MINUTES OF REGULAR MEETING OF
THE HEALTH, EDUCATIONAL AND HOUSING FACILITY BOARD
OF THE CITY OF MEMPHIS, TENNESSEE
Wednesday, November 6, 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, October 30, 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
Buckner Wellford Cliff Henderson
Howard Eddings, Jr. Vincent Sawyer
Staff and others attending: Trey McKnight, Stephanie Bryant, JP Townsend and Nikki Abraham; Charles E. Carpenter and Corbin I. Carpenter, General Counsel; Katrina Shephard (Zoom), legal assistant to General Counsel; Cheryl Hearn, Deputy City Attorney; Janika White, Memphis City Council Liaison (Zoom).
Also participating in person and/or via remote Zoom virtual platform were Ashley Cash, Director of City of Memphis Housing and Community Development; Austin (A.T.) Harrison of Memphis Interfaith Coalition for Action & Hope (MICAH); Matt Mulqueen of Baker Donelson Law Firm and Kent Mehring of WNC, Inc. appearing in connection with Cavalier Court and Gospel Gardens; Kristine Huang of the Memphis Tenants Union; Mike Chung representing University Gardens Manor; David Blatt representing Sterling Townhomes; Brian Myers and Joyce Chiaia of Richman Asset Management representing Memphis Towers; Sam Blair of Baker Donelson Law Firm, Gord Berger of Pan Financial, Valerie Banks of Distinct Realty, and Robert Campbell representing Whispering Pines; Simeon Ike of Greater Memphis Housing Justice Project; Will Gibbons, Esq., City of Memphis Code Enforcement Prosecutor; Geoff Hanson; Jan Kidder; Memphis Tenants Union; 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, November 6, 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.
Public Comment
Chairman Reid introduced Ashley Cash, Director of City of Memphis Housing and Community Development (“HCD”) a Department of the City of Memphis administration, stating that Cash has requested to come and speak before the Board on behalf of Mayor Young. Reid turned the meeting over to Cash for her comments. Cash stated she is at today’s meeting on behalf of Mayor Young and expressed appreciation to the Board for allowing the opportunity to speak. Cash stated she would like to comment today on how Mayor Young continues to speak about affordable housing and ensuring the quality of affordable housing, which is what she understands the Board is trying to do and has continued to do currently. Cash stated that as the Board considers codifying its decision concerning Cavalier Court and Gospel Gardens, she wanted to mention the lack of overall affordable units in the City of Memphis (the “City”). Cash stated that whenever they can, Mayor Young, HCD, and the City have the opportunity to preserve affordability, they try to do that. Cash stated there is a lack of approximately thirty thousand affordable units needed in the City. Cash stated, when necessary, HCD has worked with others to support tenant relocation or support developments, whether through rehabilitation or remediation. Cash stated that in her experience with tenant relocation, when the tenant takes their vouchers, the voucher rent equivalent can be lower and it is often more difficult for people to find units. Cash stated she wanted to share that information with the Board today in thinking about affordability, the marketplace, and the units that are available. Cash stated the City would love the opportunity to work with the Board in partnership to think about how we can minimize the potential negative impacts that community members may face if they are in a position where ultimately housing relocation must happen. Cash stated she understands that would be a long-term process, and any opportunity the City administration gets to plan and work with the Board and others to make that happen is what this administration wants to do. Cash stated she wanted to share these comments from Mayor Young’s perspective and invites any questions the Board may have.
Chairman Daniel Reid opened the floor for public comment and advised that all comments should be limited to two (2) minutes per speaker.
1. Austin (A.T.) Harrison introduced himself as a neighborhood housing advocate in
attendance on behalf of MICAH. Harrison stated the Board has been seeing a lot of MICAH representatives over the course of the last year as MICAH has been working closely with tenants on the ground. Harrison stated he is happy to see Cash present today and is a big fan of her work and Mayor Young’s work when he was in that role. Harrison stated what he knows of HCD is that it is very different from the Board because they have a lot of tools at their disposal. Harrison stated he is happy to see Cash today because he thinks the partnership opportunity will solve a problem that he has noticed the Board has, which is a limited amount of tools in its toolbox. Harrison referred to comments made by Board member Buckner Wellford in the past, stating that the Board has the nuclear option. Harrison stated that listening to advocates and listening to tenants on the ground and what tenants want, because a lot of tenants are not going to want to move, and they want to stay there, and so what can HCD do above and beyond the limited powers of HEHF. Harrison stated that Charles Carpenter often says the Board is a conduit and projects either have a PILOT or have no PILOT. Harrison stated HCD has a whole suite of tools from the national, state and local government and he thinks their involvement could allow the expansion of what is possible with these properties. Harrison stated that maybe the City should play an intermediary role to prevent displacement, much like it is doing with the Sheraton Hotel with a $50 million bond to get that to a place where it can be operated. Harrison stated he has also seen the City step in at Tillman Cove and play a role in getting that into Elmington Capital’s portfolio. Harrison stated the City can do much more the HEHF, but that does not mean HEHF should stop the path it is on in finally holding a landlord accountable, particularly a landlord that had their home raided by the federal government for stealing money from the federal government. Harrison stated that is not someone to do business with and he can find someone better in Memphis to do business with and there are a lot of developers around the table and top management, including The Works, Alco, Com Cap, etc. Harrison stated there are people in Memphis who care about Memphis and work often with HCD that can do something that does not have to be the same bad actors from out of town. Harrison stated we can think big, and he has seen the City take bold action in similar situations, so he is very glad they are here, but it does not mean the Board needs to rescind its current path.
2. Matt Mulqueen introduced himself as a shareholder of Baker Donelson in Memphis and is
present today with Kent Mehring representing WNC, Inc. Mulqueen stated he represents the limited partners in the Cavelier Court and Gospel Garden partnerships and would like to take the opportunity to inform the Board of recent material developments. Mulqueen stated that effective Thursday, October 31, 2024, Millennia was removed as the General Partner from both Cavelier Court and Gospel Gardens partnerships. Mulqueen passed out materials to Board members. Mulqueen stated he understands the Board’s frustration with Millennia, and WNC, Inc. has been just as frustrated with Millennia, and unfortunately it has taken longer under the partnership agreement terms to remove them, but that step has now been taken, and Millennia has been removed from these partnerships. Mulqueen stated that WNC, Inc. has selected a General Partner that will properly and adequately manage these properties for the health and the safety of all the tenants. Mulqueen stated that included in the materials handed out are material developments since the Board’s October 2, 2024 Board meeting, which includes removal notices, the HAP change of control request to HUD, which went out on November 1, 2024, and an updated action plan that sets out some of the specific concrete steps that WNC, Inc. and the substitute General Partner is taking right now, putting significant amounts of money into these properties. Mulqueen stated he will ask Mehring to provide additional details, but already, out of the total approximately four million dollars ($4,000,000) that WNC, Inc. is prepared to put into these properties, eight hundred thousand dollars ($800,000) has already been expended, including three hundred thousand dollars ($300,000) for fire units to remove a lien on Cavelier Court. Mulqueen stated that on November 5, 2024, KeyBank sent a commitment for an extension of the loan and a permanent conversion, and that is with the indication that the PILOT will remain in place.
3. Kent Mehring with WNC, Inc. thanked the Board for hearing them today and stated he
wanted to speak about the action plan. Mehring stated WNC, Inc. has engaged contractors to begin work that has been referenced in the materials that were handed out to the Board by Mulqueen. Mehring stated that WNC, Inc. has a local contractor in place representing them and he will be interacting with that individual and has already taken steps to make improvements to the properties. Mehring stated that most importantly in his mind, and something he had exposure to just last week as he was in Memphis all week and had a team of nineteen people conducting due diligence and had the opportunity to meet with tens of residents at both properties, was that the questions were many. Mehring stated the majority of residents were asking what to do and where to go if this does not work out and Mehring stated he did not have a definitive answer for them, except that he was working on it. Mehring stated it is important for everyone to realize the big picture and the human impact, and WNC, Inc.’s willingness to step in and fund millions to turn these properties around and that is what he is here to do. Mehring stated that WNC, Inc. will be using local contractors and employing over thirty (30) employees locally to do so, and WNC, Inc. has a projection flow of funds going out through July 2025 for the millions in capital contributions WNC, Inc. is going to have to make. Mehring stated he wanted to thank the Board for hearing him out and he really does not want the spicket to run dry if he WNC, Inc. does not get the PILOT reinstated, because that could be devastating for the properties and WNC, Inc. does want to see this through. Mulqueen stated that what he would like the Board to seriously consider, respectfully, is putting a sixty (60) day hold on approval of the October 2, 2024 Board Meeting Minutes, putting a pause on the formal termination of the PILOT, allow WNC, Inc. to do the work, and show the Board what WNC, Inc. ss actually doing with these properties.
4. Kristine Huang introduced herself as an organizer with the Memphis Tenants Union.
Huang stated she is here today on behalf of the Memphis Towers Tenants Union, as they chose not to be here today because they are pretty busy with other things, including supporting a fellow tenant leader in eviction court, where she is currently fighting a retaliatory eviction case against her eviction. Huang stated that this is part of a pattern which residents have brought to the Board’s attention many times before. Huang stated that Memphis Towers management staff, many of whom were working under Millennia, and continue to run the building, are still harassing residents with threatening comments about their involvement in the Union. Huang stated management is still issuing ledgers with incorrect and falsified late fees trying to intimidate tenants who have paid their rent into self-evicting. Huang stated the community room, which was promised to be finished by now, is still not complete, and residents were told by staff this past week that it would not be done until 2025. Huang stated that cameras were installed, but they are often turned off and going unmonitored by security staff. Huang stated in May 2024, Richman Group committed to fixing the mailbox system and yet residents still do not have keys to their corresponding mailboxes and tenants have had their mail and packages lost or stolen because of this. Huang stated that in order to reach the occupancy rate required to reinstate the PILOT, Memphis Towers management offered three hundred dollars ($300) to existing tenants for each new resident they referred. Huang stated that while many of the new residents have come from these referrals over the past few months, to her knowledge, none of the existing residents have gotten their referral bonus yet. Huang stated that retaliation against union members, inaccurate ledgers, and never-ending delays in repairs and renovations should sound very familiar. Huang stated that Memphis Towers Tenants Union started appearing before the Board over one and a half years ago now to ask the Board to hold Millennia Housing Corporation accountable for the same offenses. Huang stated that Richman representatives will tell the Board today that they have or will soon make good on their promises and therefore deserve the tax breaks back, but tenants want the Board to know that this is not the reality that they live with and ask that the Board continues to hold the tax breaks in default until these requirements are completely fulfilled. Austin Harrison added to Huang’s comments, stating that Memphis Towers continues to be the canary in the coal mine, and he would encourage the Board to listen to the tenants and not to listen to developers who say they have talked to tenants and repeated let us listen to the tenants.
Chairman Reid stated to WNC, Inc. representatives for the record that there are still outstanding Annual Compliance Fees due for Cavelier Court and Gospel Gardens that were emailed on September 6, 2024 and October 1, 2024, but remain outstanding. Mehring stated WNC, Inc. will be making that payment.
Approval of Minutes
Chairman Reid stated that at the request of Mayor Young’s office, if there is a motion and a successful second, the Board will defer approval of the October 2, 2024 board Meeting Minutes until the Board’s December 4, 2024 Board Meeting.
Cliff Henderson moved to defer approval of the Minutes of the October 2, 2024 Regular Meeting to December 4, 2024, which was seconded by Monice Hagler and the motion passed unanimously after proper roll call vote of the Board members.
Let the record reflect that Buckner Wellford is recused.
Buckner Wellford stated that he advised the Board and Board legal counsel prior to the September 11, 2024 Board meeting that he would be recused from all discussions and voting involving Cavelier Court and Gospel Gardens. Wellford stated that his employer, Baker Donelson, now represents ownership for those two projects. Wellford stated that although he was not present at the September 11, 2024 Board meeting, he does see that Charles Carpenter advised the Board on record of this, and Wellford wanted to also state the same for the record on October 2, 2024, and today. There were no other questions or comments.
Attorney’s Report
Charles Carpenter presented the legal report, as follows:
1. Carpenter reported three (3) PILOT Closings for October 2024:
a. Borda Towers MHA PILOT Closing for a 20-year term;
b. Vincent Center MHA PILOT Closing for a 20-year term;
c. Mill Creek PILOT Term Extension Closing for a 10-year term
Carpenter stated that both Memphis Housing Authority (MHA) PILOTs that were closed are part of the Rental Assistance Demonstration (RAD) program. Carpenter stated that the MHA staff has expressed their appreciation to the Board for allowing these projects to go forward with all of the various challenges that they were presented with and allow this to finally close, allowing these senior facilities to be totally rehabilitated to provide additional, updated housing for seniors in the community. Carpenter reported his firm is also currently working on the PILOT Closing for Peach Tree Senior Housing that is anticipated to close next week and will be for a 20-year term.
2. Finally, Carpenter reported one (1) PILOT property – Whispering Pines Apartments has
been placed in legal default and is included on the Board meeting agenda today, and he would reserve comments regarding this legal default for the Action Items section of the agenda.
There being no further questions or comments, the Legal Report was concluded.
Executive Director’s Report
Trey McKnight stated that he and staff will be working with Board legal counsel to review the Board’s policies and procedures and make recommendations for revisions to be made and considered by the Board at a regular Board meeting at a later date.
Action Items-
1. Affordable Multifamily PILOT Term Extension Application for University Gardens Manor, LLC (d/b/a University Gardens Manor)
Mike Chung entered the meeting.
Charles Carpenter introduced this agenda item, stating that University Gardens Manor is an existing PILOT in the Board’s PILOT program that has been performing well. Carpenter asked the Board’s internal compliance inspector to provide any comments concerning the current condition of the property. JP Townsend stated that he would be reporting on the external observable conditions of the property and reported that the property overall has been maintained. Townsend stated there are some existing fascia and soffit damage and damage to the security gate. Townsend reported that he has observed progress at the property through each inspection, including observing workers repainting stairwells. Townsend stated the tennis court will need renovations, but overall, it is in compliance and progress continues to be observed. Stephanie Bryant stated that the recent occupancy reports submitted to the Board indicate an eighty-six percent (86%) occupancy rate, which complies with the Board’s policies and procedures, and are up to date with all compliance fees and PILOT payments. Carpenter stated the application also complies with the Board’s policies and procedures and turned the meeting over to Mike Chung, owner of the property in attendance for his comments on this agenda item.
Chung expressed his appreciation for working with HEHF staff over the years. Chung stated that the action plan regarding the tennis courts is to convert that space into a playground because tenants do not use the tennis courts and over eighty percent (80%) of tenants are under the age of eighteen (18), and a playground would be a better benefit for tenants. Carpenter asked Chung what the timeline of that conversion is anticipated to be. Chung stated that it is always a budget issue, and he does not want to overpromise, but he anticipates the conversion will be complete within three (3) years but hopes to be completed much sooner. Chung advised he anticipates work to begin work on the conversion in the spring of 2025. Chung stated that there are some potholes on the property, and he anticipates work to repair those to begin in November or December 2024, with sealing and restriping anticipated for 2025 and is included in the 2025 budget.
Buckner Wellford stated that this is not a comment made against this property, but overall, based on discussions the Board has had, PILOT Lessees need to understand that the Board is increasingly looking to hold PILOT Lessees accountable to the specific commitments made on tenant benefits. Wellford stated that although he understands there is other work happening at this property now, there must be progress made on these commitments over the next two (2) years, and that is the kind of thing the Board will be increasingly looking at and expecting to be done as part of the consideration for extending the PILOT term. Wellford stated that he sees based on the Board meeting materials and application summary that there is good security on-site and asked for clarification on the cost being indicated as zero in the application for this tenant benefit. Chung responded that is it listed as zero because this is already in place and not an additional benefit being implemented as part of the PILOT Term Extension application. Chung stated security should be a normal expense because if security is increased, the property experiences a rise in occupancy and fee market increases, so it benefits the landlord to maintain the property properly, despite whether there is a PILOT Term Extension being considered. Chung stated University Gardens Manor has 24-hour security, thirty (30) security cameras and twelve (12) Sky Cop cameras that include license plate readers. Wellford commended Chung for this security action. Townsend stated that he cannot identify any inspection he has performed, that he has not been stopped by a security guard that checks his identification, and this property is very secure. Townsend also stated that although the security gate is damaged, there are spike strips at the gate to ensure security of the property and there are cameras that cover every area of this property.
Carpenter stated that staff and legal counsel shared with Chung the direction that the Board is headed during the application submittal conference, and the application complies with the Board’s policies and procedures. Chung stated there will be a change in the number of planned LED light additions to two hundred forty-eight LED lights from one hundred twenty LED lights, and he anticipates hiring students through a work-study program, as opposed to a social worker as part of the property’s social program portion of tenant benefits but had no other changes to the application to report. Wellford thanked Chung for the clarification. There being no further questions or comments,
Buckner Wellford moved to approve the Affordable Multifamily PILOT Term Extension Application for University Gardens Manor, LLC (d/b/a University Gardens Manor). Vincent Sawyer seconded, and the motion passed unanimously after proper roll call vote of the Board members.
Mike Chung left the meeting.
2. Affordable Multifamily PILOT Application for Raines Owner, LLC (d/b/a Sterling Townhomes)
David Blatt entered the meeting.
Carpenter introduced this agenda item stating that this is a new PILOT Application and HEHF staff and legal counsel have completed the application submittal conference with the applicant. Carpenter stated the application complies with the Board’s policies and procedures and invited the Board’s internal compliance inspector to make further comments. Townsend stated that from his observations, it appears the property will need a full renovation, and there is a nice greenway that allows for tenant benefit opportunities. Townsend stated that there is a temporary fence that surrounds the property right now, but a permanent fence would secure the property moving forward. Carpenter introduced David Blatt, owner of the property and in attendance for this agenda item and turned the meeting over to him for further comment. Blatt thanked the Board for this opportunity, stating that the action plan includes a full renovation of this property and the utilization of the PILOT program to do that. Blatt stated he has experience in conducting projects like this and is comfortable he will be able to execute this project successfully, timely, and efficiently. Blatt stated he is working with local contractors and local property management, Multi-South Management Services, LLC and David Shores. Blatt stated he feels confident in the itemization of what has been presented to the Board, the associated costs, and the tenant benefits committed to in the application for this property. Blatt stated that the greenway space mentioned by Townsend will be used for a playground and dog park space. Blatt stated other tenant benefits will include property wide Wi-Fi access for tenants, additional fencing, replacing entry and exit gates, installation of a security camera system, and renovation of unit interiors to deliver a proper unit for the community. Carpenter stated this property is currently vacant, and Board monitors would be able to oversee the construction schedule and to ensure that tenant benefits are put into place on a timely basis. Blatt stated construction is anticipated to be completed in eighteen to twenty-four (18-24) months, with the initial focus being to target the existing buildings to renovate those and then begin the lease up process immediately. Blatt stated the target is that within the twenty-four (24) month window that has been laid out that the property will be fully redeveloped and stabilized occupancy at that point. Carpenter confirmed the application complies with the Board’s policies and procedures and recommended approval.
Let the record reflect that Buckner Wellford is recused.
There being no other questions or comments,
Cliff Henderson moved to approve the Affordable Multifamily PILOT Application for Raines Owner, LLC (d/b/a Sterling Townhomes). Monice Hagler seconded, and the motion passed unanimously after proper roll call vote of the Board members.
David Blatt left the meeting
3. PILOT Status Update for Memphis Towers
Brian Myers and Joyce Chiaia entered the meeting.
Charles Capenter introduced this agenda item stating that Memphis Towers is a former Millennia controlled property, which is now under control of the limited partner, Richman Group. Carpenter stated that the Board has been reviewing this property for an extended period and at the Board’s September 11, 2024 Board meeting, the Board took action to step down this property from a legal default status to under observation status and requested the representatives appear at today’s meeting to provide an update to the Board concerning what has transpired over the last sixty (60) days. Carpenter introduced representatives in attendance, Brian Myers and Joyce Chiaia, and turned the meeting over to them for further comments.
Myers stated he would like to respond to the public comment made today, stating that it is really disheartening to hear what he has heard today, and encouraged the Board to visit the property unannounced at any time to review it at their convenience, because the tenants have indicated that they love the changes that have taken place. Chairman Reid stated he has visited the property himself to review the changes. Myers thanked Chairman Reid and stated that this messaging that was expressed in the public comment made today is not the prevailing view of what is happening at the property. Myers stated that Richman group has done the right thing since stepping in and removing Millennia, spent a ton of money, and took aggressive action on everything that was wrong with the buildings. Myers stated that some of the statements that were made today during the public comment were wrong, stating that the community room is open, and the tenants love it. Myers stated there were tenants there yesterday playing cards and watching television and constantly walking up to him saying thank you so much. Myers stated the environment is a one hundred eighty-degree difference than the messaging that is being given by the public comment. Myers stated that the mailbox issue was addressed approximately three (3) months ago, and to the extent any tenant has not been paid for a recent referral, he will get that taken care of.
Myers stated that as to the update for the Board, things could not be going any better and management has accomplished forty-eight move-ins in the month of October 2024 and the property is now eighty-five percent (85%) occupied as of today. Stephanie Bryant stated the Quarter 3 2024 Occupancy Report submissions for Memphis Towers reflect an eighty percent (80%) occupancy rate, but that those reports only cover through the end of September 2024 and the rate would not have included these additional move-ins stated by Myers. Myers stated the property has an eighty-five percent (85%) physical occupancy rate and a ninety-three percent (93%) occupancy rate that includes pre-leased units and anticipates one hundred percent (100%) occupancy by the end of year 2024. Myers stated that Richman Group and onsite management have been doing a great job, and it is frankly hard to hear some of the public comments made today.
Trey McKnight stated that per the Board’s monitors, they agree with the statement of changes that have been made. JP Townsend confirmed that the community room is now open, stating he believes there was a grand opening on Monday, November 4, 2024. Myers stated yes, management provided free coffee and donuts for the residents to introduce the room. Townsend stated the room was in use when he was on-site, as well as a manager at the front entrance helping individuals that were filling out applications and new leases. Townsend stated he can confirm based on the parking lot the occupancy appears to have increased and each time he inspects this property; it continues to look better and improve and commended Myers and Richman Group for their efforts.
Carpenter stated this is an update for the Board and asked staff, based on the step-down program, if it would be appropriate to maintain the under-observation status level or if a different level should be considered by the Board at this time. Buckner Wellford asked the members of the public about the comment concerning the community room not being open. Kristine Huang commented that her public comment made was as of Sunday, November 3, 2024, so this was a timing issue. Joyce Chiaia confirmed that the community room was opened on Monday, November 4, 2024. Vincent Sawyer asked Townsend about the photographs provided to the Board by its external monitors. Townsend stated those are photographs of the final days of construction on the community room, which he can confirm is now open and appears very nice.
Wellford stated he would like to go down the list of tenant benefits with Myers to see where the property stands. Myers confirmed each item with Wellford has been completed and/or remedied. Myers stated that all two-hundred ninety-eight units are effectively brand new. Wellford stated he has performed this exercise as the Board is trying to stay within its lane and he is aware of a lot of people, tenants, and organizations that are frustrated and want the Board to be more involved on a micro-management level, but the Board is trying its best to focus on what was promised when the PILOTs were approved and to hold PILOT Lessees to their commitments. Wellford stated that the difficulty can be seen in that even when the Board takes action, then suddenly City officials come to the Board and say hang on a second, so it is quite a difficult tight rope, and the Board is trying to do its best. Wellford stated that he does appreciate hearing from the tenants because it was the Memphis Tenants Union that put Memphis Towers issues on the front burner, put the removal of Millennia on the front burner, and they deserve the Board’s credit. Myers stated he one hundred percent agrees with that, and the tenants have done a fantastic job. Wellford stated that he is satisfied that Richman Group is doing what they have committed to do and would not vote down a motion for the property to be removed from the under-observation status but would also be in favor of the property remaining in under-observation status and representatives providing one last status update to the Board in sixty (60) days.
Howard Eddings, Jr. raised a question around tenant benefits, stating that the tenant benefits listed for Memphis Towers are standard construction items for the most part that ought to be done as part of any renovation, and asked what are the tenant benefits relative to tenants actually benefitting from something beyond what the Board would expect them to receive in a residence that is considered to be standard. Bryant responded, stating that the challenge with this particular set of tenant benefits is that this application was approved, and the PILOT was applied to the property in 2020. Bryant stated that Board revised its policies and procedures in November 2022, which removed these standard construction items that would be expected in a renovation, and expected maintenance of systems, etc., and those items are no longer an allowable tenant benefit following the November 2022 policy revisions that were implemented. Bryant stated that these commitments were made prior to the Board’s policy revisions, so the stated tenant benefits are the commitments the Board must hold them accountable for, and this is a challenge with other PILOT properties in the Board’s portfolio as well. Bryant noted that representatives of Richman Group committed to the Board the rehabilitation of the community room, which is not a part of the original tenant benefit commitments, but the Board has held them to their word. Bryant stated that representatives committed to having the community room completed no later than end of the year 2024, and construction was completed, and the room is now open, ahead of the committed timeframe. Bryant reiterated the challenge of the varying tenant benefits within the portfolio, stating that this speaks to discussions held at the Board’s special meeting on November 4, 2024, pertaining to the further review and updates that may be necessary to allowable tenant benefits. Bryant stated that regular maintenance should not be considered a tenant benefit, nor items that are expected to be upgraded as part of the normal course of rehabilitation.
Eddings asked for confirmation that there are three (3) towers at the Memphis Towers property, to which Bryant confirmed. Eddings asked if each tower has a lobby. Townsend stated there is a main lobby that is awaiting additional renovation, but the community room is technically located in Tower B, but all three towers connect into a center channel at the main lobby and then branch off from there. McKnight stated that the staff is working on recommendations and revisions to tenant benefit policies and procedures now to bring before the Board for its consideration that would make normal items no longer part of tenant benefits.
Austin (A.T.) Harrison spoke out of turn at this point, but asked if the things that are normal, the maintenance stuff, are no longer considered tenant benefits, how is the Board ensuring that the normal things are still getting done. Harrison stated this is not for Memphis Towers, but a general question. Harrison stated that it seems like tenant benefits is the way the Board can control what is going on, and he understands it does not make sense based on what most people would find a benefit, but if there is no other way for this Board to hold the core things happening, like the pictures show from Gospel Gardens and Cavalier Court. Harrison asked should producing people saying it should not be a benefit to not have plumbing in a sink, but that happens sometimes, and if that is a way to control it, why would the Board not keep that, even if it seems weird to call it that. Chairman Reid responded to Harrison stating that the Board staff does not have the authority to enter occupied units, and the way that the Board is set up according to the statute is the Board has the authority to look at the exterior. Chairman Reid gave examples the Board would have authority over such as exterior gates and fencing, ingress and egress, proper lighting, overgrowth to landscaping, common areas and tenant benefits such as computer labs, playgrounds, etc. McKnight stated that the Board’s compliance staff performs unannounced drive-through inspections and observes the external conditions of the property and report those findings. McKnight also stated that staff has forged a relationship with Code Enforcement and staff will be attending Environmental Court, and Code Enforcement will be reporting to the Board on a quarterly basis on anything they are seeing that is included in the Board’s portfolio. Chairman Reid reiterated McKnight’s comment, stating that the Board and staff is fostering those relationships with Code Enforcement and Environmental Court to give the Board that information from an internal standpoint.
Chairman Reid asked what was included in the original scope of work as part of the original PILOT application in 2020. Myers stated that his group was not involved in the preparation of the application, so he is not able to speak to that. Wellford stated that is why he requested several meetings ago that Richman Group receive the tenant benefit commitments. Myers stated they have received them, but there is no detail on that line item referencing the scope of work. Cliff Henderson stated that one take-away from the Board’s special meeting on November 4, 2024 is to revisit how the Board looks at tenant benefits, just to be sure tenant benefits are well documented and get some consistency to make sure they are presented in a way that is clear and that the Board is aligned as it goes forward. Eddings stated that just because the Board looks at tenant benefits through different lenses does not mean the Board will stop looking at the other items that it has been looking at for years. Chairman Reid stated that staff is on-site and casting their eyes in every direction. Wellford stated that he understands jurisdictionally that the Board cannot send inspectors into occupied units, and he understands that is not where the Board’s focus is, but when the Board has situations where a property is repeatedly in Environmental Court and the Board has credible reports of such things as mold infestation, that is certainly relevant to him on whether or not a PILOT Lessee is meeting the obligations to receive a PILOT, independently of tenant benefits. Wellford stated it is a matter of degree, but these things are relevant to him when it comes to a property that is already under additional compliance oversight or headed toward legal default status. Carpenter stated that the current Board PILOT policies and procedures do cover that, but it is not the initial focus. Carpenter stated that with the Board cooperating with Code Enforcement and Environmental Court, the Board can dig down to that level and through Code Enforcement timely present that evidence to the Board.
Henderson asked Myers to explain the changes made to the property management since Richman Group has taken control of the property and if Richman Group is using the same property manager. Myers stated that there is a new management company in place, and some of the employees were employed by Millennia remain. Myers stated he knows there has been some concern expressed about that, but the new management company brought in a team of Human Resource personnel and did a complete investigation and found no grounds to terminate those holdover employees that are still employed. Myers stated that does not mean they are not under scrutiny, and he is not aware of any issues that have existed with respect to the tenants after the Richman Group took over. Myers stated that to some extent, Richman Group will have to see how this plays out, and there are some questions concerning one or two of these holdover employees, but it is premature to talk about. With respect to changes, Myers stated one of the biggest complaints that tenants had was securing the building because building doors were broken, and people were able to come in and out. Myers stated on day one, Richman Group placed 24-hour security on-site, which remains in place today and was the biggest issue. Joyce Chiaia added that management has also added a second security guard from 6:00 pm to 6:00 am that walks the entire property, so there is one at the front of the building and one walking the property. Myers stated the security cost alone is approximately $250,000 a year, and the property loses a ton of money, which is not anyone else’s concern, but that did not stand in the way of Richman Group doing the right thing.
Myers stated Richman Group put in 24-hour security, fixed all the doors, there was an inoperable security camera system that Richman Group upgraded and expanded because the former system did not provide adequate coverage. Myers stated there was a massive problem with pest infestation, both pests and bed bugs, and Richman Group doubled the level of service recommended by the pest control company to get that remedied. Myers stated that Richman Group also completed the community room and some of the other space. Myers stated that Richman Group recognized that they took over the missteps of Millennia and as an acknowledgement of Millennia’s missteps to the residents, Richman Group did not charge residents rent for that month, and all delinquent rent was wiped out and every resident started with a clean slate with Richman Group.
Myers stated Richman Group has done all the right things, and the Board should want someone like Richman Group to step in and take a deal over, which is why it frustrates him because Richman Group did not wait and give the Board excuses but stepped in and did the right thing. Wellford stated that it is great that Richman Group reacted so quickly, but Myers acknowledged that when he stepped in, the situation was a complete disaster. Myers stated that Richman Group’s support was essentially debt in this transaction and that affordable housing and one of the ways to finance it is with the sale of tax credits, and Richman Group put in $12 million dollars and was a limited partner, but its involvement was essentially the supplying of debt and Richman Group did not have much control over these things, until Richman Group placed Millennia in default and forced the controlling partner to dispose of the control of the property. Myers recommended the Board consider that as an option within its portfolio in these types of circumstances, as the Board’s only remedy is terminating the PILOT.
Myers stated the Board could use the approach Richman Group used in this scenario and use termination of the PILOT as a last resort if the limited partner does not execute like Richman did. Myers stated this scenario achieves what everyone wants, the tenants would like that, and it would force the bad actors out without blowing up the transaction. After further discussion, Wellford thanked Myers for his recommendation but also stated that he is surprised that Richman Group did not recognize the fundamental breakdown sooner. Myers stated Richman Group may be guilty of not recognizing that sooner than it did, but also stated that Richman Group has properties in forty-nine states in this country, with additional properties in US territories including Puerto Rico, Guam, and Sipan and there is a team that visits each property once per year and received quarterly financials, so Richman Group is not typically on the ground. Myers stated that when Richman Group received the Legal Default Notice from the Board, that is when it really learned about the issues, and it did not waste time and took immediate and aggressive action. Myers stated that Richman Group is not involved in the day-to-day management of the properties in its portfolio. Myers stated that if the Board would like him to appear again in sixty (60) days to provide a status update, he is happy to do so.
Carpenter stated that in looking at the facts, he would recommend representatives appear before the Board at its first meeting in 2025, which is anticipated for February 5, 2025, as a way of signing off on the progress. Carpenter stated the Board appreciates what has been done and it has contrasted this approach with other approaches taken, and this approach is preferred. Carpenter stated the Board must attempt to facilitate compliance and does look for different ways and options to facilitate compliance other than termination of a PILOT, which is a big challenge. Carpenter again recommended representatives appear before the Board at its first meeting in 2025, which is anticipated for February 5, 2025, for a final status update and sign off by the Board. Carpenter stated the Board has adopted a new step-down program, and at that point the Board may concur that the property is in good standing and be released back to normal observation within the PILOT program. There being no further questions or comments,
Buckner Wellford moved to have representatives of Memphis Towers appear before the Board at the first Board meeting in 2025, which is anticipated for February 5, 2024. Howard Eddings, Jr. seconded, and the motion passed unanimously after proper roll call vote of the Board members.
Buckner Wellford asked that Myers put his suggestion to the Board in writing regarding alternative options for the Board to consider, aside from termination.
Brian Myers and Joyce Chiaia left the meeting.
Kristine Huang, Simeon Ike and Austin (A.T.) Harrison left the meeting.
4. Status updates for PILOTs in Legal Default
a. Whispering Pines
Sam Blair, Valerie Banks, and Robert Campbell entered the meeting.
Charles Carpenter introduced this agenda item stating that Whispering Pines is a PILOT property that has been in the Board’s portfolio for a period of time and has not lived up to its commitments or expectations. Carpenter stated that the Board meeting materials include this information. Carpenter advised that there has been a challenge with various litigation among the partners, challenges with the construction schedule, and the property is only approximately fifty percent (50%) occupied, and the tenant benefits are in total violation. Carpenter advised that HEHF staff has been attempting to work with the previous principal, Phil Wazonek, and then the property descended into litigation. Carpenter advised that HEHF staff and legal counsel have received some informal responses since the Notice of Legal Default was issued, but no formal, comprehensive response has been filed, and no timetable or steps have been proposed. Carpenter turned the meeting over to the Board’s internal compliance inspector for further comment.
Let the record reflect that Buckner Wellford is recused.
JP Townsend stated that earlier this year 2024, compliance staff continued to observe no progress at the property and performed a formal walkthrough in February 2024, with Phil Wazonek and Valerie Banks. Townsend stated that HEHF compliance staff reviewed the issues that needed to be addressed, including roofing issues, buildings beginning to show serious signs of wear and tear, staircases, and other items. Townsend stated in June 2024, he noted observing some repairs that had been made, including some fencing repairs, curbside had been repainted, and though construction was slow, it had begun to move in some of the unfinished buildings. Since that time, however, Townsend stated there has been no additional progress made, and several buildings are still incomplete. Townsend commented that there is strong security on site observed at each inspection, and he is always stopped and questioned before entering the property.
Carpenter introduced Sam Blair of Baker Donelson, legal counsel to the PILOT Lessee, and other representatives in attendance for this agenda item and turned the meeting over to them for further comment. Blair introduced himself and Valerie Banks, property manager for Whispering Pines, and Robert Campbell, a contractor recently engaged by the owner of Whispering Pines. Blair advised the Board that Buckner Wellford has recused himself because he and Buck work together at Baker Donelson. Blair advised that he was hired in June to represent the owners of Whispering Pines to find out what was happening with the property. Blair stated that Wazonek had sold a separate project and was stealing money, further stating that out of the $2.1 million dollar-sale, only $1.35 million was recovered, and Wazonek stole the rest. Blair stated that Wazonek has also stolen other monies and after further digging, Blair uncovered that Wazonek is a consummate fraudster and had been defrauding the owners from day one. Blair stated at closing, Wazonek somehow had $344,000 wired from the purchase, not the sale, to his personal account in Canada. Blair stated that Wazonek is very good at what he does and told the owners all this information that was not true. Blair stated Wazonek messed up the mail to the property and the bank account by somehow removing the owners from the bank account and blamed the bank and has done everything he can to mess up this project and create chaos.
Further, Blair stated Wazonek hired accountants that actually did nothing, so there were not real reports so he could hide his steps, so ownership has gotten rid of that accountant and there will be more litigation. Blair stated the property is finally back on the right track and has hired a good contractor, Robert Campbell, that is in attendance today to show his support, and he is working with sub-contractors to get a final contract together, but that has not been provided yet. Blair stated that the statements made by Board legal counsel and staff are all true, and the property is in default, but they are ready to go forward and make it right. Blair stated the $3,000,000 construction loan is exhausted and was to be used for all five (5) buildings, but only three (3) buildings have been completed, and the owner will not have to spend another $1 million plus to get those online. Blair stated that the contractor can do it, and the owners can pay for it, and Building 4 will have the first right (8) units completed in eight (8) weeks, with the second set of eight (8) units being completed in the eight (8) weeks following that, and then the contractor will tackle Building 5, which is the worst building. Blair stated this will take time and ownership understands that the Board will require oversight reports, and ownership is willing to do anything to keep the project going because the project is important, and veterans need this space. Blair stated he is in possession of letters of support from various groups and individuals supporting this project and he would echo Ashley Cash’s earlier comments on behalf of Mayor Young made earlier in today’s meeting. Blair stated ownership wants to keep the project going, does not want it to fail, and will do anything to earn the Board’s discretion to give ownership more time to make it right.
Cliff Henderson asked what Wazonek’s relationship was to the ownership. Blair responded that ownership is Distinct Real Estate USA, LP, which is a Delaware limited partnership, the general partner is Distinct Real Estate GP, Inc, which is a Delaware company and Wazonek was the Director and President of the general partner and was authorized to do this. Blair stated ownership did not realize he was a fraudster, so now the person that is going to be the general partner is Distinct Real Estate USA, Inc. Lead by Gord Berger, who is participating via the Board’s Zoom platform today. Blair stated that Berger is in Canada and could not be here in person today.
Carpenter thanked Blair for his comments, stating that this information has been very helpful for background, but going forward, the Board is going to need, in writing, what the action plan is and the construction schedule and whether there is a lender involved or if this is going to be equity financed, so the Board can have the actual details to monitor going forward. Carpenter stated that under the Board’s PILOT policies and procedures, there is a minimum seventy-five percent (75%) occupancy requirement and tenant benefit commitments, and if there are not tenants there, there can be no tenant benefits, so it frustrates the whole purpose of the PILOT program.
Blair stated that Campbell has met with many sub-contractors, but Wazonek has messed up dealings with sub-contractors because he was not paying them. That being said, Blair stated that Campell will have his bids ready no later than Tuesday, November 12, 2024, and then he will do a final contract with the owners. Blair stated the owners will either equity fund or borrow the money, and although they know it will be over $1 million, they do not know how much it will take. Blair stated he would love to give this information to the Board and have the schedule from start to finish, but he does not have that today but can have it in a couple of weeks and just needs a little more time. Blair stated that Wazonek has created such chaos that it has been hard to get to this point.
Henderson asked HEHF staff what the timeline of this PILOT property was progressing through to this point and going through the additional compliance oversight levels to get here today. Stephanie Bryant responded, stating that the PILOT Lessee has never met the construction schedule. Henderson asked when action began from a staff perspective. Bryant stated staff began action approximately one year ago, and the property was referred to Board legal counsel in June 2024 to be place in legal default. Bryant stated legal counsel has been working through the reports and facts since June 2024 and it has taken this amount of time to get them to this point to be on the agenda today. Bryant stated occupancy has never risen above fifty-five percent (55%), and in fact, ownership took more than two years to close the PILOT transaction. Bryant stated the Whispering Pines PILOT Application was submitted to the Board and approved in 2020, but the transaction was not closed until March 2022. Bryant stated representatives have claimed that construction delays were due to issues caused by COVID-19 and supply chain issues, so grace was given by HEHF staff through that time, but the property has been under additional compliance oversight a little over one year ago, and it began moving through the additional compliance oversight process. Henderson stated that, separate from Whispering Pines, he would like to see what properties are going through each stage so that the Board has some type of notice and understanding of how many are at each stage. Bryant stated she is happy to provide that. Henderson stated this would be helpful, because by the time the issues get to the Board, the Board is not aware of how long staff have been in contact and attempting to address the issues prior to that. Trey McKnight stated that staff will begin preparing that information for the Board prior to each Board meeting.
Vincent Sawyer asked for confirmation on the anticipated timing stated by Blair concerning unit renovations, and that completion of the first set of eight (8) units will be completed in eight (8) weeks, followed by the anticipated completion of the second set of eight (8) units in the eight (8) weeks to follow. Blair confirmed that, stating that is the hopeful plan, but this will not begin until ownership receives the final bid, because there is no contract right now, but ownership anticipates final bids and the beginning of construction in the next two weeks, which will allow for the completion of the first eight (8) units in approximately ten (10) weeks from today. Blair stated that Bryant’s comments were true as well and Wazonek was not truthful with the Board either and was creating chaos from the beginning. Blair stated his firm has received wire information that shows hundreds of thousands of dollars going to Wazonek’s personal bank account in Canada and has been lying to the Board and to the owners the whole time.
Blair stated ownership is here today begging for more time so work can get started and representatives can give the Board the presentative work schedule and amount, whether it is equity or loan, they just need a little more time. Bryant asked for confirmation of the start date. Blair stated that the final bid is anticipated by Tuesday, November 12, 2024, and then the owner will do a deal with Campell, and a definitive start date will be provided at that time, with the whole schedule. Bryant asked what the anticipated turnaround time is once the final bid is received on Tuesday, November 12, 2024 for the owners to review and work to begin. Blair stated that he is hopeful it will be another week or so, and the owner and Campbell will agree and the cost of the contract. Blair stated he anticipated two weeks to have a contract. Bryant asked if the Board grants the owner an additional thirty (30) days to get this plan together, can Blair commit to having a definitive written plan provide to the Board one (1) week prior to the Board’s December 4, 2024 Board meeting. Blair stated that would be great. Bryant stated she is asking these questions for the Board’s clarity only and it is up to the Board how they determine to proceed. Carpenter stated that his firm would recommend resetting this matter to the Board’s December 4, 2024 Board meeting. Chairman Reid stated to representatives that the Board was prepared to terminate this PILOT today.
Monice Hagler left the meeting.
Henderson stated, to reiterate Chairman Reid’s comments, that as the Board does not plan to hold a Board meeting in January 2025, so the Board will not be lenient at the next Board meeting. Blair stated that he will advise his client, and he understands the Board’s position and it is reasonable because it has been a long time, and an additional thirty (30) days is very meaningful. Chairman Reid stated that the requirement is that representatives appear before the Board at the December 4, 2024 Board meeting with an action plan and timeline. Reid stated that whether financing is internal or external, the Board will assume it will be approved with no contingencies. Bryant asked if a lender is involved, that the Board also require the commitment letter from the lender as a piece to this. Chairman Reid agreed. There being no further questions or comments,
Cliff Henderson moved to defer action until the December 4, 2024 Board meeting on Whispering Pines PILOT Legal Default, pending ownership providing an action plan, timeline, and lender commitment letter no later than one (1) week prior to the Board’s December 4, 2024 Board meeting. Vincent Sawyer seconded, and the motion passed unanimously after proper roll call vote of the Board members.
Let the record reflect that Buckner Wellford is recused.
Finance Committee Report
Cliff Henderson presented the financial results for the month ended September 30, 2024. After discussion,
Howard Eddings Jr. moved for acceptance of the Finance Committee Report for the month ended September 30, 2024, properly seconded by Buckner Wellford, and the motion passed unanimously after a proper roll call vote of the Board members.
New Business
There was no new business.
Chairman Reid stated that the next meeting of the Board is scheduled for Wednesday, December 4, 2024 @ Noon. There being no further business, the meeting was adjourned by the Chairman at 01:25 p.m.