10-008219 Sas Fountains At Pershing Park, Ltd vs. Florida Housing Finance Corporation Status: Closed Recommended Order on Thursday, September 30, 2010.

Summary: Florida Housing's concerns about Developer experience and credit worthiness were not supported by the facts. Affordable housing proposal filed in the 2009 Universal Cycle should be funded.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SAS FOUNTAINS AT PERSHING PARK, )

LTD, )

)

Petitioner, )

)

vs. ) Case No. 10 - 8219

)

FLORIDA HOUSING FINANCE )

CORPORATION, )

)

Respondent. )

)

REC OMMENDED ORDER

A final hearing was held in this matter before W. David

Watkins , Administrative Law Judge with the Division of

Administrative Hearings, on September 13 and 14 , 20 10 , in

Tallahassee , Florida.

APPEARANCES

For Petitioner: M. Christopher Bryant, Esquire

Oertel, Fernandez, Cole & Bryant, P.A.

301 South Bronough Street, Fifth Floor

Post Office Box 1110

Tallahassee, Florida 32302 - 1110

For Respondent: W ellington H. Meffert, II, Esquire

Hugh R. Brown, Esquire

Florida Housing Finance Corporation

227 North Bronough Street, Suite 5000

Tallahassee, Florida 32301 - 1329

STATEMENT OF THE ISSUE

The issue i s whether the Florida Housing Finance

Corporation ( Ð Florida Housing Ñ or ÐFHFCÑ ) properly rescinded the

preliminary funding awarded to SAS Fountains of Pershing Park,

Ltd. ( Ð Pershing Park Ñ ), pursuant to applicable rules, prior

agency practice, and the exist ing case law.

PRELIMINARY STATEMENT

On July 30, 2010 , Respondent F lorida Housing rescinded

funding tentatively awarded to Petitioner Pershing Park . On

August 9, 2010, Petitioner timely submitted a Petition for

Administrative Proceedings which challenged FHFCÓs actions .

Pershing Park's Petition was then forwarded to the Division of

Administrative Hearings on August 23 , 2010.

Due to the timing requirements of the federal funding at

issue, Petitioner requested an expedited hearing and abbreviated

schedule for the submittal of proposed orders and issuance of

the Recommended Order. Accordingly, t he fi nal hearing was held

on September 13 and 14 , 2010 , and the parties agreed to submit

their proposed orders by September 22, 2010 . At the

commencement of the he aring, the parties filed a Joint Pre -

Hearing Stipulation containing extensive stipulated findings of

fact.

At the hearing, Pershing Park presented the testimony of

three witnesses: Scott Clark; Kenneth White (expert in

residential real estate development ) ; and W. Scott Culp (expert

in residential real estate development, with emphasis in the

development, construction, and financing of affordable rental

housing ) . In addition, the transcript of the deposition of

Robert Brunson was received in evidence. Per shing Park Exhibits

1 through 3 , 11, and 14 through 18 , and 22 were received into

evidence. FHFC presented the testimony of t wo wit nesses:

Douglas McCree (expert in affordable housing financing and

underwriting ) ; and Stephen Auger . F lorida Housing offer ed

Exhibits 1 through 5 , 7, 8, 11, and 12, all of which were

received into evidence. Joint Exhibits 1 through 5 were

received into evidence. At hearing, t he parties requested that

Official Recognition be taken of Florida Administrative Code

Rule Chapter 67 - 48 , and that request was granted .

The three - volume hearing T ranscript was filed with the

Division on September 17 , 2010 . Both Petitioner and Respondent

timely filed their Proposed Findings of Fact and Conclusions of

Law on September 22 , 2010 . In addit ion, Petitioner filed an

unopposed request for official recognition of specific rules

adopted by FHFC , as well as Internal Revenue Service Form 8609

and 8609 - A, with instructions . The request for official

recognition is granted, and these rules and forms, as well as

the submittals of the parties, have been duly considered in the

preparation of this Recommended Order.

References to statutes are to Florida Statutes (2009)

unless otherwise noted.

FINDINGS OF FACT

1. Pershing Park is a Florida limited partnership whose

business address is 655 West Morse Boulevard, Suite 212, Winter

Park, Florida 32789. Pershing Park is engaged in the

development of affordable housing in this state. Pershing Park

is an "Applicant , " as defined in Florida Administrative Code

67 - 8, and RFP 2010 - 04.

2. F lorida Housing is a public corporation created by

Section 420.504, Florida Statutes, to administer the

governmental function of financing or refinancing of affordable

housing and related facilities in Florida. F lorida H ousing Ós

statutory authority and mandates appear in Part V of Chapter

420, Florida Statutes. F lorida Housing is governed by a Board

of Directors consisting of nine individuals , representing

various affordable housing stakeholder interests 1 / and two

consum er members appointed by the Governor and confirmed by the

Senate. The Secretary of the Department of Community Affairs

sits as a voting ex officio member of the board.

3. On February 26 , 20 10 , F lorida Housing issued RFP 20 10 -

04 (the ÐRFPÑ) setting forth criteria a nd qualifications for

applicants to seek funding for affordable housing projects from

funds that Florida received through the American Recovery and

Reinvestment Act of 2009, PL 111 - 5 (ÐARRAÑ). ARRA was enacted

in 2009 by Congress as part of fed eral economic stimulus

efforts.

4. The RFP was issued on February 26, 2010 , and required

applicants to submit proposals to F lorida Housing no later t han

2:00 p.m. on March 12, 2010 . Pershing Park submitted an

application and intends to seek financing for its affordable

housing project by applying for funding from the sources that

are proposed to be allocated through the RFP.

F lorida Housing Ós Programs

5. F lorida Housing administers several programs aimed at

assisting developers to provide affordable multifamily rental

housing for low - income Floridians . These programs include: the

Multi - Family Mortgage Revenue Bond Program (ÐMMRBÑ) established

under Section 420.509, Florida Statutes; the State Apartment

Incentive Loan Program (ÐSAILÑ) created pursua nt to Section

420.5087, Florida Statutes; and the federal Low Income Housing

Tax Credit Program (the ÐTax Credit programÑ) established in

Florida under the authority of Section 420.509 3 , Florida

Statutes. Most relevant to this case is the Tax Credit Progr am,

the allocation of which is governed by Section 420.5099, Florida

Statutes.

6. These funding sources are allocated by F lorida Housing

to finance the construction or substantial rehabilitation of

affordable housing. A portion of the units constructed based

upon funding from these programs must be set aside for residents

earning a certain percentage of area median income (ÐAMIÑ).

Historically, the units have typically been targeted to tenants

earning 60 percent of AMI or below.

Tax Credits

7. The Ta x Credit program was created in 1986 by the

federal government. Tax C redits come in two varieties:

competitively awarded 9 percent tax credits , and non -

competitively awarded 4 percent tax credits. For the 9 percent

credits, the federal government annuall y allocates to each state

a specific amount of tax credits using a population - based

formula. Tax C redits are a dollar - for - dollar offset to federal

income tax liability over a ten - year period. A developer

awarded T ax C redits will often sell the future str eam of T ax

C redits to a syndicator who in turn sells them to investors

seeking to shelter income from federal income taxes.

8. The developer receives cash equity with no debt

associated with it. Thus, Tax Credits provide an attractive

subsidy and, conse quently, are a highly sought - after funding

source. F lorida Housing is the designated agency in Florida to

allocate Tax Credits to developers of affordable housing. Every

year since 1986, F lorida Housing has received an allocation of

Tax Credits to be use d to fund the construction of affordable

housing.

9. As required by Section 42 of the Internal Revenue Code,

each year Florida Housing adopts a Qualified Allocation Plan

("QAP"), which sets forth the allocation methodology for the

competitive (9 percent ) tax credits. The QAP must be approved

by the Governor each year. The QAP is also adopted and

incorporated by reference in Florida Housing's rules. See Fla.

Admin. Code R . 67 - 48.002(88) .

10. The 2009 QAP includes the following provision: "In

order for the Corporation to implement the provisions of The

Recovery and Reinvestment Act of 2009 (the "2009 Stimulus Act"),

any funds received pursuant to the 2009 Stimulus Act may be

allocated by a competitive request for proposal or competitive

application proc ess as approved by the Board. Any such process

will be governed by Section 42, IRC, and Chapter 67 - 48, F.A.C.,

as applicable , or, an emergency rule authorized by the Florida

Legislature specifically for the 2009 Stimulus Act, if any."

The 2009 QAP was ad opted as part of the 2009 Universal Cycle

rules by Florida Housing's Board of Directors on March 13, 2009.

Universal Application

11 . F lorida Housing has historically allocated funds from

the MMRB, SAIL, and Tax Credit programs through a single annual

app lication process. Since 2002, F lorida Housing has

administered the three programs through a combined competitive

process known as the ÐUniversal Cycle.Ñ The Universal Cycle

operates much the same as an annual competitive bidding process

in which applican ts compete against other applicants to be

selected for limited funding. The Universal Cycle and the

attendant application review process are intended to equitably

and reasonably distribute affordable housing throughout the

state.

12 . F lorida Housing has adopted rules which incorporate by

reference the application forms and instructions for the

Universal Cycle as well as general policies governing the

allocation of funds from the various programs it administers.

Typically, F lorida Housing amends its Univ ersal Cycle rules,

forms, and instructions every year.

13. Each year, t he Universal Cycle provides a mechanism

for selecting applications to meet statutory geograph ic

requirements, specific targeting goals that address housing

needs of particular demograp hic groups (such as farm workers,

commercial fishery workers, the homeless, or the elderly), as

well as specific set asides or targeting goals aimed at

addressing identified needs (such as the Florida Keys, inner

city areas, or rural development), and for preservation of

existing affordable housing complexes. Each set - aside group

essentially has its own separate funding from its share of the

funds distributed by Florida Housing.

1 4 . The typical process used by F lorida Housing to review

and approve the Un iversal Cycle applications operates as set

forth in Florida Administrative Code Rule 67 - 48.004, and is

summarized as follows:

a. Interested developers submit

applications by a specified date.

b. F lorida Housing reviews all

applications to determine if certain

threshold requirements are met. A score is

assigned to each application. Applications

receive points towards a numerical score,

based upon such features as programs for

tenants, amenities of the development as a

whole and of tenantsÓ units, loca l

government contributions to the specific

development, and local government ordinances

and planning efforts that support affordable

housing in general.

c. F lorida Housing has built into its

scoring and ranking process a series of

ÐtiebreakersÑ to bring certainty to the

selection process. The tiebreakers are

written into the Application Instructions

which , as indicated above, are incorporated

by reference into F lorida Housing Ós rules.

d. After the initial review and

scoring, a list of all application s, along

with their preliminary scores, is published

by F lorida Housing on its website. The

applicants are then given a specific period

of time to alert F lorida Housing of any

errors they believe Respondent ma de in its

initial review of competitors' appli cations.

These potential scoring errors are submitted

through a Notice of Possible Scoring Error,

or "NOPSE".

e. After Florida Housing staff has

reviewed the NOPSEs, a revised scoring

summary (the "NOPSE Scores") is published.

Applicants can then att empt to "cure"

certain items within their applications by

supplementing, correcting or amending the

application or its supporting documentation.

Following the timely submittal of "cures",

an applicant's competitors have an

opportunity to comment on th e at tempted

cures by filing a Notice of Alleged

Deficiency, or "NOAD . " Florida Housing

staff reviews all of the submitted cures and

NOADs and prepares its "final" scoring

summary for all applications. An appeal

procedure for challenging the final scores

is s et forth in Florida Administrative Code

Rule 67 - 48.005.

f . Following the completion of any

appeal proceedings, F lorida Housing

publishes final rankings which delineate the

applications that are within the Ðfunding

rangeÑ for the various programs. In ot her

words, the final rankings determine which

applications are preliminarily selected for

funding. The applicants ranked in the

funding range are then invited into a

Ðcredit underwritingÑ process. Credit

underwriting review of a development

selected for funding is governed by Florida

Administrative Code Rule 67 - 48.0072. In the

Credit Underwriting Process, third party

financial consultants (selected by

Respondent, but paid for by the individual

applicants) determine whether the project

proposed in the app lication is financially

sound. The independent third party looks at

every aspect of the proposed development,

including the financing sources, plans and

specifications, cost analysis, zoning

verification, site control, environmental

reports, construction contracts, and

engineering and architectural contracts.

Pershing Park Ós Application in the 200 9 Universal Cycle

1 5 . Pershing Park timely submi tted an application in the

2009 Universal Cycle seeking an award of Tax Credits and a

supplemental loan to cons truct a 92 - unit affordable rental

housing development in Orlando, Orange County, F lorida. The

application proposed total development costs of $16,321,711 of

which $14,429,558 were considered "allowable" costs on which an

allocation of Housing Credits coul d be based. Pershing Park

projected that approximately $8.8 million in construction

financing and approximately $9.77 million in permanent financing

would be generated from the sale of housing credits .

1 6 . The 2009 Universal Cycle also permitted applica nts to

project that a portion of their construction and permanent

financing would be sought from funding made available through

the ARRA. Pershing Park proposed in its application that $3.38

million in construction and permanent financing would result

fro m an anticipated award of ARRA funding.

17. The Pershing Park application was the subject of

multiple NOPSEs, which questioned whether it was part of a pool

of related applications (which would have relegated it to

Priority II status under the 2009 rules ); whether the required

developer experience was demonstrated; whether the density on

site allowed construction of 92 units; and whether the

development site had a valid address. None of these NOPSEs w as

adopted by Florida Housing.

18. Pershing Park com plied with all of the requirements of

the 2009 Universal Cycle Application and Instructions, and

achieved a perfect score for its application. Pershing Park

also achieved maximum tie - breaker points. As a result, Pershing

Park was allocated $1, 502,550 in annual Tax Credits.

Economic Downturn and ARRA

1 9 . By the fall of 2008, significant changes were taking

place in the economic environment and the affordable housing

market in particular , and it became evident that the market for

Tax Credits had dropped p recipitously . Many projects that were

awarded Tax Credits during the 2007 and 2008 Universal Cycles

experienced difficulty in finding syndicators to purchase the

awarded Tax Credits, or to purchase them at previously available

rates, and, thus, were unabl e to proceed to closing.

20 . In February, 2009, in recognition of the collapse of

the housing market and the difficulty in marketing and

syndicating Tax Credits, Congress, as part of its economic

stimulus efforts, enacted the ARRA, which established mec hanisms

to assist in the development of affordable housing and offset

some of the economic devastation to developers. Congress

included specific provisions in the ARRA intended to address the

condition of the Tax Credit market.

21 . Section 1602 of the A RRA authorized the state Tax

Credit allocating agencies to return up to 40 percent of the

state's 2009 annual Tax Credit allocation, as well as Tax

Credits awarded in 2007 and 2008 to the federal government, to

be exchanged for a cash distribution of 85 ce nts for each tax

credit dollar returned. The exchange of 2007 and 2008 Tax

Credits generated a pool of $578,701,964 for the S tate of

Florida.

The RFP

2 2 . In response to ARRA, on February 26, 2010 , F lorida

Housing issued RFP 20 10 - 04 (the ÐRFPÑ), setting forth criteria

and qualifications for developers to seek funding for affordable

housing projects from money that had been allotted by the

federal government as part of economic stimulus efforts. Except

as specified otherwise in the RFP, the provisions of (Fla.

Admin. Code) R. 67 - 48 (2009), governed the allocation of

Exchange funds.

23. The RFP solicited proposals from applicants with an

ÐActive AwardÑ of 9 percent (competitively awarded) Tax Credits .

Pershing Park and 29 other applicants submitted pro posals in

response to the RFP, seeking awards ranging from $1.8 million to

$5.0 million. Pershing Park and 28 of the 29 other applicants

met the threshold requirements of the RFP. Pershing Park was

preliminarily awarded $4.1 million in Exchange funding, and was

invited into the credit underwriting process for both its 2009

award of tax credits and its 2010 award of Exchange funding.

Credit Underwriting

24 . The representations contained in the applications for

funding through FHFC are essentially taken at "face value"

during the application scoring process. However, if invited to

enter the underwriting process, the applicant's information is

examined with an elevated level of scrutiny. Indeed, RFP 2010 -

04 expressly advised applicants of this ad ditional layer of

review :

f. An analysis of the Sponsor shall be

completed with more in Ώ depth consideration to

key topics than typically completed by

Florida Housing, including liquidity, net

worth, unrestricted assets, and contingent

liabilities.

g. An analysis of the credit worthiness of

the Developer shall be completed with more

in Ώ dep th review than typically considered,

including areas of past performance, default

history, failed conversions, guarantor

performance, and outstanding contingencies.

(RFP 2010 - 04, Section Five, C.1.f, g.)

25. Under the Credit Underwriting process, a prof essional

credit underwriter is appointed by F lorida Housing to review the

proposed project that qualified for funding as a result of the

Universal Cycle. Pursuant to the procedures set forth in

Fl orida Admin istrative Code Rule 67 - 48.0072, Fla. Admin. Code ,

t he credit underwriter reviews and assesses numerous financial,

demographic, and market factors concerning the proposed project.

The credit underwriter selected by Florida Housing to review the

Pershing Park application wa s First Housing Development

Cor poration (Ð First Housing Ñ).

2 6 . The credit underwriting process resulted in a negative

recommendation from First Housing, based primarily on the

"Developer Experience , " contained at Exhibit 11 of Pershing

Park's application. On June 18, 2010, Florida Ho usingÓs Board

of Directors considered First Housing's recommendation and voted

to rescind funding to Pershing Park. This action effectively

stopped the underwriting process.

27. At hearing, Douglas McCree, CEO of underwriter First

Housing, elaborated on his concerns regarding the Developer

which formed the basis for his recommendation to deny funding to

Pershing Park :

a) The experience provided by the

Developer's Principal (Mr. White) is more

than 25 years old and involved a project

completed before the Low Income Housing Tax

Credit Program existed;

b) One of the two projects identified as

developer experience was foreclosed upon

shortly after being placed in service;

c) The Developer was not forthcoming with

requested information, and in particular,

did not reveal an action brought by the

Securities and Exchange Commission against

one of Mr. White's former companies

(Whitemark Homes, Inc.) ;

d) Mr. White apparently took no part in any

activity as Principal of the Developer, and

that all work normall y done by or at the

instance of the Principal was done by others

without input from the Developer's

Principal;

e) The Pershing Park application was

prepared and delivered to Florida Housing by

employees of the GC, not the Developer.

The Applicant, Devel oper, and General Contractor

2 8 . Southern Affordable Services, Inc. ("SAS") was formed

in 2009 when more opportunities opened up for the development of

affordable housing by non - profit entities. SAS is the sole

member of the general partner and of the l imited partner in SAS

Fountains at Pershing Park, Ltd., the limited partnership which

i s the applicant. In Florida Housing's application process, the

a pplicant is the owner. The owner directly contracts with the

architect, the engineer, the developer, th e general contractor

("GC"), and the management company. The applicant signs the

notes for the financing and signs the loans.

2 9 . The a pplicant entity will become the owner of the

project upon its completion. Applicants for T ax C redit

financing are si ngle asset, single purpose entities, usually

established as limited partnerships, often with the same entity

initially serving in the capacity of both a fractional (0.01 % )

general partner and a majority (99.99 % ) limited partner. A

Housing Credit Syndicato r purchases the limited partnership

interest and either sells the credits to investors or uses the

credits itself to offset tax liability.

30 . SAS is also the sole member of the developer, Southern

Affordable Development, LLC. If SAS makes a profit fro m the

Pershing Park development, such profit would be held and used to

further the mission of the 50l(c)(3) corporation that is SAS.

That mission is to help those who are disadvantaged, poor, and

distressed, particularly in the area of housing. SAS also

anticipates engaging in some wellness services and wellness care

within its affordable housing developments.

3 1 . Scott Culp is a Principal with CPG Construction, LLLP

("CPG") and a licensed GC in the State of Florida. CPG is a

multi - family residential builder almost exclusively of

affordable rental housing. CPG is a general contracting

company, but the services it provides to its clients include

anything that relates in any manner to the construction of

multi - family communities. CPG would be the GC on the

Pershing Park project if the FHFC funding is restored.

3 2 . Mr. Culp has been involved in the development of

approximately 75 affordable rental housing developments from

1995 - 2010, containing over 20,000 units. Over 50 of those 75

developments are i n Florida. He has been involved in preparing

and submitting between 400 and 500 applications to FHFC for

financing.

3 3 . SAS relied on CPG and its Principal, Mr. Culp, to do

the mechanical preparation of the forms, and particularly to

give SAS guidance o n how to prepare them correctly, and avoid

errors. SAS's President, Scott Clark, understood the process to

be very complicated and exacting, and one that was beyond his

expertise. Thus, he leaned on the expertise of Mr. Culp and CPG

to see that it was do ne correctly. Mr. Clark has known Mr. Culp

for over 20 years.

34 . Generally, the primary role of the GC is to build the

project. The GC's role is different from the Developer, in that

the GC's obligation in a construction contract is for the

construct ion in accordance with the plans and specifications,

the contract documents, and w hatever the owner has chosen to

include in those documents. Typically, the Developer is

involved with the owner making sure all those contract documents

accurately reflect w hat the owner wants. The contractor is

ultimately responsible for the actual construction in accordance

with those contract documents.

35 . Pershing Park did not use a paid consultant to prepare

its application. CPG assisted SAS with most parts of the

application, but did not charge SAS a consulting fee for its

services. CPG did the work because it wa s trying to maint ain

construction volume, and will likely be the GC on the project

and earn a GC fee if the funding is approved.

36. There is no requir ement in Florida Housing's rules

that a Principal of the owner or applicant must personally fill

in the dots and check the boxes in the application submission

process. However, t here is a certification page included in the

application that the owner must sign, indicating what he is

proposing and what he is committing to. In this instance , the

certification was appropriately signed by Sc ott Clark as

President of SAS , the sole member of the general partner and of

the limited partner in the applicant, SAS Fo untains at Pershing

Park, Ltd.

37 . In the development of affordable housing, as with any

real estate development, a team approach is taken to

development. The owner/applicant is ultimately responsible for

the project , but the development team must be i dentified in the

application. FHFC defines the dev elopment team to include the

Developer, Management Agent, General Contractor,

Architect/Engineer, Attorney, and Accountant .

38. Florida Housing's rules define "Developer" as "any

individual, association, corporation, joint venture r , or

partnership which possesses the requisite skill, experience, and

credit worthiness to successfully produce affordable housing as

required in the Application." Fla. Admin. Code R . 67 -

48.002(29) .

39 . The developer routinel y relies on the work of other

professionals to perform their part of the job . For example,

t he developer relies on the architect to review plans for

compliance with code, and if deemed necessary, the developer or

contractor may even hire a third party arc hitect to do peer

review to ensure the project architect got it right. However,

d espite the developer Ós hiring an architect to do code review,

the developer is still responsible to the owner to perform his

tasks with regard to ensuring those things are do ne. The

developer does not have a contract with t he architect; rather ,

the developer is coordinating that professional's work on behalf

o f the owner.

40 . While the developer may be responsible for seeing that

necessary steps for the construction of the development have

been done, there are many tasks which the developer does not and

cannot personally do. For example, the developer may be

responsible for assuring that the project is appropriately

engineered to accommodate site conditions and utilities, b ut it

is the project's licensed engineer that directly performs that

work . And t he developer may be ultimately responsible for the

design and location of the buildings on the site to comply with

site planning requirements, but the developer would rely on a

licensed architect to design the buildings, and possibly a

licensed engineer as to the ir configurations on the site.

Similarly, t he developer may be responsible for the design and

location of landscaping features, but would rely on the

landscape archite ct to perform those functions. And again, t he

developer may be responsible for compliance within environmental

constraints on the site, and for ensuring that soil and other

site conditions are conducive to the site development plan, but

would rely on soil scientists and environmental consultants to

actually perform those tasks.

41 . Al though the developer is responsible for delivery of

the finished product, FHFC's own rules specify that it is the GC

who bears the responsibility for managing and controlli ng the

constructio n of the development. Fla. Admin. Code R . 67 -

48.0072(17)(e). By contrast, FHFC's rules do not specifically

identify any task of the developer which is not delegable.

Developer Experience

42. The 2009 Universal Cycle Application Instr uctions set

forth the experience that a Developer must dem onstrate in order

to be a candidate for funding in that cycle:

Each experienced Developer or Principal of

Developer must demonstrate experience in the

completion; i.e., the certificate of

occupancy has been issued for at least one

building, of at least two affordable rental

housing developments, at least one of which

consists of a total number of units no less

than 50 percent of the total number of units

in the proposed Development, by providing a

pr ior experience chart behind a tab labeled

ÐExhibit 11Ñ . If providing experience

acquired from a previous affordable housing

Developer entity, the person signing the

Developer or Principal of Developer

Certification form must have been a

Principal or Finan cial Beneficiary of that

Developer entity.

(Instructions, Part II B.1.C.)

(Emphasis in original.)

43. As noted, t he Developer entity for Pershing Park,

Southern Affordable Development, LLC, is a newly fo rmed company

with no development experience in i ts own right. Pursuant to

FHFC rules, the developer identified as its manager Kenneth L.

(Larry) White as b ri nging development experience to the

organization. 2 / It was necessary to have an experienced

developer like Mr. White involved in this project. O therwise,

Mr. Clark, as president of the sole member of Southern

Affordable Development, would have to run the development. But

Mr. Clark is not a developer, and recognized he was in no

position to run the development. Rather, h e needed someone who

had b een in the development arena before, and knew that

Mr. White was an experienced developer.

44. Mr. White was retained as manager by the Developer

entity through an Independent Services Agreement. As such, he

is not part of the ownership structure, nor i s he an employee .

Rather, he is an independent contractor, engaged with particular

duties as the manager of that business. Mr. White's scope of

services is set out in Article 3 of the Agreement, and requires

him to serve as an officer or manager of the D eveloper entity .

Specifically, Mr. White is to provide the Developer entity with

his expertise and advice relating to the development of

affordable housing as the Developer entity deems necessary. The

Agreement also states that Mr. White has no authority to bind

the Developer entity, and cannot make any discretionary

decisions on behalf of the Company. Mr. White reasonably

understands this latter restriction to mean he may not exceed

his scope of services. Mr. White's specific direction from

SAS's Presi dent was to see that the construction of the project

is done in a timely and appropriate manner.

45. Consistent with the 2009 Universal Cycle Instructions ,

the Pershing Park application identified two affordable housing

developments that Mr. White had b een involved in developing: the

180 - unit Holly Creek Apartments in Texas; and the 168 - unit

Woodbridge Apartments in Orlando, Florida. Both of these

developments were developed as affordable housing, and Mr. White

played a key role in their development. H olly Creek was

completed in 1984, and Woodbridge was deve loped from 1985 to

1986. Notably, FHFC rules impose no standard for how recently a

development must have been constructed in order for it to serve

as proof of developer experience.

46. Florida Hou sing does not dispute that Pershing Park's

developer experience as set forth in Exhibit 11 of Petitioner's

application facially satisfies the threshold requirements of the

2009 Universal Cycle.

FHFC Concern over the Woodbridge Development

47. Respondent 's ( and First Housing's ) concerns regarding

reliance on the Woodbridge develo pment as a source of developer

experience is that shortly after its completion in 1985 a

foreclosure action was initiated. However, t he

unrebutted evidence established that the f oreclosure was

unrelated to any deficiency in the development of the project,

or in Mr. White's services as the developer of the project.

Rather, the foreclosure was apparently the result of the owner,

Goldenrod Partnership, not making required payments o n the debt

incurred to construct the project. Although Mr. White was a

general partner of the owner entity, he was not personally

involved in the decisions not to service the debt . The evidence

established that those decisions were made by the two financ ial

partners in Goldenrod, Robert Brunson and Barry Ellis .

Re spondent does not contend that Mr. White failed to

s atisfactorily exercise his duties relating to the design,

permitting, construction, and lease - up of the project.

65. The fact that subsequen t to the completion of the

Woodbridge project a summary judgment of foreclosure was entered

against Goldenrod Partnership and its general partners, does not

negatively reflect on Mr. White's abilities as a developer. And

g iven the circumstances of the for eclosure as established in

this record, nor should it tarnish Mr. White's credit

worthiness.

66. The unrebutted evidence established that, following

the foreclosure on Woodbridge, Mr. White has had a successful

career in residential real estate developm ent, and has had no

trouble accessing credit to do so. Mr. White has constructed

roughly ten multi - family developments containing a pproximately

2,000 units, and more than 40 single - family developments,

containing over 3,000 units.

FHFC Concern over Whitem ark and the SEC

6 7 . RespondentÓs other primary concern over Mr. White's

development experience centers on his service as CEO of

Whitemark Homes, Inc., a publicly traded company, at the time

that the Securities and Exchange Commission ("SEC") investigated

some financial reporting issues regarding Whitemark. Those

reporting issues concerned how Whitemark prepared consolidated

financial statements after its acquisition of another company in

north Florida. Specific ally, the acquired company had certain

cont racts and options to purchase valuable beachfront property

for condominium development. Whitemark's c hief f inancial

o fficer (not Mr. White) and the company's c ertified p ublic

a ccounting firm agreed on the approach to valuing and reporting

these assets on financial disclosures filed with the SEC. At

hearing, unrebutted testimony established that the CFO and the

accounting firm took additional due diligence steps to verify

that the manner of reporting these assets was appropriate. The

SEC disagreed with th at conclusion and initiated an enforcement

action.

6 8 . Ultimately, after spending a significant amount of

money, energy, and attention on the SEC matter, Mr. White and

Whitemark elected to settle the matter with the SEC. According

to the terms of the s ettlement, Mr. White was ordered to

disgorge the proceeds of certain sales of stock he had engaged

in as part of a regular, structured stock sale. He also was

required to pay interest connected with tho se stock sales. No

fines or penalties were imposed, and no restrictions regarding

Mr. White's service to the company were imposed. 3 /

6 9 . N either the SEC order, nor the underlying factual

basis for it, related to Mr. White's skills or abilities as a

developer. They were not the result of any failed or inc omplete

developments, n or of any misappropriation of com pany funds or

shareholder money. Rather, the matter appears to have result ed

from a difference of professional opinion on a complex

accounting matter. More importantly, the entry of the cease and

de sist order did not affect Mr. White's credit worthiness. It

has not impaired his ability to access credit for development

activities. Although the company with which Mr. White is now

associated, Lifeway Homes, is not currently developing home

sites due t o economic conditions and the poor market for new

construction, Mr. White has successfully engaged in development

activities after the entry of the cease and desist order,

developing five projects totaling around 700 units .

70. At hearing, First Housing' s representative criticize d

the Applicant for not providing complete information during the

credit underwriting proces s. However, t here is no competent

substantial evidence of record that the Applicant or its

representatives or Development team members wi thheld or

concealed any informat ion from the credit underwriter, or failed

to provide information in response to a request from the

underwriter. 4 /

CONCLUSIONS OF LAW

71 . The Division of Administrative Hearings has

jurisdiction over the subject matter of and th e parties to this

proceeding pursuant to Sections 120.569 and 120.57(1), Fl orida

St atutes (2010).

72 . Petitioner challenges an action of the Florida Housing

Finance Corporation, a public instrumentality and agency of the

State of Florida pursuant t o Sections 120.52 and 420.504(2),

Florida Statutes.

73 . Petitioner has the burden of going forward with the

evidence as well as the ultimate burden of establishing the

basis for their claim , The Environmental Trust Fund v. Dept. of

EnvÓl Protection , 714 So. 2d 493, 497 (Fla. 1 st DCA 1998), and

therefore must demonstrate the impropriety of F lorida Housing Ós

actions.

74 . Th is is a de novo proceeding designed to formulate

final agency action on the closing of the requested funding.

See Ybor III, Ltd. v. F HFC , DOAH Case No. 03 - 1956 (Fla. DOAH

Mar. 30, 2004; Fla. DCA, FHFC May 18, 2004), at para. 100. It

is not an appellate - style review of action taken earlier and

preliminarily by the Respondent. The standard of proof

to be applied is a preponderance of th e evidence. Ybor III ,

supra.

75 . There is no question the credit underwriting process

established in Florida Housing's rules fulfills the important

function of verifying information set forth in an application

for funding. Likewise, as noted by Respond ent, Florida

Housing's Board is entitled to rely upon the professional

judgment of its underwriter when deciding whether or not to

approve project funding. RST Fruitland Housing, LP v. Florida

Housing Finance Corporation , Case No. 10 - 0896 ( Fla. DOAH June 9,

2010). However, where, as here, the preliminary decision of the

Board is challenged in a de novo administrative proceeding, the

material facts underlying the recommendation must be established

by competent substantial evidence. In this instance, they have

not.

Developer Experience

76 . The only objective standard contained within FHFC's

rules govern in g the Universal Application Cycle process for

developer experience are that the Developer entity, or a

Principal within the Developer entity, ha s constr ucted at least

two affordable housing developments, at least one of which has

at least half of the number of apartment units proposed

in the pending application. The same rules that govern the

Universal Cycle govern the award of Exchange funding.

77 . Th ere is no dispute that the 180 - unit Holly Creek

Apartments in Texas and the l68 - unit Woodbridge Apartments in

the Orlando area, both of which were developed with the efforts

of Mr. White, satisfy the standards for number, size, and

affordability. The rule also requires that a certificate of

occupancy ("CO") was obtained for at least one unit in one

building within each such qualifying development. Both

developments were constructed to completion and were leased out

to tenants, so there is likewise no disp ute that the "CO"

requirement was met.

78 . There is no requirement i n FHFC rules as to how

recently the qualifying apartment developments must hav e been

constructed, or that the qualifying developments be financed in

whole or in part with low income hous ing t ax credits.

Respondent cann ot add additional requirements into the

qualification process after the fact. An agency must follow its

own rules until they are amended or abrogated. Cleveland Clinic

v. AH CA , 679 So. 2d 1237, 1242 (Fla. 1st DCA 1996). "An agenc y

cann ot change its standards on the personal whim of a

bureaucrat." Courts v. AH CA , 965 So. 2d 154, 159 (Fla. 1st DCA

2007).

79 . Both the Universal Cycle rules and RFP 2010 - 04

contemplate a more in depth analysis of the developer during the

cr edit underwriting process. The goal of this analysis,

according to both rule and RFP provisions, is to determine

whether the developer is "credit worthy." The term "credit

worthy" is not defined in FHFC's r ules, its rule - adopted

i nstructions or f orms, it s RFP, or its governing statutes.

Where a term used in a statute or rule is not defined, it should

be given its plain and ordinary meaning. See Nehme v.

Smithkline Beecham Clinical Labs , 863 So. 2d 201, 204 (Fla.

2003).

80 . "When necessary, the plain a nd ordinary meaning of

words can be ascertained by reference to a dictionary . Ñ Nehme ,

863 So. 2d at 205. The Merriam - Webster Online Dictionary

defines "credit worthy" as "financially sound enough to justify

the extension of credit." [Pet. Exh. 22] 5 / In short, the te r m

"credit worthy" means the ability to obtain credit. FHFC's and

its underwriter's position that Mr. White, as the qualifying

Principal for the recently formed D eveloper entity, is not

"credit worthy" is not supported by the facts found her ein , and

is contrary to the unrebutted evidence of record . As noted,

Mr. White has successfully engaged in development activity for

more than 25 years. No evidence was offered that he has had any

difficulty accessing credit for his development activities ,

notwithstanding the S.E.C. matter discussed above .

Woodbridge and the S.E.C.

81 . As noted, Mr. White's involvement as a general partner

in the Woodbridge Apartments development in the mid - 1980's, a

development for which a foreclosure action was initiate d soon

after construction was completed, has not adversely affected

Mr. White's credit worthiness, particularly 25 years after the

fact. The evidence established that Mr. White's role in

Woodbridge was as the "development partner , " while the other two

par tners in that development, Robert Brunson and Barry Ellis,

were the "financial partners" who pursued, obtained, and managed

the financing. For whatever reason, after the development was

completed ( on schedule and with in budget ) Brunson and Ellis

decided t o discontinue payments on the debt. The resulting

foreclosure was not the consequence of Mr. White's actions as

the developer. The 2009 Unive rsal Cycle Instructions provide

that should a member of the development team fail to "place - in -

service" a develop ment or project, such event may result in a

negative recommendation from the underwriter. (Instructions,

Part II, B. ) There is no evidence in this record to suggest

that Mr. White, or any other member of the Pershing Park

development team failed to place a project "in - service . "

82 . Likewise, the SEC Cease and Desist Ord er concerning

Whitemark and White, issued in December 2005 in settlement of an

investigation, cannot reasonably be seen to tarnish Mr. White's

credit worthiness. Rather, i t appears Mr. W hite reasonably

relied upon the professional opinions of the company's CFO and

outside accounting firm regarding the transactions at issue . In

the end, the SEC disagreed with the company's reporting , and

took action. However, Mr. White and Whitemark, aft er a

significant expenditure of time, money, and effort contesting

the allegations , chose to settle the matter with no admission of

wrongdoing or of the underlying facts alleged by the SEC. Since

the matter was resolved through settlement, the allegations

remain simply that: unproven allegations. Thus , there is no

factual basis to conclude White or his company was guilty of any

wrongdoing.

Provision of Information to Underwriter

83 . Florida Administrative Code Rule 67 - 48.0072 (22)

provides in relevant pa rt:

If the Credit Underwriter requires

additional clarifying materials in the

course of the underwriting process, the

Credit Underwriter shall request same from

the Applicant and shall specify deadlines

for the submission of same. Failure to

submit requi red information by the specified

deadline, unless a written extension of time

has been approved by the Corporation, shall

result in withdrawal of the preliminary

commitment or the HC invitation to enter

credit underwriting, or both, as applicable,

and the funds will be distributed as

outlined in the Universal Application

instructions.

84 . There is no evidence that Pershing Park failed to

timely respond to requests for "additional clarifying materials"

from the underwriter. To the contrary, it appears Pe rshing Park

was proactive in providing clarifyi ng information about its

application to Florida Housing . There is no evidence to support

the conclusion that Pershing Park violated Rule 67 - 48.0072(22).

85 . Respondent's final concerns relate to Mr. White 's

limited activity as Principal of the Developer, and that

Pershing Park's application was prepared and delivered to

Florida Housing by employees of the GC, not the Developer.

86 . FHFC's rules separately define Applicant, Developer,

and GC. The "Applican t" is the person or legally formed entity

seeking a loan or funding from FHFC, or responding to an RFP.

The "Developer" is the "individual, association, corporation, or

joint venturer, or partnership which possesses the requisite

skills, experience, and c redit worthiness to successfully

produce affordable housing." (Emphasis added.) The "GC" is the

person or entity "duly licensed in the State of Florida with the

requisite skills, experience and credit worthiness to

successfully provide the units required in the Application, and

which meets the criteria described in Rule 67 - 48.0072." Rule

67 - 48.002(8), (29), and (52).

87 . The Developer and the GC serve different function s .

FHFC's rules specify the conditions that a GC must meet. The

rules specify that the GC must, for example, employ a

Development superintendent. Fla. Admin. Code R . 67 -

48.0072(17)(a). The GC must secure building permits for the

development, to be " issued in the name of the GC." I d . at

17(c). The GC must ensure that not more than 20 percent of the

construction cost is s ubcontracted to any one entity, unless

otherwise approved by FHFC's Board. Id . at (17)(f).

88 . Significantly, the rule also states the GC must

" [E] nsure that none of the GC's duties to manage and control the

construct ion of the Development are subcontracted." Fla. Admin.

Code R . 6748.0072(17)(e). FHFC's executive director agreed that

the meaning of this provision is that those specific duties for

management and control of construction cannot be delegated. By

contras t, he could point to no provision of FHFC's rules that

list duties of the Developer wh ich cannot be delegated.

89 . The Developer entity, through its certification form,

certifies that it or its Principal has the requisite skills,

experience, and credit w orthiness to produce the units proposed

in the a pplication. The signing party affirms his understanding

that he will be the Developer or Principal of the Developer of

record, and will remain in such capacity until the Development

has been completed. The form certifies many things, but does

not certify that the Developer's Principal will personally

perform tasks. It certifies ultimate responsibility, not

specific tasks.

9 0 . The Developer certification form itself identifies

tasks that are "certified" to by the Developer or its Principal,

such as compliance of the design, plans, and specifications with

all federal, state, and local requirements. But the Developer

will surely rely on architects, engineers, geotechnical

scientists, environmental consultant s, and others to perform

such tasks, and to perform them competently and professionally.

The Developer may, in the words of Mr. McCree, be the "captain

of the ship," but he is not the one operating and maintaining

the engines or steering the ship. There is no evidence to

establish that Mr. White's level of participation to date in the

Pershing Park development is in violation of statute or rule.

91 . While the Developer may be responsible for certain

tasks ultimately being accomplished , nothing in FHFC's rules

require the Developer or its Principal to personally perform

such tasks.

92 . Without doubt, the underwriting process utilized in

the evaluation of Florida Housing applications serves a valuable

function. With millions of dollars at stake in a hig hly

competitive allocation process, it would be irresponsible for

Respondent not to subject facially qualified applications to a

second, more detailed, level of scrutiny to assure the likely

success of the se important project s . However where, as here,

the " issues and concerns" raised during the underwriting process

are not supported by the facts adduced at hearing, the

application should be approved.

RECOMMENDATION

Based upon the Findings of Fact and Conclusions of Law, it

is

RECOMMENDED that the Florid a Housing Finance Corporation

enter a Final Order directing SAS Fountains at Pershing Park ,

LTD; proceed to closing on its requested tax credit and Exchange

Program financing.

DONE AND ENTER ED this 30 th day of September , 2010 , in

Tallahassee, Leon Co unty, Florida.

S

W. DAVID WATKINS

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675

Fax Filing (850) 921 - 6847

www.doah. state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 30 th day of September , 2010 .

ENDNOTES

1 / These consist of citizens actively engaged in: residential

home building; banking or mortg age banking; areas of labor

engaged in home building; housing development and advocate for

low - income persons; the commercial building industry; and a

former local government elected official.

2 / Fl orid a Admin istrative Code Rule 67 - 48.002(92), defines

" Principal" to include the manager of the Developer. Thus,

Mr. White served as a Principal of the Developer.

3 / The SEC Cease and Desist Order (adopting the Offers of

Settlement tendered by Respondents white and Whitemark )

expressly provides that Respond ents neither admit nor deny the

truth of the allegations set forth in the SEC Complaint.

4 / To the contrary, it appears Pershing Park was proactively

engaged in providing clarifying information to Respondent and

the underwriter. For example, Pershing Pa rk submitted a letter

in response to the second draft Credit Underwriting Report

within 2 days of receiving the Report .

5 / No alternative dictionary definition was offered by

Respondent.

COPIES FURNISHED :

M. Christopher Bryant, Esquire

Oertel, Fernandez , Cole & Bryant, P.A.

301 South Bronough Street, Fifth Floor

Post Office Box 1110

Tallahassee, Florida 32302 - 1110

Hugh R. Brown, Esquire

Florida Housing Finance Corporation

227 North Bronough Street, Suite 5000

Tallahassee, Florida 32301 - 1329

Wellingto n Meffert, General Counsel

Florida Housing Finance Corporation

227 North Bronough Street

Suite 5000

Tallahassee, Florida 32301 - 1329

Stephen P. Auger, Executive Director

Florida Housing Finance Corporation

227 North Bronough Street

Suite 5000

Tallahassee, Florida 32301 - 1329

Della Harrell, Corporation Clerk

Florida Housing Finance Corporation

227 North Bronough Street

Suite 5000

Tallahassee, Florida 32301 - 1329

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.