The city of Orlando's November 2004 acquisition of a 16-unit Parramore apartment building looked like a sweet deal for taxpayers. The building, at 628 W. South St., sits on the cusp of ongoing revitalization efforts. A year earlier the building sold for $370,000, but taxpayers apparently got a bargain. The city paid $10.
Why had the seller, a company called Firstcap Investments Inc., taken such a huge hit? To quitclaim property in the heart of Parramore's makeover seemed foolish. They didn't have to sell; the city wasn't forcing Firstcap's hand with code-enforcement liens. Nor was the building run-down. The owner who sold the building to Firstcap in 2003, Surujani Thackurdeen, had renovated 14 of the 16 units. She rented them out for between $300 and $400 a month, netting about $58,000 a year. Thackurdeen bought the apartment building in May 2002 for $285,000 and sold it a little more than a year later for an $85,000 profit.
Firstcap, on the other hand, didn't care about resale value. In fact, other than the $11,000 commission its sister corporation First Capital Property Group received for brokering the deal with Thackurdeen, Firstcap didn't have a financial stake in the apartment building. It hadn't put a dollar into buying either this building or any of the approximately two dozen Orange County properties it has purchased in the last five years.
That's because when Firstcap buys property, it's paying with tax dollars. Since 2000, the company has acted as a front for the city of Orlando's real estate department, buying up homes and vacant land at the city's direction.
The city obscures its relationship with Firstcap by routing money through a third-party law firm, which then acts as a closing agent and cuts checks to Firstcap for the purchases.
It's a secretive, unusual arrangement, and it ends with the taxpayers paying for land and property they don't legally own, at least until Firstcap gives the property back to the city at some future date. Sellers don't know they're dealing with the city or that their properties are in the path of planned public-works projects, both of which might drive up the price. Obscuring city involvement also helps avoid messy eminent domain battles and enables the city to sidestep a state condemnation law that favors property owners.
Real estate experts say there's nothing illegal about this setup; it's similar to the way Walt Disney used dummy corporations to buy up citrus groves in the 1960s, thereby keeping down the price.
And there's another similarity between Disney and Orlando: Both had plans for the property they were quietly snapping up. In Orlando's case, the idea appears to be to amass property in a run-down neighborhood in unincorporated Orange County, annex the neighborhood into the city, then widen an existing road and build another one, whether residents in the neighborhood want it or not.
"I guess it's not illegal," says Linda Akins, an attorney for Orange County, when told about Orlando's arrangement with Firstcap. "It is so odd that it makes you wonder if it's I don't know. I need to think about this. It's certainly nothing I've ever heard of."
"It doesn't pass the smell test to me," says Orange County real estate manager George Hart. "I can tell you that Orange County would never do that."
THE MONEY TRAIL
The city's relationship with Firstcap is murky. City documents provided to Orlando Weekly paint an incomplete and confusing picture; city officials even told this newspaper, in response to a public-records request, that a box of records dating from 2000 are missing. (They located the box a few weeks later after a reminder that they are custodians of public records and have a responsibility to produce public documents upon request.)
The following is clear: Firstcap Investments exists, and it buys property with city money. In at least three cases, the company has turned those properties over to the city of Orlando. Its existence has the blessing of a 2001 city council vote, in which commissioners approved the real estate department's request to hire a company to anonymously buy land. On May 17, 2004, the city council refined its policy, putting the mayor directly in control of these anonymous purchases and allowing the real-estate department a $5 million line of credit money drawn from the city's investment portfolio, not borrowed from any external agency with which to fund these purchases. Under the revised policy, city commissioners would also be informed about the secret purchases that were made in their district.
The council also gave the real estate department a sort of carte blanche: So long as the target property is less than $500,000 in value, it doesn't need commissioners' approval. Thus, none of Firstcap's purchases show up on a city agenda, and the public is none the wiser. The city wanted to beat speculators to Parramore real estate and amass land for affordable housing projects without property owners jacking up the price because of the city's involvement, says commissioner Patty Sheehan. The city also wanted to avoid condemnation.
In 2000, First Capital Property Group a corporation that shares office space and officers with Firstcap successfully bid to do real estate consulting, appraisals and condemnation work for the city. First Capital was one of eight companies to get the work.
Documents detailing the contract say little about real estate acquisition, and don't mention Firstcap (as distinct from First Capital) at all.
First Capital did not have any certified appraisers, nor did it do condemnation work. But the city still awarded it a share of the bid specifically, the part dealing with buying real estate. "At the time, the city's real estate division had only three staff members," city spokeswoman Brie Turek stated in a written response to Orlando Weekly's questions. "It was determined to be more cost-effective to utilize real estate consulting services to assist in the acquisition and leasing of properties rather than adding full-time staff."
The city refers to the two companies interchangeably. But they are organized in Florida as separate corporations. First Capital Property Group was incorporated in 1995; Firstcap Investments was formed in 1999, and according to property-appraiser records, only owns land that has been paid for by the city.
Typically, Firstcap uses city money to act as a buyer, then takes title to properties and is listed as the legal owner. First Capital acts as the real estate broker and receives a commission for brokering land sales between Firstcap and the property owner.
According to the city, Firstcap doesn't get paid directly for acting as a holding agent. All city contracts are with its sister corporation, First Capital.
City documents show no contract with Firstcap Investments, even though Firstcap legally owns these properties, and the city writes it checks. The name game leaves county officials scratching their heads. "I don't know how you do this," Orange County's Akins says. "Our comptroller wouldn't let us cut a check without a contract."
From 2000 to 2003, First Capital Property Group purchased 16 properties worth $680,000 on the city's behalf. In 2003, First Capital bid to renew its contract with the city, and principal Charles Mitchell highlighted its service: "We fully understand the scope of the proposal. Our experience of providing these (sometimes unusual) services to the city of Orlando gives us a unique perspective … ."
The city renewed its partnership with First Capital, and from 2003 to now Firstcap bought at least seven more properties. To date, three of Firstcap's properties have been deeded back to the city. Firstcap owns at least 20 properties in Orange County, valued at more than $1.2 million.
First Capital principals Mitchell and David Pierce, both former CNL Group employees, charge $110 an hour for consulting and $125 an hour for expert testimony. First Capital also charges sellers standard commission rates: 3.5 percent of the first $100,000, 2.75 percent of the next $400,000 and 2 percent after that. For acting as the city's property manager, First Capital takes 15 percent of residential rental income and 3.5 percent of commercial rental income, according to the terms of the contract.
Turek says that's all First Capital is paid. "For property acquisitions, they are typically paid a modest real estate commission by the seller," Turek writes. "… They are not paid any additional fees at the time the properties are transferred to the city."
That wasn't the original plan. In February 2001, First Capital faxed the city its plan for acquiring a house at 2 S. Klondike Ave. It would pay $56,000 for the house (the city would cover the $1,000 closing costs) and then sit on the property for a year. Then the city would buy it back for $72,761. The extra money included interest, taxes, maintenance and loan costs that accumulated over 12 months, plus First Capital's 10 percent service fee 10 percent of not just the purchase price, but 10 percent of taxes, maintenance, closing costs and insurance also. For this house, its fee would be $6,615.
That is the only indication of a First Capital service fee in city records. The city says its company doesn't receive any such fee, so apparently that deal was scrapped, though it's unclear why. In June 2001, the city wrote a check for $50,000 to a third-party law firm that acted as Firstcap's closing agent, and Firstcap paid $57,400 for the house. The title to this property is still in Firstcap's name.
But is Firstcap Investments paid? A financial statement Firstcap submitted to the city in 2003 indicates that it collects rent on the properties it owns. In 2002, for instance, it took in $22,511; $8,089 in direct payments from the city, the rest for rent. After expenses, Firstcap netted only $2,066.
If Firstcap makes anything beyond that, it's not mentioned in city records. Firstcap's Mitchell didn't return Orlando Weekly's phone calls or e-mails to clarify the arrangement. The city says that First Capital is the only business with which it has such an arrangement.
THE CITY-OWNED SLUM
Lincklaen Heights has no streetlights. At night, this subdivision is completely dark; short of a full moon, it's difficult to see 50 feet in front of you.
It sits off Old Winter Garden Road in unincorporated Orange County, adjacent to Orlando city limits and a short drive south of Pine Hills. Most of the houses reflect the neighborhood's lower-middle class character. Only a few are concrete block; the rest are wood-paneled or manufactured homes. There are old cars in the driveways and parked along the street. Huge swaths of land are vacant, overgrown and strewn with trash, despite "no dumping" signs.
Firstcap Investments has been buying up houses and vacant parcels here since at least 2001; 16 of the 20 properties the company currently owns are in this neighborhood. In fact, Firstcap's holdings account for nearly half of all of Lincklaen Heights.
The city, under the guise of Firstcap, isn't a very engaged landlord.
For example, after Firstcap bought a house on West Pine Street, Orange County code enforcement sent it a letter saying the house was "in violation of minimum housing provisions" and unsafe. In response, Firstcap's Mitchell asked the city to bulldoze it. The city agreed, and wrote Firstcap a $2,650 check to cover the demolition.
Firstcap's code enforcement record is a mixed bag, says Orange County code enforcement manager Bob Spivey. The good news: Firstcap usually remedies problems after code enforcement officers cite them. The bad news: There are citations, and lots of them. In the last five years, Firstcap's Lincklaen Heights properties have been cited at least 18 times, according to records obtained by Orlando Weekly.
The violations run from mundane (tall grass or junk in the yard) to serious (a dilapidated mobile home behind one house, and holes in the floor and walls of others). These are rental properties, and most of the code problems come from tenants. But not all.
On Sept. 2, for instance, Firstcap was cited for the house it owns at 4842 W. Central Ave. According to county records, the house has a "very shaky" kitchen floor and a bathtub detaching from the wall. The county ordered Firstcap to patch up holes in the wall, have the home exterminated, replace smoke detectors, remove mold, repair holes in the outside of the house, remove a water spot and replace the bathtub, all by Oct. 19.
Firstcap didn't want to put that much work into the house. According to the county code enforcement report, "Officer Young received a phone call from Mr. Mitchell. … Mr. Mitchell ask[ed] Officer Young to condemn the place because he [felt] he need[ed] more time and that he could not [come into compliance] with the tenants in the house. Young explain[ed] to him that the house was not condemnable. He ask[ed] what would make it condemnable and was told the roof has to have fallen in, the whole inside torn out, structure taken down. Young also explain[ed] to him that was between him and the tenants. Mr. Mitchell was very upset … ."
To date, county records indicate the problems haven't been fixed. Firstcap has a hearing scheduled before the code enforcement board on Dec. 21. That is the only hearing mentioned in the records, which means it's the only time Firstcap didn't quickly comply with the county's demands.
If Firstcap didn't acquiesce to the county's demands, however, it faced fines. There's no evidence that either Firstcap or the city has done anything to improve the neighborhood without the threat of fines
The city downplays its role in the neighborhood's upkeep: "As the property manager, [First Capital is] responsible for property maintenance and ensuring that all properties are up to code," Turek writes, using the companies interchangeably.
Firstcap's purchases in Lincklaen Heights have a distinctive pattern. It has bought out an entire block between West Central Avenue and West Pine Street to the north and south, and Nome Drive and North Klondike Avenue to the east and west except for one house. That three-bedroom house sold to a private individual in May for $65,000. (Firstcap has purchased most of the homes in this subdivision for between $30,000 and $50,000. Their most expensive purchase was for $66,000.)
The company is also buying homes south and west, out to Mission Road, which abuts city limits. City records clearly state the reason why: A November 2003 document titled "Future Mission Road Extension" shows the properties Firstcap has already bought, along with other properties mentioned as future purchases.
Eventually, records state, the city wants to widen Mission Road and connect it to Pine Hills Road, which cuts directly through Lincklaen Heights. Firstcap's job is to buy homes in the planned road's path.
For the city of Orlando to build the road it must first annex the subdivision. To do that, according to Chapter 171 of Florida Statutes, it must amass the support of the owners of a majority of the properties. The more land Firstcap buys, the easier the annexation becomes.
A municipality can only annex an area that is contiguous with its city limits, which this one is. Then there must be an annexation vote, with a majority of the registered voters in the neighborhood approving the measure. If a significant portion of the subdivision 70 percent is owned by corporations or unregistered voters, then the vote falls to the owners of the majority of the properties. That means if there is an annexation vote, Firstcap would get one vote for each property it owns, and if it owns more than half of the subdivision, the annexation will be a lock.
Besides making annexation easier, Firstcap may also cut down on the city's price tag. If a seller knew the city wanted their land for a big project, that might drive up the price.
Jesse L. Thompson, a lawn-service owner who lived in the neighborhood for 30 years, sold his house on Klondike Avenue in May 2003 for $66,000. Had he known the city's role, he says, he would have asked for at least $15,000 more. Probably, the city wouldn't have been in a position to say no. But Thompson says Firstcap told him it wanted the house as a rental property and said nothing about its connection to the city or the city's plans.
"They came up with that price," Thompson remembers. "I agreed."
The city used similar tactics to get a house that lies in the path of a road-widening project on Orlando's east side.
On Dec. 28, 2004, city real estate agent Ruth Strausberg sent Firstcap's Mitchell a letter asking him to gauge the owners' interest in selling their property at 420 S. Crystal Lake Drive. "The city is interested in purchasing the property described in the attached pages," real estate agent Ruth Strausberg wrote. "I was asked to keep this quiet; therefore, I am contacting you … ."
By April, owners Clifford and Danielle Cagle had agreed to sell for $195,000, if Firstcap would lease the house back to them for $500 a month until May 2006. Until they were contacted by this newspaper, the Cagles had no idea Firstcap was a city agent or that their house would be claimed by a street project. Had they known, "I would have asked for more money," Clifford Cagle says.
Regardless, he's not bothered by the city's subterfuge. "I got more than a fair price for [the house]," he says. "I'm happy with it."
Parramore Village is so vital to Mayor Buddy Dyer's revitalization efforts that he used it as a launching ground for his Pathways for Parramore initiative in June. The city wants to see 46 single-family and townhouse units over what is now a vacant field in a low-income section of Orlando's west side. If successful, Parramore Village will stand out from its blighted peers and bring an aura of rejuvenation to neighboring barrios that have been economically depressed for far too long.
The city doesn't own all the land in its "vision plan" for Parramore Village. But what the city doesn't own, Firstcap does. As in Lincklaen Heights, Firstcap got the two properties it acquired on America Street cheap, considering their proximity to one of the city's foremost projects.
Orlando's real estate department has sought Eleanor Day's property at 732 W. America Street since at least 1998, when it sent her a letter expressing interest. In 1999, the city tried to acquire the land by buying up its tax certificates when Day didn't pay her taxes. Apparently she settled up before the city's acquisition went through.
Firstcap, however, managed to get the property. On Oct. 13, Firstcap negotiated a vacant land contract with Day for $16,300. Reached by Orlando Weekly, Day, who lives in Pembroke Pines, declined to be interviewed. According to the contract, the deal should have gone to closing; however, as of this writing, Orange County records still show the address in Day's name.
Even by Parramore's standards, the city's other America Street target is a disaster. Firstcap bought 738 W. America Street in March 2005 for $45,500. The house has sat empty for months since, with overgrown grass, broken windows, chipped paint and a broken chain-link fence.
The city's code enforcement department didn't notice anything amiss until Oct. 21, though it had cited a property across the street for having overgrown grass three weeks earlier. When the city finally did act, it declared the house a public nuisance due to the transients living in it.
Essentially blowing the whistle on itself, the city ordered Firstcap to paint and secure all the exterior doors, board up the broken windows, get rid of the junk on the lawn and fix the plumbing. Today, the house is boarded up, but it's still a city-financed black eye on an already struggling neighborhood.
'LAND'S REALLY EXPENSIVE'
Firstcap exists to save the city money. "The bottom line for me is land's really expensive," says city commissioner Phil Diamond. "People use the eminent domain process to get more than they might deserve from land sales. That's the rationale for it taxpayers' dollars."
Sheehan says saving money trumps any concern about using deceptive practices. It simply enables the city to buy property for the price anyone else would pay. If sellers know the city is involved, Sheehan said at the May 17, 2004, council meeting, "the price skyrockets."
Orange County sees things differently. While it uses a contractor to handle some of its purchases and leases, the sellers know who they're dealing with, Hart says.
"The state has very strict condemnation laws," says Hart, the county's real estate manager. "They're there to protect property owners. … The private sector does stuff like that, they're allowed to do that. … [But] that's why condemnation [law] is there. You have to disclose to the public what you're doing."
"Part of the price of government is that you need to be transparent in what's going on," Akins email@example.com