The Health, Educational and Housing Facility Board

 MINUTES OF REGULAR MEETING OF

THE HEALTH, EDUCATIONAL AND HOUSING FACILITY BOARD

OF THE CITY OF MEMPHIS, TENNESSEE

Wednesday, February 1, 2023

The regular meeting of The Health, Educational and Housing Facility Board of the City of Memphis, Tennessee was held pursuant to public notice published in The Daily News on Wednesday, January 25, 2023, and posted on the Board’s website at: www.memphishehf.com. The published meeting time was 12:00 Noon. The meeting was held in the conference room in the offices of the Board, located at 65 Union Avenue, Suite 1120, Memphis, TN 38103.

 The following Directors were present:

Daniel T. Reid, Chairman                                       Monice Hagler, Vice Chair

Buckner Wellford                                                        James Jalenak

Dr. Manoj Jain                                                             Cliff Henderson

Katie Shotts                                                                                                             

Staff and others attending: Stephanie Bryant and Bryce Miller; Charles E. Carpenter and Corbin I. Carpenter, General Counsel; Samia Mackay, legal assistant to General Counsel; Cheryl Hearn, Deputy City Attorney.

Also participating via remote Zoom virtual platform were Clifford Causey and Ricky Harrell of Christian Church Homes representing Covenant Gardens Senior Apartments; Taylor King and Lauren King of Guardsman Capital Partners representing Hedgerow Apartments; Angelica Sinito, Casey Sanders, and Alan Weckerly of Millennia Housing Management, Ltd. and Alysse Hollis of Coats Rose, PC representing The Memphian Apartments; Mark Jobe of Glankler Brown, PLLC and Yitz Horowitz of Rhodium Capital Advisors, LLC representing New Horizon Apartments; Frank Stockdale Carney of Evans Petree PC and Matty Wercberger representing Sunrise Villas Apartments; Rose Eaton of Fallbrook Financial Services Company representing Winchester Grove Apartments; and several members of the public were also present.

With a quorum present, the regular meeting of the Board was called to order at 12:00 Noon by Monice Hagler, Vice Chair.

Vice Chair Hagler stated that in compliance with the Open Meetings Law codified in Section 8-44-101 to 8-44-108 inclusive of the Tennessee Code Annotated, as amended, The Health, Educational and Housing Facility Board of the City of Memphis, Tennessee (the “Board”) is holding its regular meeting on Wednesday, February 1, 2023 @ Noon as an open public meeting in its conference room located at 65 Union Avenue, Suite 1120, Memphis, Tennessee 38103.

Vice Chair Hagler stated supplemental Board meeting materials could be accessed on the Board’s website: www.memphishehf.com and reminded all attendees participating via remote access to enter their name and affiliated entities into the ZOOM platform for record keeping purposes.

 Approval of Minutes

Buckner Wellford moved for approval of the Minutes of the January 4, 2023 Regular Meeting, which was seconded by James Jalenak, and the motion passed unanimously after proper roll call vote of the Board members.

Finance Committee Report

Cliff Henderson presented the financial results for the month ended December 31, 2022. After discussion,             

Buckner Wellford moved for acceptance of the Finance Committee Report for the month ended December 31, 2022, properly seconded by Katie Shotts, and the motion passed unanimously after a proper roll call vote of the Board members.

Attorney’s Report

Charles Carpenter presented the legal report, as follows:

1.     Carpenter reported on one (1) new claim filed against the Board, as title holder and PILOT Lessor in connection with one of the Board’s PILOT properties:

a.     A materialmen’s lien, re: The Sherwin-Williams Company v. CIRCULO Clearbrook, et al. 

Carpenter reported that his firm has communicated with counsel for the plaintiff and advised of the statutory immunity of the Board and is currently working to have the Board dismissed from the matter. Carpenter will continue to monitor the matter and keep the Board advised. 

Monice Hagler asked why Sherwin Williams continues to include the Board in these materialmen’s liens after being notified several times of the Board’s statutory immunity. Carpenter explained that because the owner of the PILOT properties is listed as The Health, Educational and Housing Facility Board of the City of Memphis, TN, pursuant to state law, Sherwin Williams must notify the legal owner in order to properly perfect its lien and the Board must respond in order to properly establish the record for each claim.  

2.     Carpenter reported in the Board’s January 4, 2023 Board meeting, that the Summit Park PILOT had been closed. Carpenter stated that this closing was reported in error and the PILOT has not closed but is scheduled to close in March 2023.

3.     Carpenter reported PILOT property activities in the month of January 2023, to wit:

a.     Shelby Pines PILOT Refinancing closed.

b.     The Villages at Harrison Creek PILOT Refinancing closed.

c.      Crescent Bluff PILOT Term Extension closed.

4.     Carpenter reported receiving notice of a partial optional redemption of the bonds for Ashland Lakes. Carpenter stated that the property has tax exempt and taxable bonds issued and outstanding with legal notice being received that ten thousand dollars ($10,000.00) of the taxable bonds will be redeemed March 1, 2023. Carpenter stated that this notice is given pursuant to securities law and there is no action required by the Board. This partial bond redemption will be handled through the bond trustee.

5.     For information purposes, Carpenter advised the Board that his office has been working to achieve better coordination among the City of Memphis, Code Enforcement, Shelby County Assessor’s Office, City of Memphis Treasurer, the Shelby County Trustee’s Office and Environmental Court regarding PILOT properties. Carpenter stated that several PILOT properties have been cited in the Environmental Court and the Board has not been receiving notice of the violations on a timely basis and as a result, the Court may have had one or two different court settings without the Board’s knowledge. Carpenter reported that his law partner, Corbin Carpenter, has been working with the City Attorney’s Office, Code Enforcement, and the Environmental Court so that his firm will have more timely notice of these properties and take the necessary steps in order to properly advise the Court of the status of the properties, and to protect the official records as to the role and oversight of the Board as legal owner. This has been a tenuous and tedious process because most of the property owners have separate legal counsel representing the property in the Environmental Court than the known legal counsel Carpenter’s firm works with during the implementation and maintenance of the PILOT program. Carpenter reported that his firm continues to work and make improvement in this area so that all proper parties are being timely brought before the Environmental Court.

In this regard, another example was discussed wherein Carpenter noted that when a PILOT property requires substantial rehabilitation, the PILOT applicant would typically propose a twelve to eighteen (12-18) month period to give the developer an opportunity to complete the renovations and bring those properties up to standard. However, many    renovations are completed as “in place” renovations, where certain portions of the property are being rehabilitated while residents are continuing to reside on the premises, wherein various advocacy entities and Code Enforcement that oversee these properties might file a complaint, resulting in the properties being cited in the Environmental Court. The developer has the obligation to maintain the property according to the City Code and to reconstruct the properties and rehabilitate the properties according to City Code, so a balance has to be struck to remain in compliance with the Board’s PILOT program policy and with Code Enforcement to address matters that may end up in Environmental Court. Carpenter stated that being able to have a more comprehensive oversight during the construction period will give the Court guidance and allow Code Enforcement and other entities to carry out their responsibilities as the rehabilitation process is completed. Carpenter stated that it is a matter of coordinating the various parties, increasing communication among the parties, and his firm is working to do that and believes his firm has a successful path outlined that will yield beneficial results for all.

6.     Finally, Carpenter reported to the Board that Tennessee Housing Development Agency (THDA) has established the statewide allocation of approximately three hundred seventy million dollars ($370,000,000) for round one. THDA will award allocations based on the three (3) Grand Divisions. West Grand Division will receive twenty-two percent (22%) of the statewide allocation, which is approximately eighty-one million dollars ($81,000,000) that would be used for projects in West Tennessee. Carpenter advised that February 17, 2023 is the application deadline and notice of awards should be received by the end of March 2023 or early April. Carpenter stated that his firm will continue to update the Board as that process goes forward.

      There being no further questions or comments, the Legal Report was concluded.                                                                              

Action Items-

1.     2nd Bond Inducement Resolution Closing Extension for Christina Church Homes (d/b/a Covenant Gardens Senior Apartments)

Charles Carpenter advised that his firm has been in communication with legal counsel for this project, Michael Bradshaw at Butler Snow, and based on recent communications the developer intends to withdraw this application at this time and would look forward to reapplying to the Board at a future date. Carpenter invited Clifford Causey to provide any additional comment. Causey seconded Carpenter’s comments that the intent is to withdraw this application at this time and reapply in the future. Causey introduced new project manager Ricky Harrell and turned the meeting over to him for additional comments. Harrell introduced himself, stating that he is the new development manager for Christian Church Homes. Harrell stated that this application is being withdrawn, and the development team understands that there would not be enough bond allocation for new construction and the team plans to reapply to THDA and the Board in 2024. There were no further questions or comments.

2.     2nd PILOT Closing Extension for The Magnolia Memphis, LLC (d/b/a Hedgerow Apartments)

Charles Carpenter advised the Board that this project is represented by an out of state developer based in Utah. Carpenter advised the Board that this developer does have two active PILOT properties, Cedarwood Apartments and Sunridge Apartments, that were approved by the Board and closed in 2022. Carpenter reported that this project was due to close in the fourth quarter of 2022, but the lender was not able to get comfortable with the terms of the Board’s PILOT program and withdrew its commitment. Carpenter reported that the developer is still moving forward to find a new lender and is requesting a second PILOT Closing Extension. Carpenter invited representatives in attendance for this agenda item to provide any further comment. Taylor King introduced himself and seconded Carpenter’s comments stating that the lender would not approve the terms of the PILOT program. King stated that they are requesting this six (6) month closing extension in order to get a new lender. King stated that his team is in discussions with the lender that agreed to the PILOT program on the Cedarwood Apartments property and intends to put a new loan on the property with Key Bank and finalize the PILOT program at that point. There being no further questions or comments,

Cliff Henderson moved to approve the 2nd PILOT Closing Extension for The Magnolia Memphis, LLC (d/b/a Hedgerow Apartments). Daniel T. Reid seconded, and the motion passed unanimously after a proper roll call vote of the Board members.

3.     Bond Inducement Resolution for The Memphian TN TC, LP (f/k/a Serenity Towers)

Carpenter advised that this is a new bond application for The Memphian Apartments, currently known as Serenity Towers. Carpenter stated that the developer is using the working name The Memphian Apartments for this project, and it may or may not change. Carpenter reminded the Board that Serenity Towers is a property the Board is familiar with through Reverend Richard Hamlett. The Global Ministries Foundation was the owner of this property and at one time had some issues and was widely reported in the news last year. Carpenter advised that Millennia Housing Management is the sponsor for this application and have proposed in its application to seek seventy million dollars ($70,000,000) in bonding authority to complete a substantial rehabilitation for existing units on this property, as well as to have complete twenty (20) newly constructed units. Carpenter invited representatives in attendance to provide any additional comments. Angelica Sinito introduced herself as the Vice President of The Millennia Company. Sinito stated that Millennia is seeking a twenty-five (25) year High Impact PILOT and approval of seventy million dollars ($70,000,000) in bond allocation from THDA to be issued by the Board in one or more series. Sinito stated that her team is still working with THDA regarding the final structure of the deal and whether it will need to be phased or broken up into different bond issuances, but at this time her team is seeking the maximum amount in order to get the deal done, stating that this is an important project. Sinito stated that there have been issues with the property as it is a former Global Ministries Foundation (GMF) property, and the property needs preservation. Sinito stated that Millennia plans to add many amenities and tenant services, in addition to tenant services already offered and funds already invested in the project by Millennia to get the project where it is today.

Carpenter stated that his firm and Board staff have reviewed the Bond application and it does comply with the Board’s policies and procedures. Carpenter advised the Board that request is for a High Impact PILOT Application including the extended term. Carpenter advised the Board that his firm and Board staff have been working with Millennia Housing Management and discussing the various revised policies of the Board and both applications are in compliance with the Board’s current policies and procedures. Carpenter further stated that although this application does qualify for an inducement for the bonds up to the not to exceed amount of seventy million dollars ($70,000,000), Carpenter has discussed with the applicant that under the current THDA guidelines the applicant must seek a variance and special approval for amounts over twenty-five million dollars ($25,000,000), and even done in phases, it is still considered one project, but recommends the Board to be supportive of the project.  

Carpenter stated that as far as the PILOT request, the PILOT would typically close at the same time as the bonds and do qualify under the current policies and procedures, so it would be Carpenter’s recommendation to the Board for favorable approval of both the bond inducement as well as the PILOT application, to be considered and voted on separately. Buckner Wellford asked if there is any current or past business affiliation with Millennia Housing Management, as part of the new ownership, and Global Ministries Foundation, the prior ownership other than buyer or seller. Sinito responded that Global Ministries Foundation is no longer an owner of this property, and they will not be involved in the project and there is no past or current affiliation. Wellford stated that this is an important project and asked about the rent structure regarding affordability. Wellford stated that the largest number of units that are being affected here is one hundred twenty-six (126) units and rent is projected to be five dollars and eighteen cents ($5.18) per square foot after the renovations, which seems higher than the Board usually sees. Sinito stated that some of these units are at this rent level, which are projected based on Section 8 mark up to market and will be covered by the HAP contract. Sinito continued that all the new units have rents from one dollar and fifty cents to two dollars and ninety cents ($1.50-$2.90) per square foot. Sinito explained that these buildings were formerly dormitories, and the development team is trying to maximize the space as best as possible to make these nice, livable units. Sinito stated that the five dollars and eighteen cents ($5.18) per square foot is subject to HUD approval, but it is within the one hundred forty percent (140%) of their FMR, which is their guideline toward approving mark up to market.

Carpenter added that each year HUD gives new guidelines for rent based on the area median income and this would be a rent restricted property and HUD would approve all rents according to their established guidelines. Carpenter stated that these are preliminary numbers and they could fluctuate, but at this point that would be in compliance with prevailing guidelines. Moreover, as this application goes forward, scrutiny would be applied to those rates prior to any closing to ensure compliance with the current guidelines at that time. Wellford thanked Carpenter and Sinito for the information, stating that he is inclined to agree that he does not think large scale renovations can occur without some level of this type of assistance, and he wonders what the income level would be for people to be able to afford to live there at that level.

Cliff Henderson asked what the current rental rate is for the project as well as the occupancy. Sinito commented that the higher rents are covered by the Section 8 HAP contract, so no one that is above thirty percent (30%) area median income (AMI) will be paying for those rents because they will be covered by HUD. Sinito also stated that the current rental rates average six hundred thirty-seven dollars ($637) and post rehabilitation, rents will be average nine hundred six dollars ($906) per unit with the higher rents being covered by the Section 8 HAP Contact at an average of one thousand dollars ($1000) per unit and ranging from seven hundred fifty-five dollars to eight hundred sixty-six dollars ($755-$866) on the units that will just be tax credit, because they are covered by the Memphis Housing Authority contract. Sinito stated that there are multiple affordable contracts on the property.  

Wellford stated that his concern is will the people that live there currently be able to afford to continue living there. In support, Monice Hagler asked if the rents are capped at thirty percent (30%) of income and then the supplement is by HUD? Sinito stated that the way the Section 8 HAP contract works is that no one that makes above thirty percent (30%) AMI can even apply for the unit and then HUD will pay whatever the resident can’t afford. Sinito stated that some residents will be negative renters meaning they will not pay anything on a monthly basis up to whatever they can afford within that thirty percent (30%) AMI threshold, and then HUD will pay the difference so there should not be any displacement because the rent increase just means that HUD’s portion is increasing, but no tenant that is under the HUD contract will be paying more. Sinito stated that Millennia Housing Management is a mission-based company and not looking to displace anyone as the company’s full mission is to preserve affordable housing and HUD is very focused on this property and there will be an extensive relocation process within the building where HUD is involved in making sure that no one is displaced. Henderson asked what the current occupancy on the property is. Sinito stated the property is currently sixty percent (60%) occupied. Pursuant to questions from Board member Wellford, Carpenter advised that the Board’s consideration today facilitates the initial approval of the bond commitment. Carpenter stated that if approved, the approval of this project just starts the process and each component of the bonds and PILOT requirements must be in compliance with the Board’s policies and procedures prior to moving forward. There being no further questions or comments,

James Jalenak moved to approve Bond Inducement Resolution for The Memphian TN TC, LP (f/k/a Serenity Towers). Cliff Henderson seconded, and the motion passed unanimously after proper roll call vote of the Board members.

4.     Affordable Multifamily PILOT Application for The Memphian TN TC, LP (f/k/a Serenity Towers)

Monice Hagler stated that this is the PILOT Application for the same project previously discussed. Buckner Wellford stated that the consideration of this PILOT application is more than just starting the process, as in the previous agenda item and indicated that is not prepared to vote on this item. Carpenter stated that in his firm’s discussions with the developer, the PILOT is tied into the financing of the bonds, therefore, if the developer is unable to get the bond allocation from THDA, none of the proposed improvements would take place. In response to questions by board member Jalenak, Carpenter responded that if the bonds are financed, then the PILOT will go forward, but if the bonds do not receive allocation and are financed, then none of the proposed improvements will go forward. There being no further questions or comments,

James Jalenak moved to approve the Affordable Multifamily PILOT Application for The Memphian TN TC, LP (f/k/a Serenity Towers). Cliff Henderson seconded, and the motion passed after proper roll call vote of the Board members.

Buckner Wellford abstained from the vote.

PILOT Default Status Updates:

1.     New Horizon Apartments

Carpenter stated that legal counsel to the PILOT Lessee, Mark Jobe, provided a written update which has been distributed to the Board and turned the meeting over to Jobe for further comment. Jobe stated the representatives last reported to the Board at the November 30, 2022 Board meeting, and Yitz Horowitz, who is head of construction at New Horizon Apartments, is also present at today’s meeting to answer any questions that the Board may have. Jobe stated since the last report to the Board, a site visit of the property was conducted, which included a number of representatives for the property owner and Bryce Miller, Compliance Coordinator for the Board. Jobe stated the site visit went well and representatives were satisfied with the progress observed at that time. Jobe stated that construction continues to progress, but reminded the Board that this is a large property with many units and is like a small community in and of itself. Jobe stated that the storms in late December 2022 did affect the property causing busted pipes, as experienced across the city, and those took priority in getting those repairs completed. Jobe stated the occupancy on the property without the down units is over seventy percent (70%), a slight increase from where it was. The property owner continues to provide 24/7 security at the property with controlled access and there are several non-profit organizations that continue to provide tenant benefits in partnership with the property owner.

Jobe stated that emergency rental assistance programs that were developed and implemented during COVID are being phased out, which does put some strain on ownership as that was providing a big benefit and was widely utilized at this property because of some of the hardships that COVID and various other economic conditions have placed on the tenants. Jobe stated that progress does continue, and ownership has put in eight hundred thirty-four thousand dollars ($834,000) in Capital Expenditures into the property since June 1, 2022.

Jobe stated that the PILOT program is integral to this property’s continuing operation and the tenants at New Horizon are some of the most vulnerable and between the assistance programs that have helped tenants with their rent and the PILOT program, all those things have been essential in keeping the property in operation and providing affordable housing to some of the tenants and citizens most in need.

Carpenter asked Bryce Miller to provide any additional comments. Miller stated that he has been monitoring this property very closely over the past seven (7) months and can attest to the amount of progress that has been made. Miller stated that entire buildings slated for removal have been completed and with a property this size, it will take time to complete, but they have done quite a bit to improve the property. Miller stated that ownership does face some hurdles on the property, including stray animals, and stated that management has reached out to Animal Control for assistance with that issue, but overall, progress has been made. Miller stated that he had the opportunity to go inside a few of the rent-ready units during the site visit, and they are providing quality housing and continue to progress.

Carpenter asked Jobe about the timetable for continued rehab and construction and a recommendation that representatives appear before the Board in sixty (60) days. Jobe stated that he expects anywhere from fifty to one hundred (50-100) units to be brought online in the next sixty (60) days. Jobe stated that reports from ownership show fifty (50) units to be completed in the next thirty (30) days and one hundred twenty (120) units under current renovation. Total units remaining are two hundred twenty (220) units, so barring any unexpected delays or issues, Jobe stated that sixty (60) days would provide enough time to bring more units online and reduce the number of down units and should be close to bringing the renovation close to completion and have an operating facility within the next six (6) months. Carpenter recommended that representatives appear at the Board’s April 5, 2023 Board meeting.

2.     Sunrise Villas

Carpenter invited legal counsel to the PILOT Lessee, Frank Stockdale Carney, to provide a report on this property. Carney introduced Zev Wercberger (a/k/a Matty Wercberger), who is also present at the meeting and available to answer any questions the Board may have. Carney stated that a written report was provided to the Board on work that has taken place since the refinancing of the property in October 2022. Carney stated that the renovations to the property are in progress and the developer is continuing to make repairs throughout the property. Carney stated that the property experienced busted pipes in December 2022, due to cold weather, which changed the focus in order to complete those repairs. Carney stated that his office provided Wercberger the third-party compliance report from the Board in order to begin addressing those concerns.

Carpenter asked Bryce Miller to provide any comments. Miller stated that during his inspections of the property, progress was being made for a short time, but seems to have stalled. Miller referenced issues with broken windows on the second story of some of the buildings that have not been boarded up and not replaced in two (2) months or longer. Miller stated progress seems to be at a plateau and the property is just maintaining but has not moved up or down regarding progress. Cliff Henderson asked Miller when he observed the property hitting this plateau, and whether it was around the time of the storms in December 2022 or prior to that. Miller stated that work began to stall prior to storms in December 2022, stating from his observations, it looked like progress hit a plateau in September or October 2022. Miller referred to painting taking place he observed on the property in late September 2022, but has observed no other progress since that time. Miller stated there is damaged siding on the buildings that has not been addressed and broken windows, just to name a few.

Carney stated that ownership has been focusing on the interior of the units as opposed to the exterior work, stating that a few units have been rehabilitated during that time that needed it as well as work on the laundry and some other tenant benefits. Wercberger stated that there was a piping and sewage backup on the property that they were focused on building back stronger so that it shouldn't happen again, so with the refinancing funds focus has also been on renovating vacant units and the laundry room. Wercberger stated that he plans to begin work on the siding and windows in the spring, due to weather conditions, which is the reason for focusing on the interior items currently. Wercberger stated that all blinds have been replaced, except for those tenants that will not allow entry into their units.

Monice Hagler stated that given the comments provided, representatives are to report to the Board at the March 1, 2023 Board meeting. Carpenter stated as an admonishment to the PILOT Lessee and its legal counsel, it is important that there is active improvement in the property prior to the next meeting. Carpenter stated that the whole purpose of these status reports is that the Board can terminate this PILOT for non-compliance, which this property has already received notice of and been given an opportunity to show cause why the PILOT should not be terminated. Carpenter stated that it is not just a matter of coming to the meeting and stating that work is being done on the inside because the property is not in compliance, and he wanted to provide that admonishment so that it can be taken as serious as the matter is. Wercberger stated that he would like to request an on-site visit with the Board’s Compliance Coordinator or to provide pictures of the interior work that has been completed. Miller stated that he will reach out to the property owners and get an on-site visit scheduled.

3.     Winchester Grove

Carpenter stated that this property has been appearing before the board for quite some time, progress has been made, and a written report has been submitted to the Board. Carpenter invited Rose Eaton to provide additional comments. Eaton began by thanking Bryce Miller for meeting with her at the site the prior week. Eaton continued by stating that the property’s biggest obstacle at this point is for Memphis Light Gas and Water (MLGW) to bring meters and power to the remaining thirty-nine (39) units in the clubhouse. Eaton stated that she has been having problems with MLGW several months. Eaton stated there are approximately twenty-eight (28) units that are waiting to be cleaned up and finished, which would include around three (3) days of construction, but they do not have power. Eaton stated that during the site visit with Miller, she stated that her team anticipated construction to be complete by the end of the first quarter 2023, including all public areas.

Carpenter asked Miller to provide any additional comments. Miller stated that the project is right on par with the goal of completion by the end of the first quarter 2023 and that he has observed great amounts of progress being made over the last six (6) months. Monice Hagler recommended that the representatives appear before the Board at the April 5, 2023 Board meeting to provide another update at that time.  

New Business

There was no new business.

Public Comment

There was no public comment.

Final Comments

 Stephanie Bryant commented to all PILOT Lessees that progress reports to the Board should be submitted a minimum of one (1) week prior to the Board meeting at which they will be considered in order to provide the time required for staff to distribute those reports to the Board for review in a timely manner and in order to prepare for the upcoming meeting.

Vice Chair Hagler stated that the next meeting of the Board is scheduled for Wednesday, March 1, 2023 @ Noon. There being no further business, the meeting was adjourned by the Chairman at 01:05 p.m.