in Houston, Texas

Real estate insiders on board approving $37 million in development tax breaks for downtown Houston

Monday, Sep 24, 2012, 09:04AM CST
By Steve Miller
Houston skyline

The Houston management district board that approves $37 million in property development tax breaks is packed with insiders from the local real estate community, including two people connected to major developer Hines as well as at least two who are already city vendors.

The city council voted last month to allow the Downtown Management District to decide who can receive tax breaks for developing inner-city living spaces.

Of the 27 board members on the Downtown Management District, which was created legislatively in 1995, 12 have real estate ties, and a company operated by board member Kenny Meyer owns property in the district.

Others with ties include Leslie Ashby of Ashby LLP, whose firm handles real estate litigationFrank Staats, a vice president with Moon Acquisition Holdings, a national development and real estate holding company; and Paul Layne, whose former employer, Brookfield Properties, was paid $7,218 by the city of Houston in February, shortly before he left Brookfield.

Meyer manages a number of properties downtown within the district boundaries. He had expressed interest in the area a few years ago before he was on the board, with buildings owned by one of his other companies, FKM Partnership, searching for tenants.

John Mooz is an executive with Hines, one of the area’s largest developers. Stewart O. Robinson, a real estate fixture in Houston, left Hines in December 2010 and now runs SOR Real Estate Advisors. The city paid Hines Reit 2800 Post Oak, on offshoot Hines company, $67,000 between June 2010 and June 2012, records show.

Mike SullivanMike Sullivan

The ties between board members and the industry receiving tax breaks “underscores my opposition to this,” said Mike Sullivan, the lone city council member to oppose handing the tax break process over to the district.

The city council voted in August to allow the board to deliver up to a $15,000-per-unit tax rebate to developers of 2,500 residential units within a specified zone. The rebate will be paid from future property taxes and assessments. See the outline of the arrangement here and information from the district’s site here.

“These are tax dollars that will be rebated,” Sullivan said. “There are better uses for $37 million.”

The district takes in more than 2,000 properties appraised at more than $7.6 billion.

Bob Eury, the Downtown Management District's executive director, said that the process for selecting developers who may receive the rebate is “tightly prescribed. … Obviously, this is really first come, first serve, and we have conflict-of-interest policies, so obviously the board members can’t participate in anything that they will directly benefit from.”

Anyone receiving the benefit of a public money abatement will have to “meet the critera defined by the city council,” added Andrew Icken, chief development officer for the city.

The plan was crafted under Chapter 380 of the Texas Local Government Code, which permits municipalities to pay for economic development. It was created in 1989, when the state, with 16 million people, was about 36 percent smaller than today’s 25 million. A 1987 statewide vote that allowed the creation of economic development programs allowed the legislation.

In Fort Worth, this type of arrangement is considered anathema: “This incentive may only be used as a gap financing tool of last resort,” reads that city’s assessment of Chapter 380 arrangements. “The use of this incentive is for projects facing extraordinary impediments to development and offering significant positive impact to the community and surrounding neighborhood where the project is located. Limitations on how this incentive is used are predicated on the source of the funds and terms and conditions of the award to the City and the project.”

The city of Arlington uses a checklist of benefits for the city and administers the program itself.

The city of Austin handed tech giant Apple an $8.6 million tax incentive earlier this year under a lengthy 380 agreement. The city lists its 380 beneficiaries here.

Dallas used a 380 to lure, well, Dallas.

The city of Houston in 2010 granted three companies 380 agreements: Ainbinder Heights, for development in the Washington Avenue area, InTown Homes for Memorial area development, and Dean Foods.

Icken said that the city has executed 14 such contracts now, and contends that Houston’s are among the more stringent. View the list here.

“Some cities give money up front or simply give grants through this program,” he said.

The 380 deal with Ainbinder turned into a protracted legal battle after a nonprofit filed a lawsuit against the city and Ainbinder. The action attempted to halt any 380 agreements by the city, claiming the city was “failing to provide sufficient controls to ensure that 380 agreements are not abused as either an end run around bond finance procedures or as political favors returned to well connected developers.”

The city prevailed.

Under the arrangement between the city and the Downtown Management District, the district will enter into agreements with the developers, calculate the funding to be remitted to the developers and send those calculations to the city for payment.

Sullivan pointed out that the original use of the 380 provision in the state was to spur development in areas that need a boost, “but the downtown has historically done well.”

Bob EuryBob Eury

Eury contends that the city of Fort Worth’s definition of the 380 agreement  - “extraordinary impediments” - fits perfectly in the affected area around the George R. Brown Convention Center.

“It’s expensive land,” Eury said. “The whole way it is designed is to stimulate this area. It’s a front door for Houston.”

“Extraordinary impediments” to Ickens as well?

“I would not choose those words,” he said.

Among the locations on the district’s development project list are a city-owned warehouse at 1002 Washington, which was purchased by the city in January 2011 to be converted to its permit headquarters. The list, though, shows no indication that the interests of its board members are being appeased.

***
Contact Steve Miller at 832-303-9420 or stevemiller@texaswatchdog.org.

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Photo of downtown Houston by flickr user Daniel Ray, used via a Creative Commons license.

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Comments
Karen
Tuesday, 09/25/2012 - 10:50AM

Corporate welfare at its best!

Barks
Monday, 10/22/2012 - 07:35AM

This is not corporate welfare; this is governmental corruption, plain and simple. Corporate welfare is an 'invented' term used as a political bomb for tax policies one does not endorse.

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