By Chris Lane
By Jeff Balke
By Aaron Reiss
By Angelica Leicht
By Dianna Wray
By Aaron Reiss
By Camilo Smith
By Craig Malisow
Sometime this year the investigation of Houston Renaissance, Inc. by the Texas Attorney General will have run its course and an opinion will be rendered on whether the publicly funded nonprofit charged with redeveloping the Fourth Ward engaged in consumer fraud.
Presumably the A.G.'s findings will explain, once and for all, why an organization given a blank check to rebuild more than one million square feet of coveted near-downtown real estate couldn't break ground on a single house. Beyond that, only one question truly matters:
Will the Houston Housing Finance Corp., which took over the project almost a year ago, succeed where Houston Renaissance failed?
HHFC's primary mission is to complete the deal Renaissance made with the city in 1997, when, in exchange for a $3.4 million grant, the nonprofit promised to deliver 350 single-family houses in the Fourth Ward for low- and moderate-income buyers. That figure was later reduced to 150, but to make up the difference, Renaissance was expected to convey enough land to the Housing Authority of the City of Houston for another 250 affordable homes, which are required under the terms of a $21 million grant from the federal government.
HHFC must also recoup more than $8 million the agency invested with Renaissance through the sale of property to builders of market-rate housing.
To ensure the required amount of affordable housing is built in the Fourth Ward, while recovering its investment in the project, HHFC's job is threefold. First, it must convey 390,000 square feet of land, at a sale price of $3 a foot, to the Fourth Ward's community-based nonprofits. Second, it must sell about 200,000 square feet to the housing authority, which has agreed to pay HHFC no more than $5 a square foot. Finally, HHFC must unload around 621,600 square feet to market-rate builders, who are being asked to submit minimum bids of $16 a square foot.
To date, however, HHFC has not sold a single piece of land for affordable housing. Transactions with four church-based nonprofits to purchase land for 156 affordable houses have been pending since last summer. While those organizations have negotiated agreements with builders and mortgage lenders, they have yet to sign up any home buyers, a necessary condition before HHFC will part with the land.
While the housing authority has bought property in the Fourth Ward for 50 rental houses and a 100-unit apartment complex, the agency has yet to secure any land from HHFC for so-called homeownership units.
Ernest Etuk, executive director of the housing authority, says his agency is negotiating with HHFC to buy land for 35 affordable houses. But the land needed to build the other 215 homes may be too expensive.
Indeed, property values are soaring throughout the Fourth Ward. The construction of town homes and apartment complexes continues at a rapid rate in the area immediately surrounding the redevelopment project. For example, Perry Homes owns about four blocks along West Gray, the southernmost border of the project, and is busy selling houses that haven't even been built yet.
Etuk says the housing authority is hopeful it will be able to help HHFC meet its affordable-housing requirements, while carrying out its own obligations. But his agency eventually may have to build elsewhere.
"Our objective is to develop affordable housing in the Fourth Ward" Etuk says. "But it's no secret that market conditions are changing very rapidly, and we're just not going to commit to spending taxpayer resources that we know are not there, and that's why we're very careful in terms of making those commitments."
Jeff Smith, HHFC's executive director, acknowledges that because the housing authority won't be able to buy all the land it needs, HHFC likely won't be able to follow through on Renaissance's vow to provide 400 affordable houses in the Fourth Ward.
"I understand they have the budget to buy land, but we just have to work through how we do that," Smith says. "I'd like to think we can find some common ground relative to price."
That may be possible, but the current market's impact on the affordable-housing promises Houston Renaissance made more than three years ago illustrates the difficulty of remaking a community in a particular image.
Moreover, for the "mixed-income" concept of the Fourth Ward project to succeed, it will have to overcome a well-established trend in the residential market, says Pat O'Connor, a real estate appraiser and consultant.
"I think there is a tendency for people to like a homogeneous environment, especially where they live," O'Connor says. "That's one reason why the master-planned communities have been so successful."
But HHFC's problems so far also underscore how badly Houston Renaissance, which touted itself as uniquely qualified to carry out such a complex and politically volatile real estate project, botched the Fourth Ward redevelopment, which may be beyond anyone's power to salvage.
When Houston Renaissance made its pitch to City Council in October 1996, the group had its eye on $7.4 million in federal economic-development grants, plus an equal amount of so-called Section 108 loan guarantees. By the following spring, however, it was clear the federal funds were not going to materialize -- an unfortunate development, since the city had advanced Renaissance $3.4 million to begin buying land.
In retrospect, the Fourth Ward project probably should have been shelved at that point, pending another stab at federal funding. Instead, then-mayor Bob Lanier, through his $1-a-year housing adviser, Michael Stevens, urged Renaissance to seek bank financing for the project. In the meantime, Stevens, who was president of HHFC at the time, started lending Renaissance large chunks of HHFC's cash to fund additional land purchases and to cover the nonprofit's operating costs.
By the end of 1997 Renaissance owned more than 1.1 million square feet in the Fourth Ward, purchased at roughly $5 a foot. And after nearly two years of distrust and animosity, Renaissance and a group of Fourth Ward ministers managed to put aside their differences to complete the long-awaited master plan for the project.
It was all downhill from there. In January 1998 Renaissance lost its political cover when Lee Brown replaced Lanier as mayor. Not long after, Renaissance abandoned its attempt to get bank financing, meaning the nonprofit's bills became the permanent responsibility of HHFC.
In September 1998, while Renaissance continued to rack up enormous administrative costs while doing little to advance the master plan, Brown ordered an audit of the organization's $3.4 million grant. A month later the state attorney general's office announced that, in response to a complaint, it was initiating an investigation into alleged deceptive trade practices, as well as possible violations of the state nonprofit corporations act by Houston Renaissance.
Both the city's audit and the state's investigation were likely inspired by Renaissance's cavalier spending habits, which were not merely excessive but were geared toward lining the pockets of board members.
In November 1998 the mayor's office published the findings of its audit. Brown's chief administrative officer, Al Haines, who authored the report, acknowledged that Renaissance's effort was "rife" with problems, including the weak organizational skills of former executive director Bob Boyd, whose $240,000-a-year salary was "perceived as excessive."
Still, Haines was intent on being optimistic. His report reiterated Brown's support of the project and placed much faith in new executive director John Walsh's "detailed plan" to move the project forward.
As it turned out, that faith was misplaced. In February 1999, after less than six months on the job, Walsh quit, having accomplished nothing except spending another $600,000 of HHFC's money. A month later Renaissance's board of directors agreed to dissolve and turn the project over to HHFC.
Since taking over the project, HHFC has been continually dogged by Renaissance's missteps. One of its first actions was to commit another $2.7 million toward "project development." More than $500,000 of that has already been spent paying off contractors, including a total of $50,000 to former executive directors Walsh and Boyd. HHFC also found itself stuck with a $160,000 bill from Mayor, Day, Caldwell & Keeton, which is representing Renaissance in the A.G.'s investigation.
Not surprisingly, Renaissance's huge debts are now making it difficult for HHFC to carry out the affordable-housing component of the Fourth Ward project. Those debts also put HHFC at the mercy of private developers, who must be persuaded to take a chance on the Fourth Ward if HHFC is to recoup its investment in Houston Renaissance, which is now about $8 million and counting.
With the booming real estate market and the desirability of land so close to downtown and Midtown, one might expect buyers to be clamoring for a piece of the action. But efforts to promote market-rate housing have not inspired a stampede.
The agency has sold just two lots, netting about $160,000, to the developers of a Best Western planned for the 900 block of West Dallas. The only other serious offers have come from apartment developers Camden Property Trust and loft developer Randall Davis, who wants to renovate an existing building into a retail center. Those deals would be worth about $2.5 million to HHFC.
Smith acknowledges that getting the right mix of affordable and market-rate housing in the Fourth Ward is tricky, but he's not too worried about the slow pace of market-rate sales yet.
"We realize that may take some time. Our key thing is doing everything we can to get the affordable housing started. The market, we think, will take care of itself."
Smith believes the affordable housing will take care of itself as well -- once the church-based groups are able to start signing up buyers. When that will be is anyone's guess. First the city has to finish preparing the land for construction, including deciding on the location of utility hookups.
Such delays are almost inevitable in the wake of Houston Renaissance.
"We're just trying to do the best we can with the cards we were dealt," Smith says.
E-mail Brian Wallstin at email@example.com.