Friday, September 21, 2012
Evans, GA
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?
 |
| Magnolia Trace under construction |
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 ifrom 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?***
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