| | | | | | | | TO: | Finance and Economic Resiliency Committee Members
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| FROM:
| Alina T. Hudak, City Manager |
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| DATE: | March 30, 2022
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| SUBJECT: | DISCUSSION REGARDING MIAMI BEACH COMMUNITY DEVELOPMENT CORPORATION AND ITS FINANCIAL CONDITION |
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| | | | | | | | HISTORY:
| At its February 13, 2019, meeting, the Mayor and Commission held a discussion regarding Miami Beach Community Development Corporation (MBCDC), its financial condition and a variety of compliance concerns identified 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.
MBCDC is a significant provider of affordable housing. It is crucial that all invested parties work together to ensure that the affordable housing units are not jeopardized. The Administration is currently awaiting PHCD’s completed audit to further analyze MBCDC’s financial solvency. The City will be conducting its due diligence and will also be discussing the viability of the transfer of assets in order to ensure the preservation of the portfolio.
2021-2033 Business Strategy Plan
On June 4, 2021, 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: a co-development partnership with Opa-Locka Community Development Corporation (OLCDC); strategies to recapitalize their portfolio; and strategies to address urgent capital repairs.
MBCDC met with Miami Dade County Public Housing and Community Development (PHCD) on August 17, 2021 regarding their Business Plan. The County expressed their concern with MBCDC’s financial capacity, specifically 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.
In December 2021, MBCDC notified the City that they would not be moving forward with the OLCDC partnership agreement.
Consolidated Financial Statements
On September 24, 2021, MBCDC provided Consolidated Financial Statements for FY 19 and FY 20. The report showed financial improvements from their FY 18 Consolidated Financial Statements, which delineated several material weaknesses in connection to the agency’s internal controls, accounting processes and tenant management. The sale of the Shelbourne Apartments provided a cash infusion of $2,034,950, which was used to payoff the existing loans on the Seymour building, the Raza Development loan for $733,394 and the Florida Department of Financial Services loan for $103,750. MBCDC recognized a profit of $1,134,282 during FY 19.
The audit delineates the changes to the lines of credit incurred by MBCDC in 2020, which included a loan forgiveness of $399,506 from HSBC Bank and a new loan with the Small Business Administration for $150,000.
December 8, 2021 Proposal
MBCDC provided their debt analysis, structural reports and Consolidated Financial Statements, which are attached to this memo.
On December 16, 2021 Administration met with MBCDC counsel to discuss its proposal and provide updates.
- MBCDC shared that they are concerned about their ability to pay vendors. They currently have $375,000 in outstanding debt for accounting/audit services, contractor services, and insurance costs.
- MBCDC’s Executive Director Ahmed Martin resigned effective December 31, 2021. The Deputy Director is currently handling operational responsibilities at his current salary.
- MBCDC stated that regardless of who takes on the portfolio, they will need an estimated $20,000-$30,000 a month to maintain operations during the transition period.
- MBCDC is currently exploring the possibility of selling an asset (1551 Pennsylvania AKA: “The Sabrina”) to cover the agency’s operational cost. They are prepared to sell the asset at a reduced price to the City to cover their financial obligations and ensure the property retains its affordability past the County’s Covenant, which expires in August 2032. MBCDC received a broker price opinion for this property estimated at $4 million dollars.
- MBCDC stated that after covering their operational cost, they would be willing to transfer buildings that have non-performing debts, such as the Fernwood and Villa Matti, to the City. This acquisition would also be contingent on HUD and the County approving the covenant transfer.
- MBCDC expressed concern with the timeframe as they do not have sufficient capital and may be subject to bankruptcy. This delay may result in foreclosure, which would impact the compliance of the City’s and the County’s Federal allocations, triggering not only repayments but the loss of the affordable housing units.
Rent Increases
In February 2022, MBCDC notified residents across their portfolio that their rent would be increased (up to 33% in some cases), by March 1, 2022. Most of the residents in the portfolio are cost burdened and cannot afford any rent increase, as they are elderly and depend on entitlement benefits.
In February, the Mayor and City Commission approved Ordinance Number 2022-4470, which would require landlords to give a minimum of 60-day notice for tenants with an increase of more than five (5) percent. Administration notified MBCDC of the ordinance and they delayed the rental increase to April 2022. Subsequently, PHCD issued a default pursuant to the Rental Regulatory Agreement required by the Miami-Dade County Surtax Loan, because MBCDC did not issue proper notice regarding the rental increase. |
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| | | | | | | | ANALYSIS:
| Issues of Compliance
The City continues to monitor MBCDC’s financial standing and continues to triage tenant complaints referring to life safety issues and rent increases across the portfolio. On December 8, 2021, MBCDC sent a proposal addressing several requests for financial assistance in the efforts to preserve the affordable housing portfolio, whereby the City would assume management and operational oversight of all properties, in consult with the existing staff. MBCDC requested a separate meeting with PHCD, to discuss the County’s decision on assuming ownership of their portfolio.
Additionally, MBCDC requests funding from the City or County to address their outstanding debt to a private lender, contractors, accountants and auditors.
MBCDC is also exploring the sale of a property to ensure financial solvency for the immediate future and to avoid bankruptcy, which would affect all lenders.
However, the following properties cannot receive additional funding from HOME or SHIP until their affordability period expires. The table below describes the City’s current investments under affordability.
Property Name
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Total Miami Beach Investment
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Expiration of Affordability Period with City-funded programs
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40/50 Year Certifications Due
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Jefferson Apartments
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$83,370- SHIP
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7/6/2031
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2027
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Allen Apartments
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$4,494,055.50
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6/15/2041
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Past Due -2020
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Meridian Place
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$4,364,642
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9/26/2043
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Past Due- 2020
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Villa Maria
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$3,385,273
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6/2/2060
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Past Due- 2014
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As part of the due diligence process, the Administration ordered structural assessments for four (4) of the properties that had the least performing debt in order to analyze the cost for acquisition and rehabilitation.
Property
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2020 Appraised Value
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Performing Debt
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Structural Assessment Identified Issues
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Estimated Monthly Revenue
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Villa Matti
221 28th street
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$3,135,000
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No Payable Debt reported
Existing loans are forgivable as long as property is kept affordable
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Stucco/ façade, roof soffit, exterior paint, electrical repairs, roof, HVAC units need to be repaired within 10 years.
ADA lift chair needs to be repaired immediately.
Estimated Repair Cost: $1,509,778
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$21,708
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Fernwood Apartments
935 Pennsylvania Avenue
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$1,674,000
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No Payable Debt reported
Existing loans are forgivable as long as property is kept affordable
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Stucco/ façade, roof soffit, exterior paint, concrete repairs, roof, HVAC units need to be repaired within 5 -10 years.
Estimated Repair Cost:
$1,530,651
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$15,840
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Sabrina Apartments
1551 Pennsylvania Avenue
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$1,581,000
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Miami Dade County Surtax Loan $314,921
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Stucco/ façade, roof soffit, exterior paint, roof, units need to be repaired within 5 -10 years.
Estimated Repair Cost: $1,294,096
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$18,068
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Jefferson Apartments*
542 Jefferson Avenue
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$2,734,000
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$250,036
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Structural issues including façade, water intrusion, exterior paint, termite infestation and window reinstallation need immediate attention
Estimated Repair Cost: $2,007,676
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$21,874
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*On March 15, 2022, the City issued a default notice in relation to the care of the premises for the Jefferson Apartments.
March 16, 2022 Board Meeting
Commissioner Higgins, PHCD, Commissioner Rosen Gonzalez and City staff attended the MBCDC Board meeting to discuss rent increase, property standards and the transfer of the portfolio to PHCD.
The Board is willing to postpone rent increases and to tent the properties if they receive subsidy or funding from the City or County. MBCDC has not increased their rent since 2018 and they are facing a $10,000-$15,000 monthly deficit.
MBCDC has expressed their intent to retain ownership of the Villa Matti Apartments, as it is the only building generating cash flow. Miami-Dade County is proposing the immediate takeover of all properties immediately, including the assumption of outstanding debt. All parties agree that MBCDC cannot sustain the portfolio entirely and there are several structural issues that need to be addressed immediately.
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| | | | | | | | CONCLUSION:
| MBCDC is a significant provider of affordable housing. It is crucial that all invested parties work together to ensure that the affordable housing units are not jeopardized. The Administration is currently awaiting PHCD’s completed audit to further analyze MBCDC’s financial solvency. The City will be conducting its due diligence and will also be discussing the viability of the transfer of assets to ensure the preservation of the portfolio. |
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| | | | | | | | Applicable Area
| Not Applicable |
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| | | | | | | | Is this a "Residents Right to Know" item, pursuant to City Code Section 2-14? | | Does this item utilize G.O. Bond Funds? | | No | | No | |
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| | | | | | | | Strategic Connection
| Mobility - Support affordable, compatible workforce housing. |
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