MINUTES OF REGULAR MEETING OF
THE HEALTH, EDUCATIONAL AND HOUSING FACILITY BOARD
OF THE CITY OF MEMPHIS, TENNESSEE
Wednesday, April 5, 2017
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 5, 2017. 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, Chairman Dr. Manoj Jain
Monice Hagler James Jalenak
The following Directors were absent:
Buckner Wellford Carolyn Head
Also present were:
Staff members Martin Edwards, Jr., Lauren Magallanes, and Amber Hayes were in attendance. Charles E. Carpenter, General Counsel, and Corbin Carpenter were also in attendance.
Berkley Burbank, Robert Hyde, and Frank Jemison representing Eastern Creek Apartments, were also in attendance
With a quorum present, the regular meeting of the Board was called to order at 12:00 Noon by the Chair, Daniel T. Reid.
Daniel T. Reid introduced Dr. Manoj Jain, a newly appointed Board member, and Amber Hayes, a new HEHF staff member.
Approval of Minutes
Monice Hagler moved for approval of the Minutes for March 1, 2017. James Jalenak seconded and the motion passed unanimously.
Finance Committee Report
In the absence of Carolyn Head, Finance Committee Chair, Daniel T. Reid reported on the Financial Statements for the period ending February 28, 2017. He provided summaries of the income statement and balance sheet for the period and year to date. No bond fees were received during this period; however, PILOT fees were received. Nancy Willis had a question regarding the Stephens’ investment account management fees. She wanted to know the amount of the fees charged for advisory services. Chairman Reid advised Ms. Willis that staff will confirm the fee structure and report to the Board in the May 2017 meeting.
Nancy Willis moved for acceptance of the Finance Committee Report for February 28, 2017. Monice Hagler seconded and the motion passed unanimously.
Charles Carpenter reported one new claim on a PILOT property, and no new lawsuits have been filed since the last board meeting. The new claim is regarding GMF/Bent Tree Apartments PILOT. A materialmen’s lien was filed by National Carpet Company for $24,000, fees and costs. Carpenter has consulted with legal counsel for Bent Tree and was advised that they are working on a resolution of the claim. Carpenter went on to explain for the benefit of the new board members the operation of the PILOT Program where the Board takes title to the pilot property, and as title holder, it will receive notice and at times actually be sued as a party defendant, but by state statute, the Board has no legal or financial responsibility for the debt. After additional discussion, Carpenter invited Martin Edwards to speak on a related matter regarding the Bent Tree PILOT property. Martin Edwards referred the Board to his letter of non-compliance, dated March 13, 2017, sent to Rev. Hamlet regarding the current physical condition of GMF/Bent Tree Apartments. The letter was issued as a result of numerous unsatisfactory inspections. Rev. Hamlet responded quickly via email that improvements would be made; however, no improvements have taken place. Edwards has photographed the property weekly for the past six weeks as documented proof. Board members James Jalenak and Dr. Manoj Jain have also been present for some of the inspections. Daniel T. Reid asked when the fire took place and Edwards responded that he did not know. Monice Hagler asked if they have been cited by Code Enforcement and Edwards responded that they have been cited. Edwards recommended that if the Board has not received a satisfactory response from GMF/Bent Tree by expiration of the non-compliance period of April 12, 2017 that a legal default letter be sent to GMF/Bent Tree. Upon questions from Board members, Carpenter responded by sharing information on the Board’s recently updated PILOT Policies and Procedures requiring staff to send a letter of non-compliance giving 30 days to cure the problem or present an acceptable plan of action to the Board that could be approved. If the PILOT lessee failed to do either of these, upon the expiration of the 30-day period, a legal notice of default will be sent by Carpenter that gives the PILOT lessee another 30 days to cure the property or present a plan. Upon expiration of the 2nd 30-day period, the PILOT will be terminated upon approval from the Board. The Board does have the power to ask a PILOT lessee to appear before the Board to show cause why the property should not be terminated, if a Board member or the lessee requests. After additional discussions concerning GMF and related GMF portfolio properties currently marketed for sale, the course of action suggested by Edwards was concurred in by Carpenter and accepted by the Board.
Carpenter next reported that the Center City Development Corporation (CCDC), an affiliate of the Downtown Memphis Commission (DMC) has agreed to exclude HEHF and MHA PILOT properties from the assessment of taxes levied by the central business improvement district (CBID) in consideration of the Board requiring all new PILOT properties within CBID boundaries to undergo approval by the Design Review Board, an affiliate of the DMC. All current PILOT properties already established within the CBID would be grandfathered in and not have to undergo DRB review and approval, unless there will be a new substantial modification to the existing facility. Carpenter advised that his office is currently drafting a memorandum of understanding for execution by CCDC confirming the agreement.
Carpenter further reported that GMF/Serenity Towers, a revenue bond transaction issued by the Board, is being audited by the Internal Revenue Service (IRS). The Board received notice from the IRS, including an information document request (IDR). Upon receipt, Carpenter notified Chris Lamberson, counsel for GMF-Serenity Towers and notified other members of the working group which issued the Bonds. GMF-Serenity Towers has retained the law firm of Jones Walker, the firm which served as Bond Counsel for the initial issuance of the Bonds to represent GMF-Serenity Towers in the audit and Carpenter will monitor the matter and represent the interests of the Board. Jones Walker has filed a formal response to the IRS. Based on the initial diligence of the parties and documentation requested through the IDR, at this time it appears this is a routine audit; however, the next step will be for the IRS to examine the information and request additional information or send a non-action letter if nothing else is needed. We will await their response. Carpenter will report all new developments to the Board.
Finally, Carpenter reported to the Board that his office has been working on processing PILOT terminations, including Summit Park which has graduated from the PILOT program and will be returned to the tax rolls at its current market value. Thompson Courts PILOT agreement is being finalized for implementation. Also, the revenue bonds issued for the Watergrove bond issue have been defeased and its land use restriction agreement has completed all requirements and terminated.
The above concluded the legal report and there being no further concerns or questions, the meeting moved to consideration of the PILOT Report.
Martin Edwards presented the PILOT report. He added brief comments concerning GMF/Bent Tree again and there was a brief question and answer session. Daniel T. Reid wanted confirmation that the default letter will go to Rev. Hamlet and Chris Lamberson. Charles Carpenter confirmed this and added that it will also go to the management company. Edwards said he received confirmation yesterday that Warren and Tulane properties were sold.
CONSIDERATION OF EASTERN CREEK APARTMENTS EXTENSION REQUEST
ALCO representatives Berkley Burbank, Robert Hyde, and Frank Jemison entered the room.
Frank Jemison introduced himself. He is the chairman and CEO of ALCO. He also introduced Berkley Burbank and Robert Hyde who are officers of ALCO. Berkley started the presentation by advising that ALCO had come before the board a year ago for approval for Eastern Creek Apartments which is the combination of two current existing low income communities owned and operated by ALCO affiliates. Since the meeting last year, they have been successful in receiving 9% low income tax credit allocation from THDA, and have now received HUD approval for the project. ALCO also advised that their tax credit investor First Tennessee Housing Corporation is still in place. Additionally, ALCO advised that it has submitted a mortgage application to Wells Fargo for the project and hope to have approval in May 2017, allowing a closing of the PILOT to occur in June 2017. Finally, ALCO advised that it had been granted one extension and now are requesting a second extension. Monice Hagler asked the formal names of the properties and was informed that they are Eastern Heights and Creekwood Village. This agenda item was concluded with additional discussion for the benefit of the members of the Board.
James Jalenak moved for the approval of the EASTERN CREEK APARTMENTS EXTENSION REQUEST. Monice Hagler seconded and the motion passed unanimously.
ALCO representatives Berkley Burbank, Robert Hyde, and Frank Jemison exited the room.
CONSIDERATION OF OAKSHIRE APARTMENTS TRANSFER
Martin Edwards referred to the Oakshire Phase I outline. Edwards provided a review of the history of the project. It is a large project and the current investor group based in Utah is purchasing Phase I. They are currently requesting transfer of the PILOT for Phase I and will request a new PILOT approval for Phase II in the Board’s next PILOT round. The present owners have not been able to complete all of the tenant benefits they committed to. Martin has been in contact with and is working with Vernon Castleton (one of the Utah investor group members) regarding various aspects of the property including a proposed closing of a street that runs through the property. Edwards directed Vernon Castleton to appropriate offices at the City to get this issue resolved. Additionally, Edwards reported that Vernon Castleton has met with Josh Whitehead at the Land Use Control Board and representatives of Safeway. The Utah group is committed to making a substantial investment into Phase I and coming back later for the Phase II PILOT application. Edwards referred to handout and discussed cost, tenant benefits, and the Ledford report. Edwards is excited that they are bringing in new money to Memphis and that they are committed to rehabilitating Phase II. Edwards recommends transfer of Phase I. James Jalenak asked if they have a contract to acquire Phase II. Edward responded yes. Monice Hagler wanted to know how many years are remaining on the PILOT. Edwards responded that the PILOT was completed in 2015.
Nancy Willis moved for the approval of OAKSHIRE APARTMENTS PILOT TRANSFER. James Jalenak seconded and the motion passed unanimously.
CONSIDERATION OF CHAPEL PLACE HOMES REFINANCING
Martin Edwards gave the background on Chapel Place Homes. They are putting a FHA Freddie Mac loan on the property through applying a new first mortgage on the property. Edwards commented how pleased he is with the current condition of the property upon recent inspection. Monice Hagler asked if there is a PILOT currently on this property. Edwards replied yes. Hagler questioned the rents on the property. On the PILOT Summary, the 2-bedroom rent is higher than the 3-bedroom rent. Lauren Magallanes and Amber Hayes will research and report back to the Board at the next meeting. Dr. Manoj Jain wanted to know if we have a good relationship with the company that owns Chapel Place. Martin Edwards replied that this is the only property that they have with us, but so far it has been a good relationship. Dan Reid wanted to know what bank they are using. Edwards replied Key Bank.
Monice Hagler moved for the approval of CHAPEL PLACE HOMES REFINANCING. Nancy Willis seconded and the motion passed unanimously.
EXECUTIVE DIRECTOR REPORT
Martin Edwards discussed and answered questions regarding the following matters:
1.) Briefing the board on upcoming projects:
Pendleton Place and Keystone Apartments
Group from Denver will purchase Pendleton Place Apartments and Keystone Apartments (300 units total). They are planning to spend $30,000 per door. Both properties are in good locations.
New Forest Apartments
These apartments are currently condemned. An investor group will be coming to us for a PILOT soon. Monice Hagler said we are the ones who shut down those apartments.
In 2016, they wanted to come in as a new PILOT, but didn’t. Lauren said they have been in contact with her again recently and indicated they were interested again in coming in as a new PILOT.
Oakshire Phase II
Edwards indicated that this property should be coming in for the PILOT Round II 2017. Edwards voiced that closing the street that runs through the property is critical in this process.
This will be revisited at the May Board Meeting. We will discuss outstanding issues. Not much progress has been made so far. A letter was sent to them. No response so far.
This will be a PILOT Transfer and should be discussed at the May 2017 Board Meeting.
HEHF “Autopsy” Numbers
Edwards discussed numbers Amber Hayes worked on pertaining to number of units, number of bedrooms and breakdown, and estimated number of tenants compared to 2010 census data. Dr. Manoj Jain was pleased with the information provided. Edwards said this brings up the question regarding is 10 years enough for a PILOT. Perhaps we should consider the year or two on average that it takes for rehabilitation or construction and getting the tenant benefits completed. Dr. Jain asked if many PILOTs are expiring soon. Edwards replied yes. James Jalenak asked how much the PILOT benefited the construction of the property vs. the management of the property. Edwards responded that most of the properties are not new construction. Charles Carpenter replied to Jalenak by adding that the revenue stream is fixed because the rent is fixed and the owner does not see much revenue adjustment; therefore, an increase in expenses reduces the margin and the net operating income for each project. Dr. Jain wanted to know what the difference in financial situation is vs. individual property owners and company property owners. He pointed out if too much money is being made and the tenant benefits and property maintenance is poor, that perhaps we should meet with the owners to discuss the issues. Monice Hagler pointed out with the enhanced compliance that the owners are held to higher standards. Jalenak asked if the “autopsy” data could be emailed to all the Board members. Hayes will email the information to everyone. Dr. Jain wanted to know if we have been in the media in the past couple of months and if we can have the information pulled. Daniel T. Reid said we have not been in the media in the past few months. Edwards said it has been a year since we have been in the media. Carpenter pointed out we are now attracting national multifamily housing developers which is very positive for the Memphis market. Dr. Jain discussed those who have failed or are currently failing as PILOT owners and the importance of us trying to assist them. Dr. Jain asked how many of the 60 PILOT properties are at risk for non-compliance. Edwards replied not many, because we are constantly checking the properties and the Ledford reports.
No new business.
It was announced that the next scheduled meeting of the Board will be Wednesday, May 10, 2017 @ Noon. There being no further business, the meeting was adjourned by the Chair at 1:07 p.m.