At its February 13, 2019 meeting, the Mayor and Commission held a discussion regarding the financial condition of Miami Beach Community Development Corporation (MBCDC) and a variety of compliance concerns noted by Miami-Dade County (county) and the city. The Mayor and Commission initially made a referral to the Neighborhoods Community Affairs Committee (NCAC) for further discussion including addressing the conditions of the agency’s properties and its progress in addressing County compliance concerns. The item was subsequently referred to the Finance and Citywide Projects Committee (FCWPC) for further discussion.

At its May 2019 meeting, FCWPC requested that an update on MBCDC and its fiscal position become a recurring reporting item to the Committee every 90 days.

2021-2033 Business Strategy Plan

On June 4, MBCDC submitted its 2021-2033 Business Strategy Plan (“the Plan”), which describes the agency’s current financial position and the following strategies to preserve and maintain the portfolio: the co-development partnership with Opa-Locka Community Development Corporation (OLCDC); their strategies to recapitalize their portfolio; and their strategies to address urgent capital repairs.

The partnership with OLCDC comes after experiencing an operating loss of $92,911 in the six-month period between October 2020 and April 2021.  MBCDC will work with OLCDC to structure the organization’s portfolio to qualify for 501c3 bond (“the Bond”) issued from Miami-Dade County Housing Finance Authority and they are expecting the transaction to be finalized within 12-18 months.

According to the Plan, the following actions are required in anticipation of pursuing 501c3 financing for the redevelopment of 187 units in the MBCDC portfolio:

1. OLCDC will invest $135,334.14 to assist in funding capital improvements to the MBCDC portfolio;
2. OLCDC will facilitate a $500k line of credit for operational shortfalls;
3. $270k in in-kind management support;
4. MBCDC will increase tenant rents at the following properties to increase operating capital (Jefferson Apartments, 530 and 532 Michigan Avenue, Crespi Apartments, Meridian Place, The Allen Apartments, Westchester Apartments, 1551 Pennsylvania Avenue); and
5. MBCDC will renovate the Shelbourne Apartments using a $2 million loan from Raza Development, Inc.

Staff reviewed the Plan and raised the following concerns:

1. Request for City/County subsidies- The Plan calls for local government agencies to provide housing vouchers for units within the MBCDC portfolio, while simultaneously requesting rent increases. This would require local governments to shoulder a greater portion of the agency’s operating costs.

2. Partnership with OLCDC and La Raza- The proposal alludes to financial commitments from both OLCDC and Raza Development, but did not include the legal instruments memorializing these commitments.

3. Shelbourne Apartments renovation- HUD’s review and approval for the Shelbourne Apartments as required by the property’s deed restriction is not included.

4. Amending existing City loan documents- MBCDC requests the City to subordinate its mortgages and covenants on MBCDC properties it assisted with HUD- and Redevelopment Agency funds.

5. Financial Capacity- The Plan does not fully address how the agency can ensure ongoing operations without ongoing fiscal deficits.

6. Capital Repair Needs- This plan would only address a portion of the MBCDC portfolio in need of repairs, leaving 136 units still in need of renovation.

At its July 30 meeting, Administration and MBCDC confirmed their intent to meet and discuss the financial concerns detailed in the Plan.

Issues of Compliance

The City continues to monitor MBCDC’s financial standing and continues to triage tenant complaints referring to life safety issues including at the Jefferson Apartments, an elder housing property that has had open violations since 2019 which triggered the relocation of all tenants on the first floor. This property was assisted by the City and remains under affordability and compliance terms for the State Housing Initiatives Program (SHIP).

MBCDC remains interested in receiving funding allocations from entitlement grants such as HOME, CDBG and SHIP. However, the following properties cannot receive additional funding from HOME or SHIP until their affordability period expires:

August 4, 2021 Meeting
On August 4, 2021, the Administration met with MBCDC, their counsel, and OLCDC to obtain clarification on several items in the Business Plan and to provide technical assistance where needed. Phase I involves capital improvements to decrease vacancy; debt modifications; a phased rental increase; renovation of the Shelbourne Apartments.

The following items were clarified, in order of discussion:

1. Financial Capacity- In the Plan, MBCDC describes two scenarios in connection to their long-term fiscal future. The first scenario does not include a rental subsidy from the City or County, which means that the portfolio would be in the same position in years 7-10 of the Bond issuance and the projected scope of work for repairs would not be completed.

The second scenario would entail an annual subsidy of $150,000 or project-based vouchers provided by the City or Miami-Dade County that would directly benefit the residents. This investment would maximize the agency’s ability to support a higher bond issuance and would address the projected scope of capital repairs for 187 units in the portfolio. MBCDC clarified that the properties chosen for repairs were the highest grossing in the portfolio.

In addition, the Plan addresses the repayment of the bonds and future debt service. The Bond’s proceeds would be used to pay the existing debt of almost $6 million for seven (7) properties in the portfolio. MBCDC plans to recapitalize via LIHTC after the bond and they project the bonds will be for a 10-year term with the ability to repay after the seventh year.

2. Requests for City/County subsidies: In the Plan, MBCDC requests for the City to add their properties to the City’s Self-Insurance policy. If granted, this would alleviate the annual costs of property liability insurance of approximately $287,400.

The Administration has inquired about the feasibility of MBCDC’s request and Risk Management confirmed that the City does not have funds to support purchasing property insurance, nor can their properties be added to the insurance program.

Additionally, the administration clarified that the City does not oversee a housing voucher program and does not have the ability to subsidize rents through their Federal entitlement programs. MBCDC would have to make the request for housing vouchers with Miami-Dade County or the Housing Authority of the City of Miami Beach.

3. Partnership with Opa-Locka Community Development Corporation- MBCDC clarified that there is a conceptual agreement with OLCDC to form a Nonprofit Partnership, but it has not been formally executed. The agreement would allow OLCDC to oversee their portfolio, provide financial support and to stabilize the organization’s position to qualify for the 501 c3 Bond. A Restrictive Covenant would be issued in connection with the OLCDC agreement, in order to give them ownership of the portfolio and they would receive a portion of operating cashflow.

In order to fulfill the strategies for financial support described in the Plan, OLCDC explained they would generate a $500k line of credit from the agency’s equity and the balance sheet would be secured by receivables. OLCDC also stated they will apply for a loan from the Community Fund of North Miami-Dade that will grant them access to a $2M line of credit with favorable terms. OLCDC identified another source of funding support by re-syndicating OLCDC projects, resulting in greater equity to invest in MBCDC.

4. Partnership with La Raza Development, Inc.- MBCDC clarified there is a verbal agreement with La Raza for a $2 million loan to be utilized for the Shelbourne Apartments renovation project. The agreement will be executed after the OLCDC agreement is completed. The Raza loan will be repaid with the bond proceeds. As of this memo, MBCDC has not provided loan documents for the La Raza loan or the Partnership Agreement with OLCDC.

5. Shelbourne Apartments renovation- MBCDC states that HUD would only issue their formal approval of a subordinate loan or grant once they review the loan commitment from another provider. MBCDC can provide the loan approval after the agreement is signed with La Raza Development, Inc.

6. Capital Repair Needs- This plan would only address a portion of the MBCDC portfolio in need of repairs, leaving 136 units still in need of renovation. During the July 23, 2021, Commission meeting, MBCDC requested for FY 20/21 HOME funds in the amount $220,000 to be allocated to Villa Maria and FY 21/22 SHIP funds in the amount of $394,363 to be allocated to the Allen Apartments. Both requests were made to address urgent capital repairs associated with the properties’ 40-year certifications.

The Administration explained that the City cannot allocate HOME or SHIP funds into either property while they are still under affordability; the Allen Apartments’ affordability period expires on June 2041 and the Villa Maria expires on June 2060.

In addition, MBCDC has not presented any official documents regarding the structural conditions of the properties in need of repair, which is a hindrance to qualify the need and the cost for their funding requests. The Administration continues to offer technical assistance to ensure the viability of future proposals.

7. Amending existing City loan documents- MBCDC requests the City’s subordination for the Bond to be in the first place. MBCDC met with the County to request subordination of their documents. Secondly, MBCDC asked about prorating their remaining years of affordability for the Jefferson Apartments and reducing the loan by the amount. Thirdly, MBCDC would like to obtain the Satisfaction of Mortgage for the Westchester Apartments prior to the property’s affordability expiration on March 2022.

Miami-Dade County Public Housing Community Development (PHCD) Response
As of this memo, MBCDC has not submitted a completed audit.

MBCDC met with Miami Dade County Public Housing and Community Development on August 17 regarding their Business Plan. The County continues to express their concern with MBCDC’s financial capacity. Their responses address the following:

• 501c3 Bond application- MBCDC has not discussed their intention to apply for Bond financing with the Housing Finance Authority.
• MBCDC has not submitted professional assessments to support the estimates of needed repairs.
• The County does not have the funding mechanism to assist MBCDC with insurance costs.
• PHCD cannot provide project-based vouchers for MBCDC’s unsubsidized tenants, as the Voucher program is linked to availability and competitive process requirements.

Supporting affordable, compatible workforce housing is a key management objective in the 2019 Strategic Plan: Through the Lens of Resilience. MBCDC is a significant provider of affordable housing in the City. However, the capacity of the organization continues to be a concern as demonstrated by the most recent financial statements, capital needs resulting in a significant number of vacancies, challenges in making loan payments and building violations. The City continues to offer guidance to MBCDC to address compliance issues and ensure that its properties remain in the City’s affordable housing portfolio.