Auburn Trace pays off
Delray Beach’s calculated risk in the real estate market has paid off nicely.
On Friday afternoon, after a few queasy moments, the city got word that the sale of Auburn Trace—the 256-unit, low-income housing complex—had closed. The price was $11.3 million. The deal makes Delray Beach whole—and then some.
Nearly a year ago, the city commission voted to acquire the first loan on Auburn Trace from Iberiabank, which had foreclosed on the property in October 2014. Three months later, Auburn Trace, Ltd.—part of Delray-based Auburn Communities—declared bankruptcy.
The move endangered the city’s second mortgage of roughly $4 million. During bankruptcy proceedings, City Attorney Noel Pfeffer advised the commission, Delray’s mortgage could have been “extinguished.” Though Iberiabank sold the loan to the city at a discount, Pfeffer acknowledged the “uncertain outcome” of the deal.
We now know the outcome. Pfeffer told me Friday that Delray Beach made at least several hundred thousand dollars in interest payments from the Iberiabank loan. “It could be $1 million,” Pfeffer said, when final figures are in. Delray Beach also gets repaid, with interest, its $3.84 million loan from 1989. All told, Pfeffer said, “It could be $10 million-plus to the city.”
That 1989 loan came from the federal government, in the form of a housing grant. Delray Beach does not have to repay Washington. The city can use the $4 million-plus for any use to which the U.S. Department of Housing and Urban Development agrees. “There’s a lot of latitude,” Pfeffer said. Example: Delray could use the money as a loan pool for low-income residents to buy homes.
Pfeffer acknowledged that the city had good timing. Interest rates are very low, and the real estate market is strong. The transaction was not a distress sale, which would have forced down the price. The buyer is a New York investor that liked the financials. Auburn Trace is fully rented. The cash flow is good, and the debt service will be low. Delray Beach hopes that the buyer will upgrade Auburn Trace. Improvement, though, certainly wasn’t going to happen under the previous owner.
Pfeffer credits Mayor Cary Glickstein with devising “a brilliant strategy,” calling on his legal and corporate background. Also credit Glickstein and Commissioner Shelly Petrolia for stopping in 2014 what would have been a bailout for Auburn Trace.
With Glickstein and Petrolia out of town, then-City Manager Louie Chapman placed on the agenda a proposal from Auburn Trace to modify the city’s loan. The city would have received about $1 million but given Auburn Trace another $4.3 million loan, with no interest payments for eight years and final repayment terms unspecified.
Current Commissioner Al Jacquet voted for that terrible deal. So did former commissioners Adam Frankel and Angeleta Gray. Fortunately, the proposal got a second vote. Glickstein, Petrolia and newly elected Jordana Jarjura reversed it. Jacquet missed that meeting. His political ally, Mack Bernard, had spoken for the original deal.
Credit also goes to Pfeffer. He drew criticism at times, but the outcome vindicates his approach. Pfeffer called it “the right deal, made at the perfect time, well-conceived and well-executed.”
More chabad thoughts
Here are more thoughts on the federal lawsuit filed last week that accuses Boca Raton of conspiring to help Chabad East Boca get approval for its synagogue-exhibit hall near the beach on East Palmetto Park Road.
One theory is that the lawsuit is designed to delay the project so long that the chabad gives up. Applicants that get development approvals in Boca have 24 months to obtain building permits or lose the approval. Applicants can get exemptions for many reasons, including a slump in the economy. A lawsuit would seem to be a valid reason, given how long the case could be in federal court.
Mayor Susan Haynie told me, however, that extensions are at the council’s discretion. But if the lawsuit prompted the chabad to seek an extension and the council rejected it, the action could prompt the chabad to sue the city. Still another theory is that the chabad will countersue the two federal plaintiffs. Other opponents are challenging the project in state court.
Art Koski, who represents the federal plaintiffs, raised the conspiracy theory during a hearing on the project. He claims that to placate residents of the Golden Triangle, where the chabad first considered building, the city allowed a house of worship on the Palmetto Park Road site—at the expense of Riviera and Por La Mar residents—by expanding areas where houses of worship could go.
Haynie said then, and did so again last week, that Boca Raton updated its ordinance concerning places of assembly to make the rules more consistent. Other cities had been sued successfully for discriminating against where houses of worship could operate.
Only one street separates the chabad site, which is zoned for commercial use, from the neighborhood. After the One North Ocean controversy in the same beachfront area a decade ago, Haynie said, the city recognized the potential compatibility problem. “I knew what could happen.” Current rules “do not protect the neighborhood.” Yet the rules allow what Boca did in approving the chabad.
Haynie said the city approached the Riviera Civic Association about changing the development rules to offer more protection, but found no interest.
Other development notes
Haynie also told me that the city’s review of the new proposal from Hillstone Restaurant Group for the Wildflower property is focused for now on the increased size of the project. Though the addition is just 100 square feet, Haynie said the staff must redo its evaluation regarding traffic. The Development Services staff also remains tasked with producing a report on open space for downtown projects.
Atlantic Crossing plan review
The agenda for tonight’s Delray Beach City Commission meeting has a lot of interesting items.
One will be whether to accept the Site Plan Review and Appearance Board’s denial of the plan for Atlantic Crossing that added an access road. City planners recommended the denial, based on a consultant’s report that the road would make traffic worse, not better. Yet the commission has favored some sort of access road.
If commissioners don’t accept the decision, they will go against the advice of their staff and could further irritate the developers, who have sued Delray Beach for allegedly stalling final approvals. But if commissioners accept the decision, they will contradict their collective desire for such a road—a road that Atlantic Crossing’s neighbors also have supported. Of course, they also might increase the chance of settling the lawsuit.
Also on the agenda is the Site Plan Review and Appearance Board’s approval—with conditions—of the plan for the iPic project. If the commission accepts the decision, as is likely, residents could appeal the approval. Either way, the issue probably will be one step closer to a final decision by the commission. IPic and Atlantic Crossing both could be on the March 1 agenda.
And Arts Garage
After tonight, we should have a good sense of what the city commission wants to do with one of Delray’s cultural assets, Arts Garage.
The group has been leasing roughly 10,000 square feet of city-owned space in Pineapple Grove for three years. The lease expires in a month. Arts Garage wants a 10-year extension at the current rate of $800 per month.
Delray heavily subsidizes Arts Garage. A report to the commission from City Manager Don Cooper estimates the market rate rent for that space at between $300,000 and $500,000 per year, far above the Arts Garage rate of $9,600. The Community Redevelopment Agency allocated about $280,000 for Arts Garage in last year’s budget.
Because Delray used tax-exempt bonds to build the parking garage that includes the Arts Garage space, the city can’t sell the property for more than $2.5 million or make more than $2.5 million annually in revenue.
Cooper doesn’t recommend a sale. The city, he wrote, has two options: Lease the space to someone else at a higher rate for no more than five years, or extend the lease with Arts Garage at a rate the commission determines.
If the commission chooses the second option, Cooper recommends an annual lease, to give the city “flexibility as to the disposition of the property.” Expect a long discussion as the commission tries to balance between helping Arts Garage and asking for more accountability.
Finally, Delray Beach tonight officially will commit the city to the plan creating a “quiet zone” that would silence those loud horns from the Florida East Coast Railway tracks.
Safety improvements at the city’s 14 FEC crossings would remove the need for freight trains and the coming All Aboard Florida trains to sound those horns. The plan is to create a quiet zone from West Palm Beach to the Broward County line. All Aboard Florida expects to be running the new service next year.
About the Author
Randy Schultz was born in Hartford, Conn., and graduated from the University of Tennessee in 1974. He has lived in South Florida since then, and in Boca Raton since 1985. Schultz spent nearly 40 years in daily journalism at the Miami Herald and Palm Beach Post, most recently as editorial page editor at the Post. His wife, Shelley, is director of The Learning Network at Pine Crest School. His son, an attorney, and daughter-in-law and three grandchildren also live in Boca Raton. His daughter is a veterinarian who lives in Baltimore.
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