In 2014, the East­ern Cred­it Union board of di­rec­tors de­cid­ed to pur­chase 16 acres of land in Va­len­cia to pro­vide af­ford­able hous­ing for their mem­bers.

The cred­it union paid $5 mil­lion for that land.

They then forked out an ad­di­tion­al $4 mil­lion for some ar­chi­tec­tur­al draw­ings that were said to be for the land.

The prob­lem is it has since been dis­cov­ered that the draw­ings had noth­ing to do with the land.

And as a re­sult, in its most re­cent fi­nan­cial state­ment, it was de­cid­ed that the $4 mil­lion would be writ­ten off re­sult­ing in part in the cred­it union’s net sur­plus falling by 75 per cent when com­pared to the pre­vi­ous year.

A fea­si­bil­i­ty study on the land has al­so shown that not even the best hous­ing de­vel­op­ment op­tion pro­vid­ed for the land will be prof­itable.

To break even they would have to sell three bed­room hous­es for $2 mil­lion and town­hous­es for $1.35 mil­lion.

The name se­lect­ed for the de­vel­op­ment was straight­for­ward enough “Las Vivien­das” the Span­ish phrase for “The Hous­es.”

But noth­ing else with the trans­ac­tion has been as straight­for­ward.

In his pres­i­dent’s mes­sage in the cred­it union’s 2020 an­nu­al re­port Richard No­ray gave the lat­est twist in the de­vel­op­ment’s con­tro­ver­sial his­to­ry.

“Fi­nal­ly, the sur­plus for the year 2020 has been im­pact­ed neg­a­tive­ly be­cause of sev­er­al fac­tors. How­ev­er, we have at­trib­uted the div­i­dend de­crease ma­jor­ly to the COVID-19 pan­dem­ic and the write off of the ar­chi­tec­tur­al draw­ings cost for the po­ten­tial hous­ing de­vel­op­ment known as Las Vivien­das,” No­ray stat­ed.

“It was quite con­cern­ing to learn that the price that was paid for that draw­ing was al­most equiv­a­lent to the price East­ern Cred­it Union paid for the land it­self. The rea­son for the ar­chi­tec­tur­al draw­ings write-off, was part­ly be­cause a fea­si­bil­i­ty study com­mis­sioned by the Board of Di­rec­tors con­clud­ed that the orig­i­nal draw­ings could not work on the land and even with ad­just­ments to the orig­i­nal plans there was a low like­li­hood of a prof­itable out­come. The au­di­tors there­fore, hav­ing read the fea­si­bil­i­ty study, ques­tioned the val­ue at­tached to the orig­i­nal draw­ings,” No­ray stat­ed.

No­ray said that based on the fea­si­bil­i­ty study and the queries from the au­di­tors the board de­cid­ed that the cost of the draw­ings should be writ­ten off or charged against the rev­enue as a loss.

“That re­duced ECU’s sur­plus by the ex­tent of the price paid for the draw­ings. The net re­sult­ing ef­fect of that was the sur­plus had to be re­duced by $4 mil­lion dol­lars. There­fore, the per­cent­age div­i­dends we would have pre­ferred to pay out this year could no longer be paid out,” he stat­ed.

New draw­ings are now re­quired, ac­cord­ing to the fi­nan­cial state­ment.

A price tag for this has not been re­vealed as yet.

In Jan­u­ary 2016, ECU’s then au­di­tors ruled that fol­low­ing an in­ves­ti­ga­tion there were no ir­reg­u­lar­i­ties in the pur­chase of Las Vivien­das.

ECU’s cur­rent au­di­tors are Price­wa­ter­house­C­oop­ers.

In an in­ter­view with the Busi­ness Guardian ear­li­er this month No­ray said he was “hurt” by the en­tire Las Vivien­das or­deal.

“So it was a blow to me but I had to ex­plain to them in the man­age­ment ad­dress that we were com­pelled to do that be­cause it was the cor­rect thing to do in ac­counts,” No­ray stat­ed.

Last April, Acuitas Caribbean Ltd did a fea­si­bil­i­ty study on the Las Vivien­das project to de­ter­mine “the high­est and best use” of the prop­er­ty.

The de­f­i­n­i­tion of high­est and best use is as fol­lows: “The rea­son­able, prob­a­ble and le­gal use of va­cant land or an im­proved prop­er­ty, which is phys­i­cal­ly pos­si­ble, ap­pro­pri­ate­ly sup­port­ed, fi­nan­cial­ly fea­si­ble, and that re­sults in the high­est val­ue.”

“Acuitas is ISO 9001 cer­ti­fied, and our con­sul­tan­cy ser­vices are ‘process dri­ven’ and in com­pli­ance with in­ter­na­tion­al best prac­tices; there­fore, our method­ol­o­gy to es­tab­lish the ba­sis for de­ter­min­ing ‘the high­est and best use of the prop­er­ty’ is in keep­ing with ac­cept­ed pro­ce­dures in the in­dus­try.”

Acuitas stat­ed that they analysed the fea­si­bil­i­ty of the project in the con­text of what is legal­ly per­mis­si­ble, phys­i­cal­ly pos­si­ble, fi­nan­cial­ly fea­si­ble and most prof­itable.

“This pre­lim­i­nary fea­si­bil­i­ty study in­cludes a de­tailed re­view of the doc­u­ments con­tained in the de­vel­op­er’s project file, a re­con­nais­sance site vis­it, dis­cus­sions with rep­re­sen­ta­tives of the statu­to­ry ap­proval bod­ies, con­sul­ta­tions with re­al es­tate bro­kers, prepa­ra­tion of priced Bills of Ap­prox­i­mate Quan­ti­ties, prepa­ra­tion of prof­itabil­i­ty spread­sheets and the prepa­ra­tion of a project risk as­sess­ment.

“Our analy­sis shows that on­ly one of the op­tions out of the ten sub-di­vi­sion lay­outs pre­vi­ous­ly iden­ti­fied by the de­vel­op­er will com­ply with the cur­rent Town and Coun­try Plan­ning Di­vi­sion (TCPD) guide­lines and con­di­tions.”

The Acuitas team al­so added four ad­di­tion­al op­tions for con­sid­er­a­tion all of which they be­lieve will like­ly ob­tain TCPD ap­provals un­der the same guide­lines and con­di­tions.

Op­tion 1: Sub-di­vi­sion lay­out ap­proved by the TCPD dat­ed 7th Ju­ly 2010 with a 6,500 square foot lot size.

Op­tion 2: Sim­i­lar sub-di­vi­sion lay­out as Op­tion 1, us­ing a small­er lot size of 5,000 square feet for the sin­gle-fam­i­ly dwelling units.

Op­tion 3: Sub-di­vi­sion lay­out with town­hous­es on­ly.

Op­tion 4: Sub-di­vi­sion lay­out in ac­cor­dance with Op­tion 1 but land de­vel­op­ment (on­ly). No hous­ing units.

Op­tion 5: Sub-di­vi­sion lay­out in ac­cor­dance with Op­tion 2 but land de­vel­op­ment (on­ly). No hous­ing units.

Acuitas stat­ed that the main con­clu­sions aris­ing from its study are that none of the five op­tions iden­ti­fied are prof­itable.

The best-case sce­nario ac­cord­ing to Acuitas is that Op­tion 3 (Town­hous­es on­ly) in­curs the low­est loss at sev­en per cent.

Acuitas stat­ed that “den­si­ties that are high­er than the ap­proved TCPD con­di­tions will im­prove prof­itabil­i­ty.”

“The break even point for Op­tion 1 re­quires un­re­al­is­tic sell­ing prices,” it stat­ed.

It stat­ed that the over­all project risk pro­file is at a Mod­er­ate Risk Sever­i­ty Lev­el.

“Notwith­stand­ing the con­clu­sion that none of the five op­tions are prof­itable, there are some valu­able ‘lessons learnt’ which arise from the study,” Acuitas stat­ed.

Among those are that the de­vel­op­ment must be “process dri­ven” in keep­ing with the stan­dard guide­lines ac­cept­ed in­ter­na­tion­al­ly for de­ter­min­ing the “high­est and best use” of the prop­er­ty.

And that the de­vel­op­er should on­ly con­sid­er op­tions that first sat­is­fy what is “legal­ly per­mis­si­ble and phys­i­cal­ly pos­si­ble”.

“There are prof­itable sce­nar­ios for the project, but these are at sig­nif­i­cant­ly high­er den­si­ties than the cur­rent TCPD con­di­tions al­low,” it stat­ed.

“From our ex­pe­ri­ence, the TCPD ap­provals al­so vary de­pend­ing on whether the de­vel­op­er is a pri­vate sec­tor en­ti­ty or a pub­lic sec­tor en­ti­ty, such the Hous­ing De­vel­op­ment Cor­po­ra­tion (HDC). HDC projects tend to be grant­ed ap­proval with high­er den­si­ties than would typ­i­cal­ly ap­ply to a pri­vate de­vel­op­er.

“We have gath­ered from the files that the de­vel­op­er was con­sid­er­ing a part­ner­ship with the HDC and some of the op­tions re­flect a high­er den­si­ty, typ­i­cal­ly en­joyed by the HDC. How­ev­er, none of these op­tions were for­mal­ly ap­proved by the TCPD,” Acuitas stat­ed.