REGIONAL REPORT: SOUTHEAST

Three’s a Charm

AFFORDABLE HOUSING FINANCE • JULY 2007

On July 23, 2006, The Miami Herald dropped a bombshell. That’s when the newspaper published the first article in a fourpart, Pulitzer Prize-winning investigation that revealed corruption, misspending, and mismanagement at the Miami-Dade Housing Agency, the sixth-largest public housing agency in the nation. The story pointed a finger at developers who received millions of dollars in funding from the agency, yet failed in some instances to build a single one of the homes they promised.

Although no developers of lowincome housing tax credit (LIHTC) properties were implicated in the scandal, just five days later some of the biggest producers of LIHTC housing in South Florida sat stunned as leaders at a Florida Housing Finance Corp. (Florida Housing) meeting questioned whether the state agency should suspend funding for LIHTC projects located in Dade County.

We were sitting in the audience listening to this, looking at each other, like, this backlash is unbelievable,” said Marc Plonskier, president of the Gatehouse Group, a Boston-based firm that is one of the largest LIHTC developers in Dade County. “That is really I think what sent the wake-up call to us that we have a problem, we all have a problem.”

“I remember standing up and I think Lloyd standing up, and we were trying to figure out, should we get up there and talk and say something,” Plonskier continued, referring to Lloyd Boggio, CEO of the Miami-based Carlisle Group. “I think we were too stunned.”

The ticking clock

The two developers, along with three others including Pinnacle Housing Group, LLC, were already facing an urgent situation: Between them, they needed to start construction right away on seven developments that had received LIHTC reservations in 2005. That’s because, with construction timelines of as long as 18 months, the developers were already in danger of missing deadlines that required them to place the LIHTC projects in service within two years.

And the tight timeline wasn’t the only hurdle the developers were up against. In Miami, “no tax credit development can be built without surtax funding from the county,” said Boggio. Miami-Dade County charges a surtax on documents filed with the county recorder’s office and uses the funds it collects to help finance affordable housing developments.

Because Miami-Dade County’s high land costs force multifamily developers to build multi-story buildings, and the threat of hurricanes requires them to use expensive reinforcement measures, LIHTC projects typically have substantial funding gaps—which they need surtax money to fill, developers say.

“We started to realize that if we don’t have the additional subsidy, we’ll never be able to close on our loans,” said Mitchell Friedman, a partner with Pinnacle Housing Group in Miami. But in the wake of a scandal, bureaucracies tend to grind to a halt, the developers said.

Plus, after the scandal broke, Miami-Dade County Mayor Carlos Alvarez ousted most of the Miami-Dade Housing Agency’s top leadership and installed new executives, who were not only tasked with cleaning up the mess but also with putting new procedures in place to prevent more problems from happening in the future.

Breaking the logjam

“The mayor’s reaction was, ‘Stop everything. No more money’s going out the door until we figure out what’s going on,’” said Steve Auger, Florida Housing’s executive director.

So Pinnacle, Gatehouse, and Carlisle banded together to try and break the gridlock that was developing. They needed to persuade local officials to come through with surtax funding in time to allow their LIHTC projects to meet their placed-in service deadlines.

The first thing the developers did was persuade Florida Housing to swap their 2005 allocations of LIHTCs for 2006 allocations, giving them an extra year to meet placed-in-service deadlines. That move delayed the day of reckoning for seven projects with a total of 641 units and development costs of more than $133 million altogether.

“Our three companies are real fierce competitors,” said Plonskier, “but we realized we had a deep common interest in making sure that the county that has by far the largest need for affordable housing in the state of Florida doesn’t suddenly have its supply cut off.”

Plonskier, Boggio, and Friedman compiled a chart listing all the upcoming tax credit developments in Miami-Dade County, including 18 that needed to be built and opened by the end of 2008. They made joint presentations at meetings with county officials. They stayed in regular contact with officials such as Assistant County Manager Cynthia Curry, who oversees the housing agency, to try and prod them to speed up their decision- making process.

“We met with the mayor, we met with the chairman of the county commission, we met with a county commissioner … we met with the new staff people at the county,” said Boggio. “We just did a lot of education.”

Waking up from a nightmare

The developers’ decision to coordinate their efforts was a savvy move that only enhanced their credibility with local officials, according to Auger of Florida Housing.

“It had a powerful effect when those developers went in and said, not just ‘Give me my slice of the pie,’ but, ‘Here’s why this should be important to you from a policy level,’” said Auger, who noted that LIHTCs in Florida are typically oversubscribed by 3-to-1, making each application round a tight contest. “That was to their credit that they were willing to put aside competition for the moment for the greater good, and I think that helped us all and helped Miami-Dade County move the ball down the field.”

As the months wore on, though, things started to look even worse for the LIHTC projects that were in suspended animation, said Plonskier. He pointed out that by the end of 2006, not only were some projects nearly six months behind their original schedules, but they were also facing a plunge in LIHTC equity prices that had the potential to further tighten the financial screws on the developments.

“All the wrong things were happening all at the same time. It was really truthfully a nightmare,” he said. “I’ve never had anything like this happen to me in the 17 years or so I’ve been doing this.”

Finally, early this year, the developers started to get what they wanted. The logjam began to break in January, when county commissioners approved local surtax allocations for eight of the 18 projects in need of that funding.

Leap of faith

Plonskier got word a few months earlier that the approval was going to come through for at least one of his projects, so he took a big risk and started construction in November on a 160-unit, $23 million project known as Lafayette Square even before local officials took the January vote.

“I could not hold my syndication pricing otherwise, so I had to face a choice and decided I was going to move forward,” he said.

Plonskier made a personal guarantee to his investors that the county money would come through. “I wouldn’t do it again,” he said, noting that the shell of the 19- story building is already complete. “Now I need my contract, my commitment from the county, and I need to close and be funded very soon.”

Finally, in mid-May, the last pieces fell into place for Miami-Dade LIHTC developers. A committee of the county board of commissioners approved about $53 million in surtax allocations for 22 LIHTC developments, including some that had already received allocations in January, and four from earlier LIHTC cycles that needed extra subsidies as a result of rising construction costs.

A crucial need

Miami-Dade County “is one of our highest cost to build areas, so that local resource is really critical,” said Auger.

The projects now in a position to move forward with construction will create more than 1,800 affordable housing units at a total development cost of $423 million.

“We all do business throughout the state of Florida, but [Miami-Dade] is the place we’ve been most successful because it’s the place people are the most desperate for housing,” said Plonskier. “I have waiting lists for all my properties; I don’t have that anywhere else in the state.”

Incomes are low in south Florida, even as housing costs have soared, making it one of the least affordable cities in the nation for working families. Between 2002 and 2025, Miami- Dade County will need to add more than 21,500 units of affordable housing, according to statistics from the Florida Housing Data Clearinghouse.

Said Plonskier: “Miami has the most extreme need of any place I’ve seen.”