MINUTES OF REGULAR MEETING OF
THE HEALTH, EDUCATIONAL AND HOUSING FACILITY BOARD
OF THE CITY OF MEMPHIS, TENNESSEE
Wednesday, June 14, 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, June 14, 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 James Jalenak
Monice Hagler Buckner Wellford (via telephone)
The following Directors were absent:
Carolyn Head Ashley Foxx
Dr. Manoj Jain
Also present were:
Staff members Martin Edwards, Jr. and Amber Hayes were in attendance. Charles E. Carpenter, General Counsel, and Corbin Carpenter were also in attendance. Cheryl Hearn, Assistant City Attorney, was present as well.
With a quorum present, the regular meeting of the Board was called to order at 12:00 Noon by the Chairman, Daniel T. Reid.
Approval of Minutes
Monice Hagler moved for approval of the Minutes for May 11, 2017. Nancy Willis seconded and the motion passed unanimously.
Finance Committee Report
Daniel T. Reid gave the report since Carolyn Head was absent.
Reid reviewed numbers for month ending April 30, 2017.
James Jalenak moved for acceptance of the Finance Committee Report for April 30, 2017. Monice Hagler seconded and the motion passed unanimously.
CONSIDERATION OF AFFORDABLE MULTIFAMILY PILOT APPLICATION FOR NEW FOREST APARTMENTS
Martin Edwards, Jr. expressed to the Board that the application is incomplete and would not be considered by the Board at this time. Edwards further noted that this was the second time this application has been deferred. As a part of the discussion, Board staff shared that it had requested outstanding documents from the applicant and its attorneys and had only received incomplete and unacceptable materials.
Per the recommendations of Martin Edwards, Jr. and Charles Carpenter, it was decided that incomplete applications will not be brought before the Board for consideration going forward.
Monice Hagler further added that incomplete applications should not be accepted by Board staff. Staff should be given the discretion to return incomplete applications to the applicant and the applications should not be accepted until complete. The recommendations were accepted by consensus.
CONSIDERATION OF 1st PILOT EXTENSION FOR FORUM FLATS APARTMENTS
Martin Edwards, Jr. discussed the extension request for Forum Flats. Edwards asked everyone to refer to the summary sheet. Edwards reminded the Board members that this project had been approved for a bond and MHA PILOT. Because of the bond financing, HUD is underwriting the project which usually takes 6 -8 months, and the PILOT must be approved before HUD will consider the benefits during its underwriting process; therefore, Edwards recommended approval of the Forum Flats extension. Charles Carpenter agreed and added that Raymond James is working with the applicant as the investment banker on the bond side, the bond working group is in place and working on documents. Carpenter added the underwriting and documentation should be substantially completed and a final bond resolution should be forthcoming by the September Board meeting.
Monice Hagler moved for the approval of the 1st PILOT EXTENSION FOR FORUM FLATS APARTMENTS. James Jalenak seconded and the motion passed unanimously.
CONSIDERATION OF 1st EXTENSION TO FORUM FLATS BOND INDUCEMENT RESOLUTION
Further to the discussion above, Monice Hagler moved for the approval of the 1st EXTENSION FOR FORUM FLATS BOND INDUCEMENT. Nancy Willis seconded and the motion passed unanimously.
CONSIDERATION OF 1st PILOT EXTENSION FOR SUNRISE TERRACE APARTMENTS
Martin Edwards, Jr. discussed the request for extension for Sunrise Terrace Apartments. He said he drove by the property recently and some work has already been completed. He reminded the Board that the Owner of Sunrise Terrace also owns another PILOT property, Annie’s Townhomes and Apartments. Edwards added Annie’s is a very well-kept property and Edwards recommended approval of Sunrise Terrace for its first extension.
Nancy Willis moved for the approval of the 1st PILOT EXTENSION FOR SUNRISE TERRACE APARTMENTS. James Jalenak seconded and the motion passed unanimously.
CONSIDERATION OF 1st EXTENSION TO MASON VILLAGE BOND INDUCEMENT RESOLUTION
Monice Hagler recused herself and left the room during the consideration of this matter.
Charles Carpenter reminded the Board that this property has applied for low-income housing tax credits and in its May 2017 regular meeting, the Board approved this project as an MHA PILOT. Carpenter said the bond working group is in full operation and the bond documents are close to being finalized; however, there is an issue with HUD that delayed the final bond resolution from being currently presented and the final bond resolution should be presented at the July 2017 Board meeting or shortly thereafter. Carpenter recommended approval of the extension request.
James Jalenak moved for the approval of the 1st EXTENSION TO MASON VILLAGE BOND INDUCEMENT RESOLUTION. Nancy Willis seconded and the motion passed unanimously.
Monice Hagler re-entered the meeting.
CONSIDERATION OF AFFORDABLE MULTIFAMILY HOUSING 2017 PILOT CALENDAR ROUND II
Martin Edwards, Jr. discussed Round II of the PILOT Calendar and the dates involved. Edwards recommended Round II of the PILOT Calendar.
Monice Hagler moved for the approval of the AFFORDABLE MULTIFAMILY HOUSING 2017 PILOT CALENDAR ROUND II. Nancy Willis seconded and the motion passed unanimously.
Charles Carpenter reported there have been no new claims or lawsuits since the last meeting.
Carpenter referred to the Attorney’s Report from the May 2017 meeting. He reminded the Board of the memorandum submitted to the Downtown Memphis Commission (DMC) regarding the HEHF Board and MHA PILOTs being exempt from the Central Business Improvement District (CBID). The memorandum was submitted to the Downtown Memphis Commission for review and approval. We have worked out any concerns they have and their staff has approved it. They will take it before the Center City Development Corporation for their Board approval which should take place next week. At that time, the Board will formally adopt the memorandum for implementation. The basic consideration in the memorandum will require all Board PILOT projects in the CBID to appear before the Design Review Board of DMC to facilitate continuity in design. PILOTs already in the CBID are grandfathered in.
Regarding the IRS audit of Serenity Towers, the written “no action” letter has been received from the IRS and the issue is now closed.
Carpenter further reported on the issue with the Memphis Land Bank (MLB) regarding their PILOTs and the subject of terminations. MLB wants their PILOTs voided since inception, but it’s not that simple. Some of the PILOTs have been in place for over seven (7) years, and two (2) of the PILOTs have already been terminated at the request of MLB. MLB and their attorneys have been in touch with the City and County offices in search of a resolution; however, Carpenter has not been involved with those discussions. Carpenter will have a meeting with MLB legal counsel and if a path of action can be found to accomplish the MLB request there will be no objection; however, before any recommendations are made to the Board, the approach will have to analyzed and approved to have no legal liability on behalf of the Board. Carpenter hopes to have a follow-up report outlining any progress on this issue at the July 2017 Board meeting.
Also, Carpenter reported that during the month he had worked with the auditor in finalizing the IRS Form 990, which has now been filed.
Finally, Carpenter reported that the Steele Properties (Pendleton Apartments and Keystone Apartments) TEFRA hearings will take place on June 29th. Thereafter, the approvals will then go to the City for approval by the Mayor. Following which, Steele Properties will be able to continue processing their application with THDA for its volume cap and low-income tax credit allocations.
James Jalenak asked for clarification regarding the issue with MLB. Carpenter explained this is a complicated matter that has been pending for several years. MLB is not a tax-exempt entity; however, MLB owed land, mainly vacant lots, which land had been deeded to MLB by the City with past due taxes still being owed on much of the properties. MLB doesn’t have the resources to pay the outstanding tax balances. MLB has now entered a Memorandum of Understanding (MOU) with the City and County taxing authorities. The Board is involved because some of the properties, at the request of MLB had been placed in the MHA PILOT Program. MLB is now trying to figure out a procedure that will allow MLB to void the MHA PILOTs, allow the properties to remain tax exempt and eliminate any past due taxes. The Board has not been involved in any
discussions prior to now. Marty Regan is the attorney for MLB. Molly Beard, MLB Executive Director, has been trying to handle the issue administratively with Martin Edwards, Jr. Carpenter reiterated at this point this is a legal matter, not administrative. Legal counsel for all parties will meet and decide how to handle this matter moving forward. Monice Hagler asked if MLB owes taxes accrued before and during the PILOT tenure, specifically. Carpenter said he does not know the answer at this time. Carpenter told MLB that the Board will cooperate and be helpful, but it is important that the Board understands all legal implications of the matter prior to any agreement.
Carpenter stated he received a call from Millennia Housing Development (Millennia). Millennia is a national company that owns and manages affordable housing based in Ohio. Millennia is looking at four properties in Memphis that it is purchasing from Global Ministries Foundation (GMF): (i) Warren/Tulane, (ii) Serenity Towers, (iii) Goodwill Village and (iv) Madison Towers. Millennia advised that it has plans to apply to the Board for PILOTs and bonds. Carpenter referred Millennia to the Board’s website and to Edwards for additional information. Carpenter expects we will hear from them soon. Bent Tree is not one of the properties they are looking at.
The above concluded the legal report and there being no further concerns or questions, the meeting moved to the PILOT Report and Executive Director Report.
PILOT REPORT & EXECUTIVE DIRECTOR REPORT
Martin Edwards discussed and answered questions regarding the following matters:
Pendleton Place and Keystone Landing
TEFRA hearings will take place at the end of the month. The retainer fee for both properties has been received.
This property has been on our watch list for a while. All corrections are expected to be made by the end of the month including closing an alley and repaving. We will send Ledford for re-inspection.
This apartment complex had a fire in December 2016 that destroyed 12 units. The owner wants permission to demolish the 12 units and not rebuild. They are waiting for our approval. Edwards asked for Charles Carpenter’s opinion on the Board’s response when faced with a situation of an owner wanting to reduce the size of a project when the PILOT project was approved for a specific number of units. Carpenter said there is no current policy but each situation like this should be handled on a case by case basis. Moreover, under the typical structure of the bond and/or loan documents, the trustee in the case of a bond or a primary lender in the case of a loan will decide as to whether they will take the insurance proceeds and pay down the principal on the bond or pay down the mortgage. In addition, we need to find out why the owner is not willing to rebuild the units because it will reduce the amount of revenues for the project. Staff could then analyze their responses and share the information with the Board and/or PILOT Committee to make a reasoned decision. Thereafter, a determination could be made whether there is a need to modify the PILOT agreement. Edwards stated at this time the Board does not have any policy in place to address this issue. Carpenter stated that ultimately the Board should determine how such action will affect the PILOT and the tenant benefits. (Note: It has since been confirmed that there is no trustee or lender involved with this property.) Eastwood Park had a court date on May 25, 2017, regarding condemnation of the fire damaged units; results of the court hearing are pending.
We sent a letter to owner concerning violent criminal activity and a fire. They sent a response stating the fire damaged units are being re-built and they have hired a security guard to deal with any criminal concerns.
We sent a “soft” non-compliance letter regarding issues reported by Ledford. The owner stated items in question will be cured by the end of the month. We will send Ledford for re-inspection.
This property was up for transfer at a previous Board meeting this year; however, the property sale did not take place. We talked with another potential new owner via conference call this week where Edwards discussed the transfer application process and issues with property.
This property was approved for street closures at the May 23, 2017 City Council meeting.
This property is located next to Sunrise Terrace. It is owned by GMF. GMF has responded that it will start construction on the fire damaged units at the end of July. At some point, the Board will have to make a final decision on what to do with Bent Tree because it continues to be a challenging property. Edwards drives by the property at least once a week to check progress. There has been no progress. Edwards stated he would like to see the fire damaged units repaired because that would be in the tenants’ best interest. Currently, there is a temporary fence around the damaged units.
Amber Hayes worked on occupancy numbers for all PILOT properties. While investigating this, she discovered Highland Creek had an extremely low occupancy rate. As of March 31, 2017, the occupancy rate was 7%. Since that time, the occupancy has increased to approximately 25%. Edwards toured the property and discovered the reason for this is due to the majority of the units being under construction. Some buildings are completely fenced off and inaccessible. The PILOT application for this property was originally approved in 2012. Edwards had Hayes send a letter to the owner asking for a plat of all of the units and labeled: occupied, unoccupied/rent ready, under construction and not under construction. The owner was also requested to specify which tenant benefits had been completed. The letter was sent on Monday, June 12, 2017 via email and regular mail, and the owner was requested to respond within five (5) days. Edwards stated the work that has been done is impressive. Edwards fears the PILOT will expire before construction is finished, which provoked the question: how long do you allow a property to have low occupancy before the PILOT is considered defaulted? This property is going on six years of low occupancy. Carpenter stated that the Board has terminated a PILOT for low occupancy in the past. Low occupancy is mentioned the HEHF Bylaws as a reason for termination. The quarterly compliance reports are important to review for occupancy because it is an indicator of other problems with a property. Occupancy below 70% raises an immediate red flag and should be watched and possibly considered for termination. The PILOT Committee should look in this. Occupancy issues should be considered on a case by case basis. Also, the Board should establish a policy and discuss on the front end with the applicant that if the project cannot be completed in allotted time that factor could be grounds for PILOT termination.
HEHF “Autopsy” Numbers
Amber Hayes worked on more numbers. The Board is now completely up to date on occupancy numbers for all PILOT properties. This information is also broken down by zip code. 38116 is our lowest occupancy zip code at 70%. The 38116 zip code has the largest number of PILOT properties at 10 properties. Edwards also discussed some of the other low occupancy properties. It’s important to watch for properties with drops in occupancy because that generally means there is some underlying issue we need to investigate. Edwards shared our autopsy numbers with the Memphis 3.0 Committee and they appreciated that we have this information available.
Edwards wanted to discuss the clause in the PILOT process and agreement that states the first extension is “automatic.” He wants to know the rationale behind this statement. Edwards said he understands if this is a HUD property or a bond property, but for all others this doesn’t make sense. Carpenter explained this could be due to the properties having mixed financing. Although the properties may not have bonds, there may be some other government incentives that take time to put into place. Carpenter is not concerned about the word “automatic” because in a lot of cases it can take developers up to a year to close. Monice Hagler agreed with Carpenter most developers needed more time to get everything in place to make the property a successful low-income property. Edwards said he now understands. Buckner Wellford asked what the extension fee is and when is the last time we changed it. Hayes stated it is equal to the original PILOT application fee. Wellford stated he is concerned about the amount of excess work HEHF staff is required to do for extensions and the possibility of increasing the fee. Edwards said he will look into this. Also, Edwards added it is not credited against the closing fee.
Memphis 3.0 Involvement
HEHF may join with Memphis 3.0 on issues concerning compliance and adoption of some material regarding how compliance is handled by the international code council. Edwards advised that the Board may expend a minor amount of funds for compliance manuals to give to low income property owners participating in PILOT programs and give out to the City so they can have a better understanding of how code compliance is done.
There being no public comment, it was announced that the next scheduled meeting of the Board will be Wednesday, July 12, 2017 @ Noon. There being no further business, the meeting was adjourned by the Chair at 12:53 p.m.