show: It can share with the Army any cash left over from rental revenues after the projects' expenses have been covered. And Corvias gets additional fees from thousands of other homes it operates on six Air Force bases and one other Army post. Reuters was unable to review the operating agreements needed to analyze the profitability of those contracts.

The company has been able to enjoy these returns without taking on much risk. The government put hundreds of millions of dollars and thousands of existing homes into the ventures. In all but one of the six Army projects Reuters reviewed, Corvias didn't have to invest a penny in equity until around a decade later, and the company kicked in less than a fifth of the money the military contributed. The Corvias contributions correspond to about 3 percent of the projects' planned development costs, which were largely funded by loans.

Corvias is shielded from risk in another way: It isn't obligated to repay nearly $1.9 billion in bank loans its military housing projects have received. The loans – like the salaries of most Corvias workers on bases – are paid off from the housing rental stipends soldiers and airmen receive from the federal government.

The Army declined to comment on Corvias, the projects' finances or specific tenant complaints. "The Army is committed to providing safe and secure housing for our soldiers and their families," spokeswoman Colonel Kathleen Turner said in a statement. "We work daily with the privatized housing companies to ensure that residents' concerns regarding their housing are addressed."

Corvias said it is committed to quality housing for the troops. "Our core mission at Corvias is clear: put service members and their families first," wrote spokeswoman Douglas. "That means providing a safe, comfortable home to those in the military who choose our housing."

'NIRVANA' AT FORT MEADE

Maryland's Fort George G. Meade, home to the secretive National Security Agency, is where Picerne laid the cornerstone of his military housing empire.

Like most of the Army's family housing, the nearly 2,900 homes at Meade had fallen into disrepair under decades of government management. In official project documents from 2002, Corvias promised Meade families a better future. It would replace "obsolescent housing and catch-as-catch-can maintenance" with "a nirvana of planned Neighborhoods." During a 10-year development phase, from 2002 to 2011, Corvias pledged to demolish all but a few hundred of the existing Meade homes and build 2,799 new ones.

Only 856 new homes were built, a nearly 70 percent reduction, Department of Defense figures show. The Army signed off on the skinnied-down target after the developer said construction costs had surged, revised plans from 2006 show.

The Corvias website features gleaming new homes at Meade and promises military families "upscale residential communities, all while saving you money."

Some units fail to meet these promises. During an October visit to Meade, reporters saw some areas of handsome new and historic homes, but also others filled with eyesores and safety hazards.

Reuters interviewed eight Meade families and reviewed photos and documents from several others. Among the problems in the homes were a ceiling that collapsed onto a child's bed, roofs riddled with leaks, peeling lead paint, a wasp infestation, mold blooms, waterlogged drywall and a kitchen gas leak.

By the time she left a $2,500-a-month rental home at Fort Meade this year, Emily Swinarski was chronically ill, medical records show. A physician documented her shortness of breath, chest pain and mold allergies and blamed conditions in the home, built in 1959. When Corvias tested the air quality indoors, according to a copy of the results, it showed mold counts up to 350-fold the levels found outside.

Corvias found a partly rotted wooden roof was the likely source of the fungus, Swinarski said, but told her it wasn't willing to conduct the extensive repairs needed to rid the home of mold.

Following her doctor's written order to "remove herself" from the home, she and her Air Force major husband moved off post, throwing out nearly $5,000 in personal belongings – a tainted new bed, a sofa and a closet-full of reeking clothes.

"We chose to just bite the bullet," she said.

Corvias' development plan for Fort Meade said residents would be on a "first name basis" with maintenance personnel. Last year, citing tight budgets, Corvias reduced housing staff and shuttered at least one of its five neighborhood community centers at Meade. Residents say they are now referred to a call center to submit work requests.

Maintenance crews are pressured to quickly close residents' work orders, a Corvias employee told one Meade family in October. The family made an audio recording of the conversation with the employee. Some staff, the worker is heard saying, refer to Meade as "Section 8 behind the gate" – a barbed reference to the U.S. federal system of housing projects for the poor. Corvias declined to comment.

In a Meade neighborhood where Picerne's business pledged to build stylish new housing for officers, debris-strewn concrete foundation pads lie between two schools. An abandoned playground is overgrown with weeds.

The reason: The Army signed off on "re-scoping" the Meade project in 2006, scaling back the improvement plans after Corvias cited lower-than-expected occupancy rates, rising construction costs and costly renovation of historic homes. To save costs, the original plans had already deferred building a $1.2 million bridge over a busy thoroughfare – viewed as necessary for children's safety, planning documents say. Children use a crosswalk instead.

Corvias and the Army didn't address questions about conditions at Meade or the re-scoping of the housing ventures.

DESIGNER TOUCH

At his own homes, Picerne has employed British designer Martyn Lawrence Bullard, a star of the cable TV show Million Dollar Decorators.

In Picerne's six-bedroom neo-Georgian brick house in Providence, the designer installed black-and-white marble floors. Bullard told Australia's Belle Magazine the floor design was inspired by Rome's Pantheon. The home features chrome and jade accents, a Murano-glass chandelier and a faux-zebra rug.

The exterior view of a home in a neigbourhood of older worn-down Corvias-managed homes at Fort Polk, Louisiana, U.S. November 14, 2018. REUTERS/Joshua Schneyer

Bullard also redecorated a $6 million Rhode Island beach home across Narragansett Bay from Newport, where Picerne docks his 49-foot Italian-made yacht, the Under My Skin. In the living room, the designer hung a gilded chandelier, sheathed the walls in black seagrass and added chairs clad in turquoise-hued leather. "I took my inspiration from the Victorians," he told another magazine. On Instagram, John Picerne lauded Bullard's "genius design."

Bullard recounted in an essay that he installed an exotic work of taxidermy for Picerne in a Palm Beach villa: an alligator locked in battle with a snake, mounted on a 20-foot vaulted ceiling. He called the family "wonderfully adventurous and highly discerning collectors."

In Ireland, the designer spent months procuring finishes such as petrol-blue damask silk wallpaper and a mix of Regency and William IV antique furniture for the drawing room of Picerne's Capard House. In September, Bullard posted a photo of the banquet hall. The long dining table was set with white linen, white roses, crystal goblets and formal place cards for 33 guests. Bullard tagged the photo '#Mytablesbiggerthanyours.'

Through his agent, Bullard declined to be interviewed, citing his confidentiality agreement with Picerne.

Corvias said it was unfair to draw attention to Picerne's homes. "In too many instances, Reuters veers from reporting to tabloid-style inference," wrote Culton, the general counsel. "Reuters' use of personal information about someone's private residence is more of a stunt than actual reporting."

He added, "We welcome the opportunity to focus on the real issues – like how our nation can provide the best possible home for those who serve in uniform."

LOW RISK, HIGH REWARD

Picerne once told a Rhode Island TV station that his military housing business is "recession-resistant." As civilian real estate markets sputtered a decade ago amid the U.S. financial crisis, the rental revenue streams on military bases kept flowing steadily. Defense Department rent stipends to families are transferred automatically to base landlords.

The Picerne family has been in real estate for nearly a century, building a national portfolio. By the early 2000s, John Picerne struck out on his own. Known in the industry for his intelligence and deft marketing, he turned Corvias into one of the largest private operators of U.S. military homes.

Many of the dozen-plus other real estate firms with military housing contracts partner together on projects, sharing income. Picerne's firm takes on all aspects of development, construction and management, avoiding the need to split fees.

In five of the six projects reviewed for this article, Corvias wasn't required to invest any cash at first. At Fort Polk in Louisiana, for instance, Corvias stood to collect $43 million in fees before having to stump up its share of equity cash, $6 million, and then only 10 years into the venture.

Picerne has also been able to take out cash he hasn't earned yet. In late 2013, according to Corvias financial statements prepared in 2015, Corvias obtained a $127 million loan from an affiliate of investment bank Guggenheim Partners. As collateral, Corvias pledged future fees from military housing.

Corvias, Guggenheim and the Army declined to comment.

GETTING AIRBORNE

Picerne's rise into the first rank of Army landlords followed a pivotal trip he made to North Carolina's Fort Bragg 17 years ago.

Bragg was the crown jewel of the Army's housing privatization program. The country's most populous military base, it includes nearly 6,500 family homes.

Picerne set out to pitch his services to Army brass. He chartered a private jet to visit Bragg in August 2001, and brought along a distinguished guest, Democratic Senator Jack Reed. A family acquaintance and fellow Rhode Islander, Reed sat on the Senate Armed Services Committee, which oversees military spending. He is now the committee's ranking member.

Reed was once a Bragg resident himself, as an officer in the base's famed 82nd Airborne Division, before entering politics. A spokesman for the senator, Chip Unruh, confirmed that Reed made the trip. Reed flew to Bragg with Picerne because the senator "wanted him to understand the importance of serving soldiers and see firsthand what they do, the challenges they face, the sacrifices they make, and the importance of taking good care of them," Unruh said.

"Senator Reed respects John Picerne and his work on behalf of military families," Unruh said. "There is no stronger advocate for military families than Senator Reed."

Reed reimbursed Picerne for the cost of the flight, Corvias said.

At Bragg, Picerne wooed General Dan K. McNeill, at the time one of the base's commanding generals.

One night, the two sat in the back of an Army vehicle on a live-fire shooting range during a field exercise, recalled McNeill, a retired four-star general. McNeill says he was doubtful a private developer could manage the housing better than the military. Picerne's earnest manner and business expertise won him over.

"I was quite the cynic about it, but I basically realized I didn't know what the hell I was talking about" when it came to managing homes, recalled the general, who retired a decade ago. "I was fairly certain he knew what he was doing and his intentions were good."

When McNeill asked what was in it for Picerne, the general recalled, the businessman was frank. Automatic, first-of-the-month rent payments for soldiers by the military would eliminate a landlord's biggest headache: deadbeat tenants.

Over the years, Picerne's businesses have spent $2.8 million on lobbying – mostly of Congress and the Defense Department on issues related to military housing or Corvias contracts. Picerne has given at least another $500,000 in political contributions, mostly to Democratic politicians or committees, including about $10,000 to Reed.

Picerne has been a generous donor to charitable causes. Corvias said its foundation has awarded more than $13 million in scholarships to more than 400 military children and spouses. The foundation, which also supports other charities, from the YMCA to adopt-a-highway programs, was honored in a 2012 White House ceremony.

BIG CONTRACT, MOUNTING PROBLEMS

Corvias won the Bragg contract and took over housing there in 2003.

The company built most of the new homes it pledged to construct at Bragg. Fifteen years into the venture, however, a growing number of tenants are up in arms.

In October, Army Specialist Rachael Kilpatrick started an online petition decrying Corvias' home maintenance. A doctor attributed her husband's worsening health problems to mold in their home, medical documents show.

Corvias, she says, didn't fix the problems despite months of requests, and complained to her commander about her maintenance demands. The petition seeks to "Hold Corvias accountable" for serious maintenance lapses in homes base-wide. She hoped it would draw 50 signatures. So far more than 2,000 have signed.

Jennifer Wade says her problems began the day she moved to Fort Bragg in March 2017. Wade, a piano teacher with a soft southern drawl, has Ehlers-Danlos syndrome. The genetic condition afflicts her body's soft tissue, causing chronic pain. She has needed several major surgeries, spending long periods in a wheelchair.

Corvias had promised Wade a home equipped for her wheelchair, but there was no ramp or bathroom handrails when she moved in, leaving her dependent on her husband, an Army sergeant. "It was pretty degrading," Wade said.

It took Corvias four months to install the fixtures, she said. Wade's husband and two small children soon developed breathing problems, which their doctors attributed to mold. The doctors submitted three reports to Corvias, recommending it clean the air ducts and replace the carpet. Corvias let months go by before cleaning the ducts and declined to replace the carpet, according to notes a maintenance employee marked on Wade's work request.

Wade's husband now requires inhalers and wears a breathing device to assist him when he sleeps, his medical records show. He no longer meets Army fitness requirements, and is in the process of obtaining a medical discharge. Last month, an Army board recommended him for disability, citing his recent asthma, Army records reviewed by Reuters show.

Corvias and the Army declined to comment about the petition and other tenant complaints.

At Louisiana's Fort Polk, Corvias took over operations in 2004. It inherited poor housing stock but pledged to transform the base into "state-of-the-art Neighborhoods of Excellence."

Picerne's firm committed to building 1,123 new homes within 11 years. Only 678 have been built, Corvias figures show. Many others were renovated.

Today, some Polk areas feature new housing. Others have worn 1970s and 1980s units. One neighborhood contains fenced-off housing foundations that have sat idle for years. A reporter entered several Polk homes, invited in by tenants, and observed mold growths, rodent-gnawed furniture, leaky roofs and brown bath water.

After Reuters informed Corvias of its findings at Polk, the company sent a December 13 holiday email to residents. Corvias told them it strives to serve tenants, but had "fallen short of that promise" in some cases. "We can do better and will make it happen."

Leigh Tuttle, a major's wife, said when her family moved into a renovated 1980s duplex in 2016, the place smelled like a "wet dog." Corvias told her the stains on the floors and the air ducts were "just dust," she said. After testing confirmed mold, staff replaced carpets but didn't keep the air ducts clean, Tuttle said.

Her son Weston, now 5, developed breathing difficulties, his medical records show. The family moved across the country last year to a new post and live in civilian housing off base. Weston still needs inhalers and frequent nebulizer treatments.

"The mold was the worst in his room," Tuttle said. "He wouldn't have these problems if they'd done things right."

The family struggles to pay for Weston's visits to respiratory specialists, some of which aren't covered by their military health insurance, Tuttle said. When Reuters showed her pictures of John Picerne's estates, she took a moment to collect herself.

"I find it appalling that he's able to have that lifestyle while service families are suffering in his homes," Tuttle said. "I bet he doesn't have mold growing in those mansions."

(Editing by Ronnie Greene and Michael Williams)

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