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Harvard Real Estate Inc.:

By Andrew C. Karp and William E. McKibben

"After a year-long study, we have concluded that the interests of the University and the quality of life for Harvard's faculty, students and other residents can best be served by placing responsibility for the marketing and management of Harvard's properties into a closely-held, professionally managed real estate corporation."

--Joe B. Wyatt, vice-president for administration, spring 1978

"In response to these worrisome conditions, tenants from a variety of Harvard buildings have recently met to discuss our concerns. We wanted to know how our living situations might be improved and how our homes might be made more habitable. We soon discovered that our individual problems were shared by many others. We therefore decided to form a Harvard Tenants Union."

--Harvard Tenants Union (HTU), March 1981

The formation--and subsequent development--of Harvard Real Estate Inc. is a classic story about a changing university. For decades, Harvard's non-academic holdings--homes, apartment buildings, stores and offices--were managed in a low-key, almost offhand way. The University Housing Office nominally ran the buildings; in practice, responsibility for the structures was largely given over to private contractors like Hunneman and Co., which managed the properties. Harvard was anything but an aggresive landlord--"I remember seeing one house, right on the edge of the Square, renting for $200 a month. This was a house, this was 1978, this was Harvard Square," a former University employee says. "The residents wanted me to stay away; they didn't want any maintenance, nothing. They just wanted everyone to forget about them."

But all that was before Wyatt and a host of other University officials went to work. A 1977-78 survey of properties showed Harvard officials that maintainance had been deferred, that tents were lower than comparable privately owned buildings and that--perhaps--there was money to be made, or at least not to be lost in such large quantities. Ergo, Harvard Real Estate. Formed in 1978, the wholly owned subsidiary of the University has worked, its officials says, to improve and repair Harvard's properties and at the same time to raise rents so that, in the words of president Sally Zeckhauser, it can attempt to win "a fair return on the University's investment."

Some, though, tell a different story: they insist HRE is wrought with waste, that its single mission it to make money for the University, and they are the victims. "Sometime in the mid-1970s, Harvard reviewed its policies on real estate. Until then, we had seen benign neglect; now they are in a new abrasive, expansionist phase," Michael Turk, principal organizer of the Harvard Tenants Union, says.

A few things are clear--Harvard is the largest landlord in Cambridge. It owns a total of about 2500 commercial and residential properties, 900 of which fall under the domain of the Cambridge Rent Control Board. And HRE still loses money. "One of the main reasons HRE is not making money because of our accumulated losses," Robert Silverman, HRE vice-president, says, adding, "For years Harvard was charging tenants too little money year after year."

But University officials do not plan to get out of the real estate game. In fact, most say they are pleased with HRE's performance so far, despite complaints from tenants, city officials, and businessmen that Harvard is one of the worst landlords in the city. Cambridge mayor Francis H. Duehay '55 explains that while Harvard often provides help in commercial development, "the University is not always a particularly good landlord in maintenance." And David Vickery, director of the city's development department worries that despite Harvard's vast financial resources, many of its operating practices are "disturbing."

Harvard administrators, however, see progress in the real estate operation. "I have heard those remarks about us being bad landlords, too," Wyatt says, "but I have also heard from those same people that maintainence is better now than at any time in the last 10 years." Wyatt, who headed the committee that originally recommended HRE's establishment, adds that he is "delighted" with HRE's performance so far, though he notes that "there is still a good deal of work to be done." That work, he says, mainly involves "getting the property back into good condition."

Harvard had two main objectives in mind when it decided to form HRE, Thomas O'Brien, vice president for financial affairs and a member of Wyatt's committee, explains: "We wanted not to lose money and to provide decent housing for our own students and the community in general." On the first score HRE has failed and according to Silverman, it has little hope of success for at least "several years." The second point continues to be debated by Harvard officials, who perceive improvement, and tenants, who see erratic heating systems, poor insulation, slipshod workmanship, and inflated rents.

Harvard is meeting undisputed success, however, in its effort to reach a goal not explicitly mentioned when HRE was formed, but also implied by O'Brien and confirmed by the University's actions. "In the long run the University may have the need to use its properties in other ways that they are currently being used. You have to be very careful with this statement because we don't have any specific plans to convert properties now and there are no secret plans for the future," O'Brien says, adding, "When property is available at a reasonable price it has thus been sensible for the University to buy it." The possibility that Harvard would convert a portion of its extensive commercial holdings to institutional use sits like a lump in the throat of many city officials because that action would exempt the property from the tax rolls. "Harvard buys more and more property as opportunities come up," Vickery says, "and I'm concerned that they might convert some of those buildings," despite strict new guidelines on institutional expansion.

While Harvard has made major real estate purchases in the past two years--such as a $4 million property along Mt. Auburn Street slated to be the site of an office-luxury housing complex--it is also gaining less obvious footholds in Cambridge. A major HRE objective was to provide housing for personnel affiliated with Harvard, and since 1978 the University has offered long-term six-per-cent interest mortgages to attract faculty to Cambridge. On each property purchased through the Cambridge option plan--and there have been at least three dozen--Harvard retains an option to buy when the current owner decides to sell. In addition, many city officials claim that by allowing Harvard professors to pay a higher sum for Cambridge property, the option plan artificially inflates property values in Harvard neighborhoods, thus making t harder for others to buy homes whiles increasing the value of University holdings, Richard Currier, of Currier Associates Realtors, says the option plan "enables and encourages them to pay a higher price. This creates an inflationary spiral and sets a standard for property values in each neighborhood." Harvard officials, such as O'Brien, deny that the option plan has a "significant" effect on the Cambridge housing market. "Our faculty is as prudent a buyer as anyone else," O'Brien says.

Residential tenants, especially those in rent-controlled buildings, provide the most vocal, objections to HRE policies, in part because they are largely protected from the fear of retaliation by the rent-control bureaucracy. In the past few months, activists in many Harvard buildings have come together form the HTU; and though Silverman says the group will probably "fade away" like small-building groups of the past, Turk says the HTU "has the potential to be substantial and enduring. There is a sense of tapping into a really powerful feeling among Harvard tenants."

The HTU has done more than send out newsletters; in the first few months, its research committee has focused on two principal complaints:

I that Harvard recived tax abatements and did not inform the Rent Control Board about them; hence, they were not passed along to the tenants. HTU organizers claim that the abatements total nearly $500,000; Silverman says that the Rent Board was fully notified of the abatements and that subsequent rent increases were smaller because of them;

I and that Harvard is increasing rents to cover oil costs without making major efforts to conserve heat. A preliminary study commissioned by the HTU show 86 per cent of tenants lack storm windows, and 73 per cent do not consider their windows "weather tight."

The Crimson this spring investigated HRE and found several instances of questionable behavior by HRE officials. They include:

I Paying prices that may have been as much as three times higher than necessary for painting and plastering in one building, 27 Everett St., and then attempting to pass the costs on to the tenants. The city examiner disallowed some of the costs claimed by HRE, shifting the burden for payment to the University. HRE officials say that the costs were reasonable and that work on the building was atypical because there was not enough time to collect bids from contractors.

IPaying for at least one major job on what the contractor called a "cost-plus" basis. The work, on 18-20 Ware St., cost many thousands of dollars; and invoices show columns marked "ten-per-cent profit." Other contractors in the area said such arrangements are unusual, adding that the contracts could drive up prices.

I Failing to report to the state division of public charities are required by law that a member of the board of directors--Edward M. Strasser--was also one of the five highest paid consultants to HRE in two consecutive years. Zeckhauser acknowledged that there had been internal discussions about whether it was a conflict of interest to have Strasser on the board of directors and on the payroll; other University officials denied that there was any impropriety in the arrangement.

Whatever the validity of their charges, it seems unlikely the HTU and other tenant organizations will fade away. More likely, they will continue to make noise, reminding all who will listen that the growth of Harvard Real Estate comes at a price to its tenants.

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