Castles for Welfare Kings

Come 2023, Rice Hotel redevelopers can own their federally assisted project for a cool $1,000

Welfare-reform rhetoric pervades the stump speeches of both Democratic and Republican politicians these days, as the public gets down on lazy poor people who don't work for a living. But one category of welfare recipient that has so far escaped much public scrutiny -- and any political outcry in Houston -- is the developer.

Houston Housing Finance Corporation is the enabler for the new breed of welfare kings and queens, having channeled millions into various and sundry commercial development projects. Those bear little resemblance to the HHFC charter mission: "To provide a means to finance the cost of residential ownership and development that will provide decent, safe, and sanitary housing at affordable prices for residents of local governments."

As documented in Brian Wallstin's continuing Houston Press series on the finances of Houston Renaissance, HHFC has pumped millions into the pockets of Fourth Ward redevelopers with little evidence that low-income residents of the area will benefit in the future. HHFC is repeating the feat with the redevelopment of the Gulfgate Shopping Center by Mayor Lee Brown's favorite developer/adviser, Ed Wulfe.

Perhaps the most spectacular example of HHFC's wayward corporate evangelism goes on display later this fall. The renovated Rice Hotel stages its grand opening to show off opulent ballrooms and hundreds of urban lofts partially financed through federal Housing and Urban Development Section 108 loans. The HHFC's great nod to average folks, as mandated by City Council, requires 20 percent of the lofts at the Rice to be rented to single people or couples with incomes of less than $49,000, or families of three or more with incomes of $53,000 or less. The figures are based on federal estimates of the average median income for families in Houston.

Project planners were wary that taking federal money might require them to include -- gasp! -- low-income people in their tenant mix. The city of Houston's special counsel, Cassie Stinson, queried HHFC chair Michael Stevens concerning a proposal to characterize the Rice as a "housing rehab" project rather than an "economic development project." Stevens, former mayor Bob Lanier's dollar-a-year housing honcho, had a blunt reply. "My concern is that somehow that characterization imposes some rent or other restriction on the building requiring low- or moderate-income residents, rent limits, future relocation or other issues. If none, okay by me."

The project was justified to the federal government as "a housing rehab project that will eliminate slum and blight conditions and assist in the establishment of a significant number of residents in the area." HHFC attorney Barry Palmer admitted in an opinion letter to city Housing and Community Development Director Margie Bingham that HUD could provide a loan, although "the use of Section 108 funds for the Rice Hotel redevelopment project would be novel and may require extensive negotiations between the City and HUD."

Austin-based John Henneberger, director of the nonprofit Low Income Housing Information Service, characterizes the Rice project as the gaudiest example to date of misuse of federal housing dollars. "When you look back at the history of many of the HUD programs, the real beneficiaries are the guys who build or develop the things and then 'flip' [sell] them," says Henneberger. "This is not very much about providing housing or economic development. It's more about developers doing deals, and smart, politically well-connected guys getting into the public trough to get their deals funded."

The federal loan money -- $5.4 million in the initial drawdown -- is routed through a chain of guaranteed loans from HUD to the city to HHFC to reimburse money spent on the project. Rice Lofts Limited Partners, which is an alliance of Post Properties and Randall Davis, leases and operates the Rice. Since the original loan request was for more than $7 million, it's uncertain how much more the feds will approve beyond the initial drawdown.

The federal loan is to be repaid by increased tax revenues generated by the Market Square Tax Increment Reinvestment Zone. Taxes will be rebated by the city, the county and the Houston Independent School District. The hotel deed is controlled by the Houston Redevelopment Authority, a nonprofit subsidiary of the HHFC.

Davis launched the Rice redo, having sold Lanier on the idea in 1995, but he is putting little in the way of serious cash into the deal. That's provided by Atlanta-based Post Properties, which purchased Davis's original partner, Columbia Real Estate Investment Trust.

Davis has developed other loft projects, including Hogg Palace and Dakota Lofts, and is currently under fire from former president George Bush for planning a high-rise overlooking the Bush Tanglewood home. Although HHFC owns the Rice, Rice Lofts has a 41-year lease on the hotel with a grand rental fee of $1,000 yearly for those four decades. After the hotel is fully leased, Davis estimates it will generate $4 million in income and a profit of $2 million annually.

And come December 31, 2022, Rice Lofts Limited will have a hell of a deal to ring in the New Year. According to the terms of its lease with HHFC, Rice Lofts has the right to purchase the deed to the hotel for $1,000 in cash. Perhaps the HHFC board thought they were playing monopoly when they cut this deal.

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