18-003806BID Renaissance Pointe Apartments, Llc vs. Midtown Lofts, Ltd., And Florida Housing Finance Corporation Status: Closed Recommended Order on Thursday, September 6, 2018.

Summary: Not clearly erroneous for agency to treat discrepancy as a minor irregularity because it did not confer competitive advantage on applicant.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RENAISSANCE POINTE APARTMENTS ,

LLC,

Petitioner,

Case No. 18 - 3806BID

vs.

MIDTOWN LOFTS, LTD., AND FLORIDA

HOUSING FINANCE CORPORATION,

Respondents,

and

HTG RAINBOW, LLC,

Intervenor.

_______________________________/

RECOMMENDED ORDER

On August 17, 2018 , Robert E. Meale, Administrative Law

J udge of the Division of Administrative Hearings (DOAH),

conducted the final hearing in Tallahassee, Florida.

APPEARANCES

For Petitioner: Michael P. Donaldson, Esquire

Carlton Field s Jorden Burt, P.A.

215 South Monroe Stre et, Suite 500

Post Office Drawer 190

Tallahassee, Florida 32302 - 0190

For Respondent Midtown Lofts, Ltd. :

Lawrence E. Sellers, Jr., Esquire

Tiffany A. Roddenberry, Esquire

Holland & Knight LLP

315 South Calhoun Street, Suite 600

Tallahassee, Florida 32301

For Respondent Florida Housing Finance Corporation:

Betty Zachem, Esquire

Assistant General Counsel

Florida Housing Finance Corporation

227 North Bronough Street, Suite 5000

Tallahassee, Florida 32301

For Intervenor HTG Rainbow, LLC:

M. Chris topher Bryant, Esquire

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

Post Office Box 1110

Tallahassee, Florida 32302 - 1110

STATEMENT OF THE ISSUE

The issue is whether the decision of Respondent Florida

Housing Finance Corporation (FHFC) to waive, as a minor

irregularity, the failure of Respondent Midtown Lofts, LTD.

( Midtown ) to disclose in its application for federal low - income

housing tax credits (LIHTC) the existence of two occupied

dwelling units on the property proposed for development is

clearly erroneous, contrary to competition, arbitrary, or

capricious (Clearly Erroneous) , as provided by section

120.57(3)(f), Florida Statutes .

PRELIMINARY STATEMENT

On January 23, 2018, FHFC issued a Request for Applications

2018 - 102 Housing Credit Financing to Provide Affordable

Multifamily Rental Housing that is a Part of L ocal Revitalization

Initiatives ( RFA ) . The RFA imposed a deadline of March 8, 2018,

for filin g applications. Renaissance Pointe Apartments, LLC

( Petitioner ), Midtown, and HTG Rainbow, LLC ( Intervenor ) timely

filed applications.

On June 15, 2018, FHFC posted its notice of intent to awa rd

the LIHTCs to Midtown and Intervenor . Petitioner timely fil ed a

notice of intent to protest on June 20 and a formal written

protest on July 2 .

FHFC transmitted the file to DOAH on July 18, 2018. On

August 15, 2018, the parties filed a Joint Prehearing

Stipulation.

At the hearing, the parties offered eight jo i nt exhibits:

Joint Exhibits 1 through 8. Petitioner called two witnesses and

offered nine e xhibits: Petitioner Exhibits 1 through 9. Midtown

offered seve n exhibits: Midtown Exhibits 1 through 7. FHFC

called one witness. All exhibits were admitted , b ut Petitioner

Exhibit 9 and Midtown Exhibit 7 were not admitted for the truth

of their contents .

The court reporter fi led the transcript on August 23, 2018 .

Pursuant to an expedited schedule agreed upon by the parties,

they filed proposed recommended orders on August 27, 2018 , and

the administrative law j udge agreed to issue the recommended

order by September 7, 2018 .

FINDING S OF FACT

1. The purpose of FHFC is to administer programs to promote

affordable housing , including a program to allocate LIHTCs,

pursuant to section 420.507(48) . To make these allocations

equitably, FHFC implements a competitive application process

featuring a request for applications.

2. Stating that FHFC expects to offer approximately

$2,465,000 in LIHTCs to the suc ce ssful applicant or applicants,

t he RFA sets forth the requirements for applications for LIHTCs .

The purpose of the LIHTCs is to support new construction,

redevelopment, or rehabili tation of family or elderly properties

in areas where local governments are implementing planned

initiatives to partner with private or other public entities to

rejuvenate an area.

3. T he RFA identifies six scoring items. W ith a total of

118 points , th e items are : the submission of a Principal

Disclosure Form preapproved by FHFC (5 points), the experience of

the developer or management company with local revitalization

initiatives (15 points), the commitment to reserve a portion of

the units as market rate (5 points), the alignment of the

proposed development with local revital ization initiatives

(45 points), access to commun ity - b ased services and resources

(28 points), and application and screening procedures for

processing lease applications from households with a special -

needs p erson (20 points). RFA, pp. 57 - 58.

4. The RFA states: "Only Applications that meet all of the

following Eligibility Items will be eligible for funding and

considered for funding selection." RFA, p. 55. The RFA lists

40 Eligibility Items, including the Submission Requirements,

which include a requirement to submit an application by the

stated dead line (RFA, p. 56); the disclosure of the "[o]ccupancy

status" of any existing units; a statement of evidence of site

control; and a total score of at least 70 points. RFA, p. 55.

5. Evidence of site control is evidenced by the applicant's

"providing . . . the documentation required in items (1), (2)

and/or (3), as indicated below. . . .

(1) Eligible Contract -- . . . an eligible

contract is one that has a term that does not

expire before September 30, 2018 . . .;

specifically states that the buyer's remedy

for default on the part of the seller

includes or is specific performance; and the

buyer MUST be the Applican t unless an

assignment of the eligible contract which

assigns all of the buyer's rights, title and

interests in the eligible contract to the

Applicant, is provided. . . .

(2) Deed or certificate of title . . . .

(3) Lease . . . .

RFA, pp. 25 - 26.

6. O ther provisions of the RFA include a statement that

FHFC reserves the right to waive "Minor Irregularities" and a

provision allowing a protest the specifications of the RFA .

RFA, p. 5 .

7. Addressing the issue of this case, the RFA states:

The Applicant must indicate whether there

are any existing units on the Development

site as of the Application Deadline, and if

so, the occupancy status of such units. If

the Applicant indicates that there are

existing occupied units and if the

Development is funded, t he Applicant will be

required to provide to the Credit

Underwriter a plan for relocation of

existing tenants . . ..

RFA, p. 19. Pursuant to this requirement, the application form

attached to the RFA directs each applicant to indicate one of the

following :

The Applicant must indicate which of the

following applies to the Development site as

of Application Deadline:

(1) Existing units are current occupied.

(2) Exis ting units are not currently

occupied.

(3) There are no existing units.

RFA, p. 65. The RFA details additional requirements of any

relocation plan. RFA, p. 94.

8. The reference to the Credit Underwriter refers to a

unique feature of solicitations conducted by FHFC, including

solicitations involving the LIHTC allocation prog ram: credit

underwri ting. The application process that culminates in FHFC's

selection of an applicant to receive an award of LIHTCs does not

result in the allocation of LIHTCs to the winning applicant. As

the RF A explai ns, "[n]othwiths t anding an award b y [FHFC] pursuant

to this RFA, funding will be subject to a positive recommendation

from the Credit Underwriter based on criteria outlined in the

credit underwriting provisions in Rule Chapter 67 - 48, F.A.C."

RFA, p. 59. In reality, t he award is no more t han an "invitation

to enter credit underwriting." RFA, p. 60.

9. Florida Administrative Code Rule 67 - 48.0072 explains

credit underwriting as follows :

Credit underwriting is a de novo review of

all information supplied, received or

discovered during or after any competitive

solicitation scoring and funding preference

process, prior to the closing on funding,

including the issuance of IRS Forms 8609 for

[LIHTCs] . The success of an Applicant in

being selected for funding is not an

indication that the Appl icant will receive a

positive recommendation from the Credit

Underwriter or that the Development teamÓs

experience, past performance or financial

capacity is satisfactory. The credit

underwriting review shall include a

comprehensive analysis of the Applicant, the

real estate, the economics of the

Development, the ability of the Applicant

and the Development team to proceed, [and]

the evidence of need for affordable housing

i n order to determine that the Development

meets the program requirements and determine

a recommended . . . Housing Credit

allocation amount [.]

10. An applicant that has earned an award may decline

its invitation to enter credit underwriting. Rule 67 - 48. 0072(3).

The Credit Underwriter is required to report any

"inconsistencies, . . . discrepancies, or changes" to the

applicant's applica tion during credit underwriting.

R ule 67 - 48.0072(7) . In credit underwriting, the applicant and

development must meet n umerous conditions, including satisfactory

performance in producing affordable housing and acceptable debt

service ratios on first and second mortgages. Rule 67 - 48.0072 (6)

and (11). In sum, the Credit Underwriter subjects the winning

applicant and the pr oposed development to a rigorous examination

prior to making a recommendation on funding.

11. Sixteen applicants , including Petitioner, Midtown, and

Intervenor, timely submitted applications in response to the RFA.

FHFC deemed onl y one applicant ineligible for earning only

56 points , if not also for other reasons . Midtown earned the

highest score, so FHFC allocated its applied - for amount of

LIHTCs, $1,510,000. Petitioner earned the second highest score,

but it had applied for $1, 632,887 in LIHTCs. Because this amount

would have exceed ed the total allocation of LIHTCs available in

the RFA , FHFC chose Intervenor, which had submitted the eligible

application with the next highest score that sought an allocation

that , when combined w ith Midtown's allocation, would not exceed

the total of $2,465,000 in LIHTCs. If FHFC had selected

Petitioner instead of Midtown , Intervenor would not have been

awarded an allocation because there would not have be en

sufficient LIHTCs to allocate the LIHT Cs for which Intervenor has

applied.

12. After FHFC announced that Midtown had won the right to

enter credit underwriting, Petitioner's principal discovered that

Midtown had failed to disclose in its application the existence

on the property of two occupied dwelling units, as of the

application deadline . When the Prehearing Stipulation was filed ,

only one dwelling unit remained occupied.

13. In certain affordable housing solicitations, t he

disclosure of occupied dwelling units may respond to the

requirement imposed by a federal or state agency, including FHFC,

that the developer, at its expen se, relocate certain occupants;

however, the present solicitatio n includes no such requirement.

Even in a solicitation free of such a requ irement , the disclosure

of occupied dwelling units is relevant because the solici t ation

document may contemplate that the property will be clear of

occupants during construction. Here, the above - quoted RFA

provisions addressing occupied dwelling units cle arly contemplate

that the property will be clear of occupants during construct ion.

Additionally , regardless of the provisions of the solicitation

document , the disclosure of occupied dwelling units is relevant,

for many projects, because holdover occupants would delay the

start of construction on safety grounds . Although the

justification for asking about unoccupied dwelling units is

unclear, the justification for asking about occupied dwelling

units is ample.

14. Midtown's documented evidence of control of the site is

an agreement of purchase and sale , which the buyer has assigned

to Midtown . The agreement provides that, at closing, the buyer

agrees to pay $324,000, and the seller agrees , among other

things , to deliver to the buyer "[s]ole and e xclusive possession"

of the property. By this agreement, to which a portion of the

purchase price may be attributed, the seller has assumed the

responsibility for ensuring that no tenant would occupy any

dwelling unit on the property as of the closing date.

Additionally, in the agreement, the seller warrants that it has

not entered into any contracts, leases, or other agreements that

will not have been terminated or expired prior to closing.

15. It is unlikely that the seller on a $324,000 contract

wo uld have any difficulty in delivering sole and exclusion

possession when, as is relevant here, the only impediment is two

occupied dwelling units. But if the seller failed to deliver

sole and exclusive possession of the property, the Credit

Underwriter wo uld likely have discover ed the two occupied

dwelling units and condition funding on the timely and

appropriate relocation , at Midtown's expense , so that

construction could commence timely. In the very unlikely event

that the Credit Underwriter would have missed the two occupied

dwelling units, as a practical matter, Midtown would have had to

relocate the occupants prior to commencing construction. In sum,

even ignoring the bargained - for und ertaking in the agreement for

purchase and sale to deliver sole and exclusive possession, there

is no chance that Midtown's failure to disclose the two occupied

dwelling units would have allowed it to escape the relatively

modest cost of relocating any occ upants on the property, post -

closing.

CONCLUSIONS OF LAW

16. DOAH ha s jurisdiction. §§ 120.569, 120.57(1) and (3) ,

and 420.507(48) ; rule 67 - 60.009(4). Section 420.507(48)

authorizes FHFC to allocate LIHTCs by a request for proposal or

other competitive solicit ation, and rule 67 - 60.009(1), (2),

and (4) applies section 120.57(3) to the subject proceeding and

treat s a protest of a competiti ve solicitation involving LIHTCs

as a protest of a requ est for proposals.

17. As the applicant with the second - highest score ,

Petitioner is an adversely affected person. § 120.57(3)(b) ;

rule 67 - 60.009( 2) ; Preston Carroll Co. v. Fla. Keys Aqueduct

Auth. , 400 So. 2d 524, 525 (Fla. 3d DCA 1981) . Midtown and

Intervenor are properly parties. Rule 67 - 60.009(3).

1 8. Petitioner bears the burden of proof . § 120.57(3)(f) .

The standard of proof is "whether the proposed agency action was

[Clearly Erroneous]." Id. The purpose of the proceeding, which

is de novo, is to determine " whether the agencyÓs proposed action

is contrary to the agencyÓs governing statutes, the agencyÓs

rules or policies, or the solicitation specifications. " Id.

19. A material variance is a discrepancy, relative to the

bid document , that confers an advantage upon the bidder ove r

other bidders , such as when a discrepancy allows a bidder a

choice, post - award, whether to conform its bid to the

specifications or to abandon the bid . See, e.g. , Tropabe st

Foods, Inc. v. Dep't of Gen. Servs. , 493 So. 2d 50, 52 (Fla. 1st

DCA 1986); Harr y Pepper & Assocs. v. Cape Coral , 352 So. 2d 1190,

1193 (Fla. 2d DCA 1977).

20. Consistent with this case law, FHFC adopted

rule 67 - 60.008, which , as in effect when the RFA was issued ,

stated :

[FHFC] may waive Minor Irregularities in an

otherwise valid Application. Mistakes

clearly evident to [FHFC] on the face of the

Application, such as computation and

typographical errors, may be corrected by

[FHFC] ; however, [FHFC] shall have no duty

or obligatio n to correct any such mistakes.

Likewise, former rule 67 - 60.002(6), also as in effect when the RFA

was issued, defined a "minor irregularity" as "a variation . . .

that does not provide a competitive advantage or benefit not

enjoyed by other Applicants, and does not adversely impact the

interests of [FHFC] or the public."

21. The nondisclosure of the two occupied dwelling units in

Midtown's application is a minor irregularity. It conferred no

competitive advantage upon Midtown for three reasons. First, the

application question about occupied dwelling units is not a

scoring item , so Midtown did not receive an inflated score due to

this discrepancy . Second, Petitioner failed to prove that any

costs with the relocation of two occupied dwe lling units were

material in the context of this RFA.

22. Third , the discrepancy did not change the competitive

positions of the applicants . An applicant that bid a property

without occupied dwelling units would have no cost in relocating

the occupants, and an applicant that bid a property with occupied

dwelling units would incur a cost in relocating the occupants, who

did not relocate at their own initiative -- regardless of whether

the applicant disclosed the existence of such units in its

application. O bviously, the costs of relocating the occupants of

100 dwelling units would exceed the costs of relocating the

occupants of two dwelling units, but each applicant selects its

property, so the difference in relocation costs is relevant only

to underscore th e relatively lower costs associated with the

appropriate relocation of the occupants of the property that is

the subject of Midtown's application.

23. As noted above, the purchase price of the property

included consideration for the seller's undertaking t o deliver

sole and exclusive possession and warranty of no outstanding

leases or other agreements as of closing , so Midtown will absorb

the relocation cost when it pays the purchase price at closing .

In the unlikely event that the seller failed to perform this

insubstantial obligation as to two occupied dwelling units on a

property with a sale price of $324,000, Midtown has the option of

pursuing specific performance of these obligations by the seller

or itself performing these relocation obligations. In the latter

case , Midtown would bear the financial cost of relocation twice --

in the purchase price and during credit underwriting or shortly

before construction commenced.

24. It is true that Midtown could seize upon the existence

of occupants as an excuse, post - award, not to perform the project

that it has described in its application. Although this is

mentioned in the above - described cases as a material factor in

determining that a discrepancy is a material variance, this factor

has little weight i n the present case because of the right of the

winning applicant to decline the invitation to enter credit

underwri ting: in other words, all winning applicants may abandon

their projects, post - award.

25. A final issue is whether an agency may excuse a

d iscrepancy when it applies to a mandatory item for bid

responsiveness , which, in the RFA, is called an Eligibility Item.

Perhaps the more interesting question is whether a discrepancy as

to a provision in a bid solicitation that is neither a scoring or

re sponsiveness item ever rises to the level of a material

variance. Retur n ing, though, to Petitioner's argument, i n Hewitt

Contracting Co. v. Melbourne Regional Airport Authority ,

528 So. 2d 122 (Fla. 5th DCA 1988), an agency issued an invitation

for bids t hat , unsurprisingly, included a deadline for submitting

bids. The spare opinion offers no description of the bid

document, but typically a bid deadline receives the same

rhetorical emphasis as responsiveness mandatories ; i n the RFA , as

noted above , the application deadline is an Eligibility Item. In

Hewitt , a bidder submitted a bid a few minutes after the deadline,

but before the agency representative had opened the first bid.

The court affirmed the trial court 's ruling that the agency had

the au thority to waive such an irregularity.

26. The argument that an agency may not waive a mandatory

item -- when the discrepancy confers no competitive advantage on the

bidder -- elevates form over substance. The whole point of the body

of law allowing agencies to waive minor irregularities is to

ensure that, when the integrity of public procurement permits,

substance prevails over form -- even when the form is in boldface

and large font.

27. Petitioner cited in its proposed recommended order three

recommended orders -- all sustaining the determination of FHFC that

a discrepancy was a material variance -- that warn of a "slippery

slope," if the discrepancy were found to be a minor irregularity.

A fourth recommended order, in which FHFC shifted its position as

to a discrepancy, trumpets a "bright line" test. As always, a

minor irregularity/material variance case presents the competing

considerations of the predictability of enforcing the letter of

the solicitation document against the flexibility of forgiving

immat erial departures from the solicitation document. But the

proper analysis focuses on materiality in terms of competitive

advantage and examines the agency's proposed characterization of

the discrepancy in the context of this analysis. As distinct from

the responsibilities of the agency in determining if a discrepancy

is a minor irregularity or a material variance and, if a minor

irregularity, whether to waive the discrepancy, the

responsibilities of the administrative law judge would extend to

commentary o n the predictability/flexibility spectrum only in a

very close case. At the factfinding level, it is mostly verbiage

that , in finding a material variance, hails the bright line of

predictability and decries the slippery slope of flexibility or ,

in finding a minor irregularity, acclaims the justice of

flexibility and denounces the foolish extravagance of

predictability .

28. For these reasons , Petitioner has failed to prove that

the decision of FHFC to waive, as a minor irregularity, the

failure of Midtow n to disclose in its LIHTC application the

existence of two occupied dwelling units on the property is

Clearly Erroneous or that the ensuing decision of FHFC to invite

Midtown and Intervenor to Credit Underwriting is contrary to the

FHFC's governing statutes, rules , or policies or the RFA.

RECOMMENDATION

It is

RECOMMENDED that Florida Housing Finance Corporation enter a

final order dismissing the formal written protest of Petitioner .

DONE AND ENTERED this 6 th day of September , 2018 , in

Tallahassee, Leon County, Florida.

S

ROBERT E. MEALE

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 6 th day of September , 2018 .

COPIES FURNISHED:

Michael P. Donaldson, Esquire

Carlton Fields Jorden Burt, P.A.

215 South Monroe Street, Suite 500

Post Office Drawer 190

Tallahassee, Florida 32302 - 0190

(eServed)

Lawrence E. Sellers, Jr., Esquire

Tiffany A. Roddenberry, Esquire

Holland & Knight, LLP

315 South Calhoun Street , Suite 600

Tallahassee, Florida 32301

(eServed)

M. Christopher Bryant, Esquire

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

Post Office Box 1110

Tallahassee, Florida 32302 - 1110

(eServed)

Betty Zachem, Esquire

Assistant General Counsel

Florida Housing Finance Corporation

227 North Bronough Street , Suite 500 0

Tallahassee, Florida 32301

(eServed)

Maureen McCarthy Daughton, Esquire

Maureen McCarthy Daughton, LLC

1725 Capital Circle Northeast , Suite 304

Tallahassee, Florida 32308

(eServed)

Hugh R. Brown, General Counsel

Florida Housing Finance Corporation

227 North Bronough Street Suite 5000

Tallahassee, Florida 32301 - 1329

(eServed)

Corporation Clerk

Florida Housing Finance Corporation

227 North Bronough Street , Suite 5000

Tallahassee, Florida 32301 - 1329

(eServed)

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

10 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.