MINUTES OF A SPECIAL CONFERENCE CALL MEETING

OF THE

LAWRENCE-DOUGLAS COUNTY HOUSING AUTHORITY

BOARD OF COMMISSIONERS

October 17, 2006                                                                                            Edgewood Homes

12:00 Noon                                                                                                      Executive Office

1.         Call of Roll.

              The meeting was called to order at 12:05 p.m. by Chair, Wes Smith.  The following Commissioners answered present:

            Brenda O’Keefe

            Sonya Johnson

            Willie Amison

            Wes Smith

            Mark Gonzales

               Also present were James Dunn, Landlords of Lawrence; Milton Scott, Vickie Butler and Barbara Huppee, LDCHA staff members. 

            This was a special meeting to discuss the purchase of Clinton Place Apartments and was the only item on the agenda. 

            HUD has sent the LDCHA an offer letter with a due date of October 27 for a response. The price offered for Clinton Place is $2,225,000 dollars and there are limitations on this.  The limitations are that at least 10% of the units be set aside for occupancy for the chronically homeless person, as well as this building would have to be occupied by elderly people. 

            By way of background, last spring the LDCHA conducted a market analysis of this building and the appraisal with the HUD restrictions was $1,050,000 and without HUD restrictions at $1,007,000.  It is known that this building needs $450-$500,000 worth of repairs.  The options that the Board had were to discuss and to determine whether or not, given the information available, that it is a reasonable price for the Board to proceed.  If the LDCHA were to purchase this property, it would be purchased with MTW Section 8 reserves.  An initial analysis of those reserves indicates that the LDCHA would be able to purchase this building at this price with the required repairs.  The Board decision would be whether or not, given due diligence, they should accept the offer.   Ms. Huppee stated that the information given about the reserves is in no way a recommendation it is simply provided for information purposes.  If the Board decides this price is excessive there are two avenues open; try to purchase it directly from the owner with a transfer of assets in which case the Board would have to authorize an offer amount, or go to the foreclosure auction.  The debt on this property is about $1.2 million. 

            Chairman Smith stated if the interest clock continues to tick it could be close to $100,000 a year in interest alone. 

            Commission Gonzales inquired about the current HUD restrictions on the property and asked if this property is purchased through foreclosure, do those HUD restrictions continue to stay on the property? Ms. Huppee said there are three restrictions.   The primary restriction is that this building must be operated as low income housing for 20 years and that restriction is on anyone that purchases the building.   It must be operated as elderly housing as well for 20 years.   One restriction that pertains to the housing authority and only the housing authority and that is if the housing authority were to purchase the building under this offer and not through auction is that 10% of the units are to be set aside for occupancy by the chronically homeless.  This restriction would not apply to anybody that purchases it at auction or through a transfer of deed.

            Nora Cox from KLWN joined the meeting.

            Ms. Huppee was asked if the owner’s current restrictions had expired.  Responding, Ms. Huppee stated that if the owner transfers the assets to another entity, all the restrictions that he currently has on him will pertain.  The seller has met the terms of the 20-year contract and is currently operating under a single year contract.   He has the authority to pay off the debt and  with one year’s notice he could do with it what he chose. He could not at this time sell to a private developer who in turn might wait a year and then do what he chooses, that could not happen.  If the owner sold to a private developer, HUD would have to approve the purchase, and that contract will contain a 20 year contract to operate it as low income housing. 

            Commissioner Gonzales stated that the question of $2.2 million dollars is well in excess of the market price appraisal that was received and a lot more than we would be willing to pay. 

Chairman Smith and Commissioner Amison agreed. Ms. Huppee stated that HUD’s estimate for the repairs woefully underestimated the cost of repairs and certainly the amount of work that the agency would put in it to meet housing authority standards for occupancy.  Commission Gonzales pointed out that the   appraisal also showed a value of $1.7 without HUD restrictions.

            Ms. Huppee explained that HUD is under the impression that this property is valuable and that it would sell for $2.2 million at auction.  The reason being that this property carries a HUD guaranteed subsidy contract that as long as a unit is occupied there will be a fixed rent which will be a combination of the HUD subsidy and the tenant rent.  However, this is a market-to-market property; the market rent per unit for that building will be, at this point in time, $489 per unit per month.  $489 x 12 x 59 units is $346,212 potential a year in rental income.

            Commissioner Gonzales said that we would be better off taking our chances at the auction.  If HUD is correct thinking they will get more money for it, in the shape that it is in, that may be the risk we have to take.  If we went out and paid $2.2 for it today, we would have $2.7 in it before it was habitable. 

            Chairman Smith questioned HUD’s motivation that the property is worth this amount more when the owner gets the money back.  Any proceeds above the debt go back to the owner. 

He suggested going to the owner and offering him what we think it is worth; we could do both, approach the owner, make an offer and if not accepted, go to auction.

            In discussion of the 2.83 acres and private developers’ interest, Ms. Huppee pointed out that the property is at density or close to density and nothing could be done on the fringe without getting a variance.

            Chairman Gonzales asked if going over the market value would be beneficial to the housing authority, and how would we defend doing that?  Ms. Huppee responding by saying that the agency could do a cost benefit analysis based on the premises of,   what is the value to the community to have this property owned by the housing authority versus the private sector owner motivated by the profit. The housing authority’s motivation is its mission. Mr. Gonzales pointed out it could be defended by the income approach of the appraisal after completion of deferred maintenance, it shows a value of $2.2 million.  Ms. Huppee stated the Board would have to decide what level of discomfort they have going over the appraised value. 

            Commissioner Amison stated that he had a great deal of difficulty spending that much over the appraised value of the property, even though we would be able to provide quality housing for Lawrence.  He was in favor of going to the owner and giving him the agency’s best bid and if that doesn’t work out going to the auction and do our best there.  We would be doing what we think would be within our perimeters to spend money on and do it with fiscal responsibly.  Commissioner Smith and Johnson agreed. 

            Commissioner Gonzales pointed out also that on the income side of the appraisal it shows a vacancy rate of 8%. The housing authority would fill those vacancies; that’s another $50,000.

            Chairman Smith said that alone justified giving a little bit over the appraised value.

            Commissioner Gonzales moved to reject the HUD offer of $2, 225,000 for purchase of Clinton Place. Commissioner Johnson seconded the motion.  The motion passed unanimously as Resolution 937.

            Ms. Huppee will send HUD a letter stating that the LDCHA declines their offer.

            Chairman Smith stated that with respect to approaching the owner/buying the property at foreclosure, we need to decide on an amount.

            Commissioner Gonzales moved to authorize the Executive Director to approach the owner with an offer of $1,300,000 to purchase the property directly from the owner with the HUD restrictions in place.

            Mr. Dunn asked the question if the property goes to auction and sells for less than the debt to HUD, would the owner have a deficiency payment that he would have to make to the entity, to HUD.  Ms. Huppee responded by stating, no, HUD has guaranteed this loan.  Mr. Dunn said that the owner is not liable then if it sells for less? Ms. Huppee said that is correct, and if it sells for more than the debt any additional monies are returned to him. 

            There was a discussion of the federal foreclosure procedures and when and where the auction would be held.  Ms. Huppee stated that she would contact HUD and get answers to the questions that were raised.

            Commissioner Amison asked the Executive Director her opinion and direction she would like to see taken. 

            Ms. Huppee stated that she felt the Board had taken the right action in rejecting the HUD offer and that we should approach the owner first and go to auction second. 

            Chairman Smith asked if there was any more discussion on the motion that is on the floor. Or do we want to use that as a starting point and perhaps that will open up dialogue and perhaps a counter offer we should talk about. 

            Ms. Huppee shared with the Board what the owner had said to her the last time she spoke with him.  The owner said he would like $1.7 million plus 1 acre of land.  In talking about the price, he said he had to pay HUD and had two other partners and he would like to have something for his partners and for himself after 20 some odd years. As for the question of there being a redemption period to worry above, Ms. Huppee stated the owner could redeem it right up to the closing contract.

            Chairman Smith asked if there was any more discussion if not he called for a second to the motion. 

            Commissioner Amison seconded the motion to offer $1.3 million to the owner for the Clinton Place property. The motion passed unanimously as Resolution 938:  Staff is authorized to approach the owner and offer $1.3 million for the Clinton Place property. 

            Ms. Huppee stated she would contact the owner immediately and inform the Board of the outcome. 

            Chairman Smith stating there being no further items of business moved to adjourn.  Commissioner Amison seconded.   The meeting was adjourned at 12:55 p.m.

________________________________                                _____________________________

Chairman                                                                                  Secretary                                  Attest