It would take a long time for me to teach Listmembers the necessary accounting skills to detect a scam. What you do need to know - to ask the right questions - is pretty simple. Here are three points, more to come later.
1. A PROJECT'S INCOME MUST BE ENOUGH TO COVER EXPENSES AND DEBT SERVICE. If Erik Riese is correct, Minn's project would have $31 million worth of DEBT against 221 units. That is MORE than Riverside Plaza's debt for 1,303 units with $10 million per year of rental income. If the average rent at Minn's project is $1,000 per month, he would collect $2.7 million per year in rent. From that he must pay debt service, maintenance expenses, property taxes, insurance, etc. How much is debt service per year on Minn's project? We don't know, but a $25 million mortgage at 6%, 30 year amortization would require $1.9 million for DEBT SERVICE ALONE. We can't do any analysis of the project until we know what the "anticipated" rents will be, the amount and terms of the debt, and the other operating expenses. 2. WHAT ARE THE "REAL" CONSTRUCTION AND FINANCING COSTS? If you could borrow $500,000 to build a $200,000 house, you would have $300,000 of tax free cash in your pocket. Riverside Plaza paid $17 million for the buildings and got a $27 million mortgage. That's $10 million of tax free cash. What if Minn's project only costs $20 million to build? How will we know? To my knowledge, NO ONE at the MCDA or the City or the County monitors the project after they hand over the money. Any other lender would require quarterly financial statements, proof of insurance, etc. If there are financial problems, theft, etc., the lender finds out early - as opposed to waiting for the default like Brookfield, Target Center. 3. GENERAL PARTNER vs. LIMITED PARTNERS The general partner controls ALL of the cash and makes EVERY management decisions. Limited partners are PASSIVE. They buy "Tax Credits" to AVOID paying Federal taxes. Riverside Plaza had TWO limited partners: Norwest Bank and Fannie Mae. In Minn's project - who are the limited partners? We don't know. They are paying $3 million for $10 million worth of tax avoidance (estimate.) If you like corporate welfare - you've got to love this program (IRS Section 42 tax credits.) The banks that charge you all of those late fees, penalties, and interest don't have to pay any taxes on their income. The general partner has total authority over the money. They receive the "developers" fees. They routinely set up "affiliate" corporations to drain the money out of the project. One corporation does the accounting. One corporation does the property management. One corporation does the security. One corporation does the snow plowing. Etc. IMPORTANT: Corporations don't pay any taxes if they can spend all of their money. The tax rate for PROFITS up to $50,000 is only 15%. In other words, a corporation with income of $1 million and expenses of $950,000 would pay $7,500 in federal taxes. If you were trying to AVOID paying taxes, where would you have your board meetings - Minneapolis or Tahiti? The expenses are deductible in either case. THAT'S ENOUGH FOR TODAY I will try to show Listmembers how these real estate scams work over time. I know it looks like I am picking on Riverside Plaza and Steve Minn. Please understand that I don't care what they do - I have already decided that I am not going to pay for it any longer. I use Riverside Plaza as an example because I have documents to prove what I say. I use Minn's project simply because it is current. Real estate operators (for profit and non-profit) who borrow from the GOVERNMENT do the same things - and not just in Minneapolis. Donald Trump is the Godfather of the strategy. If one has the right connections, millions of dollars can be made this way - with NO personal risk and NO personal money. My goal is to make sure YOU know what's going on. If you, the voters, think it is OK - then so be it. Vicky Heller North Oaks and Cedar-Riverside _______________________________________ Minneapolis Issues Forum - A City-focused Civic Discussion - Mn E-Democracy Post messages to: mailto:mpls@;mnforum.org Subscribe, Unsubscribe, Digest, and more: http://e-democracy.org/mpls
