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.
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.
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.
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.
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.
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.
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?
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.
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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