PEARY COURT PURCHASE / Banks: Thanks, But No Thanks…
BANKING INDUSTRY: ‘THANKS, BUT NO THANKS…’
In preparation for the March 15th referendum on the purchase of Peary Court, the City sent out requests for bids to various banks. The City retained PFM, Inc [Public Financial Management] to help collect those proposals that would provide information on how the City would finance the 55 Million dollar purchase.
However, only one bank was interested. But even that bank, Centennial Bank, has rejected one of the fundamental conditions for the deal: The City wants the loan to be secured only by the rent roll and the property and it’s spelled out that way in the referendum. However, Centennial is offering to lend the money only if the loan is backed by a “general obligation of the City of Key West.” In other words, taxpayers would guarantee the loan together with whatever assets the City possesses.
Another point of interest: Housing Authority Executive Director, Manny Castillo and Commissioner Jimmy Weekley presented two financial analysis [proformas] at public meetings including one that would allow 25% of the 2-bedroom units to be rented at the low-income rate [$1571/month] and 25% at median-income rate [$1965/month] along with the the initial proforma showing all 157 units renting for $2358/month [the “moderate-income affordable” rental cap which is more-or-less market rate]. The Request For Proposal [RFP] sent out to the banks, however, did not ask for a proposal on the lower rent option. Arguably, the banks might get even more skittish if they are presented with an operating income that has been driven down by lower rents.
Mark Finigan, the City’s Finance Director, has informed City Commissioners that he has asked PFM to provide information as to why the banks are shunning this financing opportunity.
Peary Court was purchased approximately two years ago for around 35 Million dollars. The property (minus several acres that would be retained by the current owners) is now being offered to the City for 55 Million.
A committee will meet on February 5th to discuss their recommendation. The issue is set for discussion during the February 17, 2016 City Commission meeting.
Here is the Centennial Bank proposal.
Contra Puncto: “City commission can’t do anything by itself. It can’t think without a
consultant. It can’t decide anything right. It can’t even collect
proposals without hiring somebody with our money! Banks not interested
in Peary Court because banks are not idiots. But commisioners…..
Anyway the city should not provide any houses for anybody because it is
not a government job to provide houses. Cheap houses are not in
20 thoughts on “PEARY COURT PURCHASE / Banks: Thanks, But No Thanks…”
Anyone at all who can cite a time when the City has defaulted on a loan for any of its residential properties, please post here. It isn’t he economy. Peary Ct. was 98% rented throughout the recession. Key West will not endanger its credit rating. This mortgage shopping was just to see if banks would lend at the City’s proposed rate, 3.5%. The recent fed increase has made banks want higher rates. Adjusting this rate upwards too much would push the rents up but they could still go up a little and be below market rate.
P.S. If you bother to read Centennials 13p. offer, please note that they want an adjustable rate? Would you take one, after what’s just happened. City wants a fixed rate. Banks know interest is going to keep going up and they are still greedy. I wouldn’t take this deal for anything, and I’m a former developer and investor. I have redone 41 houses and built 3 subdivisions in my former city. The last was the first affordable housing ever built there, 21 years ago. This City is too rich to default. Peary Court is the deal of the century,
Hello Faithful Reader,
A bit confused. Just to be sure we understand. You are saying this is the deal of the century for the banks – if they can finance at an adjustable rate and if they are secured by the general obligation of the City. The City is very rich so it will never default and the bank should not be concerned about getting paid even if the project is not profitable. You would not do it because you expect interest rates to go up. Not a good deal for taxpayers because no guarantee that we won’t have to dig into City coffers due to rising interest rates?
They offered a 10 year fixed rate option at favorable terms. Most commercial mortgages are 10 or 12 years amortized over 25 or 30 years. No long term note or commercial paper or bond will be found locked in for 30 years at less than 4.5% right now and that is a great rate, 3.5 is unrealistic.
Again, very well done!
Talk about calling a parade and nobody showing up! My concern all along was that the banks would want a guarantee that ALL rent went to bond payment. If that is the case, where does the city plan to get the very substantial amount of money to pay for maintenance and upkeep of 20 year old buildings that will probably not last another 20 years? If you look at Key West’s record as to the longevity of public buildings, e.g. City Hall, they don’t have much of a track record for other than falling apart. Why would Peary Court be any different?
If you read the proforma two things are very clear:
1) The initial rental numbers barely cover the debt service. Therefore this could very quickly become a “loss” requiring additional taxpayer funds to keep it from going into default.
2) Someone has totally forgotten to include an adequate allowance for depreciation. Over a period of years serious capital replacement projects will need adequate reserves set aside to fund new roofs, painting, pavement, appliances, termite tenting etc). There is a line for “replacement reserve” but I cannot see how $78,500 per year will cover that (an average of $500 per year per unit? Really!). And amazingly this item is not even indexed for inflation?
If you add the appropriate level of depreciation reserves and index them for inflation the profit very quickly becomes a loss.
And…. we all know who gets to pay for the loss: The 25,500 residents of Key West.
Oh… BTW keep in mind that Peary Court at $55 million means that every man/woman/child in the 25,500 population is signing up for more than $2,000 in government dept.
So, hmmm, er, my goodness – the Einsteins who engineered the city buying Peary Court did not run their borrowing dream by local banks before voting to put it out to referendum? That’s what this article makes it look like happened.
While the blue paper was doing yet another public service yesterday, an interesting discussion at the buy Peary Court PAC’s Facebook page, started on January 26, was growing even more hairy legs yesterday, and revealing the psychology of the PAC “committee” fielding comments from non-PAC members, before Naja chimed into the discussion and made it even more interesting.
Here’s a link to that KW version of one flew over: https://www.facebook.com/workerhousingkw/posts/461451844047630?comment_id=462456317280516¬if_t=like
Furthermore … 🙂
Imagine how this might have gone down if the City Charter did not require voter approval of the city annexing or buying real estate? That’s a question I have heard Naja ask.
And, I have heard her say, and I have said it, the mayor and city commissioners and city staff should do their due diligence in a deal like this, and decide themselves if they think it’s good for the city, and then put it out to referendum, with all of the information they had before them, for the voters to agree or disagree with them – that’s how this kind of referendum is supposed to happen. For we, the voters, cannot do the due diligence required for a deal like this. We cannot get the information the city officials and staff can get.
Saying it another way, just me talking now:
It just ain’t right for the mayor and city commissioners to pass the buck to the voters in this way. The mayor and the city commissioners should do their due diligence and make the tough call, yay or nay, and if the call is yay, they put it out to referendum with a recommendation for passing the referendum, and why it should be passed. If they don’t like doing it that way, they should not have run for office. That’s how the “channel-widening” referendum should have been handled, as well.
A Raccoon neutron bomb arrived just after I put the above together:
More on Fairy Tale (Peary) Court…
Once upon a time, in a reality far, far, away sensibility and intelligence somehow escaped Key West. And in that purge the normal folk of Key West that remained were saddled with the self-proclaimed superior genius of a toxic reign of grocery “palace” owners, former schlepping auto parts clerks, allegedly non pedophilic “kiddie astronaut” instructors, pompous gas bag commissioners, and a bevy of their cohorts. This cabal of condescending Kings of Key West collectively believed they should fleece their moronic flock by buying a prime piece of dirt covered with dilapidated debris that they called “workforce townhomes”. So out of whack was this fantasy, that they believed they could derail the current owners by fabricating reasons to turn down their request to tear down the trashy townhomes and replace them with brand new, modern, upscale single family homes that fit the prime property location and the free enterprise market that the immediate area dictated. There was a purpose behind their setting up the owners to get turned down and fail in capitalistically profit on their free enterprise investment. That purpose was these government criminals wanted to gain off Fairy Tale Court, they wanted to penetrate private industry by competing directly with realtors, landlords, real estate investors, developers, builders, and the like. All while they taxed the shit out of them, and while they controlled them through their maze of approval processes and inspectors, all paid for by also taxing the shit out of them.
Of course, being not only “the law itself”, but also in their minds obviously above it too, they could spend a ton of taxpayer money on this new business to compete against free enterprise that they wanted to get into. Why not, worked building a $18,500,000 city hall for a town of 28,000 people, they lined the pockets of lots of cronies on that one too. Why not now line the pockets of the contractors and businesses they know that will need to remodel and reinstall to the tune of millions of dollars in Fairy Tale Court.
Now “Car Parts” Cates wants to run for mayor with the battle cry of affordable workforce housing. $55,000,000 affordable. Rents around $2400 a month. That’s $28,800 a year. Plus, affordable workforce utilities.
Wonder if a NAPA driver makes that much. Kindly trolley porter Ed Swift, you know, the guy who built $2,000,000 a pop SteamPlant and the affordable workforce housing next door called Railway ($400,000 each). He thinks that new PAC (of him and his cronies) is so cool that he had hi Jolly Trolley company contribute $5,000 to help ensure the Fairy Tale Court passes. Wouldn’t be because he owns Location One and wants to get 10% commission every time L1 rent the units in Fairy Tale Court? Naw, Ed’s a straight up fella… Wouldn’t be prudent.
And now it comes out in the Blue Paper that only 1 bank is even willing to think about financing the city buying Fairy Tale Court. And that institution says no, we ain’t going for you collecting rent for 30 years to pay us back. They want a guarantee on all city assets. Sure, then they could confiscate the $8,500,000 KWDOT bus terminal, the $18,500,000 new city hall, the $35,000,000 Fairy Tale Court and be even up. I’d evict them from my new city hall and the bus terminal too.
You say wait a minute $35,000,000 Fairy Tale Court. Yes, that’s what it’s worth. Ask the Navy, and ask the guys that bought it to tear it down. How about looking over the detailed inspection the current owners surely have. The only bank that will even consider it thinks it’s worth only the land…
Here’s why no bank will touch that city loan. A governmental entity is forbidden by law in competing with private enterprise. I say the city should put an affordable grocery store next to Fausto’s. Oh wait, I used the wrong name. It would be a “workforce grocery” store. Run old Weekly right into the ground with it. Give tourists a workforce trolley for say a buck, old Ed Swift won’t mind the city running him into the ground. Let’s keep letting government tax the crap out of their competition, and put up a workforce hotel next to the Westin. How about a city owned workforce bar to run Rossi’s shack into oblivion? Or a workforce Restaurant Store to flatten Tallmadge’s private enterprise…
I can envision developer Singh sitting in the wings licking his chops at the city buying and leasing Fairy Tale Court. He would devastate the city in Federal Court for competing against private enterprise – while they tax the crap out of them simultaneously. Maybe he will throw me a bone to shut up and not blow it for him…
That’s enough. Time for the voters to say the same thing…
Rick Roberts [aka Raccoon]
but but but slone
with hta/ed at 5000 and jimmyboy at 500….what could go wrong? 🙂
I wonder if it is possible to cancel the $15,000 that the city wants to pay for the latest round of Peary Court inspections. There isn’t any need to inspect buildings that won’t be financed…or does that make too much common sense?
And that inspection would not have done a bit good unless it included bids to fix all it needed. This paper has turned into entertainment to see what new stupid and corrupt things happen each week. And it will not be a very rich city as soon as someone does not settle a murder case for $900 k. Just maybe the banks worry about that too.
Here are links to before and after reports that cover what needed to be done and what had been done. They aren’t complete, but they do provide a good basis for understanding:
Here’s the letter from the city that addresses what needs to be done:
Here’s another letter that addresses the modifications that need to be made. It was updated on the 29th of January with photos showing what has been done:
Those reports are very outdated. Am laughing my ass off on how mickey mouse of a way to raise the AC units. Did they forget that wood rots and would float. Been in construction most of my life and never seen anything like that.
A bank will require it’s own approved inspection and seriously very unlikely they will accept such buildings. And with no allowance from rent to fix and maintain it will not fly. Tax payers will pick up huge tab. Let some fool buy them.
Jim, it’s also important to remember that the sole reason that wood was put there was to raise the AC condensers above the flood plain and pass a point in time inspection. I wonder what would happen if a normal citizen were to put an AC condenser up on a 6×6? They should have at least put them on concrete blocks. Look right next to them, and you’ll see the building’s concrete foundations are also within inches of the flood plain. I’d like to see the elevation reports for those buildings and see if they really are above flood plain.
What they did was create a violation to fix another.
Would been easy fix to raise unit up , form it up and pouring concrete. Then sit back down in about 4 hours.
How many other mickey mouse repairs in 20 years.
If the violation was just a few inches then not likely to mattered.
FEMA likely changed the elevation to create more customers for the insurance companies. It is a new trick to gain customers that did need flood insurance.
No successful investor would even touch this deal for 35 mil. Why would you buy a 20 year old building that needs so much repair that the last buyer intended to tear down and pay an extra 20 mil ? If this is such a good deal then investors would be bidding on it. Very poor deal for any bank even with adjustable rate. Even if backed by city property we all know how that would go in court. The city needs to run from this dump and sit back and see if anyone will buy it. If when new it only lasted 20 years how will it last another 30 ?
And I see nothing affordable about a unit that rents for $28k a year if workers earn $38 k.
To earn that 38 k they already work 60 hours.
The end of Key West is very near as we see it today. When workers can not be found then what ? Key West will be there but far fewer tourists as the rates for food , drink and lodging will be so high that only the very rich will visit and the very poor living in section 8 will remain. .
We as a couple spend about $500 a day when we visit and that is by finding the cheaper lodging . KW is pricing itself out of the tourist business.
If your commissioners did not even first talk to a bank before thinking about this purchase then maybe they all need to resign. Another fine mess about to be created. LOL
Going on my 5th year as a resident of Peary Court and a Florida commercial property and business owner, I know that this proposal is wrong in so many ways. It seems logical to me that the city council now knows they need a way out of this. The following is an extremely import issue that may consume our city leaders in the very near future.
The explosively spreading Zika virus is causing extremely serious medical and economic issues in over 24 countries throughout the Americas. Tourism is already taking a significant hit in these countries and it will only get much worse and it looks like there is no short term medical solution. It is obvious that it is just a matter of time before we have similar issues in south Florida and the Keys.
Yes, we have excellent mosquito control in the lower keys and Key West, but it is a losing battle in south Florida and the upper Keys due to the Everglades. Remember all the mosquito issues last summer in the upper Keys?
Our government agencies, all the funds they can muster, and the best minds in Key West may be needed to minimize the economic impact of this potentially serious medical issue. Remember the fear and panic of the Ebola scare and if I remember correctly, there were only 2 cases that occurred in the U.S.
Does the Key West government really need to be spending money and resources on Peary Court when a potential medical and economic issue might need all of us working together to minimize?
Did anybody notice the Citizen Editorial the other day (Feb 3). They actually made some serious challenges to the Peary Court adventure. It was titled “Peary Court: A
gift horse or a white elephant”.
Well I guess this editorial did not sit well with some folks and guess what…. if you look at the online archive of editorials this one has magically “evaporated”. It looks like the editorial must have pissed off some influential locals who must have convinced them to make it disappear. Kind of like “hey, you want my advertising money for my food store you had better make this disappear”…
If this is the case it is a new low for both sides… but especially for a newspaper. I hope the Citizen corrects this and shows they might actually have a spine…..
For those who did not see it, here is a copy of the editorial:
There’s an old saying that one shouldn’t look a gift horse in the mouth, the thesis being that when receiving a gift, one shouldn’t be rude and evaluate the condition of the gift. This seems to be the approach of the city when it comes with the referendum where the city is asking the voters to approve a $55 million purchase. “Don’t look too closely, voters, because you might not like what you find.” First and foremost, why wasn’t the city able to negotiate a better price? Just because the property appraised at its highest and best use at $55 million doesn’t mean anyone else but the city would pay that much for it. Considering that only one bank is interested in backing the bond, but only if the city guarantees it, doesn’t make it seem like there is a long line of investors waiting to snap the property up if the referendum fails. Paying that much for a property in high demand with other bidders might have made that $20 million profit the sellers will be making more palatable. And then there’s the question of who is making $20 million from the deal? The public wants individual names, not just the names of various corporate entities. Don’t the voters have the right to know whose pockets are being lined by this transaction? Even if the city had fought to get this property at a fair price, another huge voter concern is the condition of the units. The conventional wisdom is that the structures built by the federal government were done in a substandard manner and their useful lives will be shorter than the 20-year bond the city is proposing to float. The city backed out of a deal to have a detailed structural inspection, choking on the quoted $166,000 price tag. Although that quote seems exorbitant and there was no indication that the city attempted to bid out the inspection, it’s a drop in the ole proverbial bucket when one looks at the $55 million plus interest we are being asked to approve. When government doesn’t do rational things, things that we would all do and that they individually would do when making or contemplating a major purchase, the voters are right to be suspicious of the deal. This deal, unlike a gift horse, needs a careful examination. Voters aren’t getting all the answers to their questions, and it looks like our gift horse may in reality be a white elephant — a possession unwanted by its owner but nearly impossible to sell. Unless the City of Key West is involved. — The Citizen