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Presentation, discussion, and possible action on recommendation to debar multiple parties for conduct relating to The Jones (HTC 93063 / CMTS 1137), and the adoption of an Agreed Final Order assessing an administrative penalty
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RECOMMENDED ACTION
recommendation
WHEREAS, The Jones, owned by 2107 Lincoln Drive, LLC, has uncorrected compliance findings relating to the applicable land use restriction agreements and the associated statutory and rule requirements;
WHEREAS, WMV 2107 Lincoln Drive GP, LLC, William Mitchell Voss, Indio International, LP, Double SB Ventures, Inc., and Seth Bame, control The Jones;
WHEREAS, The Jones scored a 49 out of 100 during a TDHCA Uniform Physical Condition Standards (“UPCS”) Inspection conducted on June 22, 2022, a violation of 10 TAC §10.621 and Tex. Gov’t Code §2306.002, which require developments to be decent, safe, sanitary, in good repair, and suitable for occupancy;
WHEREAS, noncompliance from the 2022 UPCS inspection is considered resolved, but is eligible for an administrative penalty;
WHEREAS, The Jones scored a 43 out of 100 during a TDHCA Uniform Physical Condition Standards (“UPCS”) Inspection conducted on August 29, 2023, a violation of 10 TAC §10.621 and Tex. Gov’t Code §2306.002, which require developments to be decent, safe, sanitary, in good repair, and suitable for occupancy;
WHEREAS, noncompliance from the 2023 UPCS inspection is considered partially resolved, but it is not eligible for an administrative penalty because it is within the corrective action period until January 1, 2024;
WHEREAS, Tex. Gov’t Code §2306.0504(c)(1) addresses debarment and states that the Department shall debar a person from participation in a Department program if the person materially or repeatedly violates any condition imposed by the Department in connection with the administration of a Department program;
WHEREAS, 10 TAC §2.401 defines violations that are considered material and repeated violations that require mandatory debarment;
WHEREAS, in accordance with 10 TAC §2.401(d)(1), controlling a Development that has, on more than one occasion, scored 50 or less on a Uniform Physical Condition Standards (“UPCS”) inspection, is grounds for mandatory debarment of the responsible parties;
WHEREAS, all members of 2107 Lincoln Drive, LLC participated in an informal conference with the Enforcement Committee on November 2, 2023, regarding their referrals for debarment and an administrative penalty;
WHEREAS, 2107 Lincoln Drive, LLC has agreed, subject to Board approval, to enter into an Agreed Final Order, assessing an administrative penalty of $20,000.00 for the 2022 UPCS noncompliance;
WHEREAS, on November 9, 2023, the TDHCA Executive Director issued the following debarment determination notices: (1) a 10-year debarment term for Indio International, LP, Double SB Ventures, Inc., and Seth Bame; and (2) a 5-year debarment term for WMV 2107 Lincoln Drive GP, LLC and William Mitchell Voss, with the possibility for the 5-year term to be probated after 2 years;
WHEREAS, on November 14, 2023, Indio International, LP, Double SB Ventures, Inc., and Seth Bame appealed their debarment determination to the Board;
WHEREAS, WMV 2107 Lincoln Drive GP, LLC and William Mitchell Voss did not appeal their debarment determination;
WHEREAS, staff has based the above debarment term recommendations on the Department’s rules for debarment and an assessment of each and all of the material factors identified at 10 TAC §2.401(j) that are to be considered in determining a recommended period of debarment, applied specifically to the facts and circumstances present in this case; and
WHEREAS, staff has based the above recommendation for an Agreed Final Order for an administrative penalty on the Department’s rules for administrative penalties and an assessment of each and all of the statutory factors to be considered in assessing such penalties, applied specifically to the facts and circumstances present in this case.
NOW, therefore, it is hereby
RESOLVED, that three Orders, including: (1) a Final Order of Debarment for a term of 10 years for Indio International, LP, Double SB Ventures, Inc., and Seth Bame; (2) a Final Order of Debarment for a term of 5 years for WMV 2107 Lincoln Drive GP, LLC and William Mitchell Voss, with the possibility for the term to be probated after two years; and (3) an Agreed Final Order assessing an administrative penalty of $20,000.00 against 2107 Lincoln Drive, LLC, substantially in the form presented at this meeting, and authorizing any non-substantive technical corrections, are hereby adopted as the order of this Board.
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BACKGROUND
WMV 2107 Lincoln Drive GP, LLC, William Mitchell Voss, Indio International, LP, Double SB Ventures, Inc., and Seth Bame control The Jones, an apartment complex composed of 224 units, located in Arlington, Tarrant County (the “Property”). The Property is subject to a Land Use Restriction Agreements (“LURA”) signed by a prior owner in 1995, to acquire, rehabilitate, and operate the Property in consideration for an allocation of Low Income Housing Tax Credits awarded by TDHCA. The LURA has a 30-year term, expiring December 31, 2023. Current ownership purchased the property on September 30, 2020. A Uniform Physical Condition Standards (“UPCS”) inspection performed on August 1, 2019 scored an 85 out of 100.
I. Violations Subject to Debarment: Controlling a Development that has, on more than one occasion, scored 50 or less on a UPCS inspection, is a violation of 10 TAC §10.621 and Tex. Gov’t Code §2306.002, which requires developments to be decent, safe, sanitary, in good repair, and suitable for occupancy.
a. The June 22, 2022 UPCS inspection scored a 49 out of 100. See Attachment 1.
b. The August 29, 2023 UPCS inspection scored a 43 out of 100. See Attachment 2.
This is considered a material violation requiring mandatory debarment of Responsible Parties in Control of the Development, per 10 TAC §2.401(d)(1) and Tex. Gov’t Code §2306.0504 (see Attachment 3 for excerpts). A UPCS score is not susceptible to correction, therefore, it is appropriate to consider debarment now even though the corrective action deadline for noncompliance identified during 2023 UPCS inspection is January 1, 2024.
Debarment will bar the responsible parties from future participation in Department programs for a specified term, preventing them from applying for new funding opportunities or purchasing further properties monitored by the Department. It will not cause them to lose their current properties or prohibit them from participating in any existing engagements funded through the Department, nor does it limit their responsibilities or duties at their current properties. In essence, debarment is a fitting remedy for poor property management, giving time to focus on fixing existing problems with the remaining portfolio before being allowed to add to it.
II. Violations Subject to Administrative Penalties: The 2022 UPCS noncompliance outlined in white and yellow at Attachment 1 is eligible for an administrative penalty. All noncompliance for the 2022 UPCS inspection is considered resolved. The 2023 UPCS noncompliance at Attachment 2 was not referred for an administrative penalty because the corrective action deadline is January 1, 2024. Partial corrections were received early for the 2023 UPCS inspection, however, and Attachment 2 reflects the current status.
III. Responsible Parties in Control for whom debarment is recommended are indicated in bold: TDHCA staff analyzed the organizational chart and the associated operating agreements to determine the Responsible Parties in Control, as defined at 10 TAC §2.102(12) and 10 TAC §11.1(30), respectively (see Attachment 3 for excerpts). An organizational chart for 2107 Lincoln Drive, LLC is at Attachment 4. The Executive Director has determined that the Responsible Parties for the current referrals under consideration include:
1. William Mitchell Voss is the president of 2107 Lincoln Drive, LLC, and the sole member manager of WMV 2107 Lincoln Drive GP, LLC, the managing member of 2107 Lincoln Drive Investors, LLC, the administrative member for 2107 Lincoln Drive Owner, LLC, the sole member of 2107 Lincoln Drive, LLC. WMV 2107 Lincoln Drive GP, LLC and William Mitchell Voss are collectively referred to as “Windmass”; and
2. Seth Bame is the sole shareholder for Double SB Ventures, Inc., the general partner of Indio International, LP, a member of 2107 Lincoln Drive Investors, LLC, the administrative member for 2107 Lincoln Drive Owner, LLC, the sole member of 2107 Lincoln Drive, LLC. Indio International, LP, Double SB Ventures, Inc., and Seth Bame are collectively referred to as “Indio”. Double SB Ventures, Inc. and Seth Bame also control Indio Partners LP, the property management company for the Property. Indio Partners LP is not subject to debarment since they are not part of the ownership structure. Property management is changing to Capstone Real Estate Services this month.
IV. Factors Considered to Determine Recommended Debarment Term: On November 9, 2023, the TDHCA Executive Director issued the following debarment determination notices: (1) a 10-year debarment term for Indio International, LP, Double SB Ventures, Inc., and Seth Bame; and (2) a 5-year debarment term for WMV 2107 Lincoln Drive GP, LLC and William Mitchell Voss, with the possibility for the 5-year term to be probated after 2 years. There is no required minimum or maximum debarment term. Pursuant to 10 TAC §2.401(j), the recommended period of debarment was based upon the following material factors:
1. Repeated occurrences: The Property scored below 50 out of 100 on two UPCS inspections, scoring 49 on June 22, 2022 and 43 on August 29, 2023. There is no prior enforcement history, aside from a 2020 file monitoring penalty referral shortly after acquisition, which related to a review conducted under prior ownership; all noncompliance from that review was corrected informally by Indio.
2. Seriousness of underlying issues: Units are required to be in decent, safe, and habitable condition. Issues are serious any time a property scores this low, and especially when it happens twice. There are a large number of health and safety violations that pose a hazard to the health and safety of the public, and there are a large number of violations within a unit. Current ownership purchased the property on September 30, 2020. A Uniform Physical Condition Standards (“UPCS”) inspection performed on August 1, 2019 scored an 85 out of 100, demonstrating a significant decline in conditions between that date and the June 22, 2022 UPCS inspection.
3. Presence or absence of corrective action: This factor varies by Responsible Party.
a. Indio: Corrective submissions were late, unsupervised, and repeatedly failed to meet minimum documentation guidelines, despite technical support from TDHCA staff. They replaced onsite and regional staff in 2022, but continued poor supervision practices and failed to improve general physical standards at the property in between inspections.
b. Windmass: They failed to adequately oversee the property or supervise property management. In October 2023, they started working to replace Indio, both as property management and in the ownership structure, and they hired Capstone Real Estate Services as a compliance consultant. In their presentation to the Enforcement Committee during the informal conference on November 2, 2023, they stated that they have spent $2.7 million to upgrade the property since September 2020, including 92 fully renovated units, re-siding the entire property, replacing all windows, refurbishing the laundry facility, replacing landscaping, fixing water leaks, and performing deferred maintenance (See Attachment 5). They also built a new clubhouse building. However, most of these improvements were to common areas and exterior improvements, and there are 132 un-renovated units, keeping the overall UPCS score low in 2023. They intend to invest an additional $2.3 million in capital expenditures during 2024, including renovation of remaining units and full re-roofing, however, the LURA expires on December 31, 2023, and there is no safe harbor period for existing tenants. It is unlikely they will receive the benefit of these planned improvements.
4. Other material factors: This factor varies by Responsible Party.
a. Indio: They were included in the organizational structure to ensure compliance, and had responsibility for all day-to-day activities. Windmass and the limited partner mistakenly thought they could pay less attention to the property due to that ownership stake and control authority. Indio failed to communicate to the other members regarding noncompliance and the need for capital improvements. They also failed to adequately supervise their staff. Indio is being removed from all TDHCA properties that they manage, including another property where they are part owner.
b. Windmass: Windmass had primary oversight control under the organizational documents. They invested in improvements as described above, but failed to improve the general unit conditions, and the breakdown in communication among the owner members was primarily theirs since they were responsible for overseeing property management. They should have identified problems with property management and the general property condition sooner.
c. Other properties controlled or managed by Indio and/or Windmass:
i. 600 East (Bond MF014 / CMTS 2519). A 204-unit property in Arlington, Tarrant County. It has the same ownership and management structure as The Jones. Bonds have been paid off, and the LURA will expire on December 1, 2033. The January 26, 2023 UPCS inspection was referred for an administrative penalty, and had a score of 55 out of 100. The only unresolved noncompliance relates to the property exterior, and the Enforcement Committee accepted a corrective plan with a deadline of January 31, 2024. Another inspection will be conducted after June 2024, to assess whether conditions have improved, or whether enforcement action is needed. The Enforcement Committee hopes that the enforcement actions taken for The Jones will lead to improvements at 600 East.
ii. The Heights at Post Oak Apartments, Phase I (HTC 93074 / CMTS 1144) and The Heights at Post Oak Apartments, Phase II (HTC 95007 / CMTS 1316). A 2-phase property in Houston, Harris County, with 940 units, collectively. Both phases are managed by Indio Partners, LP, however, neither Windmass nor Indio are part of the ownership structure. The investment limited partners for The Jones and The Heights at Post Oak are both affiliates of Fundamental Advisors LP. Both phases of The Heights at Post Oak were foreclosed by the mortgage lender in March 2023, and purchased at foreclosure by an affiliate of Fundamental Advisors LP. They have agreed to sign an Agreement to Comply to clarify their continuing intent to comply with these LURAs.
V. Additional Factors Considered to Determine an Appropriate Administrative Penalty Amount: In addition to the above factors, the Enforcement Committee also considered the amount necessary to deter future violations. While debarment can consider different levels of responsibility for each individual Responsible Party in Control, an administrative penalty is against the owning entity, 2107 Lincoln Drive, LLC, and cannot be apportioned to a specific member. The Property’s LURA will expire December 31, 2023, so there is nothing to prevent future noncompliance. Additionally, the score was very low, there are many deficiencies on the inspection report, and there is an associated debarment referral. This supports a significant administrative penalty assessment, but not the maximum potential amount because the 2022 UPCS noncompliance was the owner’s first administrative penalty referral and all noncompliance has been resolved. Additionally, although owners are responsible for timely correcting all identified noncompliance regardless of the cause, the Enforcement Committee did recognize that tenants caused some of the health and safety deficiencies on the report, and those can be difficult to remedy long-term. For example, the noncompliance for three blocked fire exits relates to three tenants placing bulky furniture in front of windows. The Enforcement Committee recommends an administrative penalty of $20,000.
VI. Debarment Appeal: Seth Bame, Double SB Ventures, Inc, and Indio International, LP submitted a debarment appeal on November 14, 2023, requesting reconsideration. A copy of that appeal is included at Attachment 6.
Accordingly, after consideration of all appropriate factors, including those set out in TEX. GOV’T CODE §2306.0504 and 10 TEX. ADMIN. CODE §2.401, the Enforcement Committee and Executive Director recommend three orders:
1. A Final Order of Debarment for a term of 10 years for Indio International, LP, Double SB Ventures, Inc., and Seth Bame;
2. A Final Order of Debarment for a term of 5 years for WMV 2107 Lincoln Drive GP, LLC and William Mitchell Voss, with the possibility for the term to be probated after two years; and
3. An Agreed Final Order assessing an administrative penalty of $20,000.00 against 2107 Lincoln Drive, LLC.
Attachments:
1. 2022 UPCS inspection Report
2. 2023 UPCS inspection Report
3. Excerpts from 10 TAC §2.102, 10 TAC §11.1(30), 10 TAC §2.401(d)(1), and Tex. Gov’t Code §2306.0504
4. Organizational chart
5. Informal Conference Presentation by Windmass
6. November 14, 2023 Appeal Letter from Seth Bame