MINUTES OF REGULAR MEETING OF
THE HEALTH, EDUCATIONAL AND HOUSING FACILITY BOARD
OF THE CITY OF MEMPHIS, TENNESSEE
Wednesday, April 10, 2019
The regular meeting of The Health, Educational and Housing Facility Board of the City of Memphis, Tennessee was held pursuant to public notice on Wednesday, April 10, 2019. The published meeting time was 12:00 Noon. The meeting was held at the Board office, located at 65 Union Avenue, Suite 1120, Memphis, TN 38103.
The following Directors were present:
Daniel T. Reid, Chair James Jalenak
Monice Hagler Nancy Willis
The following Directors were absent:
Buckner Wellford Dr. Manoj Jain
Also present were:
Staff members Martin Edwards, Jr., and Stephanie Wright were in attendance. Charles E. Carpenter and Corbin I. Carpenter, General Counsel, and Cheryl Hearn, Assistant City Attorney, were also in attendance.
Christopher Lamberson, Esq. of Glankler Brown representing Bent Tree Apartments and Robert Hyde, Berkely Burbank, and Sarah Jemison with Alco Management representing Chickasaw Place Apartments were also in attendance.
With a quorum present, the regular meeting of the Board was called to order at 12:00 Noon by Chairman, Daniel T. Reid.
Approval of Minutes
Monice Hagler moved for approval of the Minutes for January 14, 2019 Special Meeting, Minutes of the January 30, 2019 Special Meeting, and the Minutes of the February 6, 2019 Regular Meeting. Cliff Henderson seconded, and the motions passed unanimously.
Finance Committee Report
Cliff Henderson presented the financial results for the month ended January 31, 2019. A discussion of the financials was completed and
James Jalenak moved for acceptance of the Finance Committee Report for January 31, 2019, and properly seconded by Nancy Willis, the motion passed unanimously.
Cliff Henderson presented the financial results for the month ended February 28, 2019. A discussion of the financials was completed and
Monice Hagler moved for acceptance of the Finance Committee Report for February 28, 2019, and properly seconded by James Jalenak, the motion passed unanimously.
Charles Carpenter presented the legal report, as follows:
1. For the Board’s information, Carpenter reported one new lawsuit or claim for the period from the Tennessee Human Rights Commission versus one of the Board’s PILOT properties, University Gardens Manor. This property is alleged to be in violation of certain rights for disabled residents in that the property has not made adequate accommodations pursuant to law. This claim is at the investigation stage currently. Carpenter’s office has responded to the investigator and also provided information on the owner of University Gardens Manor. Carpenter reported that after looking back at his records, this property has had one previous Tennessee Human Rights Commission claim that was satisfactorily resolved for a different issue. Carpenter reported that his office will monitor the situation and keep the Board advised. Carpenter reminded the Board that is has no liability, financial or otherwise, for its PILOT properties, but the properties are monitored to make sure they stay in compliance with all legal requirements. If properties do not remain in compliance with all legal requirements, that could be an event of default under the PILOT documents.
2. Carpenter reported an update on the Jehl Cooperage Grant Agreement for the Board. Carpenter reported that he, Martin Edwards, Jr., and Board staff have been working with Sheila Jordan Cunningham in regard to completing an agreement that will allow an environmental cleanup assessment. Carpenter reminded the Board that this is the property near Crescent Bluff I and Crescent Bluff II near Crump Boulevard and Florida Street area consisting of three (3) to four (4) acres of land (the “Property”) that has not been developed because of substantial environmental issues. The Board had approved use of the two hundred thousand-dollar ($200,000) amount that had been previously set aside for blight remediation to be used for evaluation of the environmental issues and to determine whether or not the Property could become viable to a commercial developer. As further background on the Property, there has been preliminary environmental testing completed, and the Property is currently undergoing monitoring by the environmental court in Shelby County. Cunningham has been spearheading this going forward. Carpenter, Edwards, Board Staff, and Cunningham met within the past thirty (30) days with the Downtown Memphis Commission (DMC) that has concurrent jurisdiction downtown and has some previous involvement with the Property. DMC is also attempting to be helpful in determining the commercial viability of the Property. Since the Board has limited staff, Cunningham has talked with the DMC, the Environmental Court and EnSafe to determine a structure to allow the initiative to proceed. The meeting among Board staff, Carpenter, Edwards, Cunningham, and DMC was put together because even though the Board has agreed to put up the funds, there has to be an entity to enter into the contract with EnSafe. It also has to be an entity with some experience in dealing with environmental remediation that has the staff that could oversee and interact with EnSafe and also with the Environmental Court. The purpose of the meeting with the DMC was to determine its willingness to be the entity to enter into the contract with EnSafe. DMC expressed its willingness to serve in such capacity. Carpenter also made full disclosure to the Board that his office represents one of the entities for the DMC, which is the Center City Development Corporation (CCDC). Carpenter explained the different entities that make up the DMC, and reported that preliminarily, CCDC will be the entity that will enter into the agreement with EnSafe; however, as the Board and CCDC are on the same team there would not by any divergence of issues or conflict. Moreover the Board was advised that CCDC would not charge a fee to the Board for any services rendered pursuant to the agreement. Once Carpenter’s office finalizes the agreement with EnSafe, and entry of the order with the Environmental Court, Carpenter will continue to monitor that matter from the Board’s standpoint and report on the progress of the environmental testing by EnSafe. Carpenter further reported that if the environmental testing determines there are no acceptable remediations and the property allowing for commercial use, then the contract terminates and the $200,000 advanced funds will not be repaid to the Board: however, if it is decided that there are acceptable remediations and the property can be used as a commercial use for multifamily housing or any other lawful use, then the Board would be eligible for reimbursement of its $200,000 grant. EnSafe is currently reviewing the agreement, and once it is approved by EnSafe, then all documents will be presented for approval and entry by the Environmental Court. Once approved by the Environmental Court, the contract will be executed and EnSafe will proceed with their environmental testing. Martin Edwards, Jr. added that the Property is critical to the whole area because of its location, but also the Property could produce environmental hazards for residents currently living in tis vicinity. Edwards expressed that the Board has stepped out to do something not only good, but needed for the people living in that area. Edwards reported that he had a meeting with The Mayor on April 9, 2019 and this item was on the agenda. Edwards told The Mayor what the Board was doing and how it is being accomplished. The Mayor showed great appreciation for the Board taking the initiative. Edwards expressed his concern with what could happen with the surrounding residents in conjunction with this Property and that the environmental testing is essential, regardless of the outcome.
3. Carpenter reported an update on Hilldale properties, which is a Bond property that is in default. The disposition of this property is currently pending in the U.S. District Court in Memphis. After several years of the property being offered for sale, the property owners have found a purchaser. The Board has been called into this as the issuer of the Bonds, which includes the need to amend the Land Use Restriction Agreement (LURA). The LURA will require amendment because it will impact the ability of the original Bond holders to continue to deduct the interest on the bonds for federal income tax purposes. Carpenter’s office has advised the attorneys involved of the various legal requirements for Board amendment to the LURA and is awaiting opinions to be received in order to make a recommendation to the Board to approve an amendment to the LURA, which will allow the sale to go forward and the bond holders to be protected.
4. Carpenter reported on Uptown Flats, a current PILOT property, which is completing construction and going through the construction term loan conversion. As a result of this, there are certain documents that must be executed by the Board. Carpenter recommended that the Board approve these documents to be executed so that this process may move forward.
5. Carpenter reported for informational purposes only, updates that have been made to TEFRA Hearings by the SEC. The SEC has just completed certain modernizations to the TEFRA process. Effective April 1, 2019, a TERFRA Hearing may be noticed seven (7) days prior to the hearing, rather than the previous fourteen (14) day publication guideline. Also, TEFRA Notices may now be published on the issuers website rather than in a newspaper of general circulation. If the issuer’s website is used for publication notices, it must include a special section designated for “public notices” or “news and events”. Finally, records must be kept by the issuer showing the notice had been published on the issuer’s website and continuously maintained for the seven days prior to the TEFRA hearing. These changes significantly simplify and abbreviate the process and is currently in effect.
6. Carpenter reported that he had documents prepared for the Board to sign pending its approval of the Highland Meadows refinancing on today’s meeting agenda.
7. Carpenter reported on a change in management received from Gateway.
8. Carpenter reported on Heritage Oaks Senior Living Bond Application, which is part of the action items in today’s meeting. Carpenter reported that the application has been stalled. Carpenter also reported that his firm has been contacted in the last two (2) weeks by consultants as well as Duncan Williams, requesting that Carpenter’s Firm serve as Bond Counsel to move the process along. Heritage Oaks Senior Living is a new construction Senior facility being built in Collierville, Tennessee for low to moderate income seniors. Carpenter reported that he will provide further information during the action items portion of the meeting today.
9. Carpenter reported that his firm has received notice form the independent auditors for the Board for the annual audit for the year ended December 31, 2018. Carpenter’s firm will be working with the auditors and will produce its legal response letter, as well as confirming the amount of Bonds outstanding for the audit.
10. Carpenter reported on Opportunity Zone updates and that he anticipates future discussions concerning opportunity zones, as this incentive may impact developers and become another tool for multifamily development. Carpenter reported that his firm will continue to monitor the ongoing discussions of the opportunity zone incentives and how they may affect low and moderate-income housing and keep the Board informed.
11. Lastly, Carpenter reported that the Internal Revenue Service (IRS) has just issued a Revenue procedure dealing with multifamily housing for veterans. Carpenter reported that his firm has been in preliminary discussions with a developer that has a desire to construct new multifamily housing for veterans. Up to now, it had not been made clear from guidance by the IRS whether private activity funds, which are issued by the Board, could be used for veteran housing. The IRS has clarified affirmatively that revenue bonds can be used for financing veteran multifamily housing. That being that case, Carpenter reported that the Board may be receiving application moving forward in this regard.
The above concluded the legal report and there was a brief question and answer session with members of the Board.
PILOT COMMITTEE REPORT
Martin Edwards, Jr. reserved comment for the action items.
PILOT REFINANCING OF CEDAR RUN APARTMENTS
Martin Edwards, Jr. reported that the PILOT Committee met and recommended the approval of the refinancing of Cedar Run Apartments. Edwards further commented that this property has just completed a complete renovation. There being no further questions or comments,
Monice Hagler moved to approve PILOT REFINANCING OF CEDAR RUN APARTMENTS. James Jalenak seconded and the motion passed unanimously.
PILOT REFINANCING OF HIGHLAND MEADOEWS APARTMENTS
Martin Edwards, Jr. reported on the refinancing of Highland Meadows Apartments. Edwards explained that this will be a second mortgage on this large property, and that he has personally inspected the property as well as gone through the refinancing numbers, with debt coverage ratio remaining at a high level. The property is in excellent condition. Property owners are looking to use part of the funds from the refinancing to rehabilitate some of the units. Edwards reported that the PILOT Committee recommended approval of the refinancing request. There being no further questions or comment,
James Jalenak moved to approve PILOT REFINANCING OF HIGHLAND MEADOWS APARTMENTS. Cliff Henderson seconded and the motion passed unanimously.
2nd PILOT CLOSING EXTENSION FOR OWENS PLACE APARTMENTS
Martin Edwards reported that the PILOT Committee met and recommended this agenda item be tabled until the next Board meeting.,
PILOT TERMINATION OF BENT TREE APARTMENTS
Chris Lamberson entered the meeting.
Martin Edwards, Jr. reported that Bent Tree Apartments has been on the watchlist for some time and it’s representatives were asked to attend this Board meeting to provide a report on the progress of the property. Chris Lamberson, Esq. with Glankler Brown introduced himself and reported that he was representing Bent Tree Apartments. Lamberson reported that contractor Geoff Benson with Adirondak Construction had recently been involved in a serious auto accident. Benson survived, despite serious injury and Lamberson has been in contact with Benson over that last few days in regards to Bent Tree Apartments construction updates. The paving work is expected to be completed today, April 10, 2019. Lamberson reported that Benson will be reaching out to confirm completion by tomorrow, April 11, 2019. Once confirmed, Lamberson will provide via email, confirmation to the Board that the paving work has been completed. Lamberson also reported that the drainage work that was completed still seems to be operating correctly. Edwards reported that his inspections of the property show significant improvement in the property with the drainage issue and substantially complete pavement work as well. Edwards did express concern regarding trash clean up on the property. Lamberson reported that he, as well as property ownership, have spoken with property management concerning the trash issue and how to resolve it. Edwards made a recommendation to the Board that Bent Tree representation report back to the Board in three months, while continuing monitoring the property. Monice Hagler stated she would feel comfortable with property representatives reporting back to the Board at the June 2019 Board Meeting. Lamberson addressed the Board and requested that the language used in public notice, “PILOT Termination of Bent Tree Apartments”, be changed to reflect “Status Update”. Lamberson stated that his client has complied with all requests of the Board and has worked diligently on the property. Lamberson also requested that this be the final appearance before the Board. The Board stated that they will require attendance at the June 2019 Board meeting and will notice it as a “Status Update”. Edwards and the Board expressed their appreciation of the hard work performed on this property. Charles Carpenter made a recommendation to Lamberson that in the next update provided to the Board, that ownership provide assurance to the Board that it will continue the work and to make improvements on the property without the stringent oversight of the Board. There were no further questions or comments.
Chris Lamberson left the meeting.
BOND INDUCEMENT RESOLUTION FOR CHICKASAW PLACE APARTMENTS
Robert Hyde, Berkely Burbank, and Sarah Jemison entered the meeting.
Robert Hyde began by firsts introducing himself, Berkely Burbank, and Sarah Jemison with Alco management to the Board. Berkely Burbank addressed the Board by giving an overview of the property. Chickasaw Place Apartments is two hundred seventy-two (272) units located in Binghampton and is a one hundred percent (100%) Section Eight property. All residents benefit from Section Eight Contracts, which means they only pay rental amounts not to exceed thirty percent (30%) of their income. This project is currently a Low-Income Housing Tax Credit (LIHTC) project that was redeveloped using Bonds issued by the Board in 2003-2004. Burbank explained that it is now time to recapitalize the project. The complex was originally constructed in the early 1970’s and systems need replacing, stairways need repairs, full renovations of bathroom and kitchen systems, and replacement of four (4) roofs will also take place. These renovations are proposed to cost approximately forty thousand dollars ($40,000) per unit. New amenities will also be provided. Burbank made mention of the Neighborhood Christian Center, which currently has a unit on site, and provides after school services for resident children as well as bible studies, and additional family services are provided for the adults on site. Burbank also stated that they will be taking another unit offline to offer a larger community space and an exercise facility. Alco will address stated capital needs of the project, add new amenities and services while continuing to work with the Neighborhood Christian Center, which Alco has had a long-standing working relationship with at many of their projects. Alco is proposing to use a new series of four percent (4%) LIHTCs and Tax-exempt Bonds with a new equity partner to be determined. Alco will also be using an FHA first mortgage to be the permanent financing. Martin Edwards, Jr. stated that this is a very significant location and vital to the Lester community and its wellbeing. Charles Carpenter stated that his firm would recommend approval, as Alco is an experienced developer and his firm has experience with Bond Counsel. There being no further questions or comments,
Monice Hagler moved to approve the BOND INDUCEMENT RESOLUTION FOR CHICKASAW PLACE APARTMENTS. Nancy Willis seconded, and the motion passed unanimously.
Robert Hyde, Berkely Burbank, and Sarah Jemison left the meeting.
1st BOND INDUCEMENT RESOLUTION EXTENSION FOR HERITAGE OAKS SENIOR LIVING
Charles Carpenter began by stating that this is an excellent, new construction project, but it has been stalled because they have not completed assembly of its financing team together. Carpenter stated that his firm has been asked to serve as Bond counsel. Carpenter stated that his firm has not met with Heritage Oaks Senior Living representatives as of yet, but it is in his firms plan to do so. Because of all parties have not met as yet, Carpenter recommended to the Board to table the matter until the next Board meeting to allow his firm to complete their diligence on the matter prior to a final report and/or recommendation.
1st BOND INDUCEMENT RESOLUTION EXTENSION FOR PATTERSON FLATS 2 AND UPTOWN FLATS 2
Charles Carpenter reported that his firm has been in communication with Patterson 2 and Uptown 2 representatives and they are moving forward with their financing and all other third-party reports that would be required to move forward. Carpenter recommended approval of this first extension so that they will be able to complete all requirements to move forward. Carpenter reported that this project has been delayed by FHA financing, but is now on track. There being no further questions or comments,
James Jalenak moved to approve the 1st BOND INDUCEMENT RESOLUTION EXTENSION FOR PATTERSON FLATS 2 AND UPTOWN FLATS 2. Nancy Willis seconded, and the motion passed unanimously.
2nd BOND INDUCEMENT RESOLUTION EXTENSION FOR EAST GATE VILLAGE APARTMENTS
Charles Carpenter reported by first reminding the Board that this project is located in Union City, Tennessee. This project is reported to be moving forward and the working group meetings have commenced. The lender and the tax credit investor are both in place and representatives plan to be appearing before the Board for Final Bond Resolution. Carpenter stated that the delay was due to THDA running out of allocation for its 2018 year, following the approval of all public hearings. This project is in line for THDA allocation now, which is the last step in putting together the final financing package. There being no further questions or comments,
Cliff Henderson moved to approve the 2nd BOND INDUCEMENT RESOLUTION EXTENSION FOR EAST GATE VILLAGE APARTMENTS. James Jalenak seconded, and the motion passed unanimously.
Executive Director Report
Martin Edwards advised the Board that two bond applications have been received, New Forest Park Apartments and Kensington Manor. New Forest Park representatives had submitted a PILOT application that came before the Board in 2017, and after months of diligent work done by Board Staff with no response from New Forest Park representatives, the application stalled and the PILOT was never applied to the property. Edwards explained to the Board that the two bond applications received in February of 2019 were incomplete and lacked required current information. Edwards reported that he had sent a letter to the representative of these two applications explaining that Board staff would not be able to review the current bond applications until a written response was received providing a clear understanding of the lack on response and what happened with the New Forest Park PILOT application in 2017. Board staff has followed up on this requested response several times, to which no response was received until April 3, 2019. The response explained that the reason for not moving forward with the New Forest Park PILOT application in 2017 was due to lack of local counsel. This response also demanded that the two bond applications be considered at today’s meeting, which Board staff responded that the applications would not be considered at today’s meeting. Edwards went on to explain the lack of current information in the bond applications provided including the appraisal as well as incorrectly stated comps in the appraisal. Edwards stated that these applications would not be considered until a new application had been submitted with a new appraisal and a new environmental study. Edwards stated he has serious concerns about the environmental aspects of both properties. Edwards raised the question to the Board on what is acceptable as far as the timing and age of an appraisal, physical reports, etc. provided in applications. Dan Reid stated that from a banking underwriting standpoint, information must be current, not stale. Reid went on to define current as no more than three (3) months old. Charles Carpenter reported that he had no knowledge of this developer, but had been contacted by a very experienced Bond Lawyer, Alyse Hollis, based in Cincinnati. Carpenter stated that in speaking Hollis that with the hiring of more experienced Bond counsel their hope was to rehabilitate these applications, however, Hollis is also having difficulty communicating with this particular developer. Carpenter stated that his firm is in full agreement that unless this developer submits a compliant application and meets the other eligibility requirements that the Board should not consider either of these applications. Following further discussion,
James Jalenak moved that the Board’s standard for current information is no more than ninety (90) days old, unless good cause shown and approved by the Executive Director. Cliff Henderson seconded, and the motion passed unanimously.
Martin Edwards, Jr. then addressed a portion of the Resolution and the new PILOT application and asked the Board for guidance on the timetable that an applicant can apply for a PILOT Term Extension. Edwards stated that in earlier discussions, that he recalled the intent was focused on accepting applications within three (3) to six (6) months of PILOT expiration from an underwriting standpoint. Edwards then posed the question of what was the intent of the Resolution. Was the intent to extend at the expiration of the original ten (10) year term, or was the intent to extend at any point in time, which would cause a property to lose the additional years for early application of term extension? Edwards explained his position and understanding of the situation, but asked for guidance from the Board. Charles Carpenter then stated that the question is how early may an existing PILOT Lessee come in for a PILOT Term extension? Edwards again stated that the conversation was had among the Board of the consideration of thirty (30) to sixty (60) days from expiration for an underwriting standpoint, but no decision was made in the matter. Edwards went on to say that current PILOT Lessee’s are requesting term extensions with two or more years left on the original PILOT term, and if approved, where will that leave the Board on another PILOT Lessee coming in with five years or more remaining on the original PILOT term. James Jalenak stated that he believed the overall constraint is to not have a gap between the expiration of an original PILOT term and the beginning of a PILOT Term extension. Edwards stated that if it is the desire of an active PILOT Lessee to submit application for a PILOT Term extension with two (2) or more years remaining on the original PILOT term, with the intent of the extension not to begin until after the expiration of the original PILOT term in two (2) or more years, he will not be a part of that approval and does not agree with that thought. James Jalenak agreed with Edwards in this regard. James Jalenak stated that he would be comfortable with an active PILOT Lessee submitting an application for a PILOT Term extension no more than ninety (90) days prior to the PILOT term expiration in order that the Board and staff have the ability to review the application and consider approval. If approved in this scenario, the PILOT Term extension would begin at the expiration of the original PILOT term. Otherwise, Jalenak stated if a current PILOT Lessee desires to submit an application earlier, using the example of having two (2) or three (3) years remaining on the original term at the time of application, the PILOT Term extension would begin at the time of the approval, and the PILOT Lessee would voluntarily forfeit the two (2) or three (3) years remaining of the original PILOT term. As a part of the discussion, Charles Carpenter recommended asking the City attorney for guidance in the matter and recommended tabling further discussion pending guidance from the City attorney. Carpenter also mentioned the historically low interest rates are likely a reason for the desire of PILOT lessees to apply early for PILOT Term Extension, according to developers Carpenter has been in contact with. The issue was not resolved, and it was decided that the Board will wait for additional guidance from the City.
Edwards also reported on a meeting with the Mayor that was held on April 9, 2019. This meeting was to discuss the pieces of affordable housing. Edwards explained the importance of compliance during the meeting and the Mayor requested information to let the general public know what is being done to help affordable housing in the City of Memphis. There being no further questions or comments, this concluded the Executive Director Report.
Stephanie Wright announced the 2019 NALHFA Conference, which will be held in Denver, Colorado on May 15-18, 2019.
Martin Edwards, Jr. announced that all Board members should sign the Conflict of interest forms provided to them and return to Board staff once signed.
There was no public comment.
It was announced that the next scheduled meeting of the Board will be held on Wednesday, May 8, 2019 @ Noon. There being no further business, the meeting was adjourned by the Chair at 1:25 p.m.