Travis County Commssioners Court
February 10, 2004
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Housing Finance Corporation
Let's call to order the Travis County housing finance corporation. 1. Consider results of compliance audit of circle s apartments, and take appropriate action.
>> good afternoon, I'm harvey Davis, here with cliff blunt, our attorney, in February of 2002, the corporation issued a little over $11 million in bonds for the construction of the circle s apartments. They are located at 7201 south congress. They are a little bit north of slaughter lane. They are owned by [indiscernible] development corporation, which is a department company headquartered in florida and on December the 18th, I initiated a compliance audit of the project, there -- their bond requirements their bonds requirements are to lease 40% of the units to families at 60% or less of the Austin area median income. For example, for one person that would be a little less than $30,000 for a four person family, that would be $42,660. They also are required to lease 90% of the units to families at 120% of the Austin area median income. In addition they have rent requirements that are basically to -- to -- the rents are restricted to 30% of the families income adjusted for family-size and -- and less a utility allowance. The rents that they are charging at circle s are -- are one bedroom apartment is $630 for a two bedroom apartment and 775 and for a three bedroom apartment is $900. And those rents are less than what they are required to charge in the bond document. This is also -- also an apartment complex that has tax credits and there are tax credit -- the tax credit requirements with the state are to lease 100% of the units with families at 60% or less of Austin area median income so those restrictions are actually more stringent than the bond restrictions. We looked at 45 tenant files. All of the files were in good order and in fact I would say excellent order. I found -- I did not find any deficiencies in the files. There's a similar situation that we had with fort branch landing where the apartment is using the income certification form instead of the form that's in the part of the regulatory agreement. I did consult with bond counsel who in this case is vinson and elkins. And they they told me that the state's income certification was sufficient to use instead of the documents in the bond agreements and that -- that they also did not see any reasons to amend the regulatory agreement that -- that if the board approves then they could -- could continue to use the state's form in the backup is an e-mail that elizabeth rupe with vinson and he will elkins sent in which she gives that opinion.
>> other than our not liking the state people, any other reason why we shouldn't accept their form?
>> I do recommend that the board approve using their form. This is what the board did with the fort branch landing situation.
>> yeah.
>> harvey, is that something that we want to consider for the future? I mean it just seems duplicative to have people sending, doing the same thing that if someone is good -- one is good enough for one, we find that to be acceptable, we ought to be thinking in terms of --
>> I was going to say I think that we have already made the determine hays to use the same -- determination to use the same form. For tax credit purposes one form would seem to work.
>> so today should we just pat the representatives on the back, ask them to keep on doing good?
>> uh-huh.
>> I would -- I would recommend that, but I would also recommend to the board, that they allow them to use the state form.
>> very good.
>> any objections?
>> sounds good.
>> state form is allowed. Thanks to the state, next time you visit with them. Harvey.
>> okay.
>> thank you all very much. We appreciate your cooperation. Fine project working. Occupancy up to?
>> actually, there's nobody here -- [laughter]
>> okay.
>> it is a -- they are still leasing up, I don't really exactly. It has 250 units and I don't recall how high the occupancy is. But it's a nice place. I think that it's one that -- that the board would be proud of that they are a part of that project.
>> good.
>> move approval of staff recommendation.
>> second.
>> any more discussion? All in favor? That passes by unanimous vote. Now for the people who took all my comments on item no. 1 I guess. [laughter] number 2 is approve a resolution authorizing the issuance of variable rate demand multifamily housing revenue refunding bonds (travis station apartments project) series 2004a in a principal amount not to exceed $3,650,000 and other related matters.
>> I'm cliff blunt. Counsel of the corporation. To take the easier part first. This is -- this was financed in '85, refinanced in '94, they have come and made a request to do another refinancing. I think the general purpose of the refinancing is taking advantage of today's interest rates. They are initially going to be at a variable rate which a couple of weeks ago I was told that they didn't price it because it will price just before closing, but it was around 1% a couple of weeks ago, we would assume that it wouldn't fluctuate that much. That's the reason that they are asking to do this. The bond documents are all -- we have reviewed them, I have talked it over with lad. So I think from that side everything was good and comfortable. Then I guess harvey had done an audit that we needed to talk about a couple of issues.
>> in doing yet another -- another refunding on this, we would get a brand new length that they would have the requirements of keeping the income, so we are really --
>> yes, they are extending the maturities.
>> extending so we get the benefit of what's happening. 20 year? 30 years?
>> 20. Yes.
>> brand new 20. Which it would have already ended if the 1984 had been allowed to expire, so we get the benefits of what's --
>> and we -- at this time we do not get an annual fee from travis station because our policy in 1984 did not provide for an annual fee. But with the refunding -- they would again pay an annual fee. 10 basis points annual fee.
>> have you shared that with them?
>> yes.
>> discussed that with them?
>> yes, we have.
>> I went out and did an audit and principally in preparation because of this refunding. I did find three issues in the audit. I looked at 35 tenant files, in the nine of the files there was not an income certification that was prepared in general I found the files to be -- to be somewhat disorganized in that the -- the income certification should be in the file folders and easy for us to go out and do an audit. They were -- they had not been put in. They were, you know, in various locations and to me it -- it indicated a lack of oversight by the owners. This is a large national apartment company that should be providing oversight to the -- to the local management company and so it appears they are for whatever reason not coming in and making sure that, you know, everything is being done properly. In addition, they are not recertifying the low income tenants annually, the law in the 80s did not require them to recertify annual but when -- when the refunding occurred in 1994, the loan agreement then was struck -- written so that they do have to recertify the tenants annually. So they -- they are in compliance with the internal revenue code as far as documenting enough low income tenants. In this situation their leasing requirement is that 20% of the units have to be leased to tenants at 80% or less of Austin area median income. So it's quite a bit higher than the -- or more lenient than the circle s situation. Then again they have to lease 90% of the units to tenants at 120% of median income. The third concern that I had was that the lease agreements are supposed to have a -- an addendum or part of the lease agreement to tell the tenants that -- that -- that the owner is relying on the accuracy of the income certification and supporting documents for their -- for approving them to -- to lease their units. So that if they -- if they misrepresentations on their income certification that could be grounds for eviction because that would concern the bond document.
>> whose requirement is that?
>> that's in the loan agreement.
>> that's in our bond documents. [multiple voices]
>> it's not an internal revenue code requirement for this particular transaction.
>> it's a housing finance corporation requirement?
>> yes, sir.
>> okay.
>> it's pretty much a -- the requirements that we would have in all of our bond documents. So any recommendation -- so my recommendation, I listed five recommendations. One was that the -- that we -- that the owner conduct an immediate comprehensive, internal audit of the -- of the complex and report to the board in the next 30 days. And that they organize the files in a manner that -- that would -- that would enable or the internal revenue service or whoever to come in and easily conduct an audit. That they be able to recertify all of the low income tenants on an annual basis and of course that they add the lease agreement. The last item that they had was in this situation that perhaps the owner could put up a deposit with our attorney. I had recommended a $10,000 amount that would guarantee that they would get back into compliance in the next six months.
>> harvey, on that internal audit, would their corporate office maybe come down and assist them, the management portion of that to make sure that --
>> that's what I envision. Because this is a large national company, they have a compliance department and that compliance department should be coming down and looking at their -- at their apartments in Austin, making sure that their bond properties that they are complying with the bond requirements, so it appeared to me that it had not been done.
>> I would like to move approval of item 2 with the -- with the staff recommendation that was presented by harvey Davis.
>> are there representatives here from travis station? Would you like to come forward and give comments?
>> sure, i've only been there about 60 days.
>> we promise not to be mad at you.
>> come on up.
>> you wouldn't be ms. Wolfgang would you?
>> no, I'm [indiscernible]
>> okay. [multiple voices]
>> manager, tina gutierrez, the local manage.
>> ms. Wolf gang, is she here in Travis County.
>> no, sir, she's in memphis.
>> their headquarters.
>> okay.
>> this is the first time that I worked on a bond property. Harvey brought this to my attention yesterday. I have already implemented everything that he's told me to do. The five things that he went over with you guys, same thing that I went over with the staff yesterday. We have already started recertifying everybody. We will be in compliance within 30 days. So -- so some of the files that were lost, the nine that we couldn't find, we did find. Not in time. They just asked me to come in and we are going to have someone from the corporate office, I believe her name is diane.
>> okay, that's what I was wanting to hear.
>> that's going to be coming down to do the audits on each file. Making sure that everybody is still -- still is within the margin of where we need them to be and the percentages, the 80 and 20. So --
>> we are scheduled to close on March 2nd. We scheduled it today just because of the lead time in getting documents signed, getting the attorney general approval and so forth, so generally we would like to have two or three weeks to -- after approval to get all of that done before closing. Also this closing is happening in new york, so we have got to get everything together and up there rather than here in Austin.
>> do we -- do we have the legal authority to require a $10,000 deposit.
>> well, contractually, we can do anything that's agreed to between the parties. I've had several conversations with the headquarters in memphis today. I think the first four of harvey's recommendations were they were very happy to take care of and were already -- we were already beginning to work on them. I think the one that causes them pause was the $10,000 in he is -- in eskrow because it's unusual.
>> how long it will take the files to get back into shape, that would be one thing. But this is something that realistically they can turn around in 30 days, number 5 seems a tad harsh.
>> I would say in terms of.
>> in terms of financing the board needs to approve the bond resolution as drafted or determine the way -- to wait a week or so, we could still get it done if it was not approved until the 17th. It makes it easier if we have the approval. I will say in -- in defense of this borrower, I did not -- I found out from harvey this morning, I have contacted them about 8:30, 8:45 this morning, they have very diligently begun work on all of this this morning. It was a little quick for them to -- the person that would have actually made the decision on the $10,000 discussion --
>> what's in the bond document about $10,000.
>> there's nothing, there's nothing in any of the documents related to financing about that. This was just a, I guess a thought that harvey had about -- one thing that we do have a problem with sometimes is borrowers coming in and saying they will get in compliance in 30 or 60 days, they come back and haven't done it. I think his concern was, you know, there ought to be --
>> big concern. How much of this can you all get done in two weeks?
>> 90 percent of it is just going to be re-- reapplying, redoing all of the bond documents. We will have very few new ones that we will have to do. Fortunately for us the property has -- has a lot of long-term and those people, like I said, so it will just be a matter of doing that. I think in two weeks we could probably get I would say about 75% of it done, if not all of it, working day in, day out.
>> a few more questions, I will be done. At the closing what do we do?
>> at the closing of the refinancing?
>> right.
>> we issue the bonds at -- that are paid and then the proceeds are used to pay off the existing bonds and it's just -- then things go on as normal. They just have new loan payments. But nothing happens at the bond closing regarding this particular issue unless we --
>> unless we manage to do so.
>> yes, sir.
>> that's why I'm asking. The closing is scheduled for March?
>> March 2nd.
>> March 2nd, which is I guess --
>> everything occurs on that day that's supposed to occur for refinancing.
>> yes, sir.
>> well, we are looking for leverage. Two ways to shoot at it. We can say let's see how much of this we get done in two weeks. And execute whatever we need to today.
>> well, judge, I would say that two weeks is probably a little late to get things signed. Some of the documents need to be to the attorney general's office five business days ahead of time.
>> I assume we will go ahead and do that, but if we need to back out could we do that.
>> my recommendation the bond resolution does have the authority for you to sign documents with any changes that you deem appropriate. That -- that we work to -- to either move this item to next week, that would still give us enough time to get it done, but we will do it today and add language in the loan agreement that makes you comfortable about getting these things done. Waiting until the 24 I think will make it very difficult if not impossible to accomplish the refinancing. It's a part of several projects being refinanced at once. It's not just the Travis County project. There's several other ones involved in this transaction, too.
>> I think that I would prefer to do one of those, either put it off a week and let us work that out between now and the 17th or to approve it today with the understanding that you won't sign the loan agreement until you see changes that you are comfortable with.
>> well, I assume if you get only 75% done in two weeks, it would be much less than that in one week, right if.
>> probably. Like I said, this was brought to my attention at 5:00 yesterday. So it's something that I'm going to have to dive into. And figure out. Along. And how much of it we are going to have to do new and how much we are going to have to redo.
>> the point about the 10,000 bucks was headquarters need to know that we are being serious, we need these agreements to comply with.
>> yes, sir.
>> so instead of 10,000 bucks, I mean the court could authorize me to hold off on signing necessary papers if we don't think satisfactory progress toward full compliance has been made by the date of closing.
>> right. I would have -- I would have -- if we did not have this refunding situation, I would have normally come to the board in this type of audit and recommended a cure letter. So I mean that would be an option which would be -- you know our -- our normal course of action in -- where we do have --
>> your deposit leverage in spirit but not in dollars.
>> okay.
>> yes, sir?
>> okay. Do you think your corporate office would be able to get down and do all of those kind of necessary things within three days -- within 30 days?
>> I think that it's very important to them. Like he said they let them know about 8:45. I have gotten probably about 15 e-mails at my office this morning in about three hours, so yes. They are very interested in coming down. Getting it taken care of.
>> okay.
>> is it ms. Contraras.
>> gutierrez.
>> I'm sorry. You might not know these, so harvey whoever -- whoever -- when we did this thing, when Travis County did this thing initially in 1984.
>> 85, yes, sir.
>> 85. And there was no annual fee.
>> correct.
>> okay.
>> today our annual fee would be what, 1%.
>> 10 basis points annually. I will say in 1985 there was not an annual fee, but there was a one percent closing fee, so there was a fee paid to the corporation at closing of 100 basis points, but no annual fee and subsequent to that the corporation changed its policy to reduce the closing fee and to add an annual fee but that more closely matched the time and expense that the corporation takes in administering these programs.
>> the closing fee for a refunding is 25 basis points. So this -- this -- the corporation does get a closing fee. Half of what they would get in -- if they were issuing new bonds.
>> what was the amount that was issued in 1985, what was -- was it 4,565,000 or was that --
>> that was the refinancing in 1994.
>> it was originally 13,300,000.
>> okay.
>> so -- so in effectively 20 years they have taken the principal from 13 million down to 3 and a half million.
>> yes, sir.
>> okay.
>> that's a pretty good performance.
>> yeah.
>> we are at 91% right now, we have climbed in the last 60 days from 84 to 91.
>> okay.
>> well, that is very nice complex. Very nice.
>> thank you.
>> my motion then is for us to execute, to approve the refinancing, execute the paperwork necessary for closing, on March 2nd, to have this matter back on the court's agenda in two weeks. On the board's agenda in two weeks, which is February 24th. For us to get a status report.
>> I will second that with the --
>> and further request that ms. Gutierrez communicate with headquarters, that we are serious about this matter, and another visit close to the 24th, is that okay?
>> that's fine, yes, sir.
>> we need to get as much done as we can. The leverage here is -- our lawyer tells us is for the board to decide that the county judge should not execute the closing papers in a timely manner to -- to accomplish the closing. Which means dollars don't flow as they should. That's our leverage. What I'm trying to do is get as much done as possible before the closing without holding it up. We don't blame you and we certainly won't ask for that fee. If you communicate with headquarters for us, the spirit of what we are about to do, I think, we would appreciate that.
>> judge, that motion does encompass the recommend addition as far as what's being recommended by staff [multiple voices] with the exception of the $10,000, which you will leverage at that time to sign the necessary paperwork if it's in compliance with what we are trying to do here.
>> close to that I'm hoping on the 24th we look at this matter --
>> [indiscernible] motion I made then. All right, second that.
>> I want to make sure --
>> sorry.
>> the motion is to approve the bond resolution with the understanding that with the language in the bond resolution that allows the officer executing them, the documents, to approve any changes in -- in -- you will either need to be happy with the progress that's been made or approve some changes in the loan agreement that makes you comfortable or the officer signing them comfortable that they will be accomplished in a short period of time afterwards. That and this being back on the board's agenda two weeks from today, which is February 24th. What I'm trying to spread this responsibility to the five of us rather than -- rather than the president.
>> I understand. But I have to get the documents executed by one person.
>> then that -- that is friendly to the motion.
>> okay. Thank you.
>> any more discussion? Met gutierrez may need a letter describing this.
>> yes.
>> mind you.
>> yes.
>> when mr. Davis can sign.
>> [laughter]
>> all in favor? That passes by unanimous vote.
>> thank you all very much. Thank you.
>> thank you.
>> thank you all. 3. Consider and take appropriate action to approve preliminary resolution for the financing of shadow apartments, manor, Texas and other related matters.
>> yes, sally gaskin an officer of the general partner for this particular applicant is here to -- I don't know if she has a presentation or here to answer questions. This is a project that we originally adopted the resolution a couple of years ago, a project in minor just off of 290 close to the new shadow glen golf course, that development, and for a variety of reasons, the timing did not work out to accomplish it now. So -- so they are coming back and asking for a new preliminary resolution. This again is just a preliminary resolution, if an allocation is received from the state, they will have to come back and provide a whole program and documents that -- that we are pleased with. So it's very preliminary at this point.
>> now, that last preliminary resolution has nothing to do with -- with the project not being successful last time.
>> nothing to do with the resolution, no, sir.
>> any reason that we should not do this.
>> no, sir. It's not binding on the corporation to go forward. If the corporation isn't pleased with the program that it's put together for the project.
>> any questions or comments.
>> move approval.
>> second.
>> any comments? You don't want to talk us out of it do, you?
>> no. You all are doing fine. [laughter] all in favor of the motion? That passes by unanimous vote.
>> move we adjourn,.
>> second.
>> all in favor.
>> that passes by unanimous vote, too. Thank you all very much.
>> thank you.
Last Modified: Tuesday, February 10, 2004 6:44 PM