For several months now, the U.S. Attorney's Office has been scrutinizing at least a dozen publicly subsidized developments located in one of the country's least affordable regions. Once focused exclusively on the abuse of federal tax credits, investigators are now casting a wider net and probing developments built with money from an array of federal and local sources, including millions in county bond money.
One project that caught their eye: a low-income apartment building for seniors in Miami's Shenandoah neighborhood developed and built by Related Urban Development Group, the affordable housing arm of the Related Group. Led by chairman Jorge Pérez, Related has reigned as the region's top luxury condo developer, but is also among the most prominent players in the affordable market, currently partnering with the county on the $300 million redevelopment of the county's largest public housing project, Liberty Square.
Still in the early stages, the federal investigation focuses on whether Related misrepresented construction costs through a wholly owned contractor and its subcontractors, and reaped profits that should have been returned to the county to spend on other affordable housing projects, according to sources familiar with the investigation. Prosecutors have empaneled a federal grand jury to gather records by subpoena, including one that was issued to the county this week seeking documents on Related's project and others built by different developers, which the Herald has not been able to identify.
In an interview with the Miami Herald, the Related Group's vice chairman, Adolfo Henriques, and the developer's lawyer, Mark Schnapp, acknowledged the existence of a federal investigation into the affordable housing industry in Miami-Dade. But they strenuously said Related was not a "target" of the probe.
"We are not a target of the investigation and that is really important," said Henriques, who before joining Related had held prominent positions in the local banking industry. "Given the events over the past several years, we understand that the government is and should be looking at the entire affordable housing sector. We're going to work with them on this matter."
In legal terms, Henriques' assertion is correct. But prosecutors are gathering evidence from the county and other entities to develop a possible criminal case against Related Group and other developers.
The Related Group has several projects in the works in the Tampa Bay region. The Tampa Housing Authority last year chose Related to lead its West River redevelopment of the North Boulevard Homes public housing site, a project that includes plans for more than 1,600 condos and apartments and nearly 200,000 square feet of retail and office space.
It also has traditional condo or apartment projects planned in St. Petersburg's Edge District, at the site of the former Tampa Tribune building on the Hillsborough River west of downtown and in the Gandy Boulevard area of Tampa just south of West Shore Boulevard.
The investigation comes years into a sweeping federal probe of Miami's affordable housing sector by the U.S. Attorney's office and FBI, which has already resulted in convictions of executives of Carlisle Development Group and Biscayne Housing Group, as well as a deferred prosecution against a subsidiary of Pinnacle Housing Group. Through it all, investigators have explored whether public money was misused or misappropriated by developers tasked with creating affordable housing in South Florida, where the cost of housing remains among the highest in the nation.
For years, authorities cracked down on abuses and fraud in the federal tax-credit program, dollar-for-dollar write-offs awarded by the state that developers sell to investors in order to finance the construction of their projects and lock in lower rents.
In the 2015 case of Carlisle and Biscayne, a handful of executives were convicted of inflating the costs of 14 projects to qualify for higher tax credits, then receiving millions in kickbacks from contractors that built the rental housing for less than what they reported. In the recent case of Pinnacle, an affiliate contractor was charged with stealing federal money by boosting the costs of four projects to secure higher credits. The contractor paid the U.S. government $5.2 million to settle the criminal case.
But in the aftermath of Pinnacle, investigators have expanded their interests to include federal grants and loans, and a $137 million pot of affordable housing money approved in 2004 as part of a county general obligation bond. They're also looking at whether some developers used wholly owned contractors and subcontractors to maximize and obscure profits.
Michael Liu, head of the county's public housing department, said the county has held discussions and meetings with the U.S. Attorney's office and is cooperating with its investigation.
"The focus of the conversations was wide-ranging, but primarily focused on low-income housing tax credits," he said, adding prosecutors referred "in passing to projects funded from other sources."
Liu declined to name any specific projects discussed with federal investigators.
The county's $137 million bond fund for affordable housing — drawn from its 2004 general obligation bond — is indeed a major source of interest to prosecutors and federal agents. The money was divided evenly among the county's 13 commissioners, each of whom received $10.6 million.
The money for Edificio Piñeiro, a 34-unit senior apartment complex at 1176 SW 20th Ave., was provided by Commissioner Bruno Barreiro with the blessing of his colleagues.
Related Urban Development Group built the U-shaped apartment complex in 2014 through a partnership with the Miami Beach Community Development Corp., a minority partner. It was originally planned as a rehabilitation project, but the building was too far gone. Related tore it down and built a replica with brand new amenities.
The project, originally budgeted at $7.6 million, was completed for about $6.7 million, including the price of buying the land, according to public records.
Public records show Related Group received $5.2 million in affordable housing bond funds.
Through the city of Miami, Related also received a $2.3 million federal Neighborhood Stabilization Program bridge loan and a $1.5 million federal HOME loan. The bridge loan was ultimately repaid from Related's county bond money.
Related Group developed the project using its wholly owned general contractor, Fortune Construction Co., at a cost of $164,000 per unit, according to its own figures. The developer's fee for completing the project, paid from county bond funds, was $1,027,226, worth close to 20 percent of construction costs. But according to sources familiar with the investigation, Related, Fortune or an affiliate of the developer kept hundreds of thousands of dollars in unspent public funds.
Investigators are focusing on the money kept by Related to determine whether it should have been returned to the county, rather than pocketed as additional profits. They're exploring whether Related, through its affiliated general contractor and its subs, padded the developer's costs to reap higher returns — similar to the scheme that led to the feds' sanctions against Pinnacle Housing.
Henriques, the vice chairman of Related, stressed that the company's per-unit costs are in-line, if not lower than, their competitors. He also noted that the project came in under budget.
"What I can say categorically is that all of the fees paid to Related Urban Development Group and its affiliates were completely appropriate," Henriques said. "We drew significantly less for this project than was actually allocated" by the Miami-Dade County bond program.
Asked if he could elaborate on the breakdown of funds and expenses by Related Group and its own contractor, Fortune, Henriques declined to provide details. Schnapp, the developer's attorney, said Related didn't want to get into specifics or talk about its discussions with prosecutors.
"They have every right to look at this industry. Since we're in this industry, we want to be as cooperative as possible," said Schnapp, a prominent white-collar defense lawyer with Greenberg Traurig, who previously worked as a federal prosecutor in Miami.
But public knowledge of an investigation into Related's conduct will nevertheless send shock waves in and beyond Miami's affordable housing industry.
Related Group is the most prolific developer in Miami's luxury real estate industry, a major component of the local economy. Since 2013, the firm has completed or started construction on more than 6,000 condo units in Miami-Dade and Broward counties, with another 1,000 proposed, according to Cranespotters.com. That accounts for nearly 20 percent of South Florida's latest building boom.
Chairman Jorge Pérez is a business partner with Miami Dolphins owner Stephen Ross. He is friends with President Donald Trump, and among Miami's most prominent philanthropists. His name is on Miami's new, publicly funded art museum.
Pérez got his start in low-income housing, and in recent years has begun to prioritize affordable projects, talking about them as his legacy. The affordable housing market also helped salvage his company following the Great Recession, during which Pérez managed to rescue Related from the brink of collapse by renegotiating at least $2 billion in debt with his banks.
Related Urban Development Group, a partnership between Pérez's Related Group and senior vice president Albert Milo's Urban Development Group, has built scores of low-income apartment units. The developer is currently in the midst of a massive effort to raze and rebuild Liberty Square, which is not among the projects of interest to investigators.
Liu, Miami-Dade's public housing director, said the county remains vigilant in reviewing its affordable housing program and is pursuing "common interests" with the U.S. Attorney's office.
"We certainly are monitoring the situation," he said, "and are very open and willing to cooperate with any formal investigations going on."
Information from Tampa Bay Times archives was included in this report.