As the SEC investigates the Florida Municipal Loan Council bond underwritings used to fund the construction of the City of South Miami Hometown District parking garage, former City Attorney, Luis Figueredo, explains that one of the main issues will be to determine whether the City made the appropriate disclosures to the Florida Municipal Loan Council to enable it to determine if the proposed parking garage was indeed a tax exempt project. Figueredo says the answer to that question is “yes.”
“The Lease Agreement between Mark Richman Properties and the City was available to the Florida Municipal Loan Council and their bond counsel for review. The lease delineated in detail the proposed structure, responsibilities to be assumed by the parties, proposed financing and term,” explained Figueredo.
Figueredo said that the City made sure that the Florida Municipal Loan Council was aware that the parking garage was a public- private development.
“I participated in at least one conference call with the City’s finance department and the Florida Municipal Loan Council where we specifically discussed that part of the project would include “for profit” retail stores. Following bonds counsel’s advice, none of the bond proceeds were used for the actual retail tenant build-outs. These were all paid for by Mark Richman Properties,” said Figueredo. “The City made no representations that the parking garage project met the criteria for tax exempt financing. The City’s finance department merely made an application to participate in the Florida Municipal Loan Council bond program.”
The Florida Municipal Loan Council issued the first bonds in 2001 for the parking garage development. Figueredo said that while tax exempt financing was certainly a more attractive form of financing, it was not critical to the development of the parking garage project.
“Municipalities are charged with ensuring that adequate infrastructure is provided to meet the needs of its citizens, businesses and visitors. This includes making sure that there is sufficient parking in the City’s largest business districts,” said Figueredo.
He described the agreement with Mark Richman Properties, Inc., (MRP), as serving two very important purposes.
“First, the City’s lot was “L” shaped and it was not possible to design a functional, cost effective garage without including Mr. Richman’s property. Second, the agreement with Mr. Richman allowed the City to meet the growing demand for parking without having to assume a large financial obligation since Mr. Richman assumed the responsibility for repaying approximately $11.5 million of construction loans, in exchange for a 50 year lease from the City,” explained Figueredo.
Figueredo stressed that in each of the bond underwritings, the City fully disclosed the structure of the agreement with Mr. Richman and relied upon the analysis and opinion of the Florida Municipal Loan Council and their bond counsel to determine whether the City could participate in the bond underwriting.
Figueredo also responded to recent reports that he consented to the $2.4 million loan made to Mark Richman Properties for the parking garage design and construction costs.
“The loan to Mark Richman Properties was specifically authorized in the lease agreement between Mark Richman and the City. Part of the consideration for the loan was the fact that Mr. Richman agreed to deed the air rights over the first floor of his property, thereby allowing the City to own all of the improvements above his retail space. In other words, all of the parking spaces and the ramp situated over Mark Richman’s property belong to the City,” Figueredo explained.
Figueredo further clarified that the city attorney’s office does not have the authority to make loans on behalf of the City and that the City received a first mortgage on Mr. Richman’s property as collateral for the loan along with a personal guaranty.
“A financial analysis of Mr. Richman’s personal net worth was performed by a certified public accountant retained by the City and a lending institution to ensure that the City could collect against Mr. Richman’s guaranty,” said Figueredo.
The lease agreement had already approved the loan to Mark Richman Properties and Figueredo stated that he contacted each commissioner prior to the closing and was directed by them to proceed.
“In addition to the ordinance that approved the lease, there is an additional resolution voted on by the city commission which specifically approves the loan to Mark Richman Properties,” said Figueredo.
Figueredo also stated that at the time the loan was made, its purpose was to provide the City with a first mortgage lien on the MRP property, cover the demolition of Mr. Richman’s building and the majority of his share of design and construction costs of the parking garage.
George McArdle, attorney for Mark Richman Properties, confirmed that the City obtained the air rights over the MRP property for free. He said that in return, MRP received a loan collateralized by a mortgage on its property and personally guaranteed by Mark Richman.
Former South Miami Mayor Horace Feliu, who was on the city commission at the time that the lease was approved and the loan was made to Mark Richman Properties, confirmed that Figueredo conferred with him and kept him fully apprised prior to proceeding with the loan.
“Luis met with me and provided me with the financial due diligence that had been performed. The loan to Mark Richman Properties had been discussed and approved during the public hearing process. The City followed appropriate protocols to make sure that the loan was secured,” said Feliu.
Feliu added, “It’s interesting to note that the individuals who clearly lack vision or the ability to create anything for our City are the very ones who are always trying to distort the facts.”
According to Figueredo, in February 2008, the City finance department was contacted by representatives of the Florida Municipal Loan Council. Figueredo stated that he participated in that conference call with the City’s finance director.
“The City was in the process of obtaining approximately one million dollars in the form of a loan to complete the parking garage construction since the bond program had been suspended,” said Figueredo. “During that February call, the legal counsel for the lender concluded that the 50 year term of the lease prevented the project from being tax exempt. At that time, representatives for the Florida Municipal Loan Council provided the City with one option to address the newly announced problem, which consisted of converting the 50 year lease into a 15 year management contract.”
Figueredo said that no specific time table was given for converting the agreement.
“I immediately contacted Mr. Richman’s attorney to try and work on the agreement since the City could not change the agreement without his consent,” Figueredo explained. “Under the lease, Mark Richman Properties was financially responsible for repaying in excess of 11 million dollars of the construction loan over 28 years. I met with Mr. Richman’s attorney on several occasions, but we were unable to arrive at a mutually acceptable agreement during my tenure.”
McArdle agreed that the City has been unable to provide an answer for the continuing debt service and compensation for the remaining term of the 50 year lease.