One of Florida’s leading affordable housing developers is facing a potentially devastating five-year funding ban by the state’s housing finance arm and the loss of millions in federal assistance after the company’s principals were caught inflating costs.
Pinnacle Housing Group, having recently paid $5.2 million to the federal government, now faces additional repercussions Friday as the board of the Florida Housing Finance Corporation decides whether to block the developer, its affiliates and partners from seeking financial assistance until 2022. A staff recommendation would also cut off potential funding for five planned projects, including three in South Florida.
Should the housing board agree to suspend financing for Pinnacle’s pending low-income projects — including the Caribbean Village in Homestead, Verbena in North Miami and Suncrest Court in Broward County — the developer could lose more than $20 million in tax credits, low-interest loans and grants, according to documents provided by the housing corporation.
“Any award would be suspended and rightfully so when you have this kind of situation going on,” said Cecka Rose Green, a spokeswoman for the state housing corporation. “To not to do anything would be absolutely irresponsible.”
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$20 million Amount Pinnacle could lose in tax credits, low-interest loans and grants if the Florida Housing Finance Corporation suspends financing for the developer’s projects
Pinnacle’s partners were found this month by federal prosecutors to have used an affiliate to exaggerate the costs of four affordable housing projects built during the recession, including two in Miami-Dade. The company’s subcontractor, DAXC, submitted inflated costs to the state to qualify for higher federal subsidies to build shell concrete work for the projects.
DAXC violated the law when it kept the millions in excess federal grants and inflated development and construction fees while performing no work, prosecutors said. It was actually done by another Pinnacle subcontractor.
The surplus federal money benefited Pinnacle partners Louis Wolfson III, Michael Wohl, David Deutch, Mitchell Friedman and a fifth DAXC principal, Felix Braverman. DAXC, the only defendant, admitted in a deferred prosecution agreement filed this week in federal court to netting an extra $4.2 million through the setup. Only DAXC — owned by Pinnacle’s partners and Braverman — was charged with theft of government funds.
Pinnacle’s partners repaid the profits to the federal government along with a $1 million penalty as part of the deferred prosecution agreement, under which federal prosecutors will eventually dismiss the case against the company.
But the financial penalties may have only begun.
A five-year ban would further hamstring Pinnacle, which acknowledges that it created DAXC to inflate costs but also says the affiliate served to protect Pinnacle and an affiliated general contractor during the recession from liability and risk on the four construction projects. The developer said DAXC was shut down in 2012 when it was no longer needed, and the excess profits were returned after federal investigators said they were “unwarranted.”
Pinnacle’s partners repaid $4.2 million in inflated costs plus a $1 million penalty to the federal government.
For now, though, it’s unclear what reaction Pinnacle has had to the housing corporation’s recommendation.
Green said Pinnacle hasn’t submitted any responses in writing, and she didn’t respond to a question about verbal feedback from the company. The developer, which agreed to run statements to the media past the U.S. Attorney’s office as part of its deferred prosecution agreement, declined to comment through a spokesman.
But it’s possible, if not likely, that Pinnacle will protest Friday given the financial stakes.
Green said the recommendation before the board Friday wasn’t intended to be a financial penalty, but rather “a message that when there is any type of misrepresentation or wrongdoing that Florida Housing [corporation] will take appropriate action.” But it will be up to the corporation’s board to decide whether the funding ban is warranted.
Chairman Barney Smith did not return an email or a message left at on his office voice mail. Attempts to reach the seven-member board’s Miami representatives, Natacha Bastian and Rene Diaz de la Portilla — whose brother, Miguel, is registered to lobby for Pinnacle in Miami-Dade County — were also unsuccessful.
The Florida Housing Finance Corporation only recently instituted a lifetime ban against Carlisle Development Group after the low-income developer was found to have overstated construction costs in order to inflate its bottom line. The developer’s top executives were convicted of conspiring with Biscayne Housing Group partners to steal $36 million in federal housing subsidies by inflating construction costs and receiving kickbacks.
Miami Herald staff writer Jay Weaver contributed to this report.