Challenged Assets

5 min read

Millenia takes on a portfolio full of surprises 

In late 2016, the Millennia Companies, a vertically integrated real estate development and management firm in Cleveland, OH, that owns and manages nearly 30,000 residential units spread across 27 states, entered into a contract to purchase a portfolio of Section 8 properties from the financially troubled Global Ministries Foundation (GMF) of Memphis, TN. More than two years later, president and CEO Frank Sinito calls the acquisition, “The most challenging effort I’ve ever experienced.” The sale, for which there were multiple bidders, represented about half of the GMF portfolio. A spokesperson for the foundation called the transaction a “redevelopment strategy.” Several media outlets reported that GMF was under investigation by the United States Department of Housing and Urban Development (HUD) Office of the Inspector General and the Securities and Exchange Commission.

“Our growth has consisted of acquiring portfolios in the 500- to 2,000-unit range. Millennia’s mission-driven model has always been to purchase challenged assets for four and nine percent Low Income Housing Tax Credits,” says Sinito. Sinito is something of a renaissance man. Aside from the Millennia management, construction and development companies, which he formed in 1995 for both market-rate and affordable housing, he and his wife own a popular Italian restaurant, and in 2017 opened a steakhouse in a historic Cleveland building.

His social consciousness finds many outlets. Sinito is chairman and a founding board member of True Freedom Ministries, a nonprofit organization dedicated to reaching the incarcerated, the homeless and those trapped in addiction across Ohio. Since college, his ongoing passion has been to provide quality housing to those who need it most. This mission helps guide him through the day-to-day complexities of stabilizing the GMF portfolio.

“Our acquisition [from GMF] was contingent on full tax credit rehabs,” he explains. “And our initial purchase agreement had us closing once we had the tax credits. We met with HUD officials to get their approval. A significant development was that the third-party management companies pulled out. We never intended to manage these properties, but that is what we were forced to do. As a result, for the last two years, there has been a kind of blurred perception of ownership.”

While Sinito concedes that when the deal was presented, he was certainly aware of the issues upon taking over management, he soon found that some of the GMF properties had high vacancy and were in extremely poor physical condition. “But once you get into it, you can’t pull out. We don’t run away from challenges,” he states.

Impact On Millenia
Taking on the trials of managing the GMF portfolio has had major unintended consequences for The Millennia Companies. “It surely limited our acquisition of other properties for the last year,” Sinito says. “We’ve also had to reassess our management company and deal with the challenges presented when managing multiple troubled properties at once.”

One of the most impactful of those consequences, in Sinito’s mind, has been to the company’s public image, which has always been associated with high standards and Sinito’s overwhelming concern for the welfare and safety of residents. “Taking on the management of this portfolio has tarnished our reputation,” he states. “We’ve failed REAC [HUD’s Real Estate Assessment Center] inspections, and we’ve encountered community groups dissatisfied with conditions. We’ve invested significant resources to address their concerns and improve communication.”

It should be noted that local newspaper articles document that the poor conditions of many of these properties existed long before the transfer of management and/or ownership. Still, Sinito says, “If I knew two years ago what I know now, I never would have done it. We’ve spent millions of dollars just carrying properties in the GMF portfolio.”

He notes that Millennia mandates quarterly inspections at its properties to maintain quality and stay ahead of potential problems, and that, “HUD has discussed changing REAC guidance, which will keep everyone on their toes and will ultimately benefit HUD’s entire portfolio and the residents.”

Upgrading Underway
Rehabilitation is currently underway on former GMF projects in Rensselaer, NY, Memphis, TN, and Jacksonville, FL. In 2019, the company expects construction to spread to 12 GMF properties, including Windsor Cove Apartments in Orlando, FL, Forest Cove Apartments in Atlanta, GA, Stonybrook Apartments in Riviera Beach, FL and Peace Lake Towers senior community in New Orleans, LA.

“At GMF properties, we have stepped in to maintain services, stabilize operations and preserve the HUD assistance for the residents. We address immediate needs as soon as we are made aware,” says Sinito.

Regardless of the current difficulties, Millennia is committed to transforming the former GMF portfolio to its traditional standards. “Preserving over 15,000 units of affordable housing is still the most rewarding part of my career,” Sinito says. “When we transform a given property, we transform the lives of the residents, and it is gratifying to see the difference we make in their lives.” But in the present case, he adds, “Getting there has been very, very tough.”

Story Contact:
Frank Sinito
[email protected]