Miami-Dade Almost Loaned $56 Million to Housing Firm With History of Defaults

Miami-Dade County was on pace to hand an Atlanta-based affordable-housing developer a massive, $56 million loan next week. But after New Times brought up the fact that the firm has a long and documented history of defaulting on government loans, a spokesperson for the county said the measure had all of a sudden been killed permanently.

In 2010, the Florida Housing Finance Corporation, a state body that loans money to build affordable housing, flunked an Atlanta developer called the American Opportunity Foundation (AOF) "due to past defaults, assignments, bankruptcies, or foreclosures" issued against the company's properties in years past. As of 2010, state regulators warned that 22 of the 80 loans listed on the foundation's report at the time were in default, so "AOF is not considered an acceptable general partner."

Six years later, AOF was the subject of an extensive Bloomberg News investigation, which noted that the company defaulted on 14 of a possible 18 loans from 2000 to 2004 and another loan on a property in Texas in 2014. In that second instance, 1,700 apartments in Houston, Dallas, and San Antonio lost state funding, and rents spiked 22 percent at one property.

But those concerns didn't stop Miami-Dade County from offering its own large loans to the American Opportunity Foundation. In July, the Miami-Dade Housing Finance Authority approved letting one AOF-tied development group take on $17.5 million in county debt to rehabilitate Hadley Gardens, a 151-unit affordable-housing complex for the elderly on NW 19th Avenue in Allapattah.

AOF is now asking Miami-Dade for an even larger loan: The company is requesting to borrow $56 million to redevelop three low-income-housing properties it bought earlier this year.

The county commission was set to debate the proposal next Tuesday. But yesterday, after New Times asked the county why it would consider loaning such a huge sum to a questionable development firm, Mike Hernandez, a spokesperson for Mayor Carlos Gimenez's office, said the measure had suddenly been pulled.

"While working through the underwriting process, the Authority concluded it was best to permanently withdraw this item," Hernandez said.

A representative for the American Opportunity Foundation, Kathy Walker, did not respond to a phone call from New Times yesterday.

Across the nation, state and city housing authorities are able to issue loans in the form of "tax-free bonds" to nonprofit, 501(c)(3) companies in order to help private housing developers build properties. In theory, those loans are supposed to subsidize affordable housing units and give municipalities some extra money over time.

But if borrowers default on those loans, America's poorest residents often get stuck with the results. Renovations stall. Rents spike without government money to help keep costs down.

Miami suffers from a severe lack of affordable housing — which means low- and middle-earning residents can barely afford a stalled construction or renovation project.

According to Bloomberg, AOF was founded in Atlanta in 1983. The organization's main website is still under construction, but its West Coast subsidiary, AOF/Pacific, says it operates 90 affordable-housing complexes in the western half of the country. It's unclear why so many company projects failed in the past: In 2016, AOF President Philip Kennedy said, "I'm not particularly proud of what I did in the '90s. I’m proud of the way I hung in there and got it all worked out.”

But AOF has also been active in the Miami real-estate market lately. Earlier this year, AOF bought three low-income properties — the Cedar Grove Apartments on NW 17th Avenue, the Running Brook Apartments on SW 122nd Avenue, and the Emerald Dunes Apartments on NW 207th Street — for roughly $59 million. Online reviews of the apartment complexes suggest they could use some help: One renter at Cedar Grove complained on Yelp that roaches were eating the sugar and flour in her cabinets. A tenant at Running Brook wrote online that the "AC is constantly freezing and breaking" and the "carpets are old and mushy."

But questions remain as to why no one with Miami-Dade County seemed to notice the red flags in the company's credit reports until yesterday. County housing loans are issued in a long, multistep process: The housing authority initiates loan negotiations. The county commission gives those negotiations the go-ahead, and then the housing authority completes a credit report and finalizes the deals.

County records show that AOF's Kennedy traveled to Miami to attend a county Housing Finance Authority meeting August 28 and encourage the county to fork over $56 million.

But seven years ago, state regulators warned others not to work with the company. In 2010, AOF applied for a loan from the Florida Housing Finance Corporation, which issues housing bonds at the state level. AOF was asking for money to renovate the T.M. Alexander Apartments, located near Jackson Memorial Hospital on NW 19th Street. But when the state conducted a credit report, it concluded AOF wasn't a safe bet:

The American Opportunity Foundation, Inc. (“AOF”) - AOF disclosed 22 defaults out of 80 properties listed on their loan history schedule. All of the defaults were on 501c3 bond financed properties owned by subsidiary entities controlled by AOF. Please see Section C for more detail. Due to this default history, AOF is not considered an acceptable general partner. 

(AOF later disputed the state's findings.)

In 2016, Bloomberg questioned whether AOF was hunting for cities and states that wouldn't dig deeply into the company's past. Many of AOF's loans used in Texas and elsewhere in the United States were issued from a tiny city in Escambia County, Florida, located near the state's border with Georgia. (That issuer told Bloomberg that AOF seemed capable of taking on all the debt it applied for, and saw no reason to deny the company any loans.)

Speaking with Bloomberg, Kennedy denied he was searching for a loan issuer that wouldn't ask about his defaults, but he did say Florida's bond issuers were less rigorous than those in Texas.

"It’s a very, very difficult process in Texas,” he told Bloomberg. “They’ve had a lot of issues with 501c3 defaulted deals, and so they just make you jump through a lot of hoops.”

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