PEARY COURT PURCHASE: Some Thoughts and Questions
by Maureen Bramlage…….
An Open Letter to the City Commission
Dear Mayor and Commissioners:
Something I learned from the good Jesuits when I pursued my higher education degrees was to stay open always to change in the light of new information.
Thanks to Mr. Weekley, and to Mr. Scholl’s A+ radio delivery on the subject Saturday of affordable housing, I am 100% behind this purchase, and in fact would encourage the City to consider contracting with the present owners/developers to build the 48 more units – if, as is the case with 157 units @$55m, they can pay for themselves, purchase and maintenance, with low-interest or even no interest bond money deals.
A. I would be interested in knowing if we could get a bond such as the School District got for the construction of HOB, that zeroed out the interest entirely under a payback acceleration arrangement. The City could accomplish that by immediately offering some of the Peary Ct. units for sale at cost to people who were willing to own a home that was deed-restricted in perpetuity to affordables. I read somewhere that approx. half the Housing Authority’s housing stock (approx. 500 units) is privately owned and deed restricted.
Making Peary Ct. units available for sale could do three important things:
- accelerate repayment of the bond allowing the City to move on to more, as well as reduce or eliminate interest as mentioned.
- allow the compound to develop eventually into a condominium complex, governed and maintained by owners instead of by the City.
- allow business owners to buy one or more of the properties to assure housing for their own employees, such as exists at the Salt Ponds where Doubletree owns several units.
B. Actually, could the same happen at Roosevelt Gardens, surfacing more money for City to spend buying up more properties?
C. A final thing I would like to know: Is there anything keeping the City from spending funds, already allocated for affordable housing, on units already on the market for 300k and less that do not need renovation? Such as Salt Ponds and Las Salinas units? If the rents pay the “mortgage” and the condo fees, why not? $300k@3% easily does that. $300k @ 5% does it too, including interest, debt reduction and condo fees.
It will be important, going forward, for the public to understand that though the units may currently rent at market rate, deeding them restricted to affordables in perpetuity will keep them in housing stock that sells or rents for the level of income (percentage of KW average income) they currently do, and not be torn down and converted to ideally located luxury condos at some point in the future, as is Peary Ct. owners’ present plan, having listed the property for 65million.
It was clear to me from Mr. Scholl’s coverage that he has a firm and intricate understanding of the deal and its opportunities, so I may not be bringing up any new thinking here. If not, will anyone who knows the answers to the questions raised in A, B, and C. , please answer me.
Before I get down to number crunching, I would just like to say how appalled I am that the city hasn’t even tried to negotiate the price with the current owners of Peary Court and more appalled at these greedy owners. They bought this property in 2013, just 2 years ago, for $35,000,000. Now, just 2 years later, not only are they trying to make a $20,000,000 profit BUT they are not even selling the entire property to the city. This would be egregious enough if this were an out of town owner, but no, these are your Key West bubbas. You can see how concerned they are about helping their hometown!
Now let’s talk about the numbers. At the ridiculous $55 million price, with 157 units, this works out to an average of $350,318 per unit. Pretty good price for Old Town. But that’s just where the expense starts. If the city owns these properties, is the city exempt from property tax? I recall when Balford Beatty owned this, they were exempt because it was “Government” property. Assuming the city is exempt, that’s a large chunk of change that (still) won’t make its way into the city coffers. Let’s add in the very conservative cost of $3500 per year for hazard, flood and windstorm insurances per unit. And I think an additional $3600 per year would be about right for the maintenance of the grounds, and repairs and painting for the exteriors of the units.
Ms. Bramlage mentioned the city might sell the units to private investors who would keep the properties deeded affordable in perpetuity. Let’s see how those numbers work. Assuming a purchase price of $350,318 per unit, an 80% loan to value mortgage would be $280,255. This means a down payment of $70,063 plus closing costs. With a loan amount of $280,255, at an interest rate of 4.50% for a 30 year loan, the principal and interest portion of the payment would be $1420.01 per month. Since the property would now be privately owned, property taxes would be collected. Conservatively this would add at least $200 per month to the payment and the 3 insurances would add at least another $300 per month. So a private owner/investor, after a $70,000 down payment plus another $10,000 or so for closing costs and prepaid items , would be looking at a minimum monthly mortgage expense of $1920.
Something I haven’t seen mentioned is how much would proposed rents be? I think generally speaking, affordable guidelines allow for up to a third (33%) of monthly income to be allowed for housing expense, up to the maximum allowable income for assistance. I’m not sure what those limits are these days, but let’s assume a maximum household income of $60,000 per year ($5000 per month). This would mean that household would pay a maximum of $1667 per month for rent. Does anyone besides me see a problem with this? Maybe some owner/investors wouldn’t mind pulling an additional $260 per month out of their pocket to make their mortgage payment, but that wouldn’t last long. And by being a deeded affordable property, appreciation is limited to a maximum of 3% annually.
So, if this would be the case for a private owner, the costs (and losses) will be greater if the city buys this. Add in management of the project (how many new city employees?) and maintenance (how many more city employees?). No, this is a poor decision on several levels, starting with the absolute stupid price the city is willing to pay and the current owners are willing to extort from (I mean sell to) the city. Personally I don’t feel it is the city’s responsibility to provide housing for employees at businesses that are making (tens of) millions of dollars every year, while paying their people $8 – $11 per hour. Let the businesses be responsible for their employee housing. And when the working class finally has had enough of working 2 or 3 jobs just to pay their bills, and moves away from Key West, see how fast things get ugly. It’s time for the city to be a little smarter than this.
Let me be short & offer my contact information for more in depth discussion.
For the existing development: if, as I read, 2013 posted 14-15% gains in Old Town, and 2014 did 23%, the 35 million the developers would be worth 50 going into 2015 and prices are still going up. You are right about the developers but it doesn’t diminish the opportunity.
Affordables at the Salt Ponds did pay taxes but got some breaks. County and City would have to work out an agreement. That reduces monthlies..
Please check out HOME – Housing Opportunities Made Equal online. Administered by HUD, 3% loans, help with down-payment, and reduced down payment for the qualified.
The income tier that Perry Ct. would accommodate is the highest of 4 tiers, and wold accommodate teachers, first responders and some government workers among others. The income range is $56k to $80k to qualify. For a family of 4 by today’s standards it’s not luxury.
To qualify for rental help, your housing burden need only be 30% or more of your income.
The rents at Perry Ct. were published as $2100-$2400.
I did not mention selling to private investors, but rather individuals or individual entities like Double Tree at Grand Key to own for employee housing. These buyers would get all the same breaks heretofore mentioned – and would be obliged to the same rent controls. That would be the answer to private enterprise chipping in.
So the numbers already worked as you spelled them out using a 4.5% loan. I found they worked out with a 5%. How great they’ll be with a 3% loan and lower taxes!
.Let’s work together and see if our combined experience can help the City, Former Banker, I’m a former rehabber, landlord and developer who built the first affordable housing in my former city.
Maureen Bramlage 305 295 0162
Name a single high dollar project that the City of Key West has embarked upon in the past 10 years that has been successful. How many years are we now along with the Truman Annex project, and that doesn’t show more than a couple new parking spaces? Does anyone really believe that the new city hall is going to be completed on time and on budget? To pay $55 million in tax payer dollars for an “affordable housing” boondoggle is nothing short of fantasy.
When City of Key West leadership can show accountability and success in anything, then we can talk. Until that point, Peary Court isn’t going anywhere.