Leader Blues

Monday, July 16, 2007

TOP STORY >>Air Force looks into developer shortfalls

IN SHORT: Privatization work has stopped at Little Rock Air Force Base and at other locations as military officials investigate construction delays.

Leader senior staff writer

While airmen from Little Rock Air Force Base put their lives on the line in 30-year-old C-130s in the skies above Iraq and Afghanistan, at home they are losing the battle with a Connecticut developer who seems unable to build and upgrade promised base housing for them and their families.

Work has stopped and the Air Force is investigating why American Eagle Communities LLC is months behind paying subcontractors to build new family housing at Little Rock and Moody Air Force bases. But it’s not yet ready to pull the plug.

Construction at Little Rock Air Force Base stopped May 7 for non-payment of contractors and suppliers, several months after work ceased at Moody for the same reason. Work is expected to stop within days at Patrick Air Force Base in Florida, according to Mike Hawkins, spokesman for the Air Force Center for Engineering and the Environment.

American Eagle Communities is also the developer at Patrick. American Eagle Communities is now about two years behind on the six-year Little Rock project, according to Brig. Gen. Sel. Rowayne Schatz, base commander.

The Carabetta family, either alone or as managing partner of American Eagle Communities, is the developer of four Air Force privatization projects—those three and one at Hanscom Air Force Base in Massachusetts. The Hanscom project has been plagued by delays, according to Hawkins.

Locally, at least two Jacksonville-area subcontractors have filed liens with the bonding company to get their money.
Austin Readimix is trying to collect “six figures” for the cement it delivered, money particularly important to his young business, according to owner Tommy Austin Jr.

“We’ve gotten a different story every time,” said Austin, who has unpaid invoices dating back to January. “They keep giving us false promises from the git-go,” he said. “The pay is slow, the paper trail takes 120 to 150 days to get your money,” he said.
JR Construction of Cabot is another subcontractor that has filed a lien with the bonding company. Efforts to reach a spokesman for JR Construction were unsuccessful.

Tom Brockway, project manager for American Eagle Communities’ Little Rock Family Housing, said he was only aware of the two companies so far.

Little Rock Family Housing has only a handful of new homes and a community center to show for American Eagle Communities’ grandiose promises in August 2004 to build or remodel 1,200 Little Rock Air Force Base homes. Brockway said he shut the job down for now to protect contractors and suppliers from further losses.

Brockway said he hopes to restart the job by September, using the same contractors. “By now we should have had 95 homes completed, we have 25. I have no reason to believe we can’t complete the job by 2011, but it’s not where I would like it.”

In addition to the 25 homes that have been completed and occupied, about 70 concrete slabs have been poured; the contract calls for 468 new homes and 732 homes remodeled by 2011.

Representatives from Ameri-can Eagle Communities LLC, a partnership between Carabetta Enterprises, of Meriden, Conn., and Shaw Infrastructure Inc. of Baton Rouge, are meeting late this week with the company that issued $102 million bonds toward the $127 million job, according to Brockway. So far, no one will say publicly where the problem is.

In 1996, Congress enacted the Military Housing Privatization Initiative as part of a growing desire to better address the needs of American service personnel and their families. The initiative was designed to remedy the problem of deteriorated military-owned housing and a lack of appropriate private housing.

There are currently 42 Air Force bases pursuing housing privatization options and about 76 percent of military housing is being completed through privatization.

10,000 HOMES
The Carabettas with Shaw, through their various limited liability companies, are committed to build or remodel about 10,000 homes on bases and installations around the country, and all four Air Force jobs have either shut down, will be shutting down or are having troubles paying contractors, according to Hawkins.

In 2004, American Eagle also was awarded the privatization contract for Beale Air Force Base, near Sacramento, but was dropped “due to some legal questions,” according to the base public affairs officer.

Carabetta also has privatization contracts with Ft. Leonard Wood in Missouri and Northwest Communities on Puget Sound.
Despite Carabettas’ 25-year history of bankruptcy, corruption allegations, unpaid contractors, slowly paid contractors, unfinished projects, unhappy partners and lawsuits, the Air Force determined that past performance was satisfactory for all four Carabetta/Shaw projects, according to Hawkins.

“By every meaningful measure, the Air Force housing privatization program is a huge success,” said Hawkins. “These difficulties are unique to this particular developer and are not found anywhere else in this very successful housing-privatization program.

“The cost to build and renovate the 1,200 units at Little Rock is $126.9 million, of which $102.4 million is sourced from bond financing and owner equity,” Hawkins said. “The remaining $24.5 million is in the form of a government direct loan, which to date has not closed or been disbursed.

“The housing-privatization program has allowed the Air Force to ensure availability of 10,781 units of quality, affordable housing for our military members and their families over the last eight years.

The Air Force has obligated $216.2M in direct loans instead of the $3.13B that would have been required had the units been constructed using traditional military construction funds. It has also meant that our people are in affordable, quality housing much quicker than if we were to pay for it with tax money and manage the construction ourselves. It’s a huge win for our men and women in uniform, their families, and the taxpayers.”

The project owner has received nothing for these projects, according to Hawkins. The construction company for each project gets approximately 4 percent of construction costs and the management company gets about 4 percent of the total rent revenue.

Hawkins said the Air Force is not ready to give up on American Eagle Communities yet.

“While project defaults are options, we see them as the last resort and it would be inappropriate for us to comment on their likelihood as we continue to work in good faith with all parties concerned,” Hawkins said.

He said the privatization projects were not traditional military construction contracts, but rather 50-year real estate transactions between the developers and the Air Force whereby the developers agree to offer privately owned homes for rent to military families in exchange for an initial government capital investment (conveying existing housing/land) and rental payments by military occupants of housing.

Each of the projects is a stand-alone project with different bondholders and financial structures. The impact and actions necessary to move the projects forward will be determined by the specific legal documents involved in those transactions, according to Hawkins.

“We work on a daily basis with the bondholders, the project owner, and other stakeholders to resolve the issues at hand as expeditiously as possible,” Hawkins said. The Air Force detected performance problems early and encouraged the bondholders to become more involved in the projects. As a result, the bondholders engaged the developer in performance discussions. Their past performance has been evaluated on several projects they have proposed since award of Little Rock, and it will be considered during evaluation of any proposals they submit for future military housing privatization projects, he said.

“The Air Force does have legal remedies,” Hawkins said, “but is not pursuing such remedies at this time.”

The Carabetta family, through its CEI Investment Corp. or through American Eagle Communities LLC, a partnership with Shaw Infrastructures, won privatization contracts for at least seven projects to own, demolish and replace some housing, remodel other housing and manage the property for members of the military and their families at bases from Florida to Puget Sound, Washington.

Shaw Infrastructures, Inc. is a subsidiary of The Shaw Group, a Fortune 500 company listed on the New York Stock Exchange as SGR. Shaw has a long history of Defense Department infrastructure jobs. According to its website, Shaw is involved in at least seven military housing-privatization contracts, about half of them in partnership with Carabettas.

Carabetta Enterprises, or CEI Investment Corp, says it has completed 150 housing developments nationwide, totaling 36,189 homes over the past 50 years.

A spokesman for American Eagle Communities and The Shaw Group didn’t return telephone calls for this story.