Over the weekend, the Boston Globe had a detailed story about a local real estate developer who once rode high on the wave of a good economy and easy money but who is now facing personal economic ruin and mounting legal challenges while a path of destruction lies in his wake.
Michael David Scott is a Boston developer who, between 2004 and 2008, bought up buildings in some of the cities poorest neighborhoods including Roxbury and Dorchester, converted them to condos, and then, with the help of scores of small-time investors, flipped them for quick profits.
However, once the real estate market turned and the US economy fell into tailspin, he wasn’t unable to find buyers for his many properties. Worse, according to the article, many of those who invested with him were left with little to show for their efforts; they claim the homes were in unlivable and unsalable condition and that the developer promised them things he couldn’t deliver on.
From 2004 to 2008, Scott and his partners bought at least 50 buildings for a total of $26.6 million, and converted the units into 169 condominiums that sold for $49.8 million, a Globe analysis shows.
Today, 101 of the units – more than half – have gone into foreclosure and are selling for a fraction of their value, according to records on file with the Suffolk County Register of Deeds.
Scott’s business dealings offer a window into the world of a major player in the real estate bubble and foreclosure bust that has wreaked havoc in the city, especially in Dorchester, the Boston neighborhood hardest hit by foreclosures. Built in a frenzy of speculation, his empire collapsed almost as fast, leaving behind a trail of abandoned property, foreclosures, litigation, and ruined dreams.
The Globe does a thorough job of detailing Mr Scott’s personal and financial background. They seem to be highly-critical of his business dealings.
Jump into a time machine and go back four years, however, and it was a different story.
In an article published in the newspaper in April, 2005, the Boston Globe and Gail Ravgiala, a staff reporter, seemed in awe of all the “good” he was doing.
David Scott has a philosophy that seems to go against the grain of a go-go housing market. ”Eat little and live longer,” he says.
For Scott that translates into a simple business plan: establish a reputation for quality, make a reasonable rate of return, and then leverage both by reinvesting in a community …
”Many of our buyers,” says Scott, ”work for the Boston Public Schools or the MBTA or a nonprofit agency. They have a commitment to the community. Some of them grew up in these neighborhoods and are looking to move back.”
To make that happen, Scott says, ”I know we can’t buy houses for more than $600,000, and we need to keep the mortgage payments between $1,600 and $1,900. Then two people making reasonable salaries can afford to live there.” He adds: ”It is gratifying to see people move into properties that they never expected they would be able to buy. That’s the American Dream.”
The Globe seems to have missed something, buying into his story, hook, line and sinker. In the original, it mentions, “All of the kitchens have granite countertops and high-end stainless steel appliances. Bathrooms are finished in marble and there is a laundry room in each unit. The floors are all prefinished hardwood.”
Yet, those the are the exact items homeowners complain were never installed in their units!
Did the Globe’s reporter actually see the properties before she wrote such a complimentary piece?
Did the Globe write the story this weekend as a mea culpa?
Many people and institutions are at fault for the subprime lending crisis we fell into, newspapers and the media and the US government included. Remember the calls for more “no-money down” loans and “easy credit” in order to get people into homes?
How’d that work out?
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