MINUTES OF REGULAR MEETING OF
THE HEALTH, EDUCATIONAL AND HOUSING FACILITY BOARD
OF THE CITY OF MEMPHIS, TENNESSEE
Wednesday, May 8, 2024
The regular meeting of The Health, Educational and Housing Facility Board of the City of Memphis, Tennessee (the “Board”) was held pursuant to public notice published in The Daily News on Wednesday, May 1, 2024, 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 Board offices, located at 65 Union Avenue, Suite 1120, Memphis, TN 38103.
The following Directors were present:
Daniel T. Reid, Chairman Monice Hagler, Secretary
Buckner Wellford (Zoom) James Jalenak (Zoom)
Cliff Henderson Katie Shotts
Howard Eddings, Jr (Zoom) Vincent Sawyer
Staff and others attending: Stephanie Bryant, Bryce Miller and JP Townsend; Charles E. Carpenter and Corbin I. Carpenter (Zoom), General Counsel; Katrina Shephard (Zoom), legal assistant to General Counsel; Cheryl Hearn, Deputy City Attorney.
Also participating in person and/or via remote Zoom virtual platform were Joe B. Kent, a member of the public; Brian Myers and Joyce Chiaia of Richmond Asset Management and Henry Zuckerberg of JDF,LLC representing The Richmond Group Affordable Housing, a limited partner and all appearing in connection with Memphis Towers Apartments; Arthur Krauer of Millennia Housing and Kent Mehring of WNC, Inc., a limited partner, all representing Cavalier Court and Gospel Gardens; Mark Jobe of Glankler Brown, PLLC and David Shores of Multi-South Management Services, LLC representing New Horizon Apartments; Elizabeth Friary of Evans Petree, PC and Lewis Clarke representing Broadmoor Apartments; Shirley Bondon of Black Clergy Collaborative of Memphis; Austin Harrison of Memphis Interfaith Coalition for Action and Hope (MICAH); Alex Uhlmann of the Memphis Tenants Union; Jacob Steimer of MLK50; Geoff Hanson; Shiela Jordan Cunningham; Councilwoman Janika White; Trey McKnight; Mike Humes; 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 Daniel T. Reid, Chairman.
Chairman Reid 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 is holding its regular meeting on Wednesday, May 8, 2024 @ Noon as an open public meeting in its conference room located at 65 Union Avenue, Suite 1120, Memphis, Tennessee 38103.
Chairman Reid 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.
Joe B. Kent entered the meeting.
Brian Myers, Joyce Chiaia and Henry Zuckerberg entered the meeting.
Arthur Krauer entered the meeting.
Lewis Clarke entered the meeting.
Austin Harrison entered the meeting.
Alex Uhlmann entered the meeting.
Jacob Steimer entered the meeting.
Public Comment
Chairman Daniel Reid opened the floor for public comment and advised that all comments should be limited to two (2) minutes per speaker.
1. Joe B. Kent introduced himself and thanked the Board for posting the Internal Management Report with the Board’s financials. Kent stated there is an ongoing conspiracy not to post quasi-public financials in a timely manner during budget season. Kent stated the Board also has about thirteen million dollars in excess cash on its balance sheet and that money can go to help relieve, if creative, the affordable housing burden that we face locally. Kent stated he saw something on yesterday’s City Council agenda that it look like they are trying to pull one million five hundred thousand dollars from this Board and give it to Housing and Community Development (HCD) in this 2024 budget season. Kent stated he does not trust that, as he has seen money go to HCD and how HCD spends money, so he wanted the Board to be aware of that, although the item was pulled from the City Council agenda. Kent reiterated his positive note for sharing current financials.
There was no other Public Comment.
Approval of Minutes
Cliff Henderson moved for approval of the Minutes of the April 3, 2024 Regular Meeting, which was seconded by Vincent Sawyer and the motion passed unanimously after proper roll call vote of the Board members.
Attorney’s Report
Charles Carpenter presented the legal report, as follows:
Carpenter stated that he would reserve all comments regarding PILOTs in legal default for the Action Items section of the agenda.
1. Carpenter began by reporting three (3) PILOT Closing activities during April 2024 as follows:
a. Woodland Apartments new PILOT closing;
b. The Reserve at Mount Moriah new PILOT closing;
c. Hickory Grove (f/k/a Woods at Ridgeway) PILOT Refinancing closing.
2. Carpenter reported no bond closings during April 2024, but his firm is working on a remarketing of an existing bond for Tillman Cove Apartments. Carpenter reported that the Tillman Cove Apartments are in the process of completing construction and is anticipated to be completed mid-to-late July 2024. However, based on the bond financing structure for this development, there will need to be a remarketing of those bonds on or before June 1, 2024. Carpenter reported his firm is working with the bond working group and legal counsel for Tillman Cove Apartments and the remarketing is scheduled to close on or before May 31, 2024.
3. Additionally, Carpenter reported receipt of various notices during April 2024. Carpenter reminded the Board that, as discussed in previous meetings, the vendors dealing with PILOT properties have become a lot more aggressive and there is an increase in the volume of liens and notices of nonpayment that are being filed. Carpenter reminded the Board it is not liable for any missed or late payments, but his firm does provide oversight and maintenance over all notices received. Carpenter reports Sherwin Williams as one of the more aggressive vendors, stating if they are not paid within thirty (30) days, they now file notices of nonpayment, regardless of the amount. Carpenter reported also receiving notices of nonpayment for Cavalier Court and Gospel Gardens with Nationwide Pest Control, a notice of nonpayment for Hillcrest Apartments from Youngblood Builders Supply, and a notice of nonpayment for Feels Like Home Senior Living Residences from Sherwin Williams. Carpenter stated his firm has contacted the representatives of these PILOT entities and will continue to oversee the handling of these liens or nonpayment notices.
4. Finally, Carpenter reporting his firm having discussions with Tennessee Housing Development Agency (THDA) regarding the round one of the 4% low income housing tax credits (LIHTC). Carpenter reminded the Board that two (2) years ago, THDA set up the three grand divisions of the state in an effort to be more equitable with the allocation of the credits, as there is tremendous need for affordable housing throughout the state of Tennessee. Carpenter explained that THDA monitors the allocation and estimates the allocation of the award of 4% LIHTC based on the completed projects from the previous year. Carpenter reported the current 2024 qualified allocation plan for THDA per division as follows: (i) West Tennessee Grand Division will receive 22%, (ii) Middle Tennessee Grand Division will receive 44% and (iii) East Tennessee Grand Division will receive 34%. Carpenter stated that the Board has one (1) applicant pending for round one for West Tennessee, i.e., Pershing Park Apartments, of which Alco Management Inc is the developer. Carpenter stated THDA is expected to make round one award announcements soon, and depending on which applications comply and are awarded, that will determine if there will be round two.
Chairman Reid asked for clarity on vendors like Sherwin Williams, asking if when the lien is filed if it is filed with the contractor and then also against the project. Carpenter stated there are two parts, with the first step being a notice on nonpayment and there is no lien associated with that. Carpenter stated the notices of nonpayment are what is typically filed by Sherwin Williams and others now. Carpenter described the second step is when a lien is filed of public record against the property by the contractor or supplier and notice of a lien is provided to all parties named in the lien. Carpenter stated that the lien would then have to be satisfied to be removed from the property.
Reid then stated that concerning Carpenter’s report on THDA, there seems to be a greater need in West Tennessee than in East Tennessee and what could the Board do to increase allocation to the West Tennessee Grand Division. Carpenter stated there needs to be more qualified affordable housing developers in west Tennessee because, as previously stated, there is only one West Tennessee application to be considered for round one allocation with THDA. Reid asked if part of the matrix in determining allocation is reviewing the projects that have already applied, to which Carpenter replied yes. Carpenter stated that THDA wants to ensure that the allocation awarded to each grand division is used, and West Tennessee is lagging in affordable housing developers.
There being no further questions or comments, the Legal Report was concluded.
Action Items-
1. Status updates for PILOTs in Legal Default
Charles Carpenter began by stating that each of these properties that will be discussed in this portion of the agenda are all in legal default. Carpenter stated one of the items to be discussed is the complexities of the capital stack used to develop an affordable housing project, and the Board typically sees the developer that is primarily responsible, but many times there are limited partners and guarantors, and other entities/individuals who are involved with these properties who come to the forefront, particularly when the project does not move forward according to plan.
a. Memphis Towers
Charles Carpenter introduced this agenda item, introducing Brian Myers as the president of Richmond Asset Management Group, who has previously reported to the Board and is the limited partner on the project but has taken legal steps to gain full control of the Memphis Towers property. Myers and his team are in attendance today to provide an update of what has taken place since the April 3, 2024 Board meeting. Carpenter stated that Richmond Asset Management has now taken full legal control of the property, assumed the day-to-day management. Carpenter turned the meeting over to Myers for further comment.
Myers stated that as an update to the $3.6 million construction lien on the property reported at the Board’s April 3, 2024 Board meeting, his team has worked with the contractor and the lien has been paid and reduced to $500,000, which is the retainage amount held back until work is completed, and that amount will be released upon satisfaction of completion. Myers stated Tower B is still pending its final certificate of occupancy, the building passed the fire inspections and there are only a couple more steps that should be complete in the next two (2) weeks to get final sign off from the building department, then from Housing and Urban Development (HUD), and thereupon management will be able to begin leasing those units. Myers stated those units are being pre-marketed and have received a lot of interest. Carpenter asked what the status of HUD approval is for the selected management company. Myers stated his group has been the general partner on the project and has been self-managing the property for the last month, but SPM Management has been selected as the incoming management company and was officially approved by HUD to start takeover of management of the property on May 1, 2024.
Myers reported, regarding first floor common area spaces, that the architect has indicated being six weeks away from finalizing the plans and getting the required building permits. Following that, the contract will be mobilized to complete the work, bringing the timeline of completion for those community spaces in the building to approximately six (6) months away. Carpenter asked for clarification on when Myers anticipates receiving the certificate of occupancy and all required signoffs to begin occupying Tower B, to which Myers responded approximately two (2) weeks.
Carpenter asked the Board’s internal compliance monitors to provide any comments they have from their observations of the property. Bryce Miller stated there have been exterior improvements observed including the addition of several benches to the very back of the property is the smoking area, timely fence repairs due to storm damage, and glass repairs made to the front of the office, which has been an issue for quite some time. Miller stated the property continues to improve.
Carpenter stated the property has made substantial improvements, but still has a way to go and recommended Richmond Asset Management Group appear before the Board at its June 5, 2024 Board meeting to continue to provide an update on the progress made at Memphis Towers, and in the meantime, the property would remain in legal default. Myers asked what is required to get the property removed from a default status. Carpenter stated it is a matter of coming into full compliance with the policies and procedures of the PILOT, completing the entire project, including common areas, and reaching minimum occupancy requirements of the PILOT program. Carpenter thanked Myers and his team for their commitment, stating they have done a great job, and the Board looks forward to continuing to work with them on that. Representatives are to appear before the Board at the June 5, 2024 Board meeting for a status update.
b. Cavalier Court
c. Gospel Gardens
Carpenter introduced Cavalier Court Apartments and Gospel Gardens Apartments and advised that each property is under the same ownership group and management company, Millennia Housing, and will be generally discussed together. Carpenter introduced these two agenda items and welcomed representative Arthur Krauer in attendance at the meeting for update and discussion of these properties. Additionally, Carpenter stated that both properties are in legal default and similar to Memphis Towers, Board staff and his firm have had communications from other financing entities involved with these properties including KeyBank, the lender, and WNC, Inc, the limited partner. Moreover, Carpenter stated that KeyBank has provided notice that Gospel Gardens is in legal default because it has not been making the required payments under the loan agreement.
Carpenter stated there were also outstanding issuer and administrative fees to the Board and outstanding tax obligations to the city and county taxing authorities. In working with WNC, Inc., those fees have now been paid since the notice of legal default was issued for both PILOT properties, displaying positive movement since the legal default. However, Carpenter stated there are still outstanding issues, particularly with Gospel Gardens and the financial default on the bonds that are outstanding on the property. Thereupon, Carpenter turned the meeting over to Arthur Krauer for additional comment.
Krauer stated that the housing assistance program (HAP) is the subsidy Millennia receives from the United States Department of Housing and Urban Development to cover the government’s portion of the tenant’s rent. Krauer stated that Millennia is three (3) months behind on receiving these payments due to an administrative issue that has now been resolved and payment is being made so that Millennia will be promptly paying all arrearages and bringing the property current financially. Krauer stated these payments will also allow Millennia to cover any other bills outstanding, as it is a substantial sum of money coming into the property. Krauer stated Millennia is working very hard and after receiving the Notices of Legal Default, Millennia responded, and occupancy is up at both properties, and Cavalier Court received an 81 REAC score, Hope Heights received an 88 REAC score, and he anticipates an Inspire Inspection sometime in the next sixty (60) days as Gospel Gardens and believes the property will achieve the same level of success with that in terms of the REAC score there, once the inspection is completed. Krauer reported that Millennia is staffing the properties up to make sure Millennia can maintain the property condition moving forward. Krauer stated Millennia’s general partner interest in all its Memphis properties is for sale, and it is Millennia’s intention to leave the affordable housing market in its entirety. Krauer reported that Millennia is in the process of exiting the affordable housing market now and they believe to have a buyer for these Memphis properties and the goal is to maintain the properties to an appropriate standard in the meantime. Krauer stated that a lot of work has been done and Cavalier Court looks substantially better than it did six (6) months ago and Gospel Gardens is about to get the same level of effort and will be greatly improved. Krauer stated that Millennia has addressed the issues related to the PILOT Legal Default letters and that Millennia’s job is to continue to maintain the best standard it can until the properties are sold.
Carpenter requested that Krauer provide the recent REAC reports to the Board for review, to which Krauer agreed. Carpenter then advised Krauer if the potential purchaser of Cavalier Court, Gospel Gardens, and Hope Heights intents to keep the PILOT in place, and if so, there is a PILOT Transfer Application process that must take place. Krauer stated he believes it is the purchaser’s intention to do that, and Millennia wants to get Cavalier Court and Gospel Gardens both resituated to be successful in the community for the long haul and the PILOTs are critical to that.
Carpenter asked the Board’s internal compliance monitors to provide any comments they had from their observations of these two properties. Bryce Miller stated that Cavalier Court continues to be on a downward trend. Though there have been some signs of work including repairs to a fire-damaged dumpster enclosure and graffiti that has been haphazardly covered, Miller stated that repairs made appear to consist of the bare minimum just to be able to say there is something going on. Carpenter reminded Board members that there are recent photos included in the Board packet of each of these properties. Miller reported that at Gospel Gardens, there is new damage to one of the fences and trash scattered about the entire property, but there does not seem to be movement in either direction, just a maintenance of the status quo. Miller stated the trash on his most recent visit on May 7, 2024 was the worst he has observed in quite a while.
Buckner Wellford stated that Cavalier Court seems to be the one that would be the most likely candidate, if the Board were to move forward with any action, and asked if HUD is involved at both properties, to which Krauer responded that was correct. Wellford asked what the Board needs to do to get a plan in place, working with the appropriate authorities, if the Board votes to terminate the PILOT. Wellford stated that a termination of the PILOT would obviously have tremendous ramifications on the residents, the management company, and the rest, and asked Carpenter to walk the Board through the steps it can take if the Board were to entertain that option so that the Board is in a position where government entities and federal government funders and the rest can be part of trying to make a plan for what might happen if this owner pulls out and they do not have the benefit of the PILOT.
Carpenter began his response by stating that there is no quick and easy answer to that question because when these types of properties are underwritten, all financial aspects of the property are being considered and property taxes is one of the main components that would be reviewed. Carpenter stated that the PILOT itself, based on the benefits of the tax reduction, is factored into the financial analysis, along with the loan to value ratios and other cash flow analysis to determine whether the package qualifies under the guidelines for HUD. Otherwise, Carpenter stated there is no connection between The Health, Educational and Housing Facility Board of the City of Memphis, TN and HUD. HUD has its own policies and procedures and The Health, Educational and Housing Facility Board of the City of Memphis, TN has its own policies and procedures, so if the Board terminates the PILOT, then all the underwriting is thrown off, all ratios are thrown off, and everyone involved in the financing structure is adversely impacted by that action. That being said, Carpenter stated there is no way the Board can work cooperatively with HUD or any other lender in that regard, and the Board will need to make a determination as it balances the equities and efforts that are being made to come into compliance with the policies and procedures of the PILOT to make that decision.
Carpenter stated that historically, the Board has attempted to balance the equities by looking at the specific efforts made by the developer on each property, and if those efforts are trending in a positive way, it will allow more time for the developer to put things in place; if there is not positive effort or if there is an abandonment, then the PILOT would be terminated.
Krauer stated that he appreciates Wellford’s sentiments, but further stated that Millennia is selling the property and he does not believe it serves the resident's interest to remove the PILOT, which would have a long-term impact on the critical family project in that community. Krauer stated that he understands the recent internal and external compliance inspections of the Board, but that the project scored a pretty good score on the REAC inspection recently, which suggests that HUD thinks the property is trending upward, management has seen occupancy trending upward and is expected to reach 90% occupied withing the next forty-five (45) days, which will improve the property success rate. Krauer stated he is willing to come back to the Board in a month from now and he believes the Board will see improvements at the property in the next thirty (30) day period and he should have more information on the sale at that time. Wellford stated he appreciates the comment, and reminded the Board that the project was on the watch list of troubled properties for more than eight (8) months before it was placed in legal default in March 2024, and still as of today's Board meeting, there is a discouraging compliance report, which is very concerning. Wellford stated he feels the remedy of PILOT termination must be executed at some point and would like to hear comments from other Board members.
Cliff Henderson asked Krauer how far along Millennia is in negotiations with the pending sale and does he have a timeline on the possible closing date of a sale. Krauer stated it would be a very loose estimate at this point, and right now Millennia is formalizing, as it has a buyer for a large portion of Millennia’s portfolio, made up of over twenty thousand (20,000) units, of which these properties would be among them. Krauer stated that is why he needs an additional thirty (30) days to provide a clearer sense to the Board. Krauer stated the process moves in a threefold plan with first getting the Letter of Intent (LOI), which is being negotiated and discussed now and should be received within a week from today, after that, there will be negotiations of a purchase sale agreement, which will define the scope of the closing and will include a due diligence period. Krauer stated his hope is that in thirty (30) days, he will be able to give the Board a clear path of that and hopes to close on this portfolio by the end of the year 2024.
Wellford stated he is unsure if that is the level of urgency the Board needs and asked if the PILOT were terminated, would the potential new owner be able to come before the Board a reapply for a PILOT under new ownership. Krauer stated that the sale would certainly be less viable at the point because the properties would not underwrite correctly without the PILOT. Wellford stated he would believe that to be the case at whatever the price that is being discussed now, but if the Board does not take any action, he would expect glowing compliance reports for the next months between now and the time the deal would close, which is a very reasonable expectation for the Board. Monice Hagler agreed with Wellford. Henderson stated that if the Board votes to terminate the PILOT, the potential buyer may cut these properties from the purchase of the portfolio. Henderson stated he believes there is incentive for Millennia to maintain the properties to keep them bundled in the entire portfolio. If this were a single sale of a property, Henderson stated he would be more concerned, but he does believe this would be an additional incentive for Millennia to keep things up. James Jalenak stated that while the Board does not want to violate any confidence, it ought to be made aware of who the potential purchaser could be and if it is someone the Board could reasonably expect to qualify to assume or get a PILOT. Jalenak recommended that the information may be able to be disclosed confidentially to the Board’s legal counsel, if that is appropriate, but for Millennia to say they are going to sell the properties to someone, the Board has no assurances that the potential purchasers would be qualified to be a PILOT Lessee.
Carpenter reminded the Board for its consideration that if the PILOT is terminated, under the Board’s basic underwriting and eligibility requirements for a PILOT, the new purchaser would be required to spend fifty percent (50%) or more of the acquisition costs to qualify for a new PILOT. Carpenter stated that if the PILOT is terminated, the property would be put back on the tax rolls at fair market value, there would be no PILOT, and the property would be paying substantially more taxes that would have to be underwritten than it is currently paying. Carpenter stated there has been up to $100,000 paid in past due taxes and fees in the last thirty (30) days, and that is a positive result. Carpenter recommended the Board reset this matter for the June 5, 2024 Board meeting to give the developer an opportunity to continue to make progress before any final determination is made on the status of the PILOT. Monice Hagler agreed and stated that based on the comments today, she would expect the Board’s internal compliance monitors to provide a better report than was given today.
Chairman Reid stated that he does not know how many of the Board members are aware of the liquidity crisis in commercial banking, but commercial banks have pulled out of this market and to find financing for this project without the PILOT in place would be extremely difficult for Millennia because the funding sources have dried up. Reid asked how many months the HAP payments were delayed, to which Krauer stated three (3) months, which includes March, April, and May 2024, and payment is expected to be received within the next couple of days. Reid asked if that has been communicated with the lender. Krauer stated Millennia has received a six (6) month extension from KeyBank. Reid asked if interest only payments are being made, to which Krauer responded he would speak with Millennia’s accountant to confirm that.
Wellford stated that everything that has been said makes perfect sense, but this kind of justification for not taking the extraordinary step of terminating a PILOT is always on the table. Wellford stated that an eminent sale is not always on the table, but it is always something that is going to create a tremendous ripple effect, unintended, unanticipated consequences, and the remedy may be worse than the cure. Wellford stated he concedes to all those points, but until the Board terminates one of the PILOTs for a PILOT Lessee that is chronically not fulfilling the obligations that the owner made, he does not believe the Board will be taken as seriously as it needs to be. Wellford stated he is willing to let action be deferred to the June 5, 2024 Board meeting, and unfortunately, he may be in trial at that time, but he is sure the Board will be pressing hard to see what kind of improvements have been made, but it is non-negotiable that there has to be significant improvement and solid compliance reports while this property is headed for proposed transfer of ownership, which then will have to be considered and approved by the Board. Wellford stated that he appreciates all the comments, as they are all sound and he has heard them in various forms whenever the Board has discussed this issue before. Wellford stated it is why when the Board has a major problem, this is the only remedy so at some point, if the Board does not exercise it, he does not believe the development community is doing to believe that the Board means what it says.
Vincent Sawyer asked if there are any plans to address the immediate concerns, including the graffiti, broken windows, etc. Krauer stated yes, and that Millennia has put an enormous amount of effort in over the last sixty (60) days to improve that and he thinks the Board will see substantial improvement by the June 5, 2024 Board meeting. Carpenter stated that the REAC report is going to helpful, as HUD goes through a very thorough matrix of points that go into the completion of that review and the score, and it will be helpful for the Board to have that for its review and it is recent, which will also be helpful. Carpenter stated he believes the Board has been clear that time is of the essence, but compliance is of the essence, and he recommends the Board keep both properties in legal default and require representatives to appear at the June 5, 2024 Board meeting to provide a status update. After consensus, representatives are to appear before the Board at the June 5, 2024 Board meeting for a status update.
Alex Uhlmann left the meeting.
d. New Horizon
David Shores and Mark Jobe entered the meeting.
Carpenter introduced this agenda item stating the Board has dealt with New Horizon for several years, further stating it is the largest property in the Board’s PILOT portfolio with eight hundred ninety-eight (898) units. Carpenter stated the property is like a small city and has a significant number of problems associated with it, a significant amount of crime, and has been a tremendous challenge. Carpenter welcomed representatives David Shores and Mark Jobe in attendance for this property. Carpenter stated the developer and the successive developers have been before the Board numerous times over the years, and the property has also had a lot of media attention due to recent fires on the property, environmental issues and crime that has been there. Because of the location of the property and the tenants' concerns, the Board has attempted to work through this situation, but Carpenter stated there has been a proposed sale that did not complete and the momentum on the property was lost and took an even further downward turn and the Board had no alternative but to put the property in legal default and consider termination of the PILOT.
Carpenter reiterated that when PILOT properties are placed in legal default, there are other participants, such as lenders, that come into play. In this case, KeyBank, as the primary lender, has gone into chancery court and put this property into receivership and the court has approved that receivership and has appointed Multi-South Management Services, LLC as the receiver for New Horizon Apartments. David Shores is present today representing the court-appointed Receiver, Multi-South Management Services, LLC and Mark Jobe, who has appeared before the Board several times for this property, as the attorney for the current developer. Carpenter stated both parties responded to the Notice of Legal Default and turned the meeting over to David Shores for an update on the property status.
Aurthur Krauer left the meeting.
Austin Harrison left the meeting.
Shores stated that he has received, through Spencer Clift, the Notice of Legal Default for New Horizon Apartments. Shores stated that he understands the issues and his company has been active on the property for five (5) business days and has learned a lot, but there is a lot left to learn. Shores stated he believes there are currently eight hundred seventy-eight (878) units remaining at the property, there are five (5) addresses that have recently been removed and buildings have been removed for various reasons, principally fire. Shores stated he believes there are at least one hundred fifty (150) down units and maybe as many as two hundred (200) down units that will require between fifteen and twenty thousand dollars ($15,000-$20,000) at a minimum to be restored to service. Shores stated his team is still walking units and they have not been through all of them. Shores stated there are four hundred sixteen (416) occupied units and of those occupied units, one hundred sixty-four (164) units have delinquencies greater than the current month, and that delinquency number is in the range of six hundred thousand to seven hundred thousand dollars ($600,000-$700,000). Shores reported beginning evictions on nineteen (19) units already, with an additional twenty-nine (29) units that should be going into eviction status soon, but they all have Section 8 MHA payments and there are abatement issues that must be addressed before those evictions can begin, but Shores believes there will be additional evictions following those.
Shores stated that Multi-South Management Services, LLC’s standard practice is to try and hire everyone at a site when his team takes over the management of a property and that was attempted at New Horizon. Shores stated standard employment conditions with his company are clean drug test and clean background checks, and there is one employee on site that has an unadjudicated felony carjacking case and Multi-South Management Services, LLC will not be able to hire him. Shores reported that there is another person who was paid as an independent contractor, which is a violation of how he should be paid, and that was because he could not pass the I9 employment requirements, and so Multi-South Management Services, LLC will not be able to hire that individual either, but everyone else onsite will remain.
Shores stated the biggest change has been with the security, as the security company that was on site had not been paid in at least three (3) months, and through his experience with that company, they were not up to the task at New Horizon. Multi-South Management Services, LLC has hired the Cobra response team, which is a strong company that is closely aligned with Memphis Police Department (MPD) and MPD calls on them for any active shooter situation in the community, as well as a lot of other interactions. Shores reported there are five to six (5-6) security personnel on site during each shift and it is 24/7 coverage. Shores reported that every person entering the property is checked, driver’s licenses and other identification is scanned through state records to see who is coming onto the property, and the security company has arrested and turned over to MPD eighteen (18) felony warrant holders that have tried to get on site. Shores stated the security company is working with MPD and state troopers for a saturation in the area sometime during the upcoming weekend, which will help clean it up.
Shores stated the property needs better lighting and there are a lot of Memphis Light Gas and Water (MLGW) pole lights that have not worked for a while. Those have been reported to MLGW and once those are fixed, there will still need to be more lighting. Shores reported that KeyBank has committed to providing funding for additional lighting. Shores reported that a curfew has been instituted at New Horizon and is being enforced by Cobra. The curfew is 8:00 om for juveniles and 10:00 pm for adults. Shores reported his team is receiving a good response from the residents. Shores moved into reporting on some default issues cited in the Notice of Legal Default. Shores stated there are fourteen (14) roof leaks that he is aware of and there is a roofer coming to the property today, but many of the roofs on the property are near the end of their useful life and will need to be replaced. Shores reported several underground water leaks and plumbers are currently onsite and trying to solve those problems. Shores stated the grounds are being cleared up, as one of the problems with trash is the haulers have not been paid in several months, so those balances have now been paid to begin to get the dumpsters picked up so management can keep the property clean. Shores reported hiring a landscaper that has begun the process of removing as much vegetation as possible that impedes sight lines or intrudes on buildings. Shores stated his team is in the beginning stages of making a lot of headway to make this a better place to live. Shores stated the one item his team will be unable to address in any short order is the occupancy simply because there are so many units that will cost a lot of money and take a lot of time to get them back online.
Monice Hagler asked, given what Shores has faced, what does he see as the timeline to come into compliance. Shores responded, without the occupancy portion of compliance, he anticipates the property would be in compliance in a couple of months, but the occupancy portion would have a longer timetable just because there is so much physical work to do. Shores stated that there are nine items listed and, aside from occupancy, all compliance issues should be addressed in two months. Carpenter asked if that is pending the lender funding the current remedial actions. Shores stated that management has the rent coming in and the lender has committed that they will fund those repairs. Chairman Reid asked if the MLGW lighting that is out is due to vandalism or weather-related events. Shores responded he does not have any way of knowing that due to their short time managing the property thus far, he just knows that it is dark. Reid stated that he hopes with the crackdown and what has been done in the five (5) days, if they are clearing out what needs to be cleared out of there, if it is vandalism, that it will not be a systemic problem going forward. Shores stated he feels that some is from vandalism, but some is from connection issues with MLGW.
Vincent Sawyer asked Shores to confirm that the property is approximately fifty percent (50%) occupied, to which Shores responded occupancy is a little less with four hundred sixteen (416) units occupied out of eight hundred seventy-eight (878) total units. Sawyer asked if all the unoccupied units are not serviceable today. Shores stated that about two hundred (200) units cannot be put into service today. Buckner Wellford stated in one of the previous reports to the Board that it was stated there has been difficulty getting qualified applicants, which sounds like a chronic problem. Wellford asked what the issue is and if it is peculiar to this property. Shores stated the issue is not peculiar to this property but is an issue with a lot of properties like this in lower income areas. Shores explained that management requires proof of income and sometimes that is hard to get, and his team sees a lot of fake pay stubs and things of that nature. Shores stated management does not want to rent to persons with felonies or with evictions that are current that indicate a pattern of not paying rent, because that is bad practice. Shores stated management typically will see ten (10) applicants for every two to three (2-3) applicants that are approved, and it makes sense to rent to those applicants because they have a history of paying rent, they do not have a history of violent behavior, among other things, but it is the economics of paying the rent primarily. Wellford thanked Shores for the explanation.
Mark Jobe stated this he sent in a detailed a thorough response to the Notice of Legal Default and there are certainly things that cannot be cured in the short period of time, but hopefully with the receivership, the change in management and more local experience will lead to positive change and preserving the property that his client owns and has a vested interest in. Jobe stated that his client understands that this project has not gone as planned and does not contest that or disagree with certain issues that have been raised in the Notice of Legal Default. Jobe stated his client sees an exit is required and is working hard to do that.
Jobe stated there is a signed Letter of Intent (LOI) that was included in the response to the Notice of Legal Default that is still pending, but he is not handling the sale for the current owner, so he is not aware of the negotiations or the purchase agreement, but he believes that is underway. Jobe reported that the receivership has affected that and created a lot of unknowns as far as the desirability to move forward on the purchaser side, and the fact of the matter is that the rent that is paid is not enough to cover the debt and make all the improvements necessary. That being said, Jobe stated that the current owner has also met the obligation that he said he would, and the investment exceeded that in the initial transfer application, so in some ways, the current owner has done what they said they would do, and the results obviously not been what are desired. Jobe stated the security cost alone took up the entire benefit of the PILOT. As previously stated, the security has now been replaced and Jobe stated he does not know what the cost going forward will be. Jobe stated his calculations of the PILOT based on the current tax figures and the PILOT payments to be about $200,000 a year, and his client has paid a security cost of over $400,000 a year. Jobe stated this is not a situation where there is a windfall, this is not a money maker, although public perception of PILOTs is when they fail, this is just money in a developer's pocket, but that is not the case here.
Jobe stated that the investment into the project has been chewed up and the project has not gone as planned, but terminating the PILOT also has more ramifications. Jobe stated the current owner has done what they said, but things have not gone according to plan, and the current owner paid handsomely to be a part of the program, but the project has not performed accordingly. Jobe stated the termination of the PILOT would have even worse consequences on the tenants and make things such as security and other deliverables very difficult or impossible at this certain juncture, and the PILOT benefit is not going into the pockets of the developer. There are big operational concerns, and the cost of this complex is enormous, and Jobe stated his client is essentially begging for mercy to keep the benefit to help the property limp along in hopes of coming before the Board with a qualified applicant to transfer the PILOT that is ready to invest a significant amount of capital to continue to improve it. Jobe stated his client understands the situation and the response to the Notice of Legal Default addresses the points, it seems like Multi-South Management Services, LLC is going to make quicker progress than prior management, which is encouraging, and he hopes there is mercy from the Board to allow this PILOT to continue to hopefully see an exit for the current owner as soon as possible.
Carpenter thanked Shores and Jobe for their updates and stated that the challenge the Board has is that the Board has its own requirements to maintain and under no circumstance has New Horizon been able to meet that and the receivership is really the only consideration the Board has today. Carpenter said the lender has the resources to address these issues, and it is clear current ownership does not have the resources, and the Board is obliged to maintain its policies and procedures. Carpenter stated a potential purchaser is not persuasive, and as Jobe stated earlier, the receivership has negatively impacted that, so the Board is trying to balance the responsibilities it has with the public's expectations. This Board is providing a public service on behalf of the city of Memphis, helping tenants make sure that they have safe places to live, but this is a difficult situation.
Carpenter stated this case is one where any successor, whether the lender or a purchaser, would need to apply for a new PILOT, so the termination of the PILOT would not be the same as considerations made in other cases earlier in the agenda where there is more momentum and other actions being taken. If the PILOT were terminated in the case of New Horizon, the successor, whether that be the lender or a purchaser, would not be in any worse situation without the PILOT. Carpenter reported this matter was accepted by chancery court and there will be oversight, and the lender has stepped in and is taking some positive steps. Based on those points alone, Carpenter recommended that action on this matter be deferred to the Board’s June 5, 2024 Board meeting to allow the receiver and the lender to come in and take over and see what positive steps can be made and for the Board to continue to evaluate the benefit of the PILOT. Carpenter stated that Jobe has even indicated that the PILOT has not been as helpful as anticipated and this Board has a fiduciary responsibility to make sure that its policies and procedures are followed. As one last change for the development that would show any good faith to continue the PILOT must take place between now and June 5, 2024. If it does not, Carpenter’s recommendation would be that the Board consider termination then. Representatives are to appear before the Board at the June 5, 2024 Board meeting for a status update.
Buckner Wellford left the meeting.
2. 1st PILOT Closing Extension for Cleveland Crossing LLC (d/b/a Broadmoor Apartments)
Charles Carpenter introduced this agenda item stating that his firm is actively in the process of closing this PILOT now and he has closing documents for the Chairman’s signature today. Carpenter stated in cases like this, he recommends the Board approve the PILOT Closing Extension and if the PILOT closes within the next thirty (30) days, there will be no extension fee assessed, but if it does not, then the extension would be effective and the extension fee would be assessed at a closing taking place after thirty days. Chairman Reid stated he has an opportunity to drive by this property recently and it is looking very good, and it has drastically changed. There being no further questions or comments,
Monice Hagler moved to approve the 1st PILOT Closing Extension for Cleveland Crossing LLC (d/b/a Broadmoor Apartments). Cliff Henderson seconded, and the motion passed unanimously after proper roll call vote of the Board members.
Lewis Clarke left the meeting.
3. Board discussion of range of options for PILOTs in Legal Default, including remedies
Carpenter introduced this agenda item stating this is an item that Director Buckner Wellford asked to be placed on the agenda for discussion today to deal with communications with the City of Memphis, the Mayor’s office, and City Council Legal Department, and that is why this item is on the agenda. As Buckner Wellford had to leave the meeting earlier, Carpenter recommended this discussion be deferred to the Board’s July 10, 2024 Board meeting. Chairman Reid agreed, stating it is important the Wellford is involved in these conversations.
Brian Myers, Joyce Chiaia and Henry Zuckerberg left the meeting.
Finance Committee Report
Cliff Henderson presented the financial results for the month ended March 31, 2024. After discussion, Henderson concluded by stating that as the public views the Board’s investments and current balances of fourteen million dollars ($14,000,000), if the Board considers the PILOTs that are in its portfolio that it has committed to, these funds are intended to last the Board for the duration of the current PILOT terms in place, spanning up to twenty-five (25) years. Henderson stated these funds are not an endless revenue supply, and the Board must be a good steward of managing that money over an extended amount of time to fund operations of the Board and all that goes with it.
Chairman Reid stated that the Board’s Finance Committee is waiting until Mayor Young gets through the budget season, and then plans to have a meeting with him to go over the Board’s five (5) year strategic plan and the funds that are necessary to run the Board. Reid stated that a date has not yet been determined but has been tentatively discussed for July or August 2024. There being no further questions or comments,
Monice Hagler moved for acceptance of the Finance Committee Report for the month ended March 31, 2024, properly seconded by Katie Shotts, and the motion passed unanimously after a proper roll call vote of the Board members.
New Business
Chairman Reid stated that the Board will be scheduling a Board retreat for some time in July 2024, but the date has not been set due to several factors that will play into the actual date. In preparation for the Board retreat, Reid stated that one of the things the Board will put together is a strategic planning committee and several Board members will be asked to serve on that committee. Reid stated other items that will be discussed will include Board attendance, default measures and what the Board looks like today versus what the Board will look like in five years and ten years. Reid stated there will be a lot of work that goes into this meeting, and it will take place sometime in July or August 2024.
Personnel Committee Report:
Katie Shotts presented the Personnel Committee Report stating that the committee is comprised of several members of the Board. Shotts reported that the committee met twice to interview candidates and held another meeting that was held between the two interview meetings to discuss strategy and work together, collaboratively to create the evaluation tools for both interviews. Shotts reported that the committee held interviews on March 8, 2024 and April 11, 2024 and a majority decision was made to present Trey McKnight as the committee’s selection for the next Executive Director. Chairman Reid stated that the search has been going on for quite some time and the committee has spoken with many individuals and had very qualified applicants, with the committee choosing Trey McKnight. Reid stated that many may know McKnight, but for those that do not, they will enjoy getting to know him. Monice Hagler stated that she would like to thank Shotts for taking this on, it was a great process of reviewing several applicants, which took it down to two candidates. Hagler stated the interviews were very extensive and she is pleased with the recommendation of the Personnel Committee. There being no other questions or comments,
James Jalenak moved for acceptance of the Personnel Committee recommendation to tender the formal job of Executive Director to Trey McKnight, properly seconded by Katie Shotts, and the motion passed unanimously after a proper roll call vote of the Board members.
Chairman Reid asked that those in attendance not discuss Trey McKnight’s job offer until he has had an opportunity to talk to his current employer, as it would be unfair to discuss until he has put his current employer on notice.
There was no other New Business.
Chairman Reid stated that the next meeting of the Board is scheduled for Wednesday, June 5, 2024 @ Noon. There being no further business, the meeting was adjourned by the Chairman at 01:22 p.m.