How Private Companies Are Profiting From Homelessness in New York City

Call him M. He lives in Freedom House — the hotel-turned-homeless shelter on Manhattan's West 95th Street, two blocks from a concert hall that the New York Times once dubbed "a palace of performing arts."

M is brash, earnest, often on the lookout for ways to supplement the $15 he says he gets in monthly food stamps. He doesn't like the guards at Freedom House, and he doesn't understand how New York City's Department of Homeless Services (DHS) justifies spending so much money to lodge him there. He's got a budget letter listing the amount that the city pays the shelter every month for the small room that he and a relative share in the dorm-style building, with one kitchen for 400 people. M points bitterly to the total: $3,735. Every month.

Freedom House is one of New York's private shelters, a collection of former single room occupancy hotels and apartment buildings repurposed to house — warehouse, some would say — the city's homeless population.

Since a State Supreme Court decision in 1979, New York City has operated under a "right to shelter" mandate that guarantees nightly housing for every eligible resident. But the rising homeless population of the city in recent decades has turbocharged DHS's demand for shelters.

According to the DHS website, the department "maintains an open-ended Request for Proposal process" for non-profits to open shelters around the city. That's not enough though, and in a desperate measure in August 2000, DHS introduced an "emergency" program to pay per diem, non-contractual rates to landlords to shelter homeless people night-by-night in what they called "scatter-site" shelters.

When the initiative was introduced in the waning months of Rudy Giuliani's mayoral administration, it was intended as a temporary solution for the nearly 24,000 homeless New Yorkers. Three years later, the homeless population had swelled to almost 38,000, the scatter-site system had been scathingly audited by the city comptroller, and the Michael Bloomberg administration, after promising to shut down the program, had elected to rechristen the buildings "cluster-site" shelters and stay the course.

Now, NYC counts nearly 57,000 homeless people among its ranks, and that figure also undershoots the real total by failing to account for those who don't enter the shelter system, which DHS estimates to number 3,357 in 2014. Cluster-site and other private shelters house the bulk of the 57,000. The per diem rates have run up, too. They now stand, on average across all private shelters, at almost $80 per night for single adult units or more than $100 in family facilities.

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With the money came the crooks. The most notorious of the lot were the Podolsky brothers, Jay and Stuart, who switched their business from forcibly vacating and renovating single room occupancy hotels to housing the homeless en masse in 2011 when they founded the non-profit property company Housing Solutions USA (HSUSA).

Housing Solutions lists the address of Freedom House as its corporate headquarters, although there's no sign on the door and no office inside. Residents of Freedom House told VICE News about a company called Aguila, Inc. running the place, although HSUSA merged with Aguila and took over its contracts shortly after incorporating. Aguila doesn't list an address on its company website. Nor a phone number. Nor does it mention HSUSA.

In late 2013, then-comptroller John Liu called on the city to stop housing people in Aguila's facilities after uncovering accounting problems and unsafe and unsanitary practices at their shelters. In August this year, DHS awarded the company another $15 million contract.

Patrick Markee, deputy executive director for advocacy at Coalition for the Homeless, told VICE News that cluster-site housing was "one of the major policy disasters of the last administration." Freedom House, in particular, he describes as "emblematic of the lunacy of paying $3,000 for a room."

The monthly $3,000 or more that DHS pays for the rooms supposedly goes to providing services like security guards and food for the residents, as well as helping the landlords recoup the cost of not being able to house paying tenants in the rooms.

But residents of Freedom House say that security at the shelter is both lax and hostile. M claimed that guards frequently sleep on shift, and other residents paint a picture of a near-constant stream of harassment. This includes one woman who said a guard refused to let her into her room after she locked herself out, and another occupant who explained he was kept from signing in before a nightly curfew, threatening his place at the shelter.

Under Bill de Blasio, said Markee, the city government has started to change its policy over the cluster sites. In August, DHS announced plans to cut payments to private shelter operators by $61 million to help finance new rent subsidies.

In response, Aguila declared its sudden intention to close all of its Bronx clusters, which cover some 500 units, and sent three-sentence notices to the shelter occupants to let them know they would be evicted. "Some of the landlords didn't want to see the rates lowered," Markee said of the closures.

The notices didn't say when the evictions would happen and, although some of the removals have gone ahead, Aguila still hasn't clarified its plan for the remaining facilities.

"Everyone knows they're being moved out, but they don't know when," Ryan Hickey, housing organizer at the advocacy organization Picture The Homeless, told VICE News. "If Aguila is pulling out of the shelter business, that means hundreds, if not thousands, of people are in limbo."

In April, DHS announced that half of the 400 Freedom House residents would be moved out of the residence on November 1. People living there say they had little warning before the move was revealed, and many of them anticipate that their lives will be badly disrupted.

M said he's been told that he and his relative will be moved to a facility in the West Bronx when Aguila kicks them out. "When they move you to another place, you've gotta start all over," he said.

Another resident, who like M requested anonymity for fear of reprisals by shelter staff or Aguila, expressed her frustration with how little control the residents of Freedom House have over their living situation. "If they tell me to go, I have to go," she told VICE News.

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Nikita Price, civil rights organizer at Picture The Homeless, told VICE News he's concerned about the ability of many Freedom House residents with dementia or other medical conditions to relocate. "My whole thing is whether will services continue?" he added.

Antoinette, a former occupant of one of Aguila's closed Bronx clusters at 941 Intervale Avenue who asked to be identified only by her first name, told VICE News that she was initially told that she would only have 24 hours to leave the shelter. That was ultimately extended to a week before she was moved out on August 22 along with her two children, seven and nine, who had already begun their school year.

Antoinette was relocated to a shelter in Brooklyn, but notes that the Intervale residents were scattered to various shelters around the city when the site closed. Her new residence isn't an Aguila shelter. "If it was run by Aguila, I would not stay here. I don't want nothing to do with them," she said.

Given the poor services and sudden evictions experienced by people housed in Aguila's shelters and the critical results of Comptroller Liu's audits of the company, the residents of Freedom House, as well as advocates at Picture The Homeless and other organizations, say they're baffled by the amount that DHS pays Aguila to operate shelters.

Aguila's 2013 filing with the New York State Charities Bureau lists their only revenue source as a grant from DHS valued just shy of $50 million. Business is booming — that's an increase of more than $16 million from 2012 and, as recently as 2007, Aguila's contract was only $9.5 million.

From the filing, the majority of the money paid to Aguila ($33 million) is billed as occupancy fees — the cost of putting bodies in shelters. A few million here or there goes to the private security firms contracted to staff the shelters. Another $855,000 goes to Housing Solutions USA — the only evident link between the organizations — in management fees.

Furthermore, says Hickey, because the per diem shelter placements are intended as last-minute, temporary shelter options, many of those agreements are informal, handshake deals that involve little oversight of how the money is spent.

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Tellingly, Comptroller Liu's first audit of Aguila in 2011 noted that DHS "did not adequately monitor Aguila's fiscal and operational performance." The report also notes that DHS paid $10.3 million to Aguila that year "without entering into formal written contracts in violation of the City's procurement rules and failed to ensure that rates paid Aguila… were reasonable and appropriate."

The 2013 re-audit noted that of the 19 recommendations for increased accountability and oversight made in the first audit, Aguila had fully implemented only one: submitting daily client attendance rosters. The remaining 18 recommendations, including the creation of written contracts for all Aguila facilities, were all partially or entirely unchanged.

Officials from Aguila declined to comment to VICE News for this story and calls placed to the number for the company office found on the company's charities bureau filing were not returned.