Microsoft Word - Lexington Club CUR.docx

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ANAGEMENT

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17633 A

SHLEY

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RIVE

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ITY

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EACH

, FL32413

:(850) 233‐ 3616

:(850) 233‐ 1429

PANAMACITYBEACHORLANDOTAMPAMIAMI

January 14, 2020

VIA EMAIL

Mr. Tim Kennedy

Florida Housing Finance Corporation

227 North Bronough Street, Suite 5000

Tallahassee, Florida 32301

Re: Lexington Club at Vero f/k/a The Club at Vero Apartments (FHFC MMRB 1998 Series E) -

Transfer of Ownership/Assumption and Subordination of the MMRB LURA

Dear Mr. Kennedy:

On your behalf, Seltzer Management Group, Inc. (“SMG”, “Seltzer” or “Servicer”) has reviewed a

request, dated January 6, 2020, from a representative of the proposed purchaser, SCG Global

Holdings, L.L.C. (“SCG GH”) and a request, dated January 13, 2020, from a representative of Vero Club

Partners, Ltd. (“Borrower”) owner of Lexington Club at Vero (the “Subject Development”), requesting

Florida Housing Finance Corporation (“FHFC” or “Florida Housing”) to consent to the following:

The sale of the Subject Development from the Borrower to SREIT Lexington Club, L.L.C. (“SREIT

LC”). The sole member and manager of SREIT LC is SREIT Lakeside Holdings, L.L.C

(“SREIT

LH”). The

sole member of SREIT LH is SREIT Multifamily Holdings, L.L.C. (“SREIT MH”). The sole

member and manager of SREIT MH is SREIT U.S. Property Holdings, L.L.C. (“SREIT USPH”). The

sole member and manager of SREIT USPH is Starwood REIT Operating Partnership, L.P. (“SREIT

OP”). The general partner of SREIT OP is Starwood Real Estate Income Trust, Inc. (“SREIT”). The

limited partner of SREIT OP is Starwood REIT Special Limited Partner, L.L.C. (“SREIT SLP”).

SREIT SLP and SCG G

H are entities affiliated with Starwood Capital Holdings, L.P. (“SCG”).

The assumption of Multifamily Mortgage Revenue Bond (“MMRB”) Land Use Restriction Agreement

(“LURA”).

Specifically, SMG has been requested to determine that SREIT LC, through its principal owner and

affiliated entities (primarily SREIT LH, SREIT MH, SREIT USPH, SREIT OP, SREIT and SCG), has the

prerequisite financial strength and experience to successfully own and operate the Subject

Development.

The request also indicates that the existing first mortgage loan will be paid off concurrent with or prior to

the transfer of ownership. The MMRB were redeemed on November 1, 2014; however, the MMRB

LURA remains in effect and must be subordinated to the new first mortgage. Accordingly, the

correspondence further requests that FHFC consent to the subordination of the MMRB LURA to the

new first mortgage lender.

For the purposes of this analysis, SMG has reviewed the following:

1. Transfer of Ownership Interests Recommendation Letter, dated January 19, 2017, prepared by

AmeriNational, Inc. (“Ameri

Nat”)

MMRB LURA, dated June 15, 2001, First Amendment to MMRB LURA, dated January 1, 2001, and

Second Amendment to MMRB LURA, dated October 23, 2017

Assignment, Assumption and Affirmation Agreement, dated February 8, 2017

Exhibit E

Page 1 of 4

Mr. Tim Kennedy

Lexington Club at Vero

January 14, 2020

Page 2

4. Borrower Audited Financial Statements, prepared by Novogradac and Company LLP, for years

ended December 31, 2017 and 2018, respectively

5. FHFC Occupancy Reports

6. Annual Management Review and Physical Inspection (“Management Review”), dated December 12,

2019, performed by AmerNat

7. FHFC Past Due Report, dated December 13, 2019

8. FHFC Noncompliance Report, dated August 12, 2019

9. Proposed Organizational Chart reflecting new ownership entities and their principal owners

10. Purchase and Sale Agreement (“PSA”) dated, January 10, 2020

11. JLL Capital Markets (“JLL”)/Freddie Mac Summary of Terms, dated January 3, 2020

12. SREIT Form 10-Q Quarterly Filing (“10-Q”) with United States Securities and Exchange

Commission for period ended September 30, 2019

In addition, SMG has had various conversations with FHFC Staff and representatives of the new

ownership entities regarding the requests described above.

Our findings are as follows:

Background

The Subject Development is a family development located at 6885 20

Street, Vero Beach, Indian River

County, Florida, consisting of 184 one and two bedroom rental apartment units located in one three-

story residential building which includes a community center and leasing office.

The Borrower was registered with the Florida Secretary of State January 17, 1997. The initial general

partner (“Initial GP”) and developer entity were affiliates of CED Capital Holdings. On February 8, 2017,

the ownership interest of the Initial GP and the Investor Limited Partner were assigned to Lakeside

Capital GP, LLC (“Current GP”) and Lakeside Workforce Housing, LP (“Current LP”), respectively. The

Current GP and Current LP are affiliates of Lakeside Capital Advisors, LP (“LCA”).

The Borrower received a MMRB first mortgage loan in the amount of $6,900,000 funded from the sale

of a FHFC bond issue in the same amount, which closed on June 15, 1998. The loan was repaid and

underlying MMRB redeemed on November 1, 2014 with the proceeds of $6,330,000 first mortgage loan

from Berkadia Commercial Mortgage (“Berkadia”).

In connection with the sale of partnership interests discussed above, the Berkadia first mortgage loan

was refinanced with a $11,700,000 first mortgage loan from Jones Lang LaSalle Multifamily, LLC

(“JLL”). Terms include a fixed interest rate of 4.39%, monthly interest payments through March 1, 2021,

followed by monthly principal and interest payments of $58,520 and a March 1, 2029 maturity. As of

December 31, 2018, the outstanding principal balance was $11,700,000.

The Borrower’s Audited Financial Statements did not reflect any going concern comments. The financial

statements reflect that the Subject Development generated sufficient income to meet operating

expenses and to service all the mortgage debt and related fees. However, and primarily due to non-

cash depreciation and amortization items, net income was negative. Total liabilities exceed total assets

resulting in negative partners’ equity.

Operation of the Subject Development is restricted by terms and conditions detailed in various loan

documents, including but not limited to the MMRB LURA. Set asides for the MMRB LURA are 5% of the

units (10 units) at 55% or less of Area Median Income (“AMI”) and 50% of the units (92 units) at 60% or

less of AMI through December 4, 2025.

As of May 31, 2019, the Subject Development reported occupancy at a rate of 96.20%. Average

occupancy for the five months of 2019 has exceeded 96%.

Exhibit E

Page 2 of 4

Mr. Tim Kennedy

Lexington Club at Vero

January 14, 2020

Page 3

The Management Review was conducted on December 12, 2019. All noted discrepancies were

satisfactorily corrected and the Management Review was closed out on January 2, 2020.

The FHFC Noncompliance Report lists no items as in noncompliance for the development team.

The FHFC Past Due Report lists no items as past due for the development team.

Ownership Transfer

As evidenced by the PSA, the purchase of the Subject Development is part of a portfolio purchase of 22

multifamily affordable housing properties, eleven of which are located in Florida, referred to as the

Lakeside Portfolio. The Subject Development is the only property in the portfolio that requires FHFC

Board approval of the acquisition and MMRB LURA assumption and subordination.

A corporate resume indicates SCG and its affiliates have extensive experience in both the affordable

housing and multifamily sectors. Through its affiliates, SCG owns nearly 21,000 low income housing tax

credit units in the United States, including over 17,000 units across 69 properties in Florida. SCG is a top

10 affordable housing owner in the country, according to Affordable Housing Finance. SCG has

successfully owned and managed these properties since acquisition and is interested in growing its

affordable housing platform through this transaction. Additionally, SCG currently owns approximately

60,000 conventional non-restricted multifamily units, including over 18,000 units in Florida.

Most recently, on August 22, 2019, SCG, through its affiliated entities, acquired a portfolio of six

multifamily affordable housing properties in Florida from Alden Torch. On October 5, 2018, SCG acquired

a portfolio of four multifamily affordable housing properties located in Florida from The Vestcor

Companies, Inc. SCG also previously purchased a portfolio of 31 multifamily affordable housing

properties from The Wilson Company and a portfolio of 28 multifamily affordable housing properties from

Banyan Realty Management, all of which are located in Florida.

As evidenced by a balance sheet included in the 10-Q, SREIT reports Cash and Equivalents, Total

Assets and Total Equity of approximately $66 million, $1.2 billion and $556 million, respectively, as of

September 30, 2019.

The purchaser representative request letter also indicated that the existing management company will

be replaced after the assumption is effective. The selection of a new management company requires

Florida Housing Asset Management Department’s approval and is a condition to close.

Refinancing Summary

SMG has received a Summary of Terms from JLL for a Freddie Mac first mortgage acquisition loan in

an amount up to $421,695,000 for a multi-property (22 properties) portfolio sale with loans to be

structured as individual transactions. The amount currently allocated to the Subject Development is

$16,356,000, which is subject to change prior to closing.

The interest rate will be set prior to or concurrent with closing based on a spread of 1.39% over the 10

year Treasury with a Treasury Floor rate of 1.89% for a currently estimated interest rate of 4.28%. The

loan term is 120 months with interest only payments due throughout the term. A loan commitment fee of

$1,000,000 is payable at closing. JLL will require FHFC to execute a Subordination Agreement for the

MMRB LURA, as applicable, to certain Freddie Mac documents.

At the time of the refinancing, the existing JLL first mortgage loan will be paid off.

Summary and Recommendation

Seltzer’s review indicates that SREIT LC, through its principal owner and affiliated entities, has the

prerequisite financial strength and experience to successfully own and operate the Subject

Development.

Therefore, SMG recommends that FHFC consent to and approve the transfer of the ownership of the

Subject Development to SREIT LC and assumption by SREIT LC of the MMRB LURA, subordination of

Exhibit E

Page 3 of 4

Mr. Tim Kennedy

Lexington Club at Vero

January 14, 2020

Page 4

the MMRB LURA to the new first mortgage and modification of any other loan documents that are

required to effectuate the transfer of ownership and subordination all as determined by Seltzer, FHFC,

and its Legal Counsel, subject to the following:

 SREIT LC, SREIT LH, SREIT MH, SREIT USPH, SREIT OP, SREIT and SCG and their entities and

principals (if applicable) as well as the withdrawing entities to execute any assignment and

assumption documents and any other documents that FHFC and its Legal Counsel deems

necessary to effectuate the ownership changes

 Review and approval of all Loan Documents consistent with the terms outlined above by FHFC, its

Legal Counsel, and Servicer

 Receipt of a non-refundable MMRB transfer and assumption fee of $2,500 on the closing date

 Receipt of a non-refundable MMRB LURA subordination fee of $1,000 on the closing date, as

applicable

 Payment of any outstanding arrearages to FHFC, its Legal Counsel, Servicer or any Agent or

Assignee of Florida Housing for Past Due issues applicable to the Development Team (Borrower or

Developer or Principal, Affiliate or Financial Beneficiary, as described in 67-21.0025(5) and 67-

48.0075 (5) F.A.C., of a Borrower or a Developer)

 Consent of the Investor LP and Subordinate Lenders, as applicable

 Prepayment of any compliance monitoring fees and servicing fees, if applicable

 Confirmation of FHFC Asset Management Department’s approval of the selection of the new

management company

 Satisfactory resolution of any outstanding past due and/or noncompliance items, and

 All other due diligence required by FHFC, its Legal Counsel and Servicer

I hope this correspondence has been helpful and please do not hesitate to contact me if I can be of

further assistance.

Sincerely,

SELTZER MANAGEMENT GROUP, INC.

Benjamin S. Johnson

President

Exhibit E

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