SEC and IRS Eye Bonds For Project

The Bond Buyer - - Front Page - BY LYNN HUME

WASH­ING­TON – The Se­cu­ri­ties and Ex­change Com­mis­sion is ex­am­in­ing the same bonds that helped fi­nance re­de­vel­op­ment of the old Statler Hil­ton Ho­tel and Dal­las Cen­tral Li­brary that the In­ter­nal Rev­enue Ser­vice says are tax­able.

The IRS pre­lim­i­nar­ily con­cluded last month that the $26.5 mil­lion of zero coupon bonds is­sued by the Pub­lic Fi­nance Au­thor­ity in Wis­con­sin in 2016 for the re­de­vel­op­ment project in Dal­las should be tax­able rather than tax-ex­empt.

The au­thor­ity and Or­rick, Her­ring­ton & Sut­cliffe, which was bond coun­sel and coun­sel to the au­thor­ity for the bonds, dis­agree with the IRS and are chal­leng­ing its pre­lim­i­nary find­ings, ac­cord­ing event no­tices filed with the Mu­nic­i­pal Se­cu­ri­ties Rule­mak­ing Board’s EMMA sys­tem and sources.

Scott Carper, a manag­ing di-

rec­tor of the PFA said on Wed­nes­day that the SEC sent a let­ter to the PFA in March seek­ing all doc­u­men­ta­tion re­lated to the project, con­firm­ing a story in the Dal­las Morn­ing News. Carper said the au­thor­ity has not heard any­thing fur­ther from the SEC.

Robin Bent­ley, Dal­las’ in­terim di­rec­tor for eco­nomic de­vel­op­ment, said city of­fi­cials have not been con­tacted by the SEC.

“We have re­ceived noth­ing about the SEC in­ves­ti­ga­tion,” she said, “I’m only aware of it be­cause of the news cov­er­age. As far as I know no one at the city has been con­tracted about any in­ves­ti­ga­tion.”

A spokes­woman for de­vel­oper Mehrdad Moayedi also could not be reached for comment.

The SEC has, in the past, charged trans­ac­tion par­tic­i­pants with se­cu­ri­ties fraud for mis­lead­ing in­vestors about the tax-ex­empt sta­tus of their bonds.

The IRS be­gan au­dit­ing the bonds in Jan­uary, less than five months after they were is­sued.

Lo­cal news­pa­pers in Dal­las had pub­lished ar­ti­cles quot­ing sources rais­ing ques­tions about the un­usu­ally com­plex fi­nanc­ing and the in­cen­tives be­ing pro­vided to the de­vel­oper – Com­merce Statler De­vel­op­ment, LLC, a com­pany cre­ated by Moayedi.

Moayedi’s plan was to de­velop the for­mer Statler Hil­ton Ho­tel, which has been va­cant since 2001 as well as the old Dal­las Cen­tral Li­brary on Main Street into a lux­ury res­i­den­tial tower with restau­rants, of­fices and a move theatre, ac­cord­ing to the web­site of his de­vel­op­ment com­pany Cen­tu­rion Amer­i­can and state­ments he made back in 2014.

Con­struc­tion of the project was slated to start in 2015 and to be com­pleted in 2017.

The trans­ac­tion was com­plex. The Dal­las city coun­cil ap­proved $45.5 mil­lion in tax in­cre­ment fi­nanc­ing for the project in 2014.

The $26.5 mil­lion of tax in­cre­ment fi­nance grant rev­enue bonds were is­sued Au­gust 2016 by the au­thor­ity in Wis­con­sin “to pro­vide funds to fi­nance the cost of the ac­qui­si­tion of a por­tion of the Eco­nomic De­vel­op­ment Tax In­cre­ment Fi­nanc­ing Grant” made by Dal­las, ac­cord­ing to the of­fi­cial state­ment for the of­fer­ing.

The OS said the de­vel­oper planned to trans­fer the TIF grant funds to Ct­mgt, LLC, an­other com­pany owned by Moayedi “on be­half of the de­vel­oper to be treated as a non-share­holder con­tri­bu­tion to cap­i­tal.”

A de­tailed de­scrip­tion of the fund­ing plan in the OS says that ini­tial fund­ing for the project was to be com­prised of loans and con­tri­bu­tions.

The OS said the bonds were to be paid in part by the Eco­nomic De­vel­op­ment Tax In­cre­ment Fi­nanc­ing Grant from the city and other re­turns on in­vest­ments.

Moayedi also owns Cen­tu­rion Amer- ican and var­i­ous sub­sidiaries that are in­volved in roughly 70 master planned res­i­den­tial com­mu­nity projects in Texas val­ued at about $2 bil­lion (at build out). Roughly 40% of those projects have been de­vel­oped using fund­ing by var­i­ous en­ti­ties as­so­ci­ated with United De­vel­op­ment Fund­ing, a spon­sor of real es­tate in­vest­ment trusts based in Grapevine, Texas.

UDF’s head­quar­ters was raided by the FBI in Fe­bru­ary 2016 fol­low­ing al­le­ga­tions by Kyle Bass, who runs Dal­las-based hedge fund Hay­man Cap­i­tal Man­age­ment and bet against one of UDF’s fund’s shares, that that UDF in­volved in a Ponzi scheme. Bass al­leged that UDF was using new in­vestor money to re­pay ear­lier in­vestors. UDF says a law firm it hired to in­ves­ti­gate found no ev­i­dence of fraud.

The of­fi­cial state­ment for the Statler Hil­ton bonds said UDF was not as­so­ci­ated with the project or bonds. ◽

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