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Audit criticizes Pinellas County's handling of land deal

Pinellas County loaned Crest Capital LLP $3.4 million to buy land in the Greater Ridgecrest area near Largo to build townhomes. Nothing was ever built and the county has not been repaid.

JIM DAMASKE | Times

Pinellas County loaned Crest Capital LLP $3.4 million to buy land in the Greater Ridgecrest area near Largo to build townhomes. Nothing was ever built and the county has not been repaid.

LARGO — An internal audit accuses Pinellas County of loaning a local company several million dollars to buy property without properly vetting the buyers and the project they planned to build.

The audit by the county Inspector General Division charges that the county's Community Development Department:

• Didn't make sure the development team had the financial wherewithal to turn a scrap yard into a townhome community with affordable homes.

• Approved the transaction even though one member of the development team was affiliated with both the buyer and seller.

• Financed the purchase without ensuring the sales price accounted for problems on the property.

Community Development director Anthony Jones insists the county did nothing wrong.

"We did the best we could at the time," Jones said Thursday. "Hindsight and seven years give you a different perspective. We followed all the policies and procedures in place at that time."

Seven years ago, the county, hoping to boost the supply of affordable homes, loaned Crest Capital LLP $3.4 million to buy land in the Greater Ridgecrest area near Largo. The money came from state affordable housing funds.

Crest planned to build 200 townhomes, 40 of them affordable, on the 18.4-acre property owned for three decades by Terra Excavating,

Nothing was ever built, and Pinellas is still out $3.4 million, with no certainty of being repaid.

The whole transaction was "questionable," according to the audit by the Inspector General Division, an arm of the Pinellas County Clerk of Courts Office.

Agreements between Crest and the county were signed by Tierra Verde businessman George Farrell. His partner at Crest, Nick Kotaiche, was also an executive with Terra Excavating. Because Kotaiche was on both sides of the deal, it wasn't an "arm's length transaction," the report says.

The community development department also didn't do enough to make sure Farrell and Kotaiche had the experience and financial ability to deliver, the audit adds.

The original development agreement was with the property owner, Terra Excavating. But the loan was approved and granted to Crest. The project went from a company that "had assets and staffing experienced in construction, to a newly formed entity with no assets and little to no experience in construction," the report said.

The sales price also was not proper in light of possible environmental and stability problems on the site, the report stated. In 2004, the county property appraiser set the market value at $492,700. The same year, an appraisal requested by Terra set the value at $3.4 million. But that was contingent on the site being "contamination free" and "completely filled, leveled and stabilized," the report said.

A condition study released three weeks after the closing showed the site had problems from its use as a landfill and borrow pit. It could cost as much as $10 million to fix and stabilize the property, according to Crest.

Jones, the community development director, defended his department's actions. He informed the inspector general that his team was "confident with the level of due diligence performed."

Jones said his department was content with the project because NDC Construction Co., a highly qualified builder, was involved.

"The project changed dramatically along the way. At the time, there were competent players that could take this forward," Jones said.

Jones also said that Kotaiche fully disclosed his involvement in both Terra and Crest.

For unrelated reasons, the department no longer does this type of loan. Instead, properties become part of the county's Community Land Trust and are not owned by developers.

County commissioners have had little time to review the report, which was released late Wednesday, but a couple offered brief comments.

"I think it would be good for the commission to take a closer look and make sure those procedures are improved and that nothing like this can happen again," said Commissioner Nancy Bostock.

Commissioner Norm Roche said he was shocked to discover the market value was set at $492,700 in 2004, but the land sold for $3.4 million that year.

"That was such an obvious discrepancy," Roche said.

In July 2010, with work still not started on the project, the county won a civil court judgment against Crest for $3.4 million plus interest. Crest never paid and the county never foreclosed on the property.

The county didn't try to buy the land when the property was up for auction in a tax deed sale in September. The county still believes it has a lien on the land, which was purchased at the sale by Green Energy for North America LLC for only $133,600.

Lorri Helfand can be reached at [email protected] or (727) 445-4155.

Audit criticizes Pinellas County's handling of land deal 12/15/11 [Last modified: Thursday, December 15, 2011 11:07pm]
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