MINUTES OF REGULAR MEETING OF
THE HEALTH, EDUCATIONAL AND HOUSING FACILITY BOARD
OF THE CITY OF MEMPHIS, TENNESSEE
Wednesday, September 11, 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, September 4, 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
Cliff Henderson Katie Shotts (Zoom)
Vincent Sawyer
The following Directors were absent:
Buckner Wellford Howard Eddings, Jr.
Staff and others attending: Trey McKnight, Stephanie Bryant, Bryce Miller, 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.
Also participating in person and/or via remote Zoom virtual platform were Joyce Warren, Andrea Smith, James McNabb, William Tuggle, Johnnie Mae, and Helen Evans, residents of Memphis Towers and representatives of the Memphis Towers Tenants Union; Alex Ulhmann, Caroline Francisco, and Mauri Pinchey, organizers of the Memphis Tenants Union; Austin (A.T.) Harrison, Jan Kidder and Gisela Guerrero of Memphis Interfaith Coalition for Action and Hope (MICAH) ; Brian Myers of Richman Asset Management representing The Richman Group Affordable Housing, a limited partner and Joanne Flanagan of JDF,LLC appearing in connection with Memphis Towers Apartments; Thomas Robinson and Shaun Walker of Alco Management, Inc. representing Pershing Park Apartments; Albert Richardson of CAAP, Inc. representing Uptown Manor Senior Development; Gabriel Pryor, Court Inspections Supervisor to City of Memphis Code Enforcement; Will Gibbons, Esq., City of Memphis Code Enforcement Prosecutor; Marticus Muhammad, City of Memphis Code Enforcement Administrator; Laura Carlisle of Baker Donelson Law Firm, Geoff Gaia and Warren McWhirter of McWhirter, Gaia & Sadler, PC, Melanie Wenk and Kent Mehring of WNC, Inc., Frank Sinito, Michael Pico, and Renee Weiss of Millennia Housing Management, all appearing in connection with Cavalier Court and Gospel Gardens; Tie Lasater of Key City Capital representing Grahamwood Place and Pinebrook Pointe; Randy Truong and Aerial Ozuzu of Community Foundation of Greater Memphis (CFGM); Iris Mercado of Binghampton Community Land Trust; Brooke Muckerman of The Commercial Appeal; Shirley Bondon of the Black Clergy Collaborative of Memphis; Simeon Ike of Greater Memphis Housing Justice Project; Geoff Hanson; Erica Douglas; Jon Caputo; 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, August 7, 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.
Michale Pico, Patricia Richmond, Kent Mehring and Warren McWhirter, Esq. entered the meeting.
Jamilah Holloway entered the meeting.
Approval of Minutes
Cliff Henderson moved for approval of the Minutes of the August 7, 2024 Regular Meeting, which was seconded by Vincent Sawyer and the motion passed unanimously after proper roll call vote of the Board members.
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. Joyce Warren introduced herself as a resident of Memphis Towers stating that she still has a complaint and is still waiting on The Richman Group to keep their word, and they have not kept their word.
2. Andrea Smith introduced herself as a resident of Memphis Towers, stating she has been a resident there for three (3) years and The Richman Group is not keeping their promises. Smith stated management is trying to straighten up and moving people in fast and they have no water, no stove, and the appliances do not work at all. Smith stated that people do not have any food or change of clothes, which is their only problem. Smith stated the apartments are supposed to be for seniors and disabled, but she has been seeing kids there too and she does not want that to be a problem for anyone.
3. James McNabb introduced himself as a resident of Memphis Towers and stated the community room at Memphis Towers is already supposed to be done, and the people that are working on that community room are taking their time. McNabb stated that residents want the community room done. McNabb stated the community room should be done by now and it is not done, they are still working on it, they are taking their time, and residents want it done so they can have a place to go to have fun.
4. William Tuggle introduced himself as a resident of Memphis Towers, stating he has been a resident there for close to three (3) years. Tuggle stated there is a mailbox situation and the manager, Johnnie Williams, told residents they did not have to fill out change of address cards and she was supposed to take care of that, but he is still getting mail back in his old apartment from the B Tower. Tuggle stated he was placed in his new apartment when construction began on the B Tower. Now he is in C Tower, and come Christmas, he will have been in his new apartment in C Tower for two (2) years, and he just got his mailbox key two or three months ago, but he is still getting mail coming to his B Tower address mailbox. He does not know what is going on and the manager said she took care of that but apparently it is not working, and she needs to redo it or do something because there are important documents, such as bank statements, that he is not getting.
5. Austin (A.T.) Harrison introduced himself as a co-leader of MICAH Housing. Harrison stated that MICAH stands in solidarity with the Memphis Tenants Union. Harrison stated he would like to fly the plane up a bit and get a sense of the bigger picture to remind the board of the stakes and its responsibility. Harrison stated that the Health Educational and Housing Facility Board of the City of Memphis gives tax breaks to over nine thousand units of affordable housing in Memphis and given $259.5 million in revenue bonds since 2019, making the Board the single largest affordable housing financer in the City of Memphis. Harrison stated this is more than 4% LIHTC and 9% LIHTC and more than the community investment tax credit. Harrison stated this is according to the City’s very own housing dashboard. Harrison stated that everyone knows Memphis has an affordable housing crisis and the cost and condition. Harrison stated he has stood here before in the Board’s Board meeting and seen the same tenants come with complaints of black lung, painted over mold, real health issues and it is Memphis versus everybody else. Harrison stated the Health, Educational and Housing Facility Board tends to side more with everybody else than Memphis by giving out these forever tax breaks like entitlements and not holding slumlords accountable after the fact. Harrison stated the City of Memphis has its own affordable housing developers, some of whom sit on this Board, Vincent Sawyer with The Works, Inc., Howard Eddings with NHO management, Community Capital, Alco Management, there is capacity here, yet we continue to give tax breaks, forecasting future revenue, to out-of-town slumlords for what. Harrison stated MICAH has been watching the Board consistently for the last six (6) months and has seen Board members want to fight for Memphians, ask tough questions to developers about how they are treating veterans, seniors, folks with disabilities. Harrison stated the 20% of evictions come from HEHF properties and if the Board would reign in slumlords, they could reduce the eviction crisis in the city by 20%, so it is a lot bigger than just Memphis Towers. Harrison stated Memphis Towers has shown there is a broader systemic issue, and it starts today with SPM Management and Memphis Towers, it starts with listening to tenants, taking their concerns seriously, and ending their harassment of Memphians by out-of-town slumlords. Harrison stated he looks forward to working with the Board and MICAH.
6. Alex Ulhmann introduced himself as an organizer of the Memphis Tenants Union stating that he and the Memphis Tenants Union have been coming to the Board for a long time now and when this group first came to the Board, Ulhmann stated no one was really talking about Millennia and their many issues, especially at Memphis Towers. Ulhmann stated the Memphis Tenants Union brought that to light and fortunately saw a change of ownership thanks to the Board’s actions, so he would like to commend the Board for that. Ulhmann stated that The Richman Group has come in and made some changes and Memphis Tenants Union applauds those improvements and has even given them time to fulfill their promises, but unfortunately The Richman Group has taken the same tactic and become another Millennia. Ulhmann stated Memphis Tenants Union has asked for staff to be replaced, as they have Millennia staff who have a documented history of abusing tenants, and the Memphis Tenants Union has filed over twenty grievances around the staff and there are many acts of disrespect and incompetence with The Richman Group and SPM Management. Instead of taking these complaints seriously, Ulhmann stated they have been dismissed and have also hired Millennia’s old lawyer, Alex Elder, and he sat in a meeting with Memphis Tenants Union on September 10, 2024 and was demeaning and berated them and it was clearly used as a tactic to not take concerns seriously and to dismiss them. Ulhmann stated the meeting was supposed to be with The Richman Group and instead, it was a meeting with SPM Management, their new owner, who they are trying to push off their responsibility. Ulhmann stated they all know that ownership is the one that really calls the shots in any building and those are the folks the Board needs to hold accountable. Ulhmann stated Memphis Towers is still not at the capacity requirements under the Board and he thinks it is incumbent on the Board not to make an exception for an organization that has not demonstrated fully that they are responsible and accountable to the residents of Memphis Towers. Ulhmann stated Memphis Tenants Union is again asking the Board to keep and uphold its own standards and acknowledge that they do not want Millennia in Memphis anymore, and that includes old Millennia staff, Millennia lawyers, and Millennia security companies.
Chairman Reid thanked everyone for their comments. There was no other public comment.
Chairman Reid advised all in attendance that the Board would be modifying the order of items
on the agenda today because of the status updates for PILOTs in legal default and other
presenters in attendance today.
Attorney’s Report
Charles Carpenter presented the legal report, as follows:
Carpenter stated that he would reserve all comments regarding PILOTs in legal default and Environmental Court matters for the Action Items section of the agenda.
1. Carpenter reported the PILOT Closings for August 2024:
a. Stonegate Apartments, a new PILOT approved and closed;
b. Lakes at Ridgeway, a new PILOT approved and closed;
c. Grainge Hill Apartments PILOT Refinancing closed.
2. Carpenter reported one (1) PILOT Termination in August 2024 for New Horizon Apartments.
3. Carpenter reported his firm is in the process of doing a bond redemption for Ashland Lakes, Series 2006A. Carpenter reported the tax compliance period has been completed and the all outstanding Series 2006A Bonds are being redeemed in full.
4. Carpenter reported one (1) PILOT property – Whispering Pines Apartments has been placed in legal default in August 2024.
5. Carpenter reported being served with two (2) new notices of nonpayment from Sherwin Williams Paint Company in connection with the following PILOT properties:
a. Creekside Meadows Apartments; and
b. Sunridge Apartments.
Carpenter stated his Firm will keep the Board informed.
6. Finally, Carpenter reported receiving notice of Tennessee Housing Development Agency’s (THDA) annual conference that will be held in Nashville in April 2025. Carpenter reminded the Board that THDA is one of the Board’s partners that it works with in connection with the 4% low-income housing tax credit financing program.
Carpenter reminded the Board and advised those in attendance that the Board is not a lender, it is a conduit issuer that facilitates the issuance of 4% low-income housing tax credit (LIHTC) funds. Carpenter reiterated the Board itself is not a lender, it just facilitates the process and ensures legal compliance for the bondholders, purchasers and related parties involved in the sale and purchase of tax-exempt revenue bonds.
There being no further questions or comments, the Legal Report was concluded.
Action Items-
1. Final Bond Resolution for APP Pershing Partners, LLLP (d/b/a Pershing Park Apartments)
Thomas Robinson and Shaun Walker entered the meeting.
Charles Carpenter introduced this agenda item, stating the developer of Pershing Park Apartments is Alco Management Inc., and this is an acquisition rehab using 4% tax credit financing that was authorized through THDA. Carpenter stated that in addition to the bonds, some of the sources of income would be from the HOME program with the City of Memphis and other grant programs that will compose the sources of funding for the acquisition. Carpenter stated the Board has also approved a PILOT for Pershing Park that is anticipated to be closed at the same time that the bonds are to be closed. Carpenter stated his firm is working diligently with the professional working group and all legal documents have been approved by THDA and are in substantially final form awaiting consideration and approval by the Board today by approving the Final Bond Resolution.
Carpenter invited Alco representatives to provide any additional comments. Thomas Robinson introduced himself and Shaun Walker, both representatives from Alco Management Inc. Robinson stated that Walker has been with Alco for the past five (5) years and has worked mostly on out-of-town projects but will be working on the Pershing Park project with Robinson here in Memphis. Robinson stated Alco is celebrating its 50th anniversary this week and is holding a conference for its employees from out of town and local to celebrate Alco’s successes. Robinson expressed his thanks to the Board for the great partnership over the years and the good work done together, stating that it could not have been done without the work of the Board. Robinson stated this is a great model for how affordable housing can be done and Alco really appreciates the partnership with the Board. Carpenter thanked Robinson for his comments. There being no further questions or comments,
Cliff Henderson moved to approve the Final Bond Resolution for APP Pershing Partners, LLLP (d/b/a Pershing Park Apartments). Monice Hagler seconded, and the motion passed unanimously after proper roll call vote of the Board members.
Thomas Robinson and Shaun Walker left the meeting.
2. Affordable Multifamily PILOT Term Extension Application for Uptown Manor Senior Development, LLC
Albert Richardson entered the meeting.
Charles Carpenter introduced this agenda item, stating that Uptown Manor Senior is an existing PILOT property and is a senior facility located in north Memphis. At the time that the PILOT was entered into, Carpenter stated that the Board only had authority for a ten (10) year PILOT term, before receiving supplemental authority from the City Council that allowed a twenty (20) year term. Carpenter stated this PILOT has reached the end of the initial ten (10) year term and the property representatives have timely made an extension application. Board staff and legal counsel have conducted a submittal conference with the applicant, reviewed the materials submitted, and the property has been evaluated by the Board’s internal and external compliance monitors. Carpenter introduced Albert Richardson, representative in attendance for this agenda item.
Carpenter stated the application, and all evaluations have come back with flying colors and his firm recommends approval of the PILOT Term Extension Application, as it complies with the Board’s policies and procedures. Carpenter reminded the Board that for years eleven through twenty (11-20) of a PILOT Term, there is a 10% increase per year in the assessed value for each year going forward, and the applicant has been advised of that. Carpenter turned the meeting over to the Board’s internal compliance monitors for comment. JP Townsend stated that Uptown Manor Senior is one of the gold star standards of the Board’s PILOT program. Townsend stated he has performed many inspections on this property, and he has never observed any issue or concern, it is very well managed, which is evident from his observations of the tenants living on this property. Townsend stated the management has done an outstanding job.
Bryce Miller followed by stating that he would like to reiterate the culture, the cleanliness and the management of this property is among one of the best in the Board’s entire PILOT portfolio. Chairman Reid stated these are resounding comments that he continues to hear about this property, and the Board’s hat is off to Richardson, and he appreciates what CAAP, Inc. is doing and what a great example that is being set for the City.
Let the record reflect that Monice Hagler is recused.
There being no further questions or comments,
Cliff Henderson moved to approve the Affordable Multifamily PILOT Term Extension Application for Uptown Manor Senior Development, LLC. Vincent Sawyer seconded, and the motion passed unanimously after proper roll call vote of the Board members.
Albert Richardson left the meeting.
Code Enforcement Report
Gabriel Pryor, Marticus Muhammad, and Will Gibbons, Esq. entered the meeting.
Laura Carlisle, Esq., Geoff Gaia, Esq., Warren McWhirter, Esq., Melanie Wenk, Kent Mehring, Frank Sinito, Michael Pico, and Renee Weiss entered the meeting.
Executive Director Trey McKnight advised the Board that he and Corbin Carpenter have been attending Environmental Court proceedings and invited representatives from Environmental Court to come and speak to the Board and advise the Board of things that have been observed at certain PILOT properties that the Board should be aware of. McKnight stated that Code Enforcement inspectors are authorized to enter tenant’s units, whereas the Board’s internal and external compliance staff are only authorized to observe the external conditions and common areas during PILOT property inspections. McKnight stated he hopes the Code Enforcement presentation provides some educational components to the Board, based on what he and Corbin Carpenter observed in the recent Environmental Court proceedings.
Gabriel Pryor introduced himself as the Court Inspections Supervisor for the Memphis Code Enforcement Department, stating his role is to gain compliance back. Pryor stated he and his team would be reporting on Cavalier Court and Gospel Gardens, and he stated that his report would speak for itself, once he shows the pictures included in his report to the Board today.
Charles Carpenter reminded the Board that its internal and external monitors look at the outside of the property, health and safety issues, and tenant benefits, but do not go inside units. Because Cavalier Court and Gospel Gardens are both in Environmental Court, Code Enforcement representatives were asked to report to the Board today because they do go inside. Carpenter stated that part of the oversight that the Board is implementing is more of a comprehensive approach so that the Board can work with not only its internal and external monitors, but Code Enforcement and Environmental Court and its attorneys as well.
Corbin Carpenter asked Pryor to introduce the team of representatives in attendance today. Pryor introduced himself again as the Court Inspections Supervisor for the Memphis Code Enforcement Department, Will Gibbons as the Code Enforcement City Prosecutor and Marticus Muhammad as the Code Enforcement Administrator. Pryor continued, stating his role is to engage, educate and enforce Ordinance 5708.
Pryor began reporting on Gospel Gardens, stating that Code Enforcement did a sweep of the entire complex in June 2024 because Code Enforcement had received multiple complaints. During the inspections in June 2024, Code Enforcement inspectors discovered plumbing issues, raw sewage, the majority of the complex was either without AC or had some type of issue with their AC and continued that the pictures presented to the Board in the report speak for themselves. Pryor stated the most frustrating thing for the City is they issued violation orders back in June 2024 for these corrections to be made, and the cases are still in Environmental Court in September 2024, and a majority of these corrections still exist. Pryor reported mold-like substances under kitchen sinks and severe mold throughout a different unit, and stated these units are currently occupied and residents are having to live in these conditions. Chairman Reid asked if the mold is coming from a leak. Pryor responded that the mold could be the result of a leak, a ventilation issue, no AC, or multiple other things that can cause that issue. Pryor continued with his report and pictures displayed for the Board showing a unit where the whole lavatory has fallen off the wall, and a tenant is still occupying this unit and unable to use their sink. Chairman Reid asked for confirmation, based on the materials provided, that this violation was dated June 21, 2024 and that a tenant has been living like this and continues to live in these conditions today, since June 21, 2024, to which Pryor confirmed. Pryor continued with pictures of raw sewage backup into tubs in separate units, stating tenants are living in these units as well, with children, and are unable to use their bathtub. Pryor stated this is very unsanitary. Chairman Reid asked again if this violation is from June 20, 2024, and still exists today? Pryor responded that the violation order was issued on June 20, 2024, but the issue actually existed way before that.
McKnight stated to the Board these pictures are what he and Corbin Carpenter witnessed being presented in Environmental Court and thought it would be prudent for the Board to see these conditions.
Pryor continued through his report, referencing a picture showing plumbing issues causing a backup of raw sewage in a toilet and no AC in another unit. Pryor stated Code Enforcement went to do a recheck of this unit at approximately 8:00 am and it was 84 degrees in the house. Pryor reported on another unit with severe raw sewage backup into the tub, stating this unit also remains like this today. Chairman Reid asked about the odor coming from these units at the time of inspection, to which Pryor reported the odor is a scent of mold and raw sewage, creating a foul odor. Pryor continued with pictures of raw sewage backed up into a sink, leaking sink, among other plumbing issues observed in various units.
Pryor moved on to report on Cavalier Court Apartments, stating that although the conditions are not quite as severe at Cavalier Court Apartments in comparison to Gospel Gardens, that they share some of the same common violations such as no AC and moldlike substance throughout. Pryor stated there are approximately ten (10) active cases in court against Cavalier Court, with more coming. Corbin Carpenter asked Pryor how many active cases there are for Gospel Gardens. Pryor responded there are fifty-one (51) active cases against Gospel Gardens today.
Corbin Carpenter asked attorney Will Gibbons to provide the Board with an overview from his legal standpoint on the legal history of how things have been going with Judge Dandridge in the Environmental Court. Gibbons stated from a legal standpoint, these two properties have been in Environmental Court every several weeks or so, with the next Environmental Court date of September 17, 2024 at 1:30 CT for Gospel Gardens. Gibbons stated all of the cases are heard at one time and the court will go through them one by one. Gibbons stated the with the majority of the cases, the Environmental Court sees no progress or little progress, and then the Environmental Court determines at that point the extent to which fines are necessary. Gibbons stated that in other instances, vacating the premises is an option for the court, but then it runs into the issue of the shortage of housing and shortage of alternative places for those residents to stay. Gibbons stated in some sense, the court can be between a rock and hard place, but they are seeking accountability to the highest extent possible every time they go to Environmental Court. Gibbons stated for Cavalier Court, those are more staggered, but the Environmental Court is seeking a similar solution and trying to find a solution at these two complexes. Gibbons stated the Environmental Court is searching for more than just a band-aid solution, but rather a solution that will last over time. Corbin Carpenter reiterated Gibbons comments, reminding the Board that this is an undertaking his firm undertook with Environmental Court earlier this year, there has been a lot of turnovers with staff and challenges with communication and collaboration, but now his firm and Board staff have formed a coalition with Code Enforcement and there is better communication comprehensively across the board. Corbin Carpenter stated that the Board focuses on the exterior characteristics of the property versus Code Enforcement on the interior and even more. The purpose of this coalition is to provide the Board with a full scope and overview of the property inside and outside, that way Board members can make more informed decisions. McKnight advised the Board that at the last hearing he and Corbin Carpenter attended, Judge Dandridge of Environmental Court advised that there are tenants being forced to sleep outside in their cars at night based on the mold that is inside their apartments.
Geoff Gaia, attorney for Millennia, addressed the Board, stating that the tenants that experienced the raw sewage issues in their units have been relocated to different units. Gaia stated in respect to the air conditioning, when the air conditioning units would go out, because these properties have condenser units that would get damaged, Millennia would provide window units for those tenants in order to work through the summer. Gaia advised that Millennia has replaced and repaired nearly every condenser unit at Cavalier Court and is doing the same as Gospel Gardens and are doing their part to take care of the tenants. Charles Carpenter stated the comprehensive oversight force has been put together because Millennia has often brought in representatives, with this being the first time the Board has met Gaia, but the properties have been in legal default for a number of months. Carpenter stated that each month, Millennia brings in new representatives and because of the way things have developed, no disrespect to Gaia, but Millennia has no credibility. Carpenter stated Millennia has destroyed all credibility that it had built. This is why it is important for the Board to hear from the professionals that have jurisdiction over these matters to come and report to the Board in addition to the Board’s internal and external monitoring.
Carpenter reminded the Board that Cavalier Court and Gospel Gardens are in legal default, but since there has been such a delay in getting a remedy to all of the serious deficiencies, there was an additional Show Cause Action that was implemented and notice given to Millennia and the limited partners, and that was first heard at the Board’s August 7, 2024 Board Meeting. Based on the representations that were made at that time, the Board decided to extend the Show Cause as to why the PILOT should not be terminated immediately and part of the reason that was taken into consideration was it was stated to the Board that there was a pending sale with an unnamed affordable housing developer that was looking at Millennia’s portfolio as a whole. Carpenter stated representatives previously reported to the Board that there were a number of properties involved, including the Memphis Millennia portfolio, and it was shared that would be expedited once the agreement was consummated. At this time, Carpenter recommended that the Board move into the status updates for PILOTs in Legal Default.
3. Status updates for PILOTs in Legal Default
a. Cavalier Court
Charles Carpenter introduced Kent Mehring in attendance, stating Mehring is with WNC, one of the limited partners for Cavalier Court and Gospel Gardens. Chairman Reid stated the Board will hear comments for Cavalier Court and Gospel Gardens separately.
Mehring stated that he would like to share the action plan since the Board’s August 7, 2024 Board meeting. Mehring reported that on August 8, 2024, the potential buyer exited the transaction and decided not to move forward with the transaction. Following this, Mehring reported that WNC issued a notice of default to Millennia on August 18, 2024 and received a proposal from Millennia on September 5, 2024. Mehring advised that the terms in Millennia’s proposal were not acceptable to WNC, and a complaint was filed today, September 11, 2024 to recover proceeds from Millennia obligations for these two partnerships and WNC has been working diligently on a plan within WNC, which can be shared to the Board before the Board’s next Board meeting. Mehring stated the steps that have been taken are to take control of the property management and WNC is in discussions with two (2) property management companies, neither of which will step in with Millennia as part of the ownership. Mehring stated he has been in discussions, going over projections and the budget and WNC is going to move forward with one of these companies. Mehring stated the other relevant piece of this is stepping in and taking control as owner and operator and to do that, WNC will need certain approvals from investors based on WNC’s sources and uses, and WNC will need an excess of $2,000,000 to remedy and stabilize these assets. Mehring stated that addressing the health and Code Enforcement violations, turning units back online, and fire damaged units. Mehring stated WNC will not be able to do this if they cannot get investor approval for the additional allocation if the PILOT is terminated. Mehring stated WNC also could not move forward if the lender on the primary loans would not extend the loans, which they did this morning. Mehring stated WNC does have an action plan in place that is very detailed, it involves investor approval for the additional monies needed to stabilize the assets, and he respectfully requests, on behalf of the limited partner, an additional thirty (30) days from the Board to allow WNC to provide the Board with the action plan.
Carpenter reported to the Board that he and Corbin Carpenter spoke, on September 10, 2024, with outside counsel from New Orleans, LA, and they are with Baker Donelson Law Firm. Since then, his firm has received record that Buckner Wellford, who is a member of this Board and a member of the Baker Donelson Law Firm in Memphis, has recused himself from all deliberations and involvement with Cavalier Court and Gospel Gardens. Carpenter stated he wanted to state this for the record today and will also do so at the Board’s next Board meeting, when Wellford is expected to be in attendance.
Carpenter asked for additional information regarding the lender notice of default filed by WNC. Carpenter stated that it had been reported before that Huntington Bank, who is the lender, had issued a legal default for nonpayment. Carpenter asked if that had been cured. Mehring responded that there is no default currently with the lenders and they received an extension through September with the proposed new action plan that he shared with the lender on September 10, 2024. Mehring stated that the lender agreed to an extension today on the loans, which will give WNC time to work with the transition plan and the new management company. Mehring stated this also gives the opportunity for WNC to present a more thorough presentation to the investors for approval for the funds. Mehring stated WNC is limited by how much it can allocate to each individual property within the fund, and they need approval to allow WNC to tap into other funds to meet the requirements they have outlined in the sources and uses.
Carpenter asked for clarity for the Board on the complaint that was reported to the Board that was filed today. Mehring stated the civil action was filed by WNC’s outside counsel today seeking to recover damages under the guarantees by Millennia and individuals. Laura Carlisle with Baker Donelson from the New Orleans, LA office introduced herself, as well as Melanie Wenk, the Chief Operating Officer of WNC from California. Carlisle stated she is WNC’s outside counsel and she filed suit this morning in Shelby County against GOSPEL GARDENS TC INVESTMENT, LLC, CAVELIER COURT TC INVESTMENT, LLC, FRANK T. SINITO, and MALISSE J. SINITO. Carlisle stated that the suit may expand or be modified, but the urgency of the situation was very apparent after the call held with Carpenter Law on September 10, 2024, and the decision was made to go ahead and file suit for what they could and try to start recovering money that is very much needed in these communities.
Chairman Reid asked if the extension from the lender is a true extension or a forbearance agreement, to which Mehring responded it is an extension through March 2025 with a verbal understanding that it will be extended further as the action plan in implemented. Corbin Carpenter advised the Board this Carpenter Law and Board staff invited Code Enforcement and Environmental Court representatives to today’s meeting not only to provide their presentation to the Board, but also to have the opportunity to have a dialogue with representatives concerning these issues. Corbin Carpenter invited Pryor, Gibbons, and Muhammed with Code Enforcement and Environmental Court to provide any additional comments they may have for the Board. Muhammad stated to the Board that it is quite clear from the evidence and the inspections that there is a reoccurring issue that requires a more comprehensive approach to addressing those. Muhammad stated that although the court has fifty-one (51) active cases at Gospel Gardens and ten (10) active cases at Cavalier Court, he guarantees there is a whole lot more tenants that are not complaining for fear of not having somewhere to stay if they complain.
On other things, like plumbing, Muhammad stated that is a big problem and if the approach is to solve one unit at a time, it will never be resolved. Muhammad stated the health impacts are tremendous, and it is not something that is being addressed. The housing problem that is causing a health impact is not what we are discussing here today, Muhammad stated he and his colleagues are only talking about units that someone is not able to live in the unit that they are paying for and that they have, and right now, they cannot. Muhammad stated that if the approach to solving the problem is the one just to get out of Environmental Court or to not come before this Board to address particular items, that is where the problem is. Muhammad stated a plan which includes a comprehensive approach to solve the challenges is very important, like sanitary plumbing. Mehring stated that WNC has that plan.
Mehring stated he toured the properties yesterday and a lot is being remedied, and he did not see any residents in the units with those issues. Mehring stated WNC has allocated $500,000 just to unit remediation, repairs to get them back online, and sewer repairs, because there were a couple of breaks onsite that had to be addressed immediately. Mehring stated once investors approve allocating funds, WNC will be in a position to start funding dollars to remedy these issues and will not have to wait until they are in the shoes and they will work with Millennia on that and at some point WNC will take over, but all of that has to be approved. Mehring stated WNC has certain consent requirements with HUD that have to be managed, and he may have to go to them with hat in hand and be more aggressive with the transition. Mehring stated once WNC gets approvals from all the investors, there are five (5) that have the majority in the fund, WNC will be able to start allocating funds immediately to the fire units at Cavalier Court and the sewer issues at Gospel Gardens. Mehring stated WNC has over 700 assets across the country, all affordable, and he wants to ensure that the residents have a place to live that is satisfactory and not living in these conditions.
Carpenter stated that there are a lot of legalities, contracts, defaults, cure periods, approvals and consents involved, and this Board has always indicated it is interested in and concerned about the residents. Carpenter asked what Mehring can state to the Board in this interim period while all these approvals and consents are going on, what can be done to improve the conditions for the residents now that would give the Board any interest in extending this even further that it is now because these are not new issues and they have been ongoing for many months. Carpenter reminded representatives that these two properties have been in legal default with this Board for months and there have been a lot of promises, but little action has come forward. At present, Carpenter stated that the tenants are what the Board is concerned about and facilitating affordable housing is what the Board is concerned about. Carpenter stated that tenants are unfortunately having to live in these conditions because they do not have many options. Carpenter asked Mehring what assurances he can give the Board or what can be done for the tenants in the meantime if the Board considers giving an additional period to address these issues. Mehring stated WNC will have boots on the ground on a much more regular basis and working with contractors to remedy these issues outside of Millennia, and maybe in conjunction with Millennia until WNC steps in with a new management company. Mehring stated the new management company has indicated the timeline is sixty (60) days to get their arms around it and WNC is reviewing the numbers, and the management company has been conducting site visits, so they are familiar with the challenges. Mehring stated that first, they need to ensure no one is living in units under these conditions and he has seen some improvements since he was there last. Mehring stated there has been a lot of clean out of all the sewer lines, and there were a couple of breaks that have been addressed. Mehring stated that it is not typical of this type of execution, but WNC needs to start spending money sooner than being in control.
Monice Hagler asked Code Enforcement and Environmental Court representatives when the next Environmental Court date is for these projects, to which Pryor responded September 17, 2024. Halger asked what the expectation is for that court date. Pryor responded that the expectation is always compliance. Hagler asked if this hearing would be for all fifty-one (51) violations, to which Pryor responded yes. Pryor stated, no disrespect to Cavalier Court and Gospel Garden representatives, but they use band-aids, and they may have relocated some of the tenants, but no repairs have been made, so therefore they may move new tenants into these units, because that is what he has seen from these properties in the past. Pryor stated that in the past when tenants have been relocated, they have been moved to units that were not in as good a shape as the unit they were relocated from. Pryor reiterated that full compliance is the goal. Mehring stated that the sewer flow issues, based on his interaction with the plumber and Millennia, have been substantially addressed. Mehring stated he would certainly not want anyone living in those units affected. Mehring stated those units have all been cleaned out, drywall is being removed as well to the studs, as that must be done because they do not want the lingering effects until money is injected by WNC to get some of these things remedied. Mehring stated that all these things depend on investor approval, and WNC expects feedback from that within the next two weeks and a formal proposal to the Board before the end of the month, September 2024.
Carpenter asked Environmental Court and Code Enforcement representatives how the Health Department factors into this when there is raw sewage backup and so forth and asked if the Health Department interacts with this or if it is all under the jurisdiction of Environmental Court. Pryor stated that the Health Department does not interact because they only do exterior issues. Chairman Reid stated for the record that the Board has spent approximately $12,400 in legal expenses and $3,800 in external monitoring expenses on Cavalier Court above and beyond the normal course of business for the Board for an aggregate total of $16,200 as of March 2024. Chairman Reid stated that the Board has spent approximately $11,100 in legal expenses and $4,000 in external monitoring expenses on Cavalier Court above and beyond the normal course of business for the Board for an aggregate total of $15,100 as of March 2024.
Director McKnight asked if there were any other questions for Environmental Court and Code Enforcement representatives in attendance, and if not, if the Board would be agreeable to relieve them and continue with the Board agenda. Muhammad stated that on behalf of the City of Memphis and the Department of Neighborhood Improvement, he would like to thank the Board, staff, and legal counsel for inviting them, as this has been the first opportunity they have had to present this information to the Board. McKnight stated that he will be attending Code Enforcement meetings on a regular basis and representatives will be appearing before the Board regularly and staff will continue to partner with these organizations for the growth and education of the Board and staff. Chairman Reid and Board members thanked representatives for their report and attendance of today’s meeting.
Gabriel Pryor, Marticus Muhammad, and Will Gibbons left the meeting.
Chairman Reid continued with the agenda, asking staff to provide a compliance report of Cavalier Court. Stephanie Bryant reported occupancy levels for both Cavalier Court and Gospel Gardens, stating that Cavalier Court had a decrease in occupancy rate from an 81% occupancy rate for Q2 2024, to a 77% occupancy rate as of a September 2, 2024 rent roll submitted by the PILOT Lessee to Board staff. Bryant stated this is only two percentage points from the Board’s minimum 75% occupancy rate requirement. Bryant stated there has also been a decrease in occupancy rate for Gospel Gardens from an 86% occupancy rate for Q2 2024, to an 83.5% occupancy rate as of a September 6, 2024 rent roll submitted by the PILOT Lessee to Board staff.
JP Townsend began his report, stating that he will be providing a report on the observable external conditions. Townsend stated that Cavalier Court still has more than ten (10) windows boarded up or damaged and have remained through multiple previous inspections of the property. Chairman Reid asked when Townsend’s last inspection was for these properties. Townsend stated that his last inspection was on September 10, 2024, and he will get into that a little more throughout his reports, but he usually sees each of the properties in legal default approximately eight (8) times between Board meetings. Townsend stated there have been no observable improvements or changes to the multiple fire damaged units, and they are still present. Townsend reported gutter damage is still present, there are still missing condensers on some units, still extensive damage to the driving surfaces, including potholes, damaged speed bumps, and an orange barrel that is covering up a hole from repairs that were made several weeks ago.
Bryce Miller began his report, stating he would be reporting on the tenant benefit line items that are not in compliance at this time. Miller reported that there is no secure perimeter fence at Cavalier Court. Miller clarified that there are some steel pins and fencing at the property, but there are multiple entry and exit points for tenants to enter and exit the property and the property is not secured by perimeter fencing in any way. Miller reported Sky Cop cameras in place but advised that they do not provide full site coverage, and the deteriorated playground equipment has now been removed and the site taped off with caution tape. Miller reported there are no benches with concrete paths at playground areas and landscaping is not consistently maintained.
Chairman Reid asked if the playground equipment that was removed is the playground equipment that was referenced in the Board’s August 7, 2024 Board Meeting, to which Miller responded yes. Miller continued, stating there are no common areas on site for tenants to use aside from the leasing office, stating that the listed tenant benefit was a new leasing office and community building that was to include a fitness room, a computer learning center, an activities room, and office, and is listed as a $325,000 tenant benefit line item. Miller reported there are no community grills and there is no building access controls or fob systems in place observed aside from that of the laundry room. Miller stated that most building entrance doors are often open and unattended. Miller stated he has witnessed dogs as well as people entering and exiting these buildings through these open doors. Stephanie Bryant clarified for the Board that these tenant benefits being referenced by Miller are the tenant benefits commitment of the PILOT Lessee at the time of application and approval of the PILOT in 2018 and were chosen by the applicant.
Kent Mehring stated WNC has allocated over $1,000,000 to turn all the units and address the fire units, subject to investor approval. Mehring stated he has been in contact with the contractor, and that needs to be addressed right away, along with the boarded-up windows. Mehring stated WNC has a line item for the playground, which he believes has already been purchased and just needs to be installed, and the other items will be addressed in short order, with the primary concern being the habitability of the units and getting them make-ready so that the property can be operational and viable. Mehring stated WNC is projecting some substantial deficit funding along the way until operations are stabilized, but that has been identified. Carpenter asked Mehring, since WNC will need approvals from investors, what period of time would be anticipated before actual dollars are expended for these deficiency repairs. Mehring stated as soon as WNC receives those approvals, it will provide the Board with its formal action plan, and that plan will identify the things WNC is going to fund immediately, particularly tied to units. Mehring stated there is a waiting list at both properties so those units should be filled quickly. Mehring stated WNC also has a line item for HVAC and WNC will walk the property to see which units need HVAC systems to be repaired or replaced. Carpenter asked again for the anticipated period of time that would take. Mehring responded it would be thirty (30) days before the plan is implemented and approximately sixty (60) days before a new management company steps in, but in the interim, WNC will have to advance dollars to address some of the items, but Mehring would not give a definitive date.
Melanie Wenk, Chief Operating Officer for WNC, stated to the Board that as soon as the investors approve the plan, WNC will have access to the reserves that are not allocated to these properties. Wenk stated WNC could get access to those funds immediately, then reach out to the contractor and get those units back online, and there is no standard waiting period, once approval is received. Wenk stated the approval process normally takes ten to fourteen (10-14) days. Mehring stated there are five (5) different investors, so these things take some time, but they know it is coming.
Carpenter stated the Board attempts to balance all the equities here with the tenants and with all the substantial investments that have been made and the Board is well aware of that, just as HUD and WNC’s limited partner agreements and others, but the Board has its own standards, policies and procedures that it has to adhere to and the Board is part of the City that the Mayor and the elected officials and all other oversight of this Board, so it cannot just avoid its policies and procedures.
Carpenter asked Mehring to clarify the request for a thirty (30) day extension by walking the Board through what happens between now and the next thirty (30) days that would encourage the Board to go forward with WNC’s proposal. Mehring stated WNC will have the property management company lined up and contract signed. Mehring stated the property management company would need at least thirty (30) days to do their due diligence and step in. Mehring stated much of this plan is news to Frank Sinito. Mehring stated once investor approvals are received, WNC will have access to the money and will fund the contractors that have not been paid, deal with addressing vendors needed that have been paid. Mehring stated WNC wants to turn units and that is the first step to getting in and growing occupancy. Right now, Mehring stated, management is moving residents around the property when units go down or have issues and is not improving. Mehring stated turning units is the primary objective, and then working with management on tenant outreach and how to change the culture on site and utilize local services to benefit these properties. Mehring stated although there are a lot of moving pieces here, once WNC gets approval form investors, it will send the Board the action plan and fund dollars immediately for the fire units specifically, and get the contractor current, which will cost approximately $50,000, then another $400,000 to complete the work at Cavalier Court. Mehring stated at Gospel Gardens, WNC will be focused on unit turns as well, but with additional focus first on sewer line issues.
Laura Carlisle stated that WNC has legal and contractual restrictions on what it can do at this point, however, it has already paid Place Force Insurance because the insurance was at risk of lapsing and WNC has paid the insurance for the past two (2) months. Carlisle stated the contractor mentioned by Mehring has not been paid in approximately two (2) years and filed a lien against the property, and her firm is working to get that cleared and a plan to get the contractor back to work by the end of the year 2024. Carlisle stated this is not traditionally the responsibility of the limited partners, but WNC is stepping in and making those changes and doing what needs to be done. Carlisle agreed that the Code Enforcement Environmental Court Exhibitions are totally unacceptable and WNC is aligned with the Board there and WNC is going to deal with that between itself and Millennia. Carlisle stated that Mehring has provided as much specificity as he can right now, but WNC is committed to having an open line of communication with the Board and to making concrete progress. Carlisle stated she is aware the request is not a fair ask, but the reality of it is WNC’s ability to go tap into reserves and get approvals and get cash is the PILOT staying in place because without it, the deal is not feasible. Carlisle stated WNC has a symbiotic relationship with the Board to get these units back where they need to be. Mehring stated that he has been in the workout arena for over twenty (20) years and has had to step in as the primary and replace the general partner and stabilize assets, and WNC has the skills for that and certain team members that have active involvement in repositioning asset issues. Mehring stated WNC is not afraid to move in and take control.
Cliff Henderson asked if there is a commitment by WNC to fulfill the tenant benefits that were committed to by Millennia. Mehring said yes, but not immediately. Mehring stated only certain things, such as the playground, which is in the works right now and is included in the current action plan. Mehring stated the funding includes everything but the fitness center, and WNC is discussing options and whether to take a unit offline and apply the benefits there, then get approvals from THDA, to which there is a process for that. Mehring stated the community building has laundry in it as well and that is taking away from the ability to put in fitness and computers. Mehring stated there is space in the main building for computers, they are just not installed, but those things are on the list, but the primary focus is turning units, occupying units, minimizing deficit funding, and getting the management company in play to start tenant outreach to start to change the culture there. Mehring stated the properties have not been properly staffed and have been unable to execute because of staffing, surprises with the sewer line, and the fire at Cavalier Court. Carpenter asked, with the fire, if there was no insurance in place at that time. Mehring stated there was insurance, but not adequate coverage. Mehring advised that across Millennia’s portfolio, Millennia was required under the insurance company that an insurance reserve maintain a minimum, which it did not have, so the insurance company would not pay under that claim, so WNC is advancing the dollars to do that, which is $750,000.
Monice Hagler asked for confirmation that the request today is for thirty (30) days for both properties. Mehring responded yes, WNC is requesting thirty (30) days to provide an action plan before the next Board meeting and a timeline for execution. Corbin Carpenter asked, although he understands the constraints, is there anything WNC can do to show some kind of good faith towards remedying some of these issues with the mold and sewage issues in the interim. Mehring stated not until investor approval is obtained. Mehring stated no resident should be in those units pictured and he did not see any residents in units that had those issues, and he would be surprised if there were because one of WNC’s directives was unit residents must be relocated within the property and that is why there is now an occupancy issue, but the Board will see action in short order. Corbin Carpenter advised that he and Director McKnight will attend the Environmental Court hearing on September 17, 2024, but expressed that is it frustrating for legal counsel to continue to see and hear reports of the same issues it has been hearing about since early this year when legal counsel began attending Environmental Court to review these matters.
Corbin Carpenter stated that the case load continues to grow, referencing Pryor’s comments from earlier in this meeting, that he is the lead Code Enforcement Officer and has been specifically assigned to these properties with fifty-one (51) outstanding cases with Gospel Gardens and ten (10) with Cavalier Court, and more to come at the next Environmental Court hearing on September 17, 2024. Corbin Carpenter stated that legal counsel is not here today to advocate for or against these properties, but only to update the Board and give the relevant information to the Board to make their decision, but something must be done for the tenants immediately because they cannot wait thirty (30) days and some action of good faith must be shown to remedy some of these issues. Mehring stated he agrees, and he has been following the tracking sheet that Millennia and its counsel have been using for Environmental Court, and they have addressed a number of these issues in August and September 2024, just not adequate enough, but they have not been sitting on their hands and have been making strides to eliminate some of these health code violations, of which there are many.
Vincent Sawyer asked for the name of the parties in the suit that was filed today. Mehring stated it was files against the general partner entities. Carlisle stated she would get a copy of the suit to the Board following today’s meeting. Carpenter asked the Board if it had any additional questions or needed any additional information. Monice Hagler stated when thing get to this point, it is very difficult to balance the needs of the residents versus the developers and/or owners. Hagler stated that with the concern of the residents and the occupancy levels meeting the Board’s standards, she would be inclined to give another thirty (30) days, not for the group to come back and tell the Board what the parties are going to do but tell the Board what has been done. Carpenter advised there will not be a full thirty (30) day period between this Board meeting and the Board’s October 2, 2024 Board Meeting, but representatives would be expected to appear before the Board under the conditions stated by Hagler at the October 2, 2024 Board Meeting. Cliff Henderson asked if WNC representatives would be able to provide an action plan in writing to the Board before the end of September 2024, to which Mehring stated yes. There being no further questions or comments,
Monice Hagler moved to defer Board action on Cavelier Court PILOT Legal Default Status until the Board’s October 2, 2024 Board Meeting to provide a status update on what has been done, seconded by Cliff Henderson, and the motion passed by majority after a proper roll call vote of the Board members.
For the record, Chairman Reid and Katie Shotts voted not to defer action until the Board’s October 2, 2024 Board Meeting.
b. Gospel Gardens
Monice Hagler moved to defer Board action on Gospel Gardens PILOT Legal Default Status until the Board’s October 2, 2024 Board Meeting to provide a status update on what has been done, seconded by Cliff Henderson, and the motion passed by majority after a proper roll call vote of the Board members.
For the record, Chairman Reid and Katie Shotts voted not to defer action until the Board’s October 2, 2024 Board Meeting.
Laura Carlisle, Geoff Gaia, Warren McWhirter, Melanie Wenk, Kent Mehring, Frank Sinito, Michael Pico, and Renee Weiss left the meeting.
c. Memphis Towers
Brian Myers entered the meeting.
Chairman Reid introduced this agenda item, stating that this Board has spent the most in legal and external compliance fees on Memphis Towers, totaling $33,300 beginning in May 2023 to August 1, 2024. Chairman Reid turned the meeting over to Charles Carpenter for further introduction. Carpenter reminded the Board that Memphis Towers was another property formerly owned by Millennia, and unlike what has been previously discussed in today’s meeting with Cavalier Court and Gospel Gardens, The Richman Group, who was the limited partner for Memphis Towers, actually came in and took over ownership of the property, received authorization through HUD and through this Board to directly assume day-to-day operations. Based on reports from internal and external compliance monitors, The Richman Group has done a good job in taking over completing construction, opening the third tower, Tower B, and producing good results. Carpenter stated at the Board’s August 7, 2024 meeting, The Richman Group representatives made the request, based on the progress made at Memphis Towers, that the legal default status be removed from the property because the legal default status in and of itself was impeding the ability to go forward and finalize some of the financial structures that are needed for the long term. At the August 7, 2024 Board meeting, the Board decided to defer consideration of that request to today’s meeting. Since that time, Carpenter advised the Board that his firm has spoken with The Richman Group’s internal counsel and received confirmation that the legal default imposed by this Board is the only remaining item that would prevent them from going forward to get their permanent financing in place. Carpenter stated the Board has heard from the Memphis Tenants Union and residents of Memphis Towers throughout this process.
Carpenter then turned the meeting over to the Board’s internal compliance monitors to provide their oversight of the property. Stephanie Bryant advised the Board that Board staff received a current rent roll that shows occupancy has increased from fifty-five percent (55%) in quarter 2 to sixty percent (60%) as of August 31, 2024. JP Townsend advised the Board that he would be reporting on the observable external conditions of the property, stating the property continues to be maintained. Townsend reported multiple sitting areas that have been added and maintained externally, with the only note of concern being a back gate that needs to be repaired. Townsend stated that being said, the external site conditions continue to improve. Bryce Miller began by advising the Board that he would be reporting on tenant benefits, stating that most of the tenant benefits have been completed and/or maintained. Miller stated the only tenant benefit that is in process is the community room. Miller stated that he and Townsend performed an extensive walkthrough of this property on September 10, 2024 and toured multiple floors, multiple rent-ready units, the boiler room, the trash compactor. Miller stated the door to the oiler room has a maglock that is in need of repair, as the magnets seem to have stopped working, but that was the only deficiency observed, and work seems to be continuing along at a steady pace from observations. Bryant reminded the Board that The Richman Group did advise the Board on record in previous Board meetings that the community room and common areas are not anticipated to be completed until December 2024. Miller said it deserves to be stated that The Richman Group has gone above and beyond the stated tenant benefits in certain areas, especially with the common areas, although all common areas have not been completed yet, but as Bryant stated, they are not scheduled to be completed until December 2024, and the work appears to be on track to be completed by the time.
Carpenter stated to the Board, as it refines the policies and procedures, the legal default is the most severe level of sanction and oversight and monitoring, but there is a step-down level that would allow Memphis Towers to go forward with this permanent financing, while the Board would still maintain substantial oversight and scrutiny by the Board’s internal and external monitors. Carpenter advised the Board that it could still require the PILOT Lessee to report to the Board and have full responsiveness to the Board under this step-down process, and this may be a consideration the Board could take into account while allowing the PILOT Lessee to move forward with the permanent financing plans, while at the same time, maintaining a balance of necessary oversight to ensure that the plan is executed as presented.
Cliff Henderson asked how this option would be described and what the step down looks like. Miller stated that HEHF Staff has multiple levels of compliance it follows, with one of the lower levels of compliance being “Under Observation” and Memphis Towers has been discussed extensively by staff and staff would like to make a recommendation to the Board that Memphis Towers be moved to the “Under Observation” level of compliance oversight. Bryant clarified this level, stating that observation and site visits are more frequent than the regular compliance oversight of a PILOT Lessee and the “Under Observation” level would include a minimum of monthly onsite inspections by both internal and external compliance monitors, and would require the PILOT Lessee to continue to submit monthly rent rolls to Board staff for review of occupancy. Bryant stated that these steps have already been implemented up to this point with the legal default in place, but moving the property to “Under Observation” would allow the PILOT Lessee to continue to report to the Board as often as the Board deems appropriate but would also allow then to proceed with their permanent financing by removing the legal default status, but still being under an additional strict compliance oversight status. Bryant emphasized that this would not remove the responsibility of the PILOT Lessee to continue with the plan presented but would simply move the PILOT to a less severe level of compliance oversight as a result of the good faith effort shown by The Richman Group.
Carpenter asked Myers to describe to the Board what the lease-up plan is and when he anticipates reaching the minimum seventy-five percent (75%) occupancy requirement of the Board. Myers stated Memphis Towers is sixty-one percent (61%) occupied today with approximately seventy-two (72) files in the application process right now, all in various stages of the process because it is a complicated process in terms of full compliance with what folks have to go through in order to get qualified through HUD and through the tax credit program. Myers stated this it quite a challenge for seniors in particular because there is a lot of documentation. Myers stated he just went over these yesterday, and approximately twenty-eight to thirty (28-30) of those applications that have substantially completed the compliance process and are staggered in moving on between now and October 2024. Myers stated he anticipates being at or near seventy-one percent (71%) occupancy by October 2024 and reaching seventy-five percent (75%) occupancy by November 2024. Myers stated to the Board that Memphis Towers is unlike the properties the Board discussed earlier and that this property has not been stabilized and then fallen into a state of disrepair. Board staff recommended for the Board’s consideration that representatives appear before the Board at the November 6, 2024 Board meeting to provide a status update on construction of the community room, common areas, and occupancy. Cliff Henderson asked Myers if The Richman Group intends to be the ongoing operator of Memphis Towers going forward, or if it has plans to divest at some point. Myers responded that The Richman Group has no plans to divest. There being no further questions or comments,
Cliff Henderson moved to remove Memphis Towers from a “Legal Default” status and for there to be a step-down of Memphis Towers PILOT status to the “Under Observation” level of compliance and for representatives to appear before the Board at the November 6, 2024 Board meeting, seconded by Vincent Sawyer, and the motion passed unanimously after a proper roll call vote of the Board members.
Brian Myers left the meeting.
d. Grahamwood Place
Tie Lasater entered the meeting.
Charles Carpenter introduced this agenda item, stating that Grahamwood Place and Pinebrook Pointe have been on the Board’s agenda for most of this year 2024. Carpenter stated that representative Tie Lasater came in and took over the oversight and maintenance of these two properties since January 2024 and began sharing information that this month, September, was a milestone period for the refinancing of the portfolio, which consists of these two PILOT properties, and several others not associated with the Board’s PILOT program. Since that time, Carpenter stated that the Board’s compliance staff has been working closely with the PILOT Lessee and there have been improvements, but the properties are still not in full compliance.
Carpenter asked staff for the current occupancy rate reported by the PILOT Lessee for Grahamwood Place. Stephanie Bryant advised the Board that although she made numerous requests for current rent rolls for both Grahamwood Place and Pinebrook Pointe, rent rolls were not submitted until after 8:30 pm on Tuesday, September 10, 2024, the night prior to today’s Board meeting. Bryant stated the occupancy rate at Grahamwood Place was reported to be seventy-five-point one percent (75.1%) and at Pinebrook Pointe, the occupancy rate has been reported to be seventy-five-point four percent (75.4%).
JP Townsend began his report by stating to the Board that the internal and external monitors have performed site visits to both Grahamwood Place and Pinebrook Pointe more than twenty-five (25) times per property for an aggregate of more the fifty (50) visits since the projects were placed in Legal Default in October 2023. Townsend began his report for Grahamwood Place, stating that though the project made external improvements, the recent observations in the last two (2) months have shown a gradual visual downturn of the project. Townsend reported that original MLGW holes have been addressed, however, there are still two (2) holes existing on the property. Townsend reported multiple sink holes on the property exist and are a safety concern for tenants. Townsend stated that while window repairs are ongoing, the same broken windows over the past two months are still present. Townsend stated he still has concerns for the pool from a safety standpoint because it does not look functional and has not appeared to be functional since the legal default was issued for Grahamwood Place.
Bryce Miller began his report, stating to the Board that he would be reporting on the tenant benefit line items that are not in compliance. Miller stated that while there are dumpster enclosures that exist on the property, not all dumpsters are enclosed. Miller reported that the 100% roof replacement was completed upon acquisition by Key City Capital in 2021, however, observable roof issues still remain. Miller reported that on his most recent site inspection performed by himself and Townsend, a person onsite made a gesture toward them like they were pointing a gun at both he and Townsend and shooting them, while they were driving through the property. Miller stated this gave him concern, as he has never experienced this level of safety concern prior to this while inspecting Grahamwood Place [Note: all compliance inspector vehicles are clearly market with vehicle magnets that clearly identify HEHF and “Compliance Inspector” for the safety of the inspector and the knowledge of residents and management to know who is on the property].
Carpenter asked Tie Lasater if he had any comments. Lasater stated that he is curious as to the broken windows, because he was onsite this morning at Grahamwood and there was zero (0) broken glass. Lasater stated that there have been pool parties, and the pool has been utilized. Lasater stated there were two (2) MLGW holes this morning that were new and that two had been filled in, but those Key City does not have anything to do with and the deterioration of the concrete is beyond the property, and he is unsure what Key City can do about that. Lasater stated that is over a drainage ditch that is city land. Lasater stated that occupancy has continued to increase, and as long as they have been working towards it, Key City hit a big milestone. Lasater stated that just this last week there have been two (2) lender inspections, one by the lender themselves and one by a third-party inspector that issues PC reports and the lender came back and offered us an unbelievable extension that Key City Capital accepted. Lasater stated that Key City Capital has now extended the loans on all six (6) of its assets, Grahamwood Place and Pinebrook Pointe included, so Lasater stated he is not certain what some of the issues Townsend is referring to, as he has not noticed the same ones. Lasater stated that the parking lot has been done and much of the restriping has been done as well.
Townsend asked the Board if they would like further information on what he reported, to which Carpenter responded yes. Townsend stated that the windows he has spoken of in today’s report that have been the same broken windows are located at the rear of the property, right where he, Lasater and Miller walked through during the most recent onsite inspection of the property with Lasater. Townsend reminded Lasater that this is the building Lasater described a rock had hit the building, and Townsend continued, reporting there are broken windows on both the first and second floors of that building as of yesterday. Townsend stated that Lasater mentioned during the same onsite walkthrough that those broken windows has been broken that weekend prior but that is also untrue. Townsend reported having inspection photographs that show the windows were broken many weeks prior. Townsend stated that if you continue down the property, the next building over has the same two (2) broken windows that have been on the first floor over the course of multiple visits. Townsend provided clarification on the MLGW holes, stating the larger one at the front of the property was fixed. Townsend stated he was there when MLGW workers were patching the hole. Lasater stated the Key City Capital fixed that hole. Townsend stated he did not make note of that it was MLGW specifically, but he observed a crew onsite fixing the hole. Lasater stated that was done in the middle of the night. Miller stated this hole being discussed is the original hole that was referenced in the legal default letter for Grahamwood Place. Townsend stated that he has photos of the equipment and workers present fixing the hole during one of his inspections. Townsend stated at the rear of the property still exists another MLGW hole next to a dumpster that is still boarded up, as well as the sink holes that were mentioned earlier are still there and are the same sinkholes. Townsend stated his concern with the pool is that the pool has running water going into the pool that appears to be filling it, but it is constantly running, which leads him to believe there may be an issue. Lasater stated he did not understand Townsend. Townsend stated that on the side of the pool, there is a drain connection that is constantly pumping water into the pool. Lasater stated that is not new water, but it is the filter. Miller asked if the jets are working on this pool, to which Lasater responded they are working. Townsend stated the tile around the pool is disintegrated and broken down. Townsend stated that over the last three (3) through walkthroughs or unannounced drive-through inspections, he has observed the pool being locked. Townsend stated that the pool is always locked, even during the walkthrough performed with Miller and Lasater onsite in the middle of the day, the pool was locked and chained, and the pool was green. Townsend stated that while there is not an abundance of algae growth, the pool is dirty and was green during his last several inspections and did not appear to be in a functional condition, especially when the entire area was locked.
Carpenter asked Lasater to provide more information about the financing that has been completed. Lasater reported that Key City Capital received an extension where the lender offered a 2.5% rate cap and a twelve (12) month extension with an additional potential twelve (12) month extension past that. Carpenter stated that the Board was under the impressions based on previous meetings that this was going to be a refinancing of the portfolio. Lasater stated that he was looking at a refinancing with Fannie Mae, in which Fannie Mae was going to issue a ten (10) year prepayment penalty, a ten (10) year stepdown, which is going to be extremely expensive if one or any of the properties out of the six (6) properties in the portfolio was sold. Lasater stated Arbor issued a twelve (12) month extension with an additional twelve (12) month extension with only a 1% buydown for any one loan or any one property that is sold, so it is going to be much cheaper for Key City Capital to go that route. Carpenter asked if this is still temporary financing and not permanent financing. Lasater asked what Carpenter meant by permanent financing. Carpenter clarified his question, asking if the financing in place is a long-term commitment. Chairman Reid asked if this current financing is an amortizing loan. Lasater responded, stating that the loan is not an amortizing loan and is the same loan Key City Capital closed on when they purchased the property in 2021. Lasater stated the original loan was a three (3) year loan that Arbor extended for another year with a potential one-year extension after that. Chairman Reid asked if the loan is still in the construction loan phase. Lasater agreed, stating yes, it is, but also stated that there is no construction left on four of the properties. For additional clarity, Chairman Reid asked if that is what the bank is extending is the construction loan facility, to which Lasater stated yes.
Carpenter thanked Chairman Reid for his questions, as it provided the Board with good clarification, and stated to Lasater that the Board was aware that was the period type structure for the loan, but the Board, staff and legal counsel were under the impression from the many reports and statements provided to the Board by Lasater that this loan was being refinanced to be more of a permanent type of loan. Lasater stated that there is a group out of New York the is interested in two (2) of the six (6) properties in Key City Capital’s Memphis portfolio, Emerald Pointe and Emerald Park, and if Key City Capital refinanced and sold those two properties, it would get hammered with prepayment penalties that would be about 5.5% prepayment penalties on those two properties, which does not make sense to do that. Carpenter stated that at this time, the Grahamwood Place is still in legal default, the occupancy had been an issue, through it seems it is on the bubble now of compliance with the Board’s minimum occupancy requirement of 75%, but there are still deficiencies that internal and external monitors have indicated, and that is where things are today.
Carpenter asked Lasater, based on what he has heard from the Board’s internal monitors today, what period of time he would anticipate it would take to correct those deficiencies. Lasater stated he was at the property this morning and he can go back this afternoon and show that there is no broken glass at Grahamwood. Lasater stated that being said, the period of time would be before the next Board meeting, but he is curious what he needs to do to be able to show that because there is a significant disagreement with the condition of the property. Trey McKnight advised the Board that he would get a walkthrough scheduled with the Board’s internal monitors and Key City Capital representatives and take pictures of any deficiencies that remain. Townsend stated for the record that all items he has reported on in today’s meeting, he has photo evidence of. Chairman Reid asked if Lasater could meet the Board representatives at Grahamwood on September 12, 2024. Lasater responded he could not because he has a flight out today, but he would schedule to come back at another time. McKnight advised Lasater that Board staff would reach out to get something scheduled.
Vincent Sawyer asked Lasater what the long-term solution is for financing, and would it be to potentially, twenty-four (24) months from now, assess whether Key City Capital still wants to own the properties and then get financing. Lasater replied yes, and Key City Capital will assess whether the company wants to go with Fannie Mae or Freddie Mac financing, or if it wants to go to an insurance product, or if it wants to stay with the current lender, Arbor. Lasater stated that Arbor has essentially held the financing for eight years prior to Key City Capital purchasing, and now they have had it for three (3) years plus one month since Key City Capital has owned it, it is a good relationship, and Key city Capital has two other portfolio loans with them, so that may be the solution. Sawyer asked if the ten (10) year prepayment penalty would still be in play in two (2) years, to which Lasater responded it would with Fannie Mae or Freddie Mac financing, but he does not know if any of the six (6) properties would potentially be sold at that point, and if Emeral Pointe and Emerald Square get sold, then Key City Capital would change the approach.
Miller addressed Lasater, stating that he would like to set the disagreement concerning the windows aside, and stated that he and Lasater have spoken on several occasions about the sink holes and Lasater told Miller each time that he was going to get them filled in. Miller stated when he was at Grahamwood yesterday, one of those sink holes has now become a trash can, now full of liquor bottles and one of the cones that was sitting beside it to prevent people from falling in it, now the cone has fallen in the hole. Miller stated the fact the HEHF internal monitors have has several onsite walkthroughs with Lasater and Lasater has specifically told Miller and Townsend that he would get those sinkholes fixed, and there still sitting there is of great concern. Miller stated the holes could be filled with bags of concrete. Lasater stated that it is a huge, huge sinkhole, to which Miller responded a dump truck of fill dirt would fill it.
Carpenter stated that based on discussion with Grahamwood and the discrepancies, he would recommend rescheduling this agenda item to the October 2, 2024 Board meeting, and allow Executive Director McKnight, internal monitors, and Key City Capital representatives to schedule and conduct an onsite walkthrough prior to the October 2, 2024 Board meeting and the Board can assess what action should be taken at that time. There being no further questions or comments,
Monice Hagler moved to defer action on Grahamwood Place until the October 2, 2024 regular meeting to allow Board staff and Executive Director to perform a scheduled on-site walkthrough with ownership representatives for Grahamwood Place to review property conditions, seconded by Vincent Sawyer, and the motion passed unanimously after a proper roll call vote of the Board members.
e. Pinebrook Pointe
Stephanie Bryant recommended that they Board also defer action on Pinebrook Pointe until a scheduled onsite walkthrough can be scheduled with Executive Director Trey McKnight, internal monitors, and Key City Capital representatives as well. There being no further questions or comments,
Monice Hagler moved to defer action on Pinebrook Pointe until the October 2, 2024 regular meeting to allow Board staff and Executive Director to perform a scheduled on-site walkthrough with ownership representatives for Pinebrook Pointe to review property conditions, seconded by Cliff Henderson, and the motion passed unanimously after a proper roll call vote of the Board members.
Bryant advised Lasater that she would be reaching out in the coming days via email to get both onsite walkthroughs scheduled for Grahamwood Place and Pinebrook Pointe.
Tie Lasater left the meeting.
Finance Committee Report
Cliff Henderson presented the financial results for the month ended July 31, 2024. After discussion,
Vincent Sawyer moved for acceptance of the Finance Committee Report for the month ended July 31, 2024, properly seconded by Monice Hagler, 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, October 2, 2024 @ Noon. There being no further business, the meeting was adjourned by the Chairman at 01:53 p.m.