BALANCE SHEET BLOG – HOLLYWOOD, FL


Holocaust Documentation Center: 2010
December 27, 2010, 12:45 PM
Filed under: CRA Districts, Downtown, HDEC

Downtown CRA…Stewardship Needed

July 2011 Update:  The CRA did not act on HDEC’s request to convert its loan to a grant.  The matter is likely to be reintroduced in some form, but we are told the parties are in ongoing discussions.  Meanwhile, the interest owed on the loan is increasing.

December 27, 2010

The Holocaust Documentation and Education Center (HDEC) is asking for a grant of $1.7 million from the downtown CRA plus a 99-year lease at $1.00 per year.  The CRA has already invested $550,000 in this project.  In addition, the CRA made a loan of $1.2 million to HDEC with no payment due from 2004 until October, 2010. It is this loan plus accrued interest of over $500,000 that HDEC seeks to have converted to a grant.

HDEC’s mission is valuable, and its survivor documentation program and educational outreach are exemplary. However, HDEC’s extensive financial obligations and the downtown CRA’s lack of discretionary funds require a more careful review of HDEC’s request than the early January date permits.

Accordingly, for the reasons set out in this article, we believe the matter should be continued until the City/CRA can establish some performance markers and a way to extricate itself from HDEC’s ongoing substantial financial obligations.

Downtown CRA

For the last decade at least, the guiding principle of the Downtown CRA has been to create mixed-use upscale condo buildings that were supposed to bring hundreds of new residents with disposable income to “live, work and play” downtown. Inviting and incentivizing HDEC to move to downtown Hollywood back in 2003-2004 was part of this same strategy. Taxpayers were told at the time that HDEC was to open a museum which would bring “visitors from all over the world” to downtown Hollywood.

All one has to do is walk along any downtown street to see that there are as many, even more, vacant stores and unsold housing units there today than existed when the CRA was first created over 30 years ago.  Obviously, the CRA’s approach has not worked.

Today the downtown CRA is broke. It must contribute to the cost of city services (police, fire, code, etc.). In addition, it has substantial debt obligations including four outstanding notes to Bank of America (BOA) totaling $23,921,310 — and substantial ongoing payments owed to downtown developers of the Radius and Hollywood Station. As a result, the downtown CRA has almost no money left for its core mission to remove slum and blight downtown.

Not only has a vibrant downtown eluded the city for 30 years but also Parkside, Highland Gardens/United Neighbors, and Royal Poinciana, the blighted residential neighborhoods within the CRA district, have been all but ignored as the CRA gave money to developers instead. Repeatedly we were told it was necessary to invest these funds in upscale development in order to reap the benefits of a healthy and prosperous downtown.  Hollywood taxpayers are the losers in this sad scenario.

HDEC-CRA Background

As an incentive to lure HDEC to Hollywood, the downtown CRA bought a blighted building at 2031 Harrison Street after stating that “a proposed museum project has expressed interest in occupying this location.” The CRA subsequently transferred the property to HDEC in 2004 with a $1.2 million loan to cover the purchase price. The CRA had to borrow the money from BOA in order to make this loan to HDEC and we are still making payments on the BOA loan. To help HDEC with building renovation, the CRA gave the organization a $50,000 grant and a $500,000 loan. When it came time to repay the $500,000, HDEC requested it be converted to a grant, and the CRA Board complied with this request.

While HDEC moved its offices into 2031 Harrison in 2007 (after 3 years of building renovation), it has never built the promised museum. Heeding hardship pleas from HDEC, the CRA allowed HDEC to defer any payments on the 2004 loan until 2007, and then modified its loan in 2007 to give HDEC three more years of payment deferral. But during this second deferral period, HDEC purchased a second building — 115 S. 21 Ave. — that was owned by a private party and located across the alley from 2031 Harrison. The price was $850,000, with interest-only payments on a $750,000 balloon mortgage due in 2013.

Now, HDEC is paying some $50,000 annually in interest payments on the second building, while paying nothing on its earlier loan from the CRA for the first building. Instead, it’s asking the CRA once again to convert the loan to a grant, just as it did with the earlier $500,000 loan. This is a much more expensive proposition for the CRA, since the original $1.2 million loan with accrued interest now totals over $1.7 million.

Meanwhile, there is no HDEC museum and no front entrance to add vibrancy to the Harrison streetscape. The building’s main entrance on Harrison Street is covered with what looks like black drapes on which are tacked photos of the Holocaust.  A small white paper pasted on the door informs visitors that the first floor is under construction and they should enter from the alley.

The first floor has been torn apart for structural repairs but is awaiting redesign and renovation when sufficient funds become available. The remaining floors house a small non-lending library, a recording studio, some study carrels, offices, and a multi-purpose space.

Questions

Before a well-reasoned decision can be made on this latest HDEC request, it is important to consider the following questions:

  1. Without a business plan, how can HDEC meet its commitments?
  2. Would CRA debt forgiveness and 99-year no-cost lease be a sound business decision for the CRA, given its over-stretched financial condition?
  3. Given the history of HDEC promises not fulfilled, how soon can we expect to see a first-class museum open and operating downtown?

Balance Sheet Editors Visit HDEC

Attempting to answer these questions, the Balance Sheet editors requested and were granted a guided tour of the HDEC building and a meeting with Rositta Kenigsberg, the organization’s Executive Vice President. In addition, we met with the educational outreach director. We were impressed with the organization’s Holocaust survivor documentation and its educational outreach to students and the community at large. We believe this work is important, even critical, to a healthy, unprejudiced community and something we can all be proud of and learn from.

What causes us concern, however, is what we came to understand about the organization’s speculative real estate ventures and lack of a credible business plan to achieve the substantial financial outlays these ventures require.

We learned the second building was purchased to expand HDEC with a whole new adjoining building that will display HDEC’s permanent collection of memorabilia plus a Holocaust railcar that HDEC has acquired. The idea calls for the railcar to be encased in bullet-proof glass in front of the new museum, on the east side of 21st Ave., just across from the railroad tracks. The new museum building is anticipated to cost some $26 million. HDEC’s capital campaign has resulted in about $5 million, most of that in pledges (some testamentary). We were told only $1.5 million of this is cash in hand.

We learned that the vacant first floor of 2031 Harrison is now slated for traveling exhibits. We were told $360,000 must be raised to renovate this floor for such exhibits — as Ms. Kenigsberg said, “just $10,000 from 36 donors.” This money has not yet been raised. Unspecified funds to run a traveling exhibit program (fees for use, transportation, set-up and take-down costs) are yet to be identified. Also yet to be raised are at least $21 million to build the new museum, an unspecified “six figure” amount to set up a security system, and $750,000 to pay off the balloon mortgage. Where all this money can be found, and what approaches HDEC has identified for this major fund-raising endeavor are at best unclear. One thing we did learn is that Ms. Kenigsberg has her eye on more money from the city. She told us she had learned from a HUD representative that HDEC could be an eligible expenditure under the HUD Neighborhood Stabilization Program and she had already contacted city staff about tapping into Hollywood’s NSP funds.

Recommendations

As a city we have provided over $2 million in loan and grant incentives for this project. It is time now for HDEC to repay what it owes the CRA for 2031 Harrison. The CRA simply cannot afford to write off $1.7 million. These funds need to be recaptured and recycled into projects that can assure us an active and vibrant downtown as quickly as possible, as was contemplated when the loan was first issued. It is a loan, not a grant, and so it should remain.

Finally, we strongly oppose the use of Hollywood’s NSP funds for downtown museum building, given the high number of foreclosed and abandoned homes in Hollywood’s residential neighborhoods so many of which need renovated, high-quality housing that ordinary working people can afford. Helping neighborhoods recover from the foreclosure disaster is the main purpose of the NSP program

We believe that HDEC’s financial profile is precarious at best and therefore the CRA should consider extricating itself from ongoing involvement with HDEC. In a spirit of fairness, we suggest establishing performance markers and a time line, placing the conversion of the loan to a grant on hold and revisiting it at a later date to see if HDEC has met these requirements.

We recommend a continuance of this agenda item so there is time to establish the performance markers and time line that we need in order to ensure a successful result.

Laurie Schecter
Marla Dumas
Sara Case

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