The Bounty Trace to Magnolia Trace by Al Gray
The fury in and surrounding the
Columbia County Commission Chambers on December 6, 2011 sizzled and seethed.
Citizens packed the room and the overflow could have surrounded the building.
An incongruous and unwelcome subsidized housing development, to be known as
Magnolia Trace, was coming to their midst. The county commission had invited
the intruder in. The Georgia Department of Community Affairs (DCA) was funding
it. The only notice had been the real estate closing and starting of the
building permit process. Revelations that the project's limited partner, Affordable
Equity Partners (AEP) of Columbia, Missouri, had – through
subsidiaries, related entities, and PAC’s - liberally provided campaign
donations to Georgia’s governor, lieutenant governor, speaker of the house
and local state legislators added to the combustible mix. Capping it off later
was the discovery that the county attorney also had worn the hat of closing
attorney for the developers.
Inside, the commission chairman,
three commissioners, and that county attorney were stoic, but their white faces
and knuckles spoke fear. Their position was one of relative comfort
juxtaposed to the District Three commissioner, a man inopportunely
appointed to the offending Department of Community Affairs
board (albeit after DCA had approved the tax credit funding to AEP) and who had
voted for the county’s resolution to endorse the project. His business had been
picketed, his phone ceaselessly chattered, a local talk radio show with 60,000
listeners was hostile, and real pressure was on. He was beet red and seemed to
be near break down.
An epic
meeting ensued that concluded an hour and a half later with the
commission engaging an outside attorney charged with seeing whether there were
avenues to void the deal. It was a fig leaf and seen that way. The
project was too carefully planned and orchestrated for citizens to have a
realistic chance of canceling it. After all, Affordable Equity Partners boasts of its long
history of doing tax credit projects in multiple states and its role in
encouraging states to provide the tax credits. From the company website: "By forging strong relationships
with key government entities, AEP ensures a secure and favorable investment
environment for our investor partners."
Who Done It?
The first stage in the development
and investment process for a Low Income Housing Tax Credit project is said by AEP
to be this: “A developer
of an affordable property will admit AEP as its limited partner.." This
portrays the circumstance of a group of local property developers gaining
control of land, then engaging the AEP companies to structure the deal as a
LIHTC financing. Who are the principals behind Magnolia Trace? They are hidden
by the LLP structure, so that remains a mystery.
The birth pangs for this project
came when an AEP entity named Peach Way Holdings LLC obtained an option on
March 24, 2010 to purchase the land. Later the option would be exercised by
Magnolia Trace LLP. Immediately the process began to submit an application to
DCA for tax credits used to finance the project. Peach Way Holdings was the
first entity publicly involved out of an AEP interconnected stable of companies
who are very adept at carving out a lucrative niche.
Extraordinarily High Costs Meet a
Stunning Reversal
The Magnolia Trace project was so
astonishingly lucrative that the DCA
staff initially refused to approve the application on December 14, 2010 (click link
to view document) based on that fact and a host of other
financial criteria. “Total development costs for this
project are over $10 million dollars which translates into almost $141.24
(author used round numbers) per square foot. A similar project had total
development costs of only $7,561,982. This translates to almost $2.5 million
more of total development costs.”, DCA wrote. Despite having slammed
the numbers as entirely too high and the applicant being barred from updating
or modifying anything upon appeal, DCA approved the credits for MagnoliaTrace in a
letter dated March 14, 2011 (click link to view approval document) .Incredibly
the approval notification letter has a DCA documents date stamp of January 7,
2011, 66 days before the document was dated!
A need to call upon AEP's “strong
relationships” within government to gain approval before December 31, 2010 lay
in the expiration of a key contract with Peach Way Financial Services. The
vaunted "genuine
advocacy for both developers and investors" worked wonders
to speed approval, evidenced by what looks like an obvious post dating episode,
over a period interrupted by Christmas and New Years.
Who might Magnolia Trace
LLP/Affordable Equity Partners have called upon for help in this time of
emergency? Lt. Governor
Casey Cagle's campaign got $882.50 from AEP going back to 2008.Sister
company Capital Health Management Inc. gave Cagle another $10, 453.50.Capital
Health Management in October 2006 had given $40,000 out of
the $40,500 total of The Fund for Georgia's
Future (Filer # NC2006000414
) who gave Cagle
another $10,000 that same month.Capital Health Management in 2008
gave a whopping $100,000 to The Fund for Georgia's Future, who dispersed it to
a raft of legislators. and the Republican Party.
Capital Health had also given the
campaigns of Speaker David Ralston $5,000, Senate Majority Leader Chip Rogers
$5,500 and Nathan Deal $6,300. Another PAC that AEP contributes to, albeit not
as the dominant contributor, is the Committee for Affordable Workforce Housing
(GAHC-PAC – Filer NC2008000070). This PAC gave another $6,100 to the Deal campaign
in September 2010, $1000 to Ralston in
December 2010, $5,973 for
Deal in December 2011, and $3,000 for Cagle in March, 2012.Nearly
$200,000 in campaign funds wins friends. In this case did it reverse a project
rejection and move a date?
A Masked Partner?
The DCA application process requires
disclosure of all related and controlled entities. Peach Way Financial
Services, LLC , the Development Consultant, seems to fall within this category,
as William A.
Markel, Executive Vice President of AEP, is listed as Peach Way's Agent for its
business registration with the Georgia Secretary of State with
the listed mailing address in Missouri coinciding with AEP’s office address.
However, in the tax credit application filed with DCA, Peach Way Financial, the
project Developer Consultant, was listed with an Atlanta address and was
reported to “not have an identity of interest with any other entity in
this chart.” *(Click here
to view Magnolia Trace parties document). It is noted that the
“identity of interest” question applied to each and every entity in the chart.
A side note is that Peach Way
Financial Services, LLC is shown to have filed its business registration
with the Secretary of State for 2011, when the application process remained in
play, but is reported to be in a state of
noncompliance for 2012. According to its contract, Peach Way
Financial Services gets fee payments in 2012 from Magnolia Trace.
“Inefficient financial structure”
Before Magnolia Trace LLP's sudden
change in fortune, DCA had written this about the project: “.... the
financial structure is not an effective or efficient use of DCA resources.” What
might be the reason that the “financial structure is not an effective use…?”
Could it be that multiple layers of AEP affiliated companies produced the $2.5
million more in costs cited by DCA?
Arguably the largest money tree in
the AEP stable is that the tax credit financing process allows “AEP’s ability to insert an
experienced affiliate into every step of the tax credit process provides added
security to AEP’s investors." With Magnolia Trace, Peach
Way Holdings secured the land option. Magnolia Trace LLP became the
owner. MACO Development Company, LLC is the Developer. AEP itself is
the State and Federal Limited Partner. MACO Properties, LLC is the Managing
Partner. Peach Way Financial Services LLC is the Development consultant.
Fairway Construction Co. Inc. is the General Contractor. Fairway
Management is the management company. All are related and most stood to
gain fees, directly or indirectly.
How much of the $2.5 million
excess cost that DCA objected to might be found in having so many AEP companies
involved? The land acquisition and construction 'costs' totaled $6,986,826, or
a whopping $100 per square foot. The total development 'costs' of
$10,152,634 were $145.45 per square foot. Of the roughly $3.2 million
difference, fees, overhead, and profit of the AEP stable of companies
were about $2.1 million, or 66%.
A Lot More than A Trace of Money
Once a subdivision is complete, the
AEP companies begin to draw management fees from leasing operations. Magnolia
Trace will join 17 previous AEP company developments in Georgia. Projected
management fees to be generated from the Martinez complex are estimated at
$1,160,885.
The approved tax credits were
$1,065,849. If the DCA's figures and objections from December 2010 are correct,
the excess of tax credits over the norms would be about 25% or more than
$250,000.
Magical Words to an Auditor's Ears
The application contained the
language “Certification of Actual Cost” and the authorizing provisions in
Chapter 42 of the tax code preserve the rights and capabilities of audit before
the tax credits are issued. This could prove providential in protecting state
and federal tax revenues, as there are new homes for sale in similar
neighborhoods for sales prices in the low $70's per square foot. Upon audit can
the $145 per square foot price supplied by the AEP companies be sustained? The
larger question is whether anyone will ever be allowed to audit this
transaction.
Summary
Citizens of suburban, Republican
Martinez, Georgia got an unwelcome subsidized housing project courtesy of
unknown developers. If there is solace in this story it is that Martinez county
commissioner Trey Allen got the Department of Community Affairs to reform its
policy so that future locales will be notified beforehand of low income
projects. The politicians got nearly $200,000 of campaign donations. The AEP
stable of companies look to have secured a backdated approval of a project that
DCA deemed excessive on the way to winning more than $1.5 million in
development fees, $1.1 million in tax credits, and $1.1 million in management
fees. Along the way, one entity looks to have been undisclosed as a related party
and has fallen into noncompliance with Georgia's business registration unit.
The identities of the parties who
launched this controversial project will be hidden behind opaque partnership
structures, while a cash-strapped state government sees its revenues drained,
not only by very lucrative tax give-aways, but also by layered on costs that
the state agency found to be excessive. Can this really be government by and
for the people?***
Source:
City Stink.net Augusta, Written by Al Gray, Evans, GA,
Friday, September 21, 2012
Comments:
Beware of HUD, suburban
subsidized housing, private/public partnerships, crony deals and out-of-state
campaign contributions coming soon to your city council and county commission.
Norb Leahy,
Dunwoody GA Tea Party Leader
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