HRE Ended Subsidies In 1984

Three years after the University stopped subsidizing mortgages for senior faculty members, the shadows still remain.

Harvard Real Estate (HRE) developed the Purchase Option Plan and the Cambridge Option Plan in the mid-1970's to help Harvard lure newly tenured professors to Cambridge. The programs aimed to provide young scholars with prime Cambridge housing at discount rates.

But Harvard and real estate are always a volatile combination in Cambridge, and these plans raised even more furor than usual. In addition to the University's tax-free status. local politicians and activists constantly condemn the University's large share of the rental market, and its efforts to influence city government. The twin mortgage plans, City Councilors say, represent both.

"If there's one item that would draw unanimous [City] Council hostility, it's the mortgage program," says veteran tenant activist Michael Turk.

The mortgage programs subsidize all or part of Harvard professors' 40-year mortages either on houses bought from the University or on homes faculty members have purchased within Cambridge. In exchange, Harvard has the right of first refusal should the owners choose to sell.

Many of the 103 people who received mortages under these two plans are still paying them off and the subsidies still figure heavily in town-versus-gown rhetoric.

Although University officials stopped grantingnew mortages three years ago, they have neverannounced this fact and many local activistsappear to believe that faculty members are stillreceiving new subsidies. The cancellation of theprograms is documented in a letter from Harvardlawyer Daniel M. Polvere, submitted to the RentControl Board in May of 1984.

According to University officials--some of whomare also uncertain about the current status of theprogram--Harvard cancelled the programs becausethey became too costly. The program "didn'tanticipate the market values going completely outof sight," said HRE Controller Sheldon G. Tandler.

But a decade ago when the University wasconsolidating its real estate holdings, theCambridge real estate scene was vastly differentand the University could afford such mortgageplans.

When HRE was created in 1978, it assumed themanagement of the University's taxable propertiesand the mortgage programs.

Under the Purchase Option Plan, tenured Harvardfaculty members could buy Harvard-owned housesnear the University, receiving mortgages wellbelow the market rate on all or part of theircost, said Tandler.

He said the mortgage plans included a specialmeasure "to prevent speculation" that requiredbuyers who left Harvard or moved within five yearsto sell their houses back to the University forthe same price they had paid. If the owners soldtheir houses at any time, Harvard had the firstoption to buy them back.

A few years later, Tandler said, Harvard beganto run out of buildings to sell to faculty, andcreated the Cambridge Option Plan. Under thisprogram, Harvard gave below-rate loans to facultymembers who wanted to buy homes in Cambridge.Again, if these professors chose to sell theirhomes, Harvard would have the first chance to buythem.

Liberal City Councilors criticized the planvolubly at the time and still do. At a recent CityCouncil meeting Councilor Saundra M. Grahaminveighed against the program, which she saiddrove up property values and gave Harvardprofessors an unfair advantage in this area'sfierce battle for housing.

Councilor Francis H. Duehay '55 said, "Wecertainly asked [Harvard] in several forms to stopthat program. It pushed up the price of housingfor everybody." He added that at least one Harvardprofessor, whom he would not identify, had boughta house under the program "for investmentpurposes."

And Councilor David E. Sullivan said theprogram "brings additional buyers into the marketwho otherwise wouldn't be there." Other tenantactivists have charged HRE used the program toexpand its holdings, since Harvard always retainedthe option to buy back each home whose owner hadreceived a University mortgage subsidy.

According to documents released with the 1984letter which mentioned that the programs had beendissolved, the Cambridge Option Plan lent morethan $7.2 million from 1979 to 1984. The PurchaseOption Plan which ran from 1977 to 1984, lentnearly $4.6 million. The interest rates of bothprograms ranged from 6 to 17.5 percent.

The letter said Harvard had replaced the twoprograms with "limited" loan subsidies for newfaculty and "a small, limited second mortgage plan($20,000 maximum)."

But the mortgage programs recently returned tothe public eye when it was discovered that formerSupreme Court nominee Douglas Ginsburg bought aHarvard-owned house in 1979 under the PurchaseOption plan.

Ginsburg bought the residence at 1 Bryant St.in Cambridge for $126,000 in 1979, receiving a$135,000 mortgage for 40 years at six percentinterest. Seven years later, he sold it for$760,000. Ginsburg's case was unusual because atthe time he was in his fourth year as an assistantprofessor at Harvard Law School. He did notreceive tenure until 1981.

Tandler said the two mortgage plans were meant"to provide incentives to certain senior facultypersonnel," and that the programs, which are stilltechnically in effect, "are only available totenured senior faculty with the approval of thedean of the faculty."

As for the number of exceptions made to thisrule, he said, "I don't think it was a hell of alot." But he added, "The general plan providedonly senior faculty. However, there were thosecandidates who were on they verge of securingtenure and were included in the University'slong-term plans...There weren't a hell of a lot ofthose...the exceptions to the rule would probablyamount to less than 2 percent."

Polvere's letter stated, "All of the loans areto tenured faculty members except for four tosenior administrators."

Vice President and General Counsel DanielSteiner, who administered the program through mostof its active years, would say only that "therewas some variation from faculty to faculty" in theway mortgages were granted.

"A number of people who bought weren'tnecessarily senior faculty. [Ginsburg] was one ofthose," said Vice President for AdministrationSally Zeckhauser, who directed HRE from 1978 untilshe was promoted to vice president this fall. Shesaid "it was generally the notion of the deans"that the mortgages would go to senior professors,but that Ginsburg's mortgage was "notinconsistent" with University policy.

Doth Zeckhauser and Tandler said the houseGinsburg bought "was in very bad shape" because ithad received heavy use as Harvard's Hillel House.Tandler added that Ginsburg spent more than atenth of the house's value to renovate it. ButZeckhauser said, "I can't say it was all becauseof the condition of the house...the market was notvery good for that type of house [when Ginsburgbought it]."

In 1979, at the peak of the energy crisis, shesaid home-buyers shunned big, drafty piles likethe Bryant St. house because of the heating costsand high taxes. "They were seen as whiteelephants," she said.

Dane Professor of Law Albert M. Sacks, whoserved as dean of the Law School from 1971 to1981, said Ginsburg's mortgage was not unusualbecause in the mid-1970's, most law schoolprofessors with his record and status eventuallyreceived tenure and settled down permanently atthe University.

"I thought of him as an assistant professor onthe tenure track...a very fine prospect," saidSacks. In recent years, Law School professors havenormally spent about three years as assistantprofessors before either receiving tenure or beingrejected. But Sacks said Ginsburg's six-year stintas an associate professor "was very usual for thatperiod."

"He was not unique, he was not peculiar, therewere other cases like his," he said.

While Sacks said he did not "remember actuallydoing it," he speculated he had probably supportedGinsburg when he asked the Universityadministration for permission to join the mortgageprogram.

The Purchase Option Plan probably "came inbecause of a University decision that...theyshould shift from renting the housing tofaculty...to making these sales," Sacks said.

According to Tandler, Harvard had about 30houses available for faculty members to buy whenit started the program.

Because there were so few vacancies, Sackssaid, he did not recall what "system of selection"had determined which professors could takeadvantage of the program. He said most of thefaculty tenants who bought their houses, however,"would probably have been more likely to be seniorbecause they had got the tenancy years back andhadn't budged."

After all of the Harvard houses were taken, hesaid, the Cambridge Option Plan "kicked in." Atthat point, "The University as a whole was set upfor so many [mortgages]. We were told, `this isyour share.'"

Sacks said the Cambridge Option Plan's chiefpurpose was "to make sure that we were attractiveto people who would otherwise find it impossibleto become part of the Cambridge community and theHarvard community."

Less important, he said, was helping professorswho could only afford homes in outlying towns, butwho wanted to live closer to their students."Unless you could locate people in Cambridge, itwas difficult to keep them on our faculty," hesaid.

Currently, Harvard officials say, there are nosuch formal programs to help newly-tenuredprofessors find homes in Cambridge. Instead, HREis building townhouses for junior faculty membersat 245 Concord Ave. and is also giving facultymembers the first chance to buy two- tothree-family houses before they go on the openmarket.

Neither of these programs subsidizes housingfor faculty members, although Harvard may make thetown houses in the Concord Ave. project moreaffordable by selling only the houses themselvesto faculty, while retaining the land underneath."The cost will still be significant," Tandlersaid.

In addition, Law School Administrative DeanSimone Reagor said, "Sometimes the [Law School]dean might help out with housing on an individualbasis." She said such aid "could take the form ofa direct subsidy" on a mortgage, but that the LawSchool had not used either of the formal mortgageprograms for about six years.Former Supreme Court nominee DOUGLAS H.GINSBURG.