PEARY COURT: VOTING IN THE DARK…
by Naja and Arnaud Girard…….
Buying the old Navy housing project at Peary Court might be the City’s last opportunity to preserve some semblance of a working class community. However, most residents interviewed appear unable to move past a sense of indignation over the proposed sale price for Peary Court (which has nearly doubled in just two years) or their suspicion that officials did not fight hard enough to get a better deal, if they fought at all.
Background:
On August 30, 2013 Peary Court was sold to White Street Partners* on the open market for $35,000,000.
On April 6, 2011, Ron Demes, the Navy’s Business Manager, had a meeting with Mayor Craig Cates and City Manager Jim Scholl to inform them that Peary Court was about to be made available for purchase.
City officials blame a confidentiality requirement imposed by the seller for their failure to move on the deal. But someone directly involved with Balfour Beatty [the former Seller] and the Navy told The Blue Paper that the City could have easily negotiated a right of first refusal.
The truth is not hard to find. The minutes of a meeting with Monroe County Land Authority Executive Director, Mark Rosch on June 23, 2011 describe Mayor Cates as clearly opposed to a purchase by the City:
“CC [Craig Cates] is not interested in leading an effort for gov’t to purchase the site and is generally sympathetic to those who don’t want the public sector competing with the private housing market”
According to Commissioner Jimmy Weekley, Mayor Cates never informed his fellow Commissioners of the [$35 Million] opportunity.
Two years later White Street Partners wants the city to pay $67 Million for Peary Court or $55 Million for a smaller portion of the property [basically doubling the price].
The issue of protecting Peary Court for use as affordable housing becomes even more confusing when considering that White Street Partners initially wanted the 48 new affordable units they were required to build to be deed restricted as “very low-income affordable” housing [$983/month for those making 50% of median income]. They were trying to use coveted “federal tax credit financing.”
But get this: The City said “no.” The City stood behind their code which, they said, requires 16 low-income units [$1571/month] and 32 median-income units [$1965/month] and killed that plan. Incredibly enough, thereafter, the City agreed to deed restrict the 48 units of affordable housing at Peary Court at “moderate-income plus 10%” which is in fact, over $2500/month – hardly “affordable.” Had the City O.K’d the very-low income level, 48 families would be paying over $1500 less rent every month. This $2500/month moderate-income “affordable” deal was again ratified, just last month, by the current City Commission in this development agreement for Peary Court.
RELATED: KEY WEST: YOUR LANDLORD MAY OWE YOU FOR OVERCHARGING FOR RENT
This time around
This time around, the idea of the city buying Peary Court is being handled quite differently. The City Commission has decided to present the controversial purchase to the voters through a referendum. Multiple public meetings have been held with this topic at the forefront. This February alone Commissioner Margaret Romero had a public meeting on the 3rd, Commissioner Kaufman on the 4th and Commissioner Payne on the 16th. [Romero and Kaufman are not in favor of the purchase.] A deep-pocket PAC headed by Commissioner Weekley and local developer Ed Swift is in full swing with advertisements, website, lobbying, polling, and more public meetings.
So what has changed? Why Peary Court? Why now?
To the careful observer, the city seems as unwilling as ever to tackle the issue, presiding, idle, over the affordable workforce housing debacle. As recently as last month we saw city officials proposing the deregulation of the existing affordable housing requirement for new developments. New land development code proposes to downgrade the current “30% rule” for affordable housing to 15%. And city officials are still openly balking at the idea of requiring any affordable housing component at all for “redevelopment” projects.
RELATED: AFFORDABLE HOUSING: ONE STEP FORWARD, TWO STEPS BACK
This is where the well-connected try to convince voters to see beyond their anger and outrage.
Let’s do that.
The question is simple: Buying or Regulating
Can regulations protect and promote affordable housing? Cities are the proverbial 800-pound gorilla. They have the power to declare an “affordable housing crisis.” The type of rules available are well known. The 2:1 rule is one of the most radical. Trailer parks and old multifamily housing developments cannot be gentrified without the developer creating two affordable units for every one new market rate unit that is built. A form of the 2 to 1 rule is in force in Monroe County for the transfer of “market rate units” away from mobile home parks.
In many cities, a ban on new “gated communities” has proven very effective in hampering gentrification. Forcing large developments to continue the city street grid is also effective. It seems that “Paradise” for the truly wealthy loses a lot of its luster when it is open to “commoners.” White Street Partners’ two attempts at permitting knockdown/rebuild development of Peary Court failed, in part, because city officials opposed the developer’s plans to build a de-facto gated community.
Finally, one of the most effective tools cities use is to offer developers an increase in density in exchange for a higher percentage of low-income affordable units. Peary Court has 1/2 the density of adjacent properties and could be a candidate for an increase in density.
But is the city ever going to use its “gorilla power” to protect and promote affordable housing? The crisis has been ignored for decades and friends of the Commission have made a lot of money on it. Today they are achieving record-breaking rent rolls. The crisis is good for landlords.
RELATED: HOUSING HOCUS-POCUS: IS THE CITY LOSING THE WORKFORCE HOUSING BATTLE ONE HOUSE AT A TIME?
Buying Peary Court: Good or Bad?
If you believe the city is never going to prioritize affordable housing over special interests, it might be time to make the jump: the only alternatives left are for the city to buy or build.
The city has $12.5 Million in its coffers for affordable housing projects. It could buy Peary Court for $55 Million using $10 Million as a deposit and it could pay back the rest of the money plus interest for the next 30 years.
Commissioner Kaufman has proposed an alternative: the city could use that $12.5 Million to build low-income affordable housing on government-owned land. As a reference, Roosevelt Sands housing, the last affordable housing project built by the Housing Authority, cost $92,275 per unit [44 one, two, and three-bedroom units] four years ago. Even at $120,000 per unit today the city could build 100 units at Poinciana, or the Truman Waterfront or Trumbo Road and have immediate cash flow coming in every year, which could be used to build more units.
Holding onto the $12.5 Million a little longer could have a positive effect: One of the best ways for cities to provide housing is to enter into a public private venture with a developer. Most developers, so far, are claiming they will only build rental housing at the “moderate-income” level which, for rentals, is in fact market rate or higher depending on the size of the unit. If the city keeps the option of building on its own land with its own money, developers will have to accept tighter deals. If the city no longer has any margin to maneuver, no other options, developers will dictate their conditions. Building on government owned land on Trumbo Road or at Truman Waterfront could certainly be very attractive to developers, like Ed Swift.
RELATED: MONROE COUNTY: “AFFORDABLE” HOUSING FOR THE RICH…
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Could Peary Court Become a Financial Disaster?
In theory, the city puts only its initial deposit of $10 Million at risk, the rest is paid for over a 30-year period using the rent roll. The loan is secured only by the rents and the Peary Court real estate.
The problem is that the proforma has been put together with assumptions that are so optimistic that any number of things could throw the project off the track.
Insurance: The craze to raise flood insurance premiums is in remission but promises to explode.
Interest: Interest rates are at an historic low and have nowhere to go but up.
Property Taxes: Property Tax Appraiser, Scott Russell, informed The Blue Paper he has not yet made a determination on whether a city-owned Peary Court would be tax exempt. Not all city properties are. The city pays property taxes on its Key West Bight property, for instance. Renting apartments at what is essentially market rate might not qualify the city for a property tax exemption. Peary Court owners paid over $343,000 in property taxes last year. The push to collect those taxes by entities like the School District or other property owners in competition with the city might be stronger then optimistically hoped for by Peary Court purchase supporters.
Occupancy: In the only proforma sent to banks, 100% of units at Peary Court are shown rented for the “moderate-income” $2,358/month rate. In 2013, the city declared a surplus of 270 rental units in that moderate-income [120% of median] category.
However, that same data shows the City has a deficit of over 1000 units in the low and median-income affordable rental categories. For a large portion of Key West’s workforce, a moderate-income rent of $2358/month plus utilities is not “affordable.” According to a study written by former Planning Director, Donald Craig , in 2010 the average salary for a City worker was around $37,800 (that’s $3,150/month before taxes).
The need for high rents and full occupancy at Peary Court could give rise to a conflict of interest. From the moment the city becomes obliged to pay off debt on the Peary Court purchase, it will be in its best interest to keep rents and demand in Key West as high as possible. Any effort to solve the housing crisis would directly impact the city’s ability to pay back debt on a project calculated on record high rents and occupancy.
Many of the Peary Court tenants interviewed said they wished they could find smaller less expensive accommodations and avoid having to double up with a roommate; they would move out if such units became available.
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The housing crisis is, in large part, the result of Key West’s overheating tourist economy. Businesses have multiplied; especially in the labor intensive service industry. Low maintenance RV parks have turned into luxury hotels. (High-end hotels can average 1 employee per room). For example the old Jabours RV Park on William and Caroline morphed into the 99-room Marker Resort.
But a red-hot tourist economy can cool off. What if Cuba begins to attract the Miami crowd that’s been invading Duval Street every weekend or Key West becomes a red spot on the Zika or Dengue fever map? Or is struck by a strong hurricane? Is it wise to take for granted full occupancy and $2438/month rents for the next 30 years?
The status of maintenance at Peary Court remains largely a mystery. The promised thorough inspections have not taken place. Certified Mold Assessor, Hugh Johnson [of Inspect Key West, Inc.] who recently [November 2015] inspected a unit at Peary Court told The Blue Paper his mold assessment “led him to advise the tenants to vacate the apartment.” His full mold assessment report can be seen here.
RELATED: PEARY COURT INSPECTIONS: WHAT TO DO?
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PROS
If everything goes right, the property will pay for itself and help mend Key West’s overstretched social fabric.
There is always a way to crunch the numbers to make a project look too risky. The fact is such a large property would have many ways of rebounding and adapting to changes that could affect it. Maybe in the future the City could give up renting and begin selling those units to people that work in Key West. The city could keep the land, leasing long-term for a small fee.
If the city were to raise the density, extra units could be built to create a considerable revenue stream not computed in the project’s current financial projections. [Although this possibility is still unclear, as the exact mapping of the areas of land that the city would be purchasing and which areas will be left to the developer has not yet been made public.]
Buying Key West Bight in the 1990’s resulted in protecting the public’s access to the waterfront and the property has turned into a substantial source of revenue for the city. Last year 1.3 million dollars in excess treasury earned at the Bight was invested in the new city hall.
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A major issue for many voters is city government’s lack of credibility and lack of leadership in the years that have lead to the current housing crisis. No matter how well-intentioned the Commissioners supporting the $55 Million purchase are, it is going to be hard to convince voters that they actually care about the living conditions of the Key West worker.
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CONTRIBUTE:
And now the city has done it again. They have approved redevelopment plans for Banana Bay that include no affordable housing. I hear the city rejected plans that included worker housing in the redevelopment…. choosing instead to approve plans that have no worker housing.
So while the city continues to squander affordable housing opportunities we taxpayers are asked to sign up for $55 million. NO WAY!
As a thought… if someone has the facts and figures it would be great to have a simple and clear table that has the following columns:
1. Name of Development/Redevelopment Project
2. Year Approved/Year Built
3. Name of Developer
4. Number of affordable housing units included in the developers commitments
5. Number of affordable housing units actually provided
6. Number of affordable housing units that still exist with comment if necessary (e.g. I think the ones in the annex were not deed restricted so they are affordable no more).
Then lets total up columns 4,5&6.
It would be amazing to see how many affordable housing units were provided as part of the Marker redevelopment, Truman Annex, Simonton Ct etc…
Getting them listed all in one place will show the magnitude of our city leadership failure to do anything about this issue.
Be sure to Include Peary Court… but with the following facts
Year Built Approved: could have been 2013
Developer: White Street Partners
Affordable Units Committed: 48
Affordable Units Delivered: 0
Affordable Units Today: 0, City rejected developer’s offer.
My guess is that in aggregate the city leadership has squandered several hundred affordable housing units, perhaps more than a thousand. Shame on them!
I agree with you Hunter. A spreadsheet with all of the data would make it much easier to see the facts with line items for explanations is the best way to analyze to make a proper decision. All businesses should or do this before making such complicated discussions. Other statistical methods are also used such as fish bone diagrams, pros/cons listings, etc. Using a bunch of words on many pages tends to have the reader sway in one direction and then another direction and so forth. My analysis of everything that I have read says Peary Court would be a very bad and ridiculous purchase. Key West should take care of its current issues/problems and not add more. Politicians just love it when the masses don’t have the time, energy and knowledge to make an educated decision and just rely on the persuasive factor.
Dearest Blue Paper, I know you pride yourself on accuracy – so there is an important clarification/correction I ask you to make. You stated in the above article “The City Commission is pushing the purchase option through a referendum. Multiple public meetings have been held. This February alone Commissioner Margaret Romero had a public meeting on the issue on the 3rd, Commissioner Kaufman on the 4th and Commissioner Payne on the 16th.” You have implied that Commissioners Romero and Kautman both support the purchase so Peary Court which is NOT true. I ATTENDED BOTH OF THEIR Town Hall meetings you referenced, and Margaret and Sam BOTH stated they were AGAINST the purchase of Peary Court. Further, Margaret was the ONLY Commissioner to vote NO to put Peary court out for resolution. Sam did vote yes to send the question to the public via the March 15th referendum. You would need to ask Sam why he voted that way, I can not speak to his reasoning.
Many of us believe the City Commission’s duty was to vet the information on Peary Court and decide if it was a good deal and a safe deal for the city to pursue. The Mayor and Commissioners have much more information, access to city staff, the City Finance director, the City Attorney, all the people with more knowledge that the general public. They also have more time than the public who many are working 2 or 3 jobs and do not have the ability or time to dig up and through all the information and background on Peary Court to make an informed decision. Those I have talked with think the city passed the buck. The dais should have made a decision as to whether each supported or did NOT support the purchase, THEN and only then it should have been passed on to the citizens to vote. With the past “Wisteria Island petition” as many referred to it, a vote is required when the city takes on new properties, adding to the city footprint and the costs of city services and maintenance.
It is very unfair that Commissioner Romero is portrayed as supporting the purchase of Peary Court when she was the loan vote of dissension to send Peary court to the Voters. Commissioner Kaufman stated at his Town Hall meeting which covered many topics not just Peary Court (as did Margaret’s) he was NOT in support of the purchase.
I think if the Commission was to bring back the topic for discussion TODAY, it would not pass. Commissioner Warlow as I recall was not for the expensive purchase, but he allowed the public to make the decision. I think with even more major questions now and lacking the inspection reports the dais told the public we would have in making an informed decision at the polls – I think the vote would fail and there would be no resolution on the ballot for the purchase of Peary Court.
So here is a question: if the majority of the dais if asked today, would say they do not think Peary Court should be purchased by the city, what happens if the resolution passes? They have LOST their ability to turn down what some think is a bad and maybe even dangerous deal! Seems if the conditions of the referendum are met (BIG IF with the city only able to finance a mortgage with solely rental income/ no general obligation on the city’s part, no inspections, now rising mortgage interest rates), they would have to move forward with the purchase, even if a majority actually think it is a bad and dangerous deal for the city. The city blew their chance to do their job and make the initial decision. Now in the hands of the public – VOTE NO ON PEARY COURT. And Blue Paper please amend your implications that Commissioners Romero and Kaufman held meetings to support Peary Court, and make clear that Commissioner Romero is the ONLY commissioner against this all the way! It is unfair to lump these 2 good Commissioners in with those in strong support of the city buying Peary Court – Commissioner Weekly and Payne.
Thank you for pointing out that our use of the word “pushing” made it look as though all of the Commissioners mentioned were in favor of the purchase! We’ve corrected the article to remove that implication.
Thank you! – gives new perspective and clarity to that particular paragraph now.
Seems to me, at city commission meetings, even Sam Kaufman seems in favor of the referendum passing. If the referendum does pass, it is not binding on the City Commission. The mayor and commissioners can do nothing. They can tell the developers the $55 million is too high. The unseen problems at Peary Court are too many. The mortgage financing down the road (the balloon/right of the lender to change the interest rate) is too variable. Oh, what lender? The developers did not give up the 48 building rights the city gave the developer for nothing, which the developers tried to sell back to the city for $12 million. The developers intend to build those 48 units at Peary Court. They will be effectively market rate rents. Where at Peary Court are the developers going to place the 48 units? At a city commission last month (January), the developers’ representative Donna Bosold, Jim Hendrick’s wife, Jim was there sitting beside her, told the mayor and commissioners, as did commissioner Margaret Romero, that the 48 units would be scattered in clusters throughout Peary Court. That seemed to be brand new news to the mayor and the other commissioners. Up to then, it was said the 48 units would be built on 2-plus acres somewhere in Peary Court. The developers need to drop the sales price to $45 million, which includes the 48 building rights the city gave to the developers. Otherwise, the city walks away from the deal. If this deal is so great at $55 million, with the developers keeping 48 free building rights to exercise at Peary Court, why is the city the only potential purchaser? You’d think other developers would be lined up trying to buy Peary Court, don’t you think?
P.S. If the city got all of Peary Court for $45 million, given the developers a $10 million profit in 2 years or so time, the city could lower the rents to something a lot of people might view as close to affordable, because the mortgage payments would be lower, and perhaps a lender might jump at that with only the rents backing the mortgage, which is required in the referendum wording, thus is required if the referendum passes.
Thank you, Naja and Arnaud. What a mountain of work you had to do, to put together this piercing article on what never should have been put on the ballot by the City Commission. They should have done the due diligence themselves, decided yay or nay, and then, if yay, put it on the ballot with a recommendation the voters vote YAY. But, alas, that is not how it went. The voters are, as you so well put it, going to the polls in the dark …
A most interesting discussion between the city commissioners and city staff regarding the failed, so far, Peary Court mortgage financing, occurred during this past Wednesday night’s city commission meeting, which I kinda doubt the people wanting the referendum to pass ever wanted to happen in the light of day. That discussion came about after I signed up to speak to item #13, which took that item off the consent agenda.
13 *Rejecting the proposal received from Centennial Bank in response to Request for Proposal #16-004 for Peary Court Financing, pursuant to Section 2-834 (3) of the Code of Ordinances. Sponsors: City Manager Scholl
Here’s a link to the city’s audio/video of that meeting:
http://keywestcity.granicus.com/MediaPlayer.php?view_id=1&clip_id=435
Click on the link, then click on the arrow to start the video, then slide the button rightward to the 00:37:10 mark, where I speak to agenda item #13 and kick start the great fun show that otherwise would have sailed quietly into the night.
Bon appetit
Very well researched. You make a very complicated issue accessible and understandable.
Thanks.
Well I do not understand this mess and think it’s foolish to be lead down this garden path voting for something that’s not well thought out, short on facts and financing, and appears a bit shady too.
How is it possible that Jimmy Weekly did not know this sale was coming and not do something to put the city in first position to purchase it , possibly at a fair price, since they will likely be renting to the military folks also? How long has he been a commissioner – and a mayor too ? Is he one of those who say to you that he had no prior knowledge of the offer to sell??? I find that hard to believe and if it’s true there’s something really suspicious in that. So there’ll be no real affordable housing there and somebody makes 30 million profit on our backs. Hell of a way to play catch up- except it’s neither. GAAAH!
Yes, Commissioner Weekley did tell us that he knew nothing about it until the opportunity had passed.
Well then , did Mayor Cates tell the City Manager to stay mum? Weekly says he wasn’t told and then who was? Does the city manager work just for the mayor? No, not as I recall. Or did the mayor and city manager think this was a bad deal or have some other reason to keep quiet? But between them they dropped the ball and lead us into very bad situation. If no one else was told do we fault the mayor or the city manager and ask the question why this happened? We might have been able to purchase Peary Court or have it conveyed to the City at little or no cost., particularly since military people could live there. Now it’s too expensive and hardly affordable to anyone making less than ,what , $40 an hour? That even leaves out most military, so you would think the city manager would have wanted to insure some housing there for his former employees too. Why did the Navy sell this in the first place when it makes life tougher for just about all parties ?
( with a few exceptions that is … ) : >{
I don’t know if this is true or not but I read that the city could have found a way to buy Peary Court two years ago for $35 million dollars instead of the $55 million dollars they are now willing to pay. They could have taken that $20 million dollar savings and made rents there a lot more affordable than what they are projecting they will be. The workers who need help on this island aren’t those making upwards of $75,000 a year, it’s the people working for $9 and $10 an hour. They could raise the minimum wage here but we all know that isn’t going to happen. I just think we have piss poor leadership on this island and the Mayor leads the list.
Nothing will change if min. wage went to $15, they still are not affordable.
Why don’t you tar and feather your mayor for not buying it 2 years ago. The rents would have been affordable at half price, and the other 48 units could been built. There is no justification to buy it now if it will not serve the low income workers.
Am starting to wonder if many of the voters in KW even are legal residents. Or is it that the poor are not voting. Take a hard look at who you voted into office and see who they are serving, it dam sure is not the $10 an hour workers.
And when you raise the min. pay to $15 just what do you think happens with workers that already make $15, they too will demand a $5 raise.
$10 an hour type help usually is designed for teens living at home or part time retired people that just need a little extra money to enjoy paradise.
Are places for $10 an hour workers in states and cities that have far cheaper housing and cost of living. Will things ever change ? Hell no because first you to have a real shortage of workers. As long as help keeps arriving from the north that give KW a chance then is no shortage. Most jobs in KW do not require high skills and training is done in a few days if not hours.
Peary Court will not help the ones needing help. It already rents at market value. But if the city buys it then someones brother, sister, spouse will get a newly created job from who runs housing. And the taxes not collected will be passed off onto the other tax payers.