Houston's Housing

"You can call anything that complies with HUD rents low-cost housing," Nichols says. "Unfortunately, most of the working poor in this city still cannot afford those rents."

If Lanier's statement at Winwood Club had actually meant something -- if when he boasted of "local authorities ... flexibility to implement programs based on our own special knowledge of local needs" he had been talking of adjusting national poverty standards to take into account Houston's realities -- then it's unlikely people such as Nichols would be so unhappy with the outcome of the RTC purchases. Housing advocates are also critical of the city's decision to tear down about 500 units at two of the complexes it bought from the RTC. The city plans to market the land for the development of 100 new single-family houses that will sell for $75,000 to $80,000, a price well out of the reach of people who are low-income wage earners.

"That's incredible," says John Henneberger, director of the Texas Low-Income Housing Information Service, which has kept an eye on the RTC program statewide. Henneberger and other affordable housing advocates say that while the city may be toeing the line legally, there's no question that it has violated the spirit of a law intended to turn taxpayers' liabilities into vehicles for public benefit.

The RTC's affordable housing program, insists Henneberger, was designed for public agencies and nonprofits who, after acquiring a property for as little as 30 percent of market value, "would act in a sense of public purpose." For that reason, sales to private investors, who would naturally raise rents to improve their cash flow, were discouraged.

"Nobody anticipated having a city go in and buy the property and flip it to some for-profit that's not standing in line [behind nonprofits]," Henneberger says. "One, it's unfair to nonprofits and two, it's a rip-off of the affordable housing aspects of the program."

Letters, memos and contract documents obtained through the Texas open-records act show that the city had dollar signs in its eyes even before it bought its first RTC complex. And, despite public comments to the contrary, increasing the low-cost housing stock was not a priority. Instead, the city followed a basic real-estate principle -- buy low and sell high -- to the take advantage of an agency caught between the contradictory goals of trying to recoup as much money as quickly as possible while helping the poor.

Insofar as the city met its goal of realizing huge profits from the RTC program, it can thank the private consultant hired to handle the deals: Wayne Duddlesten, a Lanier friend who has been a major contributor to the mayor's campaign treasury.

The city contracted with two Duddlesten-owned companies for a dizzying array of responsibilities related to the RTC properties, the scope of which would probably make most private-sector business people more than a little nervous. Duddlesten's firms inspected the properties, determined the extent of repair needed, managed that repair, managed the operation of the complexes while the city owned them, prepared cash-flow data for prospective buyers, and then evaluated the offers and recommended the top prospects to the city. The city also gave them an exclusive deal to market the properties and broker the resales. Duddlesten's construction company, Cornerstone, did the repairs funded by the city.

In return, the city has paid Duddlesten some $1.8 million in fees for operations and construction management services. He has also been paid commissions and "consulting fees" totaling about $226,000 by the city and the RTC for brokering the various properties' purchase and resale.

Duddlesten continues to be paid by the city for managing one complex that hasn't yet been resold. And Insignia Management Group, a South Carolina firm Duddlesten merged with last year, is managing four of the RTC complexes that were sold to a Los Angeles investor. Cornerstone is also in charge of a $3.5 million renovation at one of those complexes.

As one might expect, "possible conflict of interest" is not a phrase that springs to the lips of city officials when discussing Duddlesten. Perhaps in some cities, handing major real-estate transactions to someone who's only accountable to the elected official whose campaigns he's helped bankroll would generate concern. But Bingham, the city's director of community development, says that Duddlesten and companies took to the task like the pros they are.

"The Duddlesten people were leery of federal programs, but I like to think we trained them well," says Bingham, whose office oversees the contract with Duddlesten. "They didn't want to put a lot of effort into learning all the rules and regulations. But they got in and found out it wasn't as bad as they thought. You can do affordable housing, and you can make money doing it."

For Duddlesten, that's nice. For the working poor the RTC program was designed to help, the advantages are less clear. The RTC's affordable-housing program dates back to the agency's creation in 1989, but then the agency learned that private investors were buying foreclosed homes and apartment complexes for pennies on the dollar, then reselling them for huge profits. So in 1991 the program was fine tuned, with changes designed to guarantee that RTC properties would be made available first to public agencies and nonprofits that, it was assumed, would keep and maintain them for low-cost housing.