We secured and reviewed the draft Master Development Agreement (“MDA”) and communications about the MDA between The Michaels Organization (“TMO”) and YVHA through an open records request. This was not previously disclosed to the public or City Council. Our top highlights are listed below.

1. TMO wants bond issue, taxpayers pay interest

TMO is pushing for a bond issue. A bond issue gives TMO more public funds upfront, but the City would be on the hook for interest payments for an estimated 20 years. (See email correspondence from Bruce Morgan with TMO below).

2. TMO strong armed YVHA a longer 20-year contract

YVHA proposed a limited contract with TMO for only phase 1. However, Michaels successfully pushed for exclusivity for the entire two-decade term of the project (See email correspondence from Bruce Morgan with TMO below).

3. TMO gets exclusive management rights and property management fees

TMO affiliate, Michaels Management-Affordable LLC, gets exclusive rights to manage all units before a fee or competitive process has been established. There is no termination clause specific to management. (section 5.02).

4. Unit owners required to sell through YVHA at full 6% sales commission

YVHA has exclusive rights to broker the for-sale housing (section 3.05) and will charge a fixed 6% fee on sales. Considering the 2% annual appreciation cap, such a high fee will suppress owners’ equity returns. After the recent ruling against the National Association of Realtors for price fixing the market, other than for Brown Ranch property owners, has opened up to negotiation of fees.

5. Where are caps to cost overruns?

“The Authority shall not unreasonably withhold Approval of the Development Budget and the amendments thereto and shall work with the Developer to mutually agree upon any costs in dispute.”  YVHA, in advance, has agreed to “work with” the developer to fund cost overruns (section 4.02b).

6. TMO’s development management fee max permissible under Colorado regs

“The Management Agent will be paid the maximum management fee approved by the Finance Agency.” Again, TMO gets exclusivity at the maximum management fee and YVHA has not actually limited the fee. (Section 5.02)

7. YVHA only a nominal owner - TMO’s investors get priority return

YVHA will only be a “nominal” owner of Brown Ranch. TMO will bring in investors for each phase and such investors get a priority return prior to YVHA. After the investor gets their required return YVHA only receives a 20% residual but TMO receives 80%. Required investor return is not defined.

8. YVHA relegated a small minority of development fees

TMO receives 80% of the development fees (section 6.01). YVHA only receives 20% of the development fees.

9. Related parties in Brown Ranch planning get pre-selected for contracts

Contractors pre-selected and not subject to same competitive selection process (section 7.03):

a)      Steamboat Springs Lawyers Group, Jason Lacey, Land Use Legal;

b)      Landmark Consultants, Ryan Spaustat, Civil Engineering;

c)       Native Excavating, Charlie MacArthur, Excavation/Site Contractor, Horizontal Construction;

d)      Partner Energy, Lance Collins, Energy Modeling and Sustainability;

e)      SunWorks, Jonathan Harvey, Solar Photovoltaic Contractor based in Provo, Utah; and

f)        Eric Dickstein, Local team representative based in Steamboat Springs.

g)       MITHUN (DESIGN)

10. TMO can back out if they don’t like the investment returns

TMO can terminate for “infeasibility” if they can’t raise equity at “projected rates” or if the project isn’t “financially feasible”.

11. TMO’s development activities in accordance with projects in Alabama?

Quality of development is defined as generally accepted standards for quality development and construction of affordable housing in Opelika and Camp Hill, Alabama. (Exhibit E, paragraph 4.)