Two years ago, on a fine summer day, Mayor Bob Lanier herded President Bill Clinton and Vice President Al Gore out Interstate 10 to the Winwood Club Apartments, off Dairy Ashford Road on Houston's western edge.
The mayor was taking the visiting dignitaries there both to score a few political points and to make a show of the city's commitment to some of its poorest and most needy residents. Winwood Club -- an impressive place with an atrium-windowed facade, an abundance of big, leafy trees and two swimming pools -- was one of several apartment complexes around the city that had been taken over by the Resolution Trust Corporation, the agency Congress had set up to sell the assets lost to foreclosure during the collapse of the savings and loan industry.
But the RTC wasn't simply about marketing real estate; it was also about using the property that had fallen into government hands to the public advantage. The centerpiece of the RTC's social conscience was the Affordable Housing Disposition Program, which gave public agencies, such as a city or local housing authority, or a nonprofit organization first dibs on RTC assets. The notion was that such a group would buy, for example, an apartment complex such as Winwood Club from the RTC with little money down at a fraction of the complex's market price. If repairs were needed, the necessary financing would come from the RTC or federal Community Development Block Grant funds. Then, according to a congressional mandate, at least 35 percent of the complex's units would be set aside with rent restrictions to provide affordable housing for the working poor.
It was a simple tradeoff: the federal government would get less money than it probably would if it sold the RTC property to the highest bidder, and in exchange for that sacrifice, the buyer would help the public out by offering low cost housing. To Lanier, it sounded like what he calls "Baytown economics," a professional philosophy named after his hometown: if you can buy existing property cheap, it beats having to spend more to build from scratch. As a man who recognizes a good business deal when he sees it, Lanier was pleased to take advantage of this one. Under his auspices, the city bought ten RTC apartment complexes, Winwood Club among them, between November 1993 and September 1994.
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On that summer day with Clinton and Gore, before the first property had been closed on, Lanier made a pronouncement that was supposed to capture the spirit of what the city was trying to do. "The single most important thing we can do to enhance the availability of affordable housing," Lanier said at Winwood Club, "is to grant local authorities the financial means and the flexibility to implement programs based on our own special knowledge of local needs. The RTC's program accomplishes that."
Nice rhetoric. But in retrospect, it appears that rhetoric is all Lanier was spouting. The city bought 3,021 apartment units from the RTC, and agreed to set aside more than 2,000 of those for low-income Houstonians. But shortly after the ink had dried on the deeds, the city added an unprecedented twist to the RTC program: it sold seven of its ten properties to private investors. The city reaped more than $9 million in profits on the resales. Meanwhile, the new owners of the complexes have raised the rents on most of their units, on average, 10 percent. In some cases, the bump in rents has been as much as 20 percent. And the city hasn't been the only one to benefit from the RTC's fire sale. Wayne Duddlesten, a close friend and real-estate crony of the mayor's, helped broker many of the city's resales, something that brought him more than a quarter of a million dollars in fees. And that's not counting the nearly $2 million his companies were paid for other services related to the RTC properties. For Lanier and Duddlesten, the RTC has proven a real-estate man's dream. For the city's working poor, the RTC deal has been a dream as well. Only for the poor, it's a dream in the sense of something that sounds good, but disappears in the harsh light of day -- a promise that turns out to be not quite real.
That, of course, is not at all how Lanier and Houston housing officials would describe the city's dealings with the RTC. They argue that even after the increases in the properties' rents, they still fall within the federal affordable housing guidelines, which are the guidelines followed by the RTC. And they have a point: according to those guidelines, which are set by the U.S. Department of Housing and Urban Development, a family of two with a net income between $18,100 and $29,000 can qualify for the RTC set-asides. And as Margie Bingham, the city's director of housing and community development, notes, "There are a lot of people out there in that category."
But that's apparently the problem. What constitutes "working poor" to the federal government may have little to do with what Houston's working poor are all about. Housing advocates and real-estate analysts point out that in many cases, the average rent for an apartment in Houston is less than the maximum rent allowed under the HUD guidelines. According to Paul Nichols, owner of a property management firm and chairman of the board for the nonprofit group, Houston Interfaith Housing, that fact makes "low-income housing" a relative term that more often than not means nothing.
"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.
"The whole idea," says Marty Leary, a former staffer at the Southern Finance Project, a nonprofit group that helped draft the program, "was that as long as it was taxpayer money, something should go back to the taxpayer."
Still, even after it was refined, the Affordable Housing Disposition Program was never intended to provide subsidized public housing. Instead, at a time when federal, state and local money for such needs were drying up, it aimed to increase housing options for the working poor.
These are men and women earning not much more than minimum wage. Or single parents and down-on-their luck families struggling to support their children. In other words, people who could be living up the street one day and on it the next.
People such as Shelley Whitfield, for example. A year ago, Whitfield finally left her abusive husband, walking out with her three small girls in tow. She made a few calls to friends and family, but it was 4 a.m. and no one offered to take them in. After sleeping in her car, she packed the kids off to school and found a shelter, where they stayed for a month. They then moved to Star of Hope, a transitional housing center downtown.
Whitfield has been steadily employed, first as a telemarketer, now as a bank teller. But despite that, she and her daughters have been unable to find an affordable apartment. Desperate at one point, she visited a public housing site, but turned around and walked out. "It's not," she says, "something I would move my children into."
So Whitfield stays at Star of Hope, just as Vanida Lyons, a 24-year-old receptionist, has been staying at the SEARCH homeless agency since leaving her husband last year. She's applied for public housing, but she's not hopeful of getting it: she's on a list of 10,000 people waiting for one of the city's 4,443 subsidized units to become available.
In Houston, like in many places, the numbers of those without a place to live have become almost impossible to take to heart: 10,000 homeless; 150,000 doubled up with friends or family. And those are 1990 numbers. Shelter workers say the problem has gotten worse, with fewer and fewer of the thousands who pass through their doors the drunks, drug addicts or mentally ill they're often imagined to be and more of them being like Whitfield and Lyons -- working people making $12,000 to $15,000 a year who are struggling to find an afford place to rent.
This is not a new problem to Houston's housing officials. The city's Comprehensive Housing Affordability Strategy, a long-term housing plan published last year, noted that 28 percent of Houstonians make less than $15,000 annually. The number of people living in poverty may have nearly doubled since 1980, but the low-cost housing shortage is more accurately understood when one realizes that eight of ten renter families "experienced cost burden," a phrase meaning they spent more than 30 percent of their net income on rent and utilities.
Lanier claims that his administration has attacked the housing problem faced by the working poor by adding 5,000 low-cost, privately owned housing units a year through acquisition and rehabilitation, compared to about 400 a year that were added under the previous administration.
Those numbers, however, have been disputed. And that Lanier points to the RTC program as one way he has put new units on-line for the working poor makes it clear that not everyone sees the working poor in the same way. Yolanda Cortes, a member of the board for the Houston Housing Authority, is one who wonders why, rather than sell its RTC properties, the city didn't use the apartment complexes to address the severe shortage of public housing units in the city.
"When you've got [thousands of] people on the waiting list, you know the need is there, no doubt," says Cortes. "To me it seems odd. Why would the city buy property and then resell it?"
You can add that query to the list of unanswered questions that dog the recent history of affordable housing in Houston.
In 1991, housing advocates led by state Senator Rodney Ellis lobbied to have $20 million from a $500 million bond referendum set aside for homeless and housing initiatives. Following the bond vote, City Council passed a resolution dedicating $10 million to be split between homeless programs and the repair of public-housing units. The other $10 million was to go toward increasing the stock of privately owned low-cost housing.
But it wasn't until last month, almost four years after the money was supposed to be available for use, that the bond funds bore any fruit. That happened when SEARCH opened up a new facility. And though several other homeless projects are now under way, as are repairs to the public-housing units, the issue of the $10 million reserved for low-cost housing initiatives is another matter. Despite voter approval in 1991, there has been no attempt by the city to allocate it or even to suggest ways to spend it. The city's Margie Bingham claims that her office is accepting proposals for use of the money from housing groups. If so, that's news to advocates such as Sally Shipman, executive director of the Coalition for the Homeless, who say they're discouraged by the city's lack of initiative.
"This was a major victory," Shipman says of the 1991 bond measure, "and we thought this means they'll get busy and issue the requests for proposal and we'll see our bond money spent. To the city's credit, they are moving along with the homeless projects. But what concerns us are the affordable housing bonds. Nothing has happened that we're aware of. That bond money is just sitting there."
The idea of $10 million "just sitting there" makes housing advocates edgy. They've seen unused funds disappear before. In 1986, in the midst of a severe economic downturn, city housing officials were ordered to return nearly $3 million in unspent Community Development Block Grant funds to the federal government. In 1990, it forfeited $1 million more, according to a study by the League of Women Voters.
While the city's record of making use of the federal funds available to it has improved in recent years, more and more of that federal allocation has gone not to build or rehabilitate housing, but rather to demolish substandard buildings, particularly apartment complexes. Block Grant funds have also been used in lieu of money from the city budget to make improvements in infrastructure, not housing, in certain areas.
The effect of this can be seen in the explosion of families who are seeking subsidized housing through the city's housing authority.
"Houston has been very unaggressive in getting low-income housing, and it gets worse every year," says Texas Low-Income Housing's John Henneberger. "If you look at the per capita number of public-housing units in Houston and compare it to other cities, [Houston is] way down there on the list. And it's true of the privately owned units as well.
"The gap between the number of units available and the number of people who need and qualify for them just increases at an exponential rate."
That trend will likely continue. Shipman says she appreciates the effort the city has made to increase shelter beds and services for the homeless. But that only begs the question of what is the city doing to keep people from becoming homeless?
"I'll tell you, I'm concerned and the [Coalition] board is concerned," says Shipman. "These are the folks who are going to be making minimum wage, and maybe, if we're lucky, in three years they'll be making $6 an hour. But they will not get into the housing market because there is nothing for them."
Until it was slammed by the oil and real-estate crash a decade ago, Houston hadn't much reason to consider the full range of economic perspectives. The city's growth and success was born of its marriage of politics and business. The poor don't vote. Nor do they do much business. So, despite the recent talk coming out of City Hall about diversity, it's still inherently easier to think of the poor in terms of cost rather than benefit.
"As one elected official told me," recalls Shipman, "'You have no constituency.' And he's right."
Such attitudes have led to some rabid reactions to the presence of the less fortunate. A case in point is the demolition of thousands of low-cost apartment units in Spring Branch, which, with the support of City Councilwoman Helen Huey, seems to be waging war against its large immigrant population. Similar uprisings have been staged by single-family homeowners in the Fondren Southwest area.
So it's not surprising that the city's first sorties over the land acquired in the RTC sale was at the behest of homeowners in those two areas of the city.
"The mayor's office is interested in converting this site to new home development ... if we could recover it from the RTC, hit it with deed restrictions and market it to a homebuilder," read a January 2, 1993, memo from Huey to her chief aide, Bob Thompson.
Residents of Spring Branch, the heart and soul of Huey's District A, had long been asking the city to do something about dilapidated apartment buildings in their community. The memo to Thompson concerned Springtime Estates, an abandoned 300-unit complex near the Binglewood subdivision. Huey had all but promised her constituents that the complex would be demolished. Nearby residents lobbied hard for single-family homes or a neighborhood park to be built on the site.
Informal discussions with the RTC about Springtime Estates began soon after the agency took over the complex in July 1992. A sticking point was $287,000 in back taxes the property owed to the Spring Branch Independent School District, Harris County and the city of Houston. Lanier, Huey, the homeowners and a squadron of lawyers spent considerable time and energy trying to figure out a way around the tax issue. Their dilemma is best stated in a letter from Superintendent Hal Guthrie to SBISD trustees: "[D]o we wish to get in the business of forgiving taxes? The impact is far-reaching. If the city doesn't complete their intentions, the project could be taken over by an individual(s) and rehabbed enough that occupancy would be permitted. This would produce many poor children for our district." Then again, Guthrie continued, single-family homes would pump up the tax rolls, not to mention result in "a very different student population."
Similar pressure was being applied to the city by homeowners' associations in the Fondren Southwest area. The groups met with Lanier on January 11, 1993, to discuss the Bellfort Southwest III and Bellfort Southwest IV complexes, which were on the "fast track" for purchase from the RTC.
A follow-up letter to the mayor's office outlined the homeowners' demands, which included a city-funded capital reserve for any future repairs; input into who would manage the complex (specifically not to be the city's housing authority); right of first refusal of prospective buyers; and a promise from the city that it would "remove nearby nuisances," such as a local nightclub that had the neighborhood up in arms.
At this point -- January 1993 -- negotiations with the RTC were well under way. In addition to the above three complexes, the city was also attempting to work out deals for Tara Hall Apartments, near Hobby Airport, and Winwood Club.
Also at the time, the city was in the process of choosing a real-estate consultant to help it negotiate the tangle of federal regulations and guidelines that dictated the purchase of property from the RTC.
The city was apparently in a hurry to find someone. The RTC's marketing period for the first four complexes the city wanted to buy was running out. The city's office of housing and community development issued a request for proposal on November 4, 1992; the deadline for responses was just nine days later.
One respondent was Abraham Koshy, head of A.K. Realty Inc. Koshy says his company has been in the real-estate management business in Houston for 15 years. He scurried to meet the city's deadline, but he never heard back.
"They did not even give me the courtesy of a response," he recalls. "I called them three times to find out what happened, and finally someone told me that they had canceled it. The person on the phone said they weren't going to go through with the purchases."
Koshy says he doesn't remember whether the short time he had to prepare his proposal hurt his chances. Max Uzick, the man in charge of preparing a proposal for the Duddlesten Management Group, says he doesn't remember that either.
"We had 30 to 45 days to respond, as I recall," Uzick says.
It's hard to say whether Uzick's memory is poor or if, for some reason, he had different time constraints to contend with. However, he does remember what happened when he asked the RTC for information on the affordable housing program.
"It came back in boxes," Uzick remembers with a chuckle. "I mean, stacks of paper a foot high. When we reviewed the program, we decided that, in our minds, it could be very successful. So we sent in the proposal."
Suzy Hartgrove, a spokeswoman for the office of housing and community development, says Duddlesten wasn't given any more time than any other real-estate firm to prepare and submit a proposal, though many such companies, including Duddlesten's, had previously contacted the city about the RTC's affordable housing program.
Like a lot of close friends of Bob Lanier, Wayne Duddlesten stays out of the public eye. He served with Lanier on the Texas Highway Commission and has given thousands of dollars to the mayor's political campaigns. One thing in particular about Duddlesten that some people have noticed is the prominent role he has assumed in Lanier's low-income housing strategy.
In addition to handling the city's RTC purchases, Duddlesten is currently negotiating a contract for a $50 million, federally funded redevelopment of Allen Parkway Village. The selection of Duddlesten, whose master plan team includes some Boston architects, disturbed at least one housing authority board member, who said the team's proposal was second-rate.
Many housing advocates were also angry when the city's housing authority moved its centrally located offices to a building outside the Loop that's owned by a client of Duddlesten's realty management firm. They say it's difficult for the housing authority's clientele to reach the new office, which is on Fountainview between Westheimer and San Felipe.
"They moved further out to the west side of town, and now it takes a couple of bus transfers to get there," says Sissy Farenthold, a prominent housing activist in the city. "It seems like another flagrant example of not serving the needs of their people."
On March 3, 1993, Duddlesten Management Group and Duddlesten Realty Advisors Inc. contracted with the city for due diligence -- physical inspection, financial analysis and market research -- of Tara Hall, Winwood Club, Bellfort Southwest III and Bellfort Southwest IV. Austin attorney Larry Paul Manley was hired on to negotiate the purchase prices and the percentage of low-income units to be set aside.
Bingham said it was around this time that she started to hear the question, "Why was the city going into the apartment business?"
"We felt going in that the city could not only purchase the properties and put the rent restrictions on them, but rehab them if necessary," she says. "We felt that, opposed to them falling into the hands of some groups that might want to come back to us and borrow money to do it, we may as well do it ourselves."
But, Bingham says, after the city's consultants entered the negotiations, she learned that not only could the city limit its repair costs, but that serious money could be made reselling the properties.
That was a twist the RTC apparently never anticipated. When the agency caught wind of the city's plan to buy the complexes, then flip them for a hefty profit, it balked.
"We told them the intent of the program is for you to own this property, not for you to take it and resell it," said Juan Patlan, the RTC's regional director for affordable housing, at the time. "We can sell it to private investors just as well as you can."
Patlan referred the matter to Washington, but there was little the RTC could do to stop the city's profiteering. The law was clear: the city of Houston had first dibs on the properties, and the RTC could do nothing about what the city did with them, beyond requiring that the for-profit investors who bought them continue to set aside units as affordable housing.
But then the RTC added a twist of its own, prompting the city to cry foul. In a draft of the Bellfort Southwest III contract, the agency inserted a clause stating that any profits made from resale must go toward more affordable housing.
The city's lawyer, Manley, deleted the clause and sent the contract back. When the RTC persisted, Manley zipped off an irate letter, calling the reinvestment mandate "untenable" and adding that the city had never agreed to such a "restriction."
Not wanting to delay the purchases any longer, the city didn't put up much of a fight and finally agreed to the stipulation. But other evidence suggests that city officials weren't up nights thinking of ways their new apartment units could best help the working poor. Instead, they had already discovered how to play the RTC affordable housing program like a fiddle.
As the city edged closer to buying its first four complexes, Lanier wrote a letter to Louis Sims, a vice president at Pennzoil Company, telling Sims that selling Winwood Club would net a "substantial profit." He noted that 35 percent of the units would have to be set aside for low-income tenants. But, the way the mayor understood it, that meant a family of two making $27,000 a year or less.
"I am not sure of the exact percentage," the mayor wrote, "but our real-estate advisors have told me that the present composition of the Winwood apartments already exceeds this goal."
Yet across town, Lanier was whistling a different tune. About the same time that he wrote Sims, Lanier sent a letter to the Reverend Bill Lawson, pastor of Wheeler Avenue Baptist Church and a powerful figure in the black community. The correspondence followed a meeting Lanier had with Lawson to discuss how the city planned to replace the 850 public-housing units it wanted to demolish at Allen Parkway Village.
Lanier outlined how the RTC program worked and explained the set aside requirements. He said that of the RTC units the city was preparing to buy, "at least 80" would be "coordinated" with the city's housing authority. He also said the city would be buying other properties from the agency and that units from those would count toward replacement as well.
Where along the way that intention was jettisoned -- if it was ever seriously considered -- is unclear. Lanier now calls the housing authority "a separate bailiwick" of old units that can't support themselves and can't be economically repaired. With the RTC purchases, he says, the "population we're undertaking to address" are those that fall within the HUD guidelines.
"You may not agree with the federal program, I don't know," says the mayor. "Pretty much what we're trying to do is provide housing for persons who -- and you can say they're not poor if you wish -- persons who are working for a living. This was an economical way to provide those units. I regard it as a public service."
Not long after the mayor's letter to Lawson, the city closed the deals on four bargain-basement buys from the RTC:
* Tara Hall, 166 units, was purchased in November 1993 for just $215,534. Two months later, the city sold it to Houston condominium developer Charles Nickson for $750,000.
* Also in November 1993, the city paid a meager $250,000 for the 96-unit Bellfort Southwest III and $1,117,480 for the 372-unit Bellfort Southwest IV. The city owned them for 18 months -- during which time Wayne Duddlesten's Cornerstone Construction did $780,250 worth of repair work on the complexes -- before selling them last May to Joseph Guglielmo of Los Angeles for a total of $4.4 million.
* In February 1994, the city paid $1,288,348 for the 164-unit Winwood Club. Massachusetts-based Sante Fe Realty Trust bought it in May 1994 for $2,525,000. The new owners, who renamed the complex Vanderbilt Court, also agreed to spend $400,000 on repairs.
Not a bad day at the plate by any standard. Moreover, the city put just 1 percent down on their purchases, which were financed by two-year bridge loans from the RTC. The private buyers, on the other hand, were required by the city to pay the appraised value -- in cash. It's no wonder the city immediately set about buying four more complexes: Fondren Green, Streamside, Southwest Village and Willow Creek.
Meanwhile, an impatient Councilwoman Huey was pressuring Manley to close the deals for the purchase and demolition of Springtime Estates and the Seville Apartments. In May 1994, she fired off an angry letter to the lawyer, grousing about the "diminished quality of life" her constituents were suffering as a result of the rundown buildings.
She was also outraged to learn that the negotiations were hung up on how many of the single-family homes to be built on the sites after demolition were to be set aside for low-income families. Was the councilwoman to understand, she asked, that all the homes were to go to the lowest wage qualifiers? She urged Manley to secure a higher percentage for moderate-income buyers.
By early July of last year, Manley had gotten the RTC to agree that the 50 homes to be built on each site in Huey's district would be available to people making as much as 115 percent of Houston's median income -- roughly $52,000 for a family of four, not particularly poor by anyone's standards. He also convinced the agency to "donate" the two complexes for the token price of $1,099, plus $300,000 in back taxes.
"I just don't know how they did that," says Henneberger of the Texas Low-Income Housing Information Service of the demolitions of Springtime Estates and Seville. "I cannot think of any precedent anywhere for allowing a city government to buy an RTC property under the affordable housing program and then demolish it."
Nonetheless, Council approved the purchase of Springtime Estates and Seville on July 11. By October 1994, the city had closed those deals and four others:
* Streamside Apartments, a 201-unit complex, near the upscale Inwood Estates neighborhood in northwest Houston. The city paid $2,360,000.
* The 169-unit Fondren Green Apartments, near Woodlake in west Houston. The city bought it for $132,184.
* Southwest Village Apartments, a 198-unit complex in far southwest Houston near the Missouri City line. The city paid $745,968.
* And the 1,682-unit Willow Creek Apartments near the Gulfgate Mall in southeast Houston, which the city bought for $3.2 million.
By May of this year, the city had unloaded all but Streamside, which it still owns. Nickson, the Houston condo developer who had taken Tara Hall off the city's hands in January 1994, bought Fondren Green last March for $1,350,000.
In May, Los Angeles businessman Joseph Guglielmo bought Southwest Village and Willow Creek, along with the two Bellfort Southwest complexes, for a total of $15.3 million.
The RTC, apparently awakening to the fact that something odd was going on, instituted a "recapture" policy for the city's second group of apartment purchases. The agency claimed about $3.8 million from the resale price of Fondren Green, Southwest Village and Willow Creek.
Still, when the dust cleared, the city's net gain on the resales of seven of the ten RTC complexes was an impressive $9.2 million.
But that has brought Houston little needed affordable housing. Of the 3,021 units bought by the city, the most affordable ones are one-bedrooms, which constitute almost 75 percent of the total. But most complexes restrict one-bedrooms to single people or married couples with no children, which makes them off-limits to many working-poor families.
Of the 536 two- and three-bedroom apartments, the least expensive are the 234 two-bedrooms at Willow Creek Apartments. They rent for $415 to $450 a month, and, like almost every unit at Willow Creek, are already being rented by tenants who qualify for a low-income unit.
Housing advocates say that the city might have been able to actually add low-cost housing for the truly needy if it had spent more of its profit margin on repairs, rather than passing along the lion's share of that expense to the apartment complexes' new owners. Guglielmo signed a clause in his purchase agreement committing himself to a $3.5 million rehabilitation of Willow Creek. Edward Savides, trustee for the Sante Fe Realty Trust, signed a similar agreement to spend $400,000 on Winwood Club. Meanwhile, except for the rehabilitation of the two Bellfort Southwest properties, the city contributed mostly minor repair work.
"The rents are higher at those places because folks took a profit on the front end," says Barbara Lashley, advocacy director at Christ the Good Shepherd, a church that helps provide social services to an apartment complex bought from the RTC last year by a local nonprofit group. "The residents have to pay for it on the back end, and now it's housing that minimum wage people cannot afford. If the city had paid for the rehab, what would the rents be?"
Lower than they are now, in all likelihood. A comparison of the rental rates provided by the city -- which were assembled during Duddlesten's due diligence prior to the RTC sales -- and those acquired recently by phone from the complexes themselves show rental increases as high as 20 percent.
For example, two-bedroom rents at Lanier's showcase complex, Winwood Club, have risen 11 percent -- to the $550 to $625 range -- since the mayor toured the place with Clinton and Gore. That's considered affordable for a moderate-income family of three earning between $22,000 and $26,000 a year.
And it's within the RTC's guidelines. But as Sheila Simmons, a researcher for the Coalition for the Homeless, notes, "There aren't many people who are at risk of falling through the cracks who make that kind of money."
Simmons says she wishes the city had done more to accommodate families who were truly working poor. "When people think of the low-income and homeless, they don't think of families," she says. "But you have 300 people a night sleeping in shelters and 4,000 a year passing through the doors. Half of them are children. When what low-income people can afford of these units are one-bedrooms, the city is missing the mark, because most people at risk of being on the street are families."
The rent restrictions imposed by the RTC affordable housing program are supposed to remain for the life of the properties, or, according to deed restrictions that accompanied the sales, for 40 years. But as anyone who's ever driven past an apartment complex knows, who owns a property frequently determines the kind of future it has.
In Spring Branch and other parts of the city, if beat-up apartment complexes are considered hell, the owners are often viewed as the anti-Christs -- particularly if they are owners who live somewhere else. Which makes the city's sale of four RTC complexes to Joseph Guglielmo a bit puzzling.
Not so much because Guglielmo is from Los Angeles, but because that -- and the fact he could rustle up $15 million -- is about the extent of his credentials as an apartment complex owner. Or at least, that's all the city is willing to impart. And attempts to find out more from the man himself are fruitless: his Texas Development Investors, the name under which he bought the city's apartment complexes, has no local address or phone. It doesn't turn up in any of the Los Angeles directory assistance listings, and neither does a number for his Wilshire Boulevard office.
Uzick, who handled the brokering of the city's sales to Guglielmo, admits that the investor doesn't have much experience with residential property. Rather, Guglielmo has been successful in commercial real estate, completing "about $8 million in acquisitions and sales."
Uzick says he visited Guglielmo, who gave him a tour of a few of his holdings, including a movie studio and office buildings in Fresno and L.A. That was enough for Uzick "to verify he had the funds to close the transactions and to renovate."
Apparently that wasn't always the case. California court records show that in the mid-1980s, Guglielmo was sued by two banks for failing to pay back loans totaling $400,000. Newspaper accounts also document troubles the investor had with the Guarantee Building, a historic office building in Fresno.
Last year, the Fresno Sun reported that Guglielmo wanted to sell the building because many of the tenants had moved out or were planning to. The story said the building's management owed Pacific Gas & Electric $13,000 in unpaid utility bills and had not paid a $15,000 deposit.
Another story, this one in the Los Angeles Business Journal, said Guglielmo was part of "several troubled partnerships" with VMS Realty Partners, some of whose dealings were linked to the Prudential-Bache real-estate scandals during the 1980s.
According to the newspaper account, VMS had filed for a Chapter 11 bankruptcy in 1991 to avoid foreclosure on two Wilshire Boulevard office buildings. The paper quoted a tenant of one building as complaining that "everything has become second-rate."
But, according to sources both here and in Los Angeles, Guglielmo's dealings are rarely that public. Indeed, for a wealthy real-estate investor, he is surprisingly inconspicuous as an owner of record. He is registered as a principal in few business entities, according to California corporate records, and those firms don't turn up as owners of much property.
Sources say Guglielmo has a reputation for "tying up" properties through a web of partnerships by buying them and then trying to sell them quickly for a profit. One Houston source says that Guglielmo, prior to buying the four apartment complexes from the city, owned a dozen properties in Houston, some of which he acquired from the RTC. The source said he learned that Guglielmo had traveled as far as Hong Kong in an attempt to sell them.
"He was considered something of a flake by the local real-estate types," the source says.
Uzick shrugs off such reports about Guglielmo, saying he was convinced the buyer would prove a reputable owner. One reason Uzick cites was Guglielmo's willingness to engage a local management company to oversee operations at Willow Creek, Southwest Village and the two Bellfort Southwest complexes. Uzick says he sent the buyer a list of choices. Guglielmo settled on Insignia Management Group -- a firm Duddlesten Management Group merged with last year.
One complex owned by Guglielmo that could use an attentive owner is Willow Creek. The complex was built in 1971 and, over the last decade, has fallen into disrepair. The sheer size of the place -- 1,682 units -- and the magnitude of the rehabilitation needed suggest it has a ways to go before it becomes a moneymaker. And that's assuming the complex, which has a 95 percent occupancy rate and is located in an area of the city that hasn't received much attention, can remain viable until then.
An analysis of the property prepared before the city bought Willow Creek revealed a couple of environmental concerns, including the presence of asbestos in the drywall. Also, leaking underground tanks stored at a Coca Cola bottling plant next door was said to possibly pose a risk of contamination, though there was no mention of what substance might be leeching into the ground beneath the complex.
There is also concern that the number of units restricted to low-income renters -- more than 1,400 of the 1,682 -- may create problems. Such high concentrations of poor have been discouraged by HUD over the years in favor of "mixed-income" properties, which have a better chance of avoiding the recurring problems of drugs and crime that plague areas exclusively populated by poorer residents.
Still, says one housing advocate, Willow Creek, "can be a benefit to the community. If the private investor manages it well, keeps it safe decent, sanitary. You know, if everything is ideal. But the chances of that happening are pretty slim."
A few years ago, no one would have given the Oak Lake Apartments much of a chance, either. The 452-unit complex off Kuykendahl and FM 1960 in Harris County had degenerated into the kind of place that even pizza delivery drivers wouldn't enter after dark. Residents in a nearby neighborhood called the complex "Coke Lake." The police referred to it as the "War Zone."
But that was before last September, when Houston Interfaith Housing, a nonprofit group with 23 years of experience with low-income housing, bought the faded gray complex from the RTC. The organization put up the purchase price, about $1.8 million, and now manages the complex. Local churches joined together with area civic groups to form the nonprofit Bridges Community Friends to run support services for the low-income residents.
The alliance of Houston Interfaith and Bridges Community Friends lobbied the state government in Austin to win more than $5 million in low-income housing tax credits over the next ten years, which, coupled with $1 million in federal funds, will be used to rehabilitate the complex. Though that rehabilitation is not yet in full swing, there are already signs of good things to come at Oak Lake.
A small office set up in a two-bedroom unit in the center of the complex serves as the nerve center for Bridges Community Friends. Two small children hop up and down on plastic chairs as a middle-aged woman reads them a story. The book is from a library assembled in one of the unit's rear bedrooms. Notices seem to hang everywhere -- the windows, doors, two bulletin boards -- announcing upcoming Girl Scout and Boy Scout meetings, tutoring sessions, English lessons, a job service. Just outside the door, two young women prepare picnic tables for the summer lunch program that feeds 82 children from the complex.
Down a worn concrete path are two dilapidated tennis courts. The nets have been taken down, awaiting the work crews that will begin building Oak Lake's new community center. Once complete, the center will allow Bridges Community Friends to provide job training, immigration services, a food pantry and health clinics for women, children and the elderly on-site. Those needs are now available to Oak Lake residents at the Northwest Assistance Ministry, two miles away.
Those involved with Oak Lake say they believe it's a model of what the RTC affordable housing program was really meant to be. Nonprofits, which aren't concerned with the bottom line, can combine truly low-cost housing with social services to address the long-term problems of being poor.
"It's not that the housing authorities of the cities aren't capable," says J.O.T. Couch, a staff member at Houston Interfaith Housing. "In fact, the city's sales aren't necessarily wrong in the sense of taxpayer benefit. The question is, what is the spirit?"
Doran says that both the churches and the residents of nearby neighborhoods had to be convinced that the complex could thrive under the nonprofit's ownership. But in the end, she says, it boiled down to common sense.
"One of the reason we did this was because there were people tripping over our doorstep saying, 'We can't find anyplace to live,'" Doran says. "And another was that this place is smack dab in the middle of our neighborhood. If we said, 'Wow, look at that property going downhill,' and five years later had done nothing about it, we had nobody to blame but ourselves."
One-bedrooms at Oak Lake rent for between $295 and $325. Most of the 136 two-bedroom units are available for under $400. While those rents may still tax the resources of many working poor, they are about 25 percent less expensive than the units bought from the RTC by the city. And the for-profit investors who bought from the city aren't offering social services.
Bingham, the city's community development director, says that, yes, the city received offers from nonprofits for the seven complexes the city sold. Houston Interfaith Housing was not one that expressed interest, says its board chairman, Paul Nichols, because the organization was not made aware that the city was putting the complexes up for sale.
Bingham says the city decided to sell to for-profit investors because it feared a nonprofit might not be able to afford necessary rehabilitation. And, she admits, the city's profit wouldn't have been as large if they had sold to a nonprofit.
"The RTC would have paid us a 5 percent resale bonus for selling to a nonprofit," Bingham says. "But we wanted more than 5 percent."
Lanier is confident that the city's purchase and resale of the RTC properties was not only the most economical way to increase the city's affordable housing, but will bode well for the future. He says the profits realized by the city will go toward "a whole range of things" that will bring about 5,000 new affordable housing units "on stream."
Those plans include providing subsidies to low- and moderate-income families who want to buy a house. And, the mayor says, more privately owned apartment units will be rehabilitated.
"I think we're having a positive impact on housing and a positive impact on neighborhoods," says Lanier.
But not everyone is convinced that the mayor's words now are any more reliable than his words were in 1993, when he spoke before the president and vice president about the future of Winwood Club apartments. And some suspect that even if his plans come to fruition, they will be of little help to those at the lowest rungs of the economic ladder.
"The only way working people on the lower end of the income stream can afford a place to live is through public programs, and there has not been enough of a public outcry to do that," says Sally Shipman of the Coalition for the Homeless. "About all [housing advocates are] doing is promoting something because it's the right thing to do. And not everybody agrees it is the right thing to do.
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