Dick Gustafson: Voters’ say needed in Stratton Flats
Stratton Flats: an American dream or American nightmare?
Rumors are floating around that suggest that other inside deals are being considering between Eagle County and other developers.
The following is what is currently known about Stratton Flats.
The developers of Stratton flat, namely Scott B. Russell, using several entities, namely Meritage JFA Gypsum LLC, MG Management, LLC, Meritage Development Group and Stratton Flats LLC, has been subsidized by Eagle County government in the amount of $4.5 million. This was a partial payment for the $6.1 million land cost in order to secure financing for the Stratton Flats. All Russell’s entities receive fees from each other for various services rendered (one is as high as $47,222 per month for three years). Stratton Flats is located at the northwest end of the airport and has an aviation easement for air traffic over the property.
The issue is not whether the project should or should not have been approved. The issue is that the county has risked $4.5 million of your tax money without voter approval. Why is the word “risk” appropriate?
According to the agreement, signed by the chairman of the Board of County Commissioners, the $4.5 million was to be a “fee” secured by a deed of trust. (Why the “fee” concept was used is still a mystery. A “fee” is money paid to a government for services, according to Black’s Legal Dictionary. Why is Eagle County paying a “fee” to a developer?) Nevertheless, the deed of trust was to secure the repayment of the “fee” to Eagle County plus 6 percent interest. The voters were never asked to approve this transaction.
Here is the problem. The agreement says that the deed of trust, filed to secure the “fee,” shall be released as soon as a $17.5 million loan was secured from COBUZ Bank. The loan has been granted and the bank’s deed of trust has been filed. With this release, the county becomes totally unsecured. The county secured position is behind that of any loans, contractors, subs, liens, architects, engineers, supplies and creditors just like an equity investor.
After an extensive search of the county records I was unable to see where the county’s deed of trust was ever filed at all. Is it being held back? Was it an oversight by the county, or was it not filed because it had no real meaning anyway?
The county is, therefore, an unsecured investor of $4.5 million, without voter approval.
The return of the $500,000 to the county can only come from profits, if any. In the event of default, the county has the option to step into the borrower’s position and take on the $17.5 million liability. That would compound one bad decision with another, even to protect a $4.5 million loss. If the payoff extends over one year, voter approval would be required.
The agreement calls for three types of units. The town of Gypsum’s units offers a10 percent discount (with no price controls), plus a $3 million-plus discount to the developer on fees. (Later reduced to $2 million-plus) A second set of units are free-market units. The third group, under county control, gives a 20 percent discount with a price appreciation cap (price controls).
The county requirements offer an incentive to buy, yet actually steals the future of anyone who purchases one. If the past is any indictor, market prices may tend to increase in Eagle County, thus locking a buyer into county controls with little opportunity to gain any real equity in their home.
Why? Because what the county calls “affordable” is often not obtainable. High prices, down payments (with subsidies), higher property taxes and mortgage payments keep the owners strapped for cash, leaving little or no opportunity to accumulate savings.
In addition, there is little equity appreciation with the rest of the market, so the “American Dream” of owning your own home now becomes the “American nightmare.” Your neighbors can sell their houses for a fair market value, and the county buyer is locked into price controls. Renting makes more sense. Like so many welfare programs, the result is to keep the recipient dependent upon the government.
To date, no sales have closed because there are no units on site. The modular unit parts, manufactured by Champion Homes, doing business as Genesis Homes, have yet to be delivered for assembly. There are a few reservations and maybe even a few conditional agreements for purchase, but there are no completed transactions to date.
This very complicated agreement only came to pass because of a rush to judgment and a thoughtless out of control disregard for the taxpayers’ money. There are several other examples and possible solutions that will be explored in future articles.
“Obtainable” housing is important. Some obtainable housing should be rentals, however. Private enterprise only fails when government interferes.
When the county attempts to compete with private enterprise, everyone loses. The county job is to create opportunities for private enterprise to be able to build obtainable housing. Community advisory groups can be formed to offer constructive ideas for the county to referee, not pay for.
By careful planning, simplifying regulations and working with developers, simpler solutions can be achieved. Government’s role is to facilitate, not compete.
Dick Gustafson is a Vail resident and a candidate for Eagle County commissioner.