Most bureaucrats stay in their lane. They clock in, attend meetings, draft memos, and put public money to work in the meekest way possible. After 30Y of following their mandates to the letter, they hope to retire with a testimonial dinner and a more lucrative job lined up in the private sector. America is full of these faceless women and men.

But every once in a while, we get someone who reimagines the job. Someone who reads between the lines of always-been-done-this-way policy and sees substantial powers to be unlocked with some creative re-interpretation, someone who thinks, "why not?" Gerry Cichon is one such buccaneer. Over the past year and change, Cichon, the executive director of the Housing Authority of the City of El Paso (HOME), has been conducting one of the more audacious and under-the-radar experiments in multifamily: Via a new nonprofit entity, Sixteenth Floor Residential, HOME has acquired ≈ 2,000 units in places as far-flung as the Carolinas and Georgia. The portfolio, which according to announced deals and bond sales figures, could be worth $400M, represents a highly unusual form of CRE dealmaking: a public body flexing its bond fundraising and tax-exempt powers to cross state lines.👇

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A native of Michigan who grew up in Colorado, Cichon came to El Paso in '97, going to work as a felony prosecutor. He rose to be Chief Counsel for the Western District of Texas, before taking the top job at HOME in ‘08. Back then, the authority, founded in 1938 to provide low-cost public housing to El Pasoans, had been somewhat of a revolving door, w/ 9 chiefs in 10 years, per this testimonial. Cichon made the job stick; according to those who’ve met him, he has the kind of rizz you rarely see among his peers - but then again, Cichon is operating well outside the typical environs of housing authorities. Over the past decade, he grew HOME’s AUM from ≈$175M to $1.75B+ , per his bio, and the authority has announced it wants to keep expanding by 1,200 units/year. With that kind of appetite, Cichon felt the need to look outside state lines: HOME approved the formation of Sixteenth Floor last year, and off it went.

An affordable-housing vet who’s an OG Promote head tipped us off to Sixteenth Floor’s glorious acquisition run in May, sending over sale and loan information on one of its deals w/ the teaser: "Wild stuff." After doing some initial digging, The Promote shared its findings with Eric Dexheimer of the Houston Chronicle. Dexheimer, a veteran muckraker, filed an open-records request to get more info about Sixteenth Floor, but the entity insisted that it, unlike HOME, isn't required to disclose details of its business. Though it may be a distinct entity, it has more than a bit in common with HOME, as the Chronicle found.

* Its board is the same as HOME’s board of commissioners
* Both entities are run by Cichon
* They operate out of the same office
* They hold meetings together, at the same time and place

Sixteenth Floor didn't simply fund the deals out of its own nascent pockets. Several of them were financed by bonds issued by HOME, as well as by JEDA, a development authority out of South Carolina, according to meetings minutes from HOME (Insiders: See your sec. for the docs 🔒️ ). Speaking generally, public bodies can earn substantial fees on bond issuances and on structuring property-tax exemption deals, which have proliferated across the country and have recently come under greater scrutiny. The thing to note is that when you remove property taxes from the mix and have access to bond monies, you create the "lemonade stand" effect that we're written about WRT Traveling HFC deals – you can afford to get more aggressive on bids, b/c you're both able to wipe out one of the costliest line items and use the cheapest, most accountability-free form of OPM.

Take Otarre Pointe Apartments, a 299-unit joint in Cayce, SC. RAS Realty Partners paid $41.5M ($139K/ 🚪) for the property in '16. Earlier this year, Sixteenth Floor bought it for $61.5M ($206K/door), which it financed by issuing $71M in bonds alongside JEDA. (Catching the nonprofit-industrial wave can be lucrative for a canny operator; RAS principal Adam Heller touted a 19% IRR and a 3.8x EM on the deal.) After the Sixteenth Floor purchase, residents were informed that 75% of the units would henceforth be designated affordable. At the time, Cayce City Attorney James Smith said the city was not notified and had no say in the change, though he raised the specter of a legal challenge and said the move “would have a significant negative impact on the city, its operation, and on the larger community, who would be under pressure to deal with the tax revenue shortfall.”

Or Reserve at Wescott, which Sunroad Enterprises bought in April '21 for $47.3M ($164K/ 🚪 ) and sold to Sixteenth Floor for $57.8M ($200K/🚪) last December. $66M in bonds were issued to finance that purchase. Or The Lively at Victor, which Sixteenth Floor bought for $61M in June and financed through a $70M bond issuance. The ratings agencies have long been more-than-willing parties to such capers; S&P Global gave an A+ rating to recent HOME issuances.

Again, much here rhymes with what we’ve seen wrt Traveling HFCs: There, public entities deep in the boonies of Texas (Pecos County, Pleasanton) found themselves doing hundreds of millions worth of tax-exempt deals in major metros such as Dallas, Austin and Houston. Traveling HFCs were a hella lucrative hustle for consultants, attorneys and debt brokers who helped prop up hundreds of multifamily deals until the loophole was closed with extreme prejudice last May – and the Texas multifamily market is now in the thick of reckoning with the fallout.

Affordable housing is an incredible business to be in if you’re a certain kind of investor, one who can thrive within extreme complexity and grok the oft-perplexing nuances of public-private deals. We’ve seen so many dealmakers best known for flashier ventures find their way into it, from Ziel Feldman to the M&A legend J. Tomilson Hill. But this is the first we’ve seen someone get this creative while still in a bureaucratic seat. Could Gerry Cichon inspire fellow authority bosses to do the same?

A pass-through trust created by JCPenney creditors that controls the brick on 117 stores is taking the fight to a would-be buyer: Copper Property Trust alleges it was hoodwinked into accepting a “sham offer” for the portfolio. The would-be buyer, Onyx Partners, allegedly lied about its ability to close on the $934M deal, “buying time while they scrambled for funds behind the scenes.” The trust is also suing Onyx founder Anton Melchionda, per Bisnow, claiming he used the media to manipulate the narrative around the botched deal and misstated his personal financial position. Onyx’s shenanigans diluted the value of the portfolio and killed other potential deals, the trust, which is seeking $150M+ in damages, alleges. For its part, Onyx (slogan: “Investment Collaboration for Generational Solutions”) maintains it’s willing and able to close – in Dec., when its initial $947M deal to buy the portfolio collapsed, it had sued the trust alleging it secret-shopped the deal to other buyers and refused to deliver a clean tenant estoppel (basically, a clean bill of health from tenants re. their lease terms).

Fun fact: Gloria Steinem, the feminist icon who died Thursday, used to date Boston Properties founder Mort Zuckerman (MZ was quite the boldfaced cad in general, also dated DVF, Arianna Huffington, Nora Ephron)

Programming note: The Promote won’t be publishing all of next week, neither here nor on the pod. It’s time for a bit of R&R before the autumn action begins, because there’s going to be LOTS of that. Hope you have a beautiful holiday/s. We’ll see you back here 9/14. Ciao!