If You Rebuild It

Serial entrepreneur Scott Syphax rises from the rubble

Back Longreads Mar 1, 2011 By Rich Ehisen

Scott Syphax is an unlikely person to garner a nickname like Dr. Doom. After all, the president and CEO of Sacramento-based Nehemiah Corp. of America is far too thoughtful and deliberate to be saddled with a sobriquet more in line with a snickering cartoon villain.

“That nickname was definitely a compliment,” says Carol Lee, president and CEO of the California Medical Association Foundation. Syphax, 47, earned the nickname years ago for his ability to kill unfavorable legislation as a CMA lobbyist, usually in the face of heated resistance from some of the Capitol’s most powerful players.

“These were always very emotional issues,” Lee says, “but Scott is so passionate about things he believes in. He wouldn’t back down, and he could not be intimidated.”

That passion and fearlessness, bolstered by an equally fierce intellect, have become Syphax’s trademark. From his days as a nightclub operator and concert promoter trying to breathe life into downtown Sacramento’s then-catatonic entertainment scene to his current role overseeing the seven entities that comprise Nehemiah, Syphax has battled through more than his share of face-offs with power players. Those experiences have at times left him both physically and mentally scarred, but his willingness to keep climbing into the ring hasn’t waivered.

Perhaps nothing illustrates that better than Nehemiah’s 65-acre, multiuse Township Nine development now under way in the gritty River District just a mile from the heart of downtown Sacramento. The $2 billion project is expected to produce around 3,000 housing units and almost 1 million square feet of office and retail space. He expects to break ground on the project’s first phase this year — finally.

Although Nehemiah Corp. has owned the property since 1999, Township Nine needed the Sacramento City Council to dole out millions of dollars in state-funded seed money to get the ball rolling. That meant dueling with developer Stan Thomas, the then-key figure in the effort to redevelop the Sacramento railyards, who wanted to get his hands on the same pot of money. Much to Thomas’ chagrin, in 2007 the City Council chose to direct almost $20 million to Township Nine. It was a satisfying result for Syphax, who says many people doubted the City Council would defy the powerful Thomas, particularly in favor of someone not widely known then as a commercial developer.

He called it a “win for the local guys.” Former Mayor Heather Fargo, who supported the Township Nine project, concurs.

“It never occurred to me to doubt Scott,” she says. “He’s really what you want: someone who lives here and really loves the area and who you know is still going to be around when the project is finished.”

A self-described “serial entrepreneur,” Syphax says his first business venture came in the fifth grade at Freeport Elementary School when, in a classic case of supply and demand, he would buy sweets at a local convenience store and resell them for a profit to his classmates.

By age 19, hawking chocolate bars gave way to the universal pursuits of strapping young men everywhere: meeting girls. To facilitate that, he spent his entire savings renting out the Oak Park Community Center to toss a for-profit party. Unfortunately, barely a dozen people showed up. The event was a disaster.

“I lost everything,” he says. “It made me mad, but I’m not a quitter. I decided to do it again.”

This time, he called for help. After another six months of saving money, Syphax convinced a bevy of pretty young women to hand out fliers for his next event. Not surprisingly, his “sales staff” inspired so many people to show up that the police came and cut off his admissions. A new career was born.

Parties led to nightclub ventures and concert promotions. He also began to experience the long-standing intersection of business and politics. By the mid-’80s, Syphax and a few partners were doing big business in downtown Sacramento running a club called The Vortex. But the club’s young and too-edgy-for-comfort crowd earned them regular scrutiny from the police and from rival club owners who he says didn’t like losing customers to the young upstarts. 

“It was there that I first learned about the power of the old boys’ network and the fact that government regulation usually protects those who’ve already made it from those who aspire,” he says.

This was also what Syphax recalls as his “stylish” phase, one marked by “wearing my hair slicked back like James Brown and a bright-orange suit.” Michael Ault of the Downtown Partnership recalls those days, too.

“Scott was simply a lot hipper than most people back then,” Ault says.

Ault credits Syphax for helping to make Sacramento’s downtown a more fun and interesting place through his work with the Downtown District, the precursor to the Downtown Sacramento Partnership. Ault says Syphax consistently pushed for business owners to work together rather than just looking out for their own interests.

“He always said we could be better collectively than we could individually,” Ault says.

Fargo also credits him with helping to shift the focus away from being a retail-only destination.

“He really was a key player in transforming downtown, in making it into an entertainment destination,” she says.

But although Syphax is skilled at making a buck, he says he was even better at spending them. He pursued real estate development classes at Sacramento State. Given the amount of time he spent on the road with acts like the Rolling Stones and Prince, getting a degree took several years. To his dismay, it also didn’t produce a new career in commercial real estate development. Frustrated, in 1988 he took a sales job with MCI, but tragedy soon changed his plans yet again.

Traveling home from a club one night, Syphax and a friend were hit by a drunk driver who ran a stoplight. Syphax was critically injured; his friend was killed. Worse, the woman who hit them was politically well connected and received what he says was a ridiculously light sentence. Locked down for months in recovery, the anger and pain was almost overwhelming. But eventually it also sparked the same refusal to roll over and quit, driving him to a new arena: politics.

After approaching several lawmakers, he eventually landed in the office of Sen. Robert Presley, where he worked for free to learn how the game was played under the Capitol dome. His work there — where Presley says he was “always thinking big” — marked him as an up and comer, and he rapidly became one of the Capitol’s most respected players.

In time, it also led him to Nehemiah, which was then focused on helping potential homebuyers get into new homes with no down payment. The deal was simple: Home builders would make a donation to Nehemiah in the amount a buyer needed for a down payment. Nehemiah gifted that amount to the buyer, less a substantial fee. It seemed like a win-win-win: Nehemiah made money, the builder sold the house without haggling over price and the buyer got into a home without the arduous task of saving the 20 percent down payment required by Federal Housing Administration loans.

That last element most appealed to Syphax. He was safe at Eli Lilly and Co. then, making a good living and on the fast track to senior management. But still fresh in his mind was the poverty he experienced after his accident left him disabled and unable to work for most of a year.

He held fast to the belief that property ownership was the key to creating wealth, the absolute linchpin of the American dream. Nehemiah’s social enterprise mission, combining the traditional good works of a nonprofit with the sound business tactics of a top-flight private company, was something he couldn’t resist.

“I thought it was too good to be true,” he says. “When I was finally convinced that this program was giving hope to people who had no hope living their piece of the American dream, I wanted to get involved.”

That he did, eventually moving from a volunteer to his current role as president and CEO. With the housing market on the rise, it was seemingly a license to print money. Although hundreds of copycats had sprung up around the country, Nehemiah, as one of the biggest players in the sandbox, raked in hundreds of millions of dollars in profits.

But down payment assistance programs, or DPAs, also had critics who said builders were rolling the cost of their gifts into the sale price of the home. One builder, Beazer Homes, paid more than $50 million in fines and restitution for just that. Others said adding the DPA gift and additional costs associated with the program onto the price of the house falsely inflated the already overheated housing market. The U.S. Department of Housing and Urban Development tried to kill the programs, claiming DPA homes were foreclosing at a much higher rate than the norm, but Nehemiah successfully defeated the agency in court. Still, with the heat on, President George W. Bush signed legislation in 2008 barring the practice. Efforts to revive the program with greater oversight and regulation have failed. The Internal Revenue Service is also considering ending the organization’s nonprofit status.

Maeve Brown, executive director for Housing and Economics Right Advocates, an Oakland nonprofit focusing on fair housing and predatory lending issues, says she understands the desire to own a home. But she says people are often not properly prepared “for the true cost of home ownership,” leaving them vulnerable to a variety of economic pitfalls.

“The bottom line is that nothing comes for free,” she says. “If nothing else, we should have learned from this that home ownership is not the best way to save money.”

But Syphax blames [the U.S. Department of Housing and Urban Development] for much of the program’s issues, most notably for what he says is the failure to better regulate the industry.

“We begged HUD to regulate this activity,” Syphax says. “We weren’t like subprime. We wanted to mandate â?¨homeownership education. We wanted mandated roof inspections for existing homes because we knew that a catastrophic roof problem would decapitate the average moderate-income family. We wanted two-year home warranties. We wanted all the stuff mandated. HUD refused.”

The demise of the DPA program has hit Nehemiah where it hurts — in the pocketbook. Although Nehemiah had a sizable nest egg left from its DPA gains, much of that has been used to support its other nonprofit and for-profit ventures, including pouring more than $16 million into Township Nine. The loss of the income generated by the plan has left the company scrambling to find a replacement, which now includes buying distressed Sacramento properties and turning them into affordable rental units. The company also has opened a subsidiary called Nfinit Solutions Inc., which charges a fee to help homeowners in danger of foreclosure obtain a loan modification. Both are for-profit operations.

As the national face of the program — he held press conferences on the Capitol steps in Washington and often testified before Congress — Syphax has also borne the brunt of criticism for the program’s failings. In more recent times, he has endured his share of bad press over everything from his compensation to using Nehemiah’s nonprofit DPA earnings on for-profit ventures, such as Township Nine.

The criticism doesn’t sit well with those around him.

“There have always been nonprofits that have for-profit ventures,” says Mark Freeman, Syphax’s old nightclub partner and a current Nehemiah board member, citing such local social enterprise examples as the Girl Scouts of the USA and Pride Industries.

“Some organizations are so mission-based that they don’t do what is necessary to survive,” Freeman says. “You have to be sustainable.”

Derrell Roberts, founder and CEO of the Roberts Family Development Center, which has drawn support from Nehemiah, lauds Syphax for “fostering what a business should be.” He also notes that criticism comes with the territory.

“No matter who you are in business, people will always question your practices,” he says.

Syphax still defends down payment assistance programs. 

“For minorities, female-led households, immigrant populations and ethnic whites in this country, not owning property is like being a shareholder on the old-time plantation,” he says. “You create survival and subsistence; you don’t really create prosperity and long-term value.”

He is particularly dismissive of the possibility that Nehemiah could lose its 501(c)(3) status, saying: “If it all goes away, I’ll just recreate it.” In that regard, he is also confident that with Township Nine and other projects he has in the works — but will not yet disclose — Nehemiah is not far from revisiting its glory years. 

“It is a steep climb ahead,” he says. “But we believe we will be back within the next three to five years to our historic levels of revenue.”

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