By C. Ron Allen and Toni Marshall
DELRAY BEACH – The City finance chief recommends commissioners reject a proposal to renegotiate the terms of a $4 million loan to a private developer who built Auburn Trace and the Village of Delray and instead asks commissioners to recoup a discounted amount to support city projects.
At issue is the creditworthiness of Auburn Group, which has been delinquent on several restructures with the city backed-loans and private equity notes from at least one financial institution throughout two decades, according to city documents.
City commissioners are scheduled to discuss the matter at their regularly scheduled workshop meeting at 6 p.m. Tuesday. The meeting will be at City Hall, 100 NW First Ave.
At least one commissioner is leaning towards Finance Director David Boyd’s recommendation.
Vice Mayor Tom Carney on Monday afternoon said he had not fully reviewed the backup documents Boyd provided on the matter. However, he felt supporting Auburn’s wish would not be in the city’s best interest.
“The city is behind on a pretty big loan and this would put us further behind,” Carney said.
Messages left for Hinners and two other Auburn top executives at their offices were not returned. However, in an email to city treasurer Rebecca O’Connor among others, Cito Beguiristain, executive vice-president of the Auburn Group, said, “We feel strongly that our proposal is the only one that works for us financially, works for the city in terms of protecting its debt, serve the goal of the revitalization of the SW area, and that also enhances the quality of the City’s affordable housing stock in that area for the families that live in the community.”
Auburn’s request is not new to the city. Finance officials’ concerns date back to 1987, when Auburn’s founder Thomas Hinners approached the city with an affordable housing offer, the documents show.
The city backed a $3.8 million Federal housing loan and authorized more than $200,000 of its own money to help what commissioners thought would revitalize the area east of Interstate 95 between Atlantic Avenue and Southwest 10th Street.
Hinners’ group also secured private and public equity sources to complete funding for the purchase and development of the project.
A Delray Beach Tribune investigation reveals that over the years the Auburn Group failed to honor its obligations.
For example, Auburn’s loan with Iberia Bank matured on Dec. 31, 2011 and is currently in default, according to city records. They are negotiating with the bank to extend the loan for one year subject to refinancing to renovate the property.
Four years ago, Auburn came before the city asking officials to “subordinate its position” on the loan. Subordination means that in the case of a foreclosure, the first loan would be the first to be paid and the City would be next.
Then finance director Joseph M. Stafford cautioned officials against such.
“We have to be concerned with the ability of Auburn Trace to complete this project according to their initial projections given the current real estate market, the decline of property values, the present mortgage market, and the overall general economy,” Stafford wrote in an Aug. 28, 2008 memo to then City Attorney Susan Ruby. “Given these concerns, we should not support any further subordination of our outstanding loans to Auburn Trace. We do not find that this current proposal from Auburn is of any benefit to the City.”
One string of emails dating back to Jan 5, 2010, shows the city treasurer Rebecca O’Connor informing Hinners that a previously agreed upon loan restructure was past due.
“This is a reminder that the UDAG (Urban Development Action Grant) payment was due 12/31/09,” O’Connor wrote in January 2010. “Please get your payment in to us as soon as possible otherwise we will have to levy a 5 percent penalty.”
Six days later Hinners apologized for the delinquency, stating that Auburn Trace had been operating at a deficit of close to $40,000 per month for more than two years and was not able to make its payment.
City Commissioners back in 1990 didn’t like the length of the payment terms.
Commissioners Richard Dougherty and Jimmy Weatherspoon then requested that the city begin receiving repayment from the developer within five or 10 years, rather than the 15-year-plan proposed.
“We do not want to become slum lords,” Hinners told them then. “We want to have a quality development.”
Auburn Group is the parent company of Villages at Delray, a $33.5 million dollar rental community intended to attract residential, retail and commercial tenants. Residents have been complaining about the living conditions at the development immediately south of Auburn Trace.