28 April 2010

Are Houston Apartment Dwellers Getting the (Water) Shaft?

CultureMap Houston

Calling "halfsies" isn't always such a good deal. For people living in apartments in Houston, it looks like there will be a 50-percent increase in water rates for those who call multi-unit digs home. The hike stands in sharp contrast to the projected slight increase of 12 percent for single-family customers.

According to City Councilman Ed Gonzalez, the jump is the result of a $100 million deficit in the city's water and sewage budget, and renters are going to have to pay. Andy Icken, deputy director of Houston Public Works Department has suggested that research states that single-family homes conserve more water than multi-family units.

"They have a big study that hasn't been released yet," Houston Apartment Association (HAA) executive vice president Jeff Hall told CultureMap. "There's an executive summary from their consulting firm, but that doesn't tell much." Icken did not respond to phone calls inquiring about the research.

HAA feels the increase unfairly punishes apartment renters, many of whom cannot afford to take on a ballooning bill. Hall argues that apartments are cheaper for the city to maintain, and that the cost is lower to provide water and sewage utilities to an apartment complex than to an equal number of single family homes.

This isn't the first proposed infrastructure change under new mayor Annise Parker, who has questioned the financing of  two Metro light rail lines and overseen the weekend closure of neighborhood libraries —  making residents wonder if basic city amenities are going down the drain. Parker has been frank in saying how the city's current budget crisis is going to cause hard cuts and tough times for Houstonians. Rather than try to sugarcoat the projected $140 million budget shortfall with a typical politician's sweet talk, Parker said, "The pressure is going to be immense" in her first state of the city address on April 8.

Hall argues that putting an extra burden on apartment renters is not the way to go to meet shortfalls. When asked if this method has been tried in other cities, Hall responded, "No, we're dealing with a local issue here."

City Council is set to announce a final, revised proposal next week. Until then, foreclosed McMansions are looking more and more practical.

22 April 2010

Downtown Amarillo Looking Up

News West 9

AMARILLO, TEXAS - Things are looking up again for Amarillo's downtown development after hitting a major bump in the road earlier this month.

Until today residential construction projects had a hard time finding funding sources. That's because banks thought it was too risky to invest in new types of projects that hadn't tested before - like high-end  Texas apartments in downtown Amarillo.

But today, seven locals banks announced they will all pitch in to loan out a pool of up to $5.6 million.

Bank leaders say this type of idea is a first for Amarillo. The banks will work with the Panhandle Regional Planning Commission to distribute the loans. That organization will begin reviewing applications on Thursday.

Although no official loan applications have come in yet, one banker says there are several interested parties who plan on investing significant amounts of money right here in downtown.

21 April 2010

Failed Apartment Investments Cost Hundreds of Local Professionals Millions

New Orleans Business News

The MBS Companies, founded by Michael B. Smuck of Metairie, did not follow through on its plan to purchase this Houston-area apartment complex, which it planned to rename Yellowstone Ranch. The investors' money was used for other purposes
Kenner residents John and Sharon Kochera had been successfully investing for years in Texas apartment complexes managed by the Metairie-based MBS Companies when one day in August 2007, the quarterly distributions stopped.

They soon learned that MBS had not followed through on its plan to purchase a Houston-area apartment complex to be renamed Yellowstone Ranch -- and had used their money for other purposes.

Two-and-a-half years later, most of the hundreds of thousands of dollars they had invested in Yellowstone and other apartment complexes is gone. The Kocheras are losing faith about how much of their retirement money they'll ever see again.

"It's an absolute sheer theft," said John Kochera, who, like his wife, is a Realtor nearing retirement age. "We've seen one person after another who have been involved in creating Ponzi schemes go to prison, and here it is two-and-a-half years after the fact and nothing's happened."

The Kocheras are among the hundreds of local professionals who are out millions of dollars in the MBS carnage. The roster of investors includes a gaggle of doctors from East Jefferson General Hospital, groups of law partners and even an entire golf group.

MBS filed bankruptcy in fall 2007, and most of the company's assets have been seized by banks or liquidated.

Meanwhile, scores of investors have filed suit over their losses, alleging the company misappropriated funds, neglected its deteriorating apartment complexes and kept multiple sets of books to cheat investors. More than a dozen jilted investors were interviewed for this story, and several also have told their tales to federal authorities.

Many hold out hope that fraud charges against MBS principals -- and possibly other people or institutions that played key roles in the apartment deals -- could bring about restitution.

The U.S. attorney's office in New Orleans and the FBI say they cannot confirm or deny the existence of an investigation. No charges have been filed.

Katrina blamed

At the center of the controversy is Michael B. Smuck, a Metairie man who built an empire of about 20 apartment complexes in Texas and Louisiana in the 1980s. That company, the Equity Group, imploded after the federal Tax Reform Act of 1986.

Undeterred, Smuck founded MBS Realty Investors Ltd. in 1987 and began rebuilding. By the time the privately held firm crashed 20 years later, it had grown into one of the largest landlords in the country, with a $1 billion portfolio of about 60 apartment complexes, mostly in Texas.

Exactly why MBS unraveled is a matter of debate. News reports from that time note that 2007 was the year that FEMA began winding down its Hurricane Katrina rental assistance, and say that Smuck failed to anticipate that the easy rental income at his many Houston-area apartment complexes would dry up, leaving him without tenants and with units in need of repair.

About the same time, complaints to the Texas Apartments Association about collapsed balconies, wet ceilings, no hot water, rats, dead animals and overgrown grass at Smuck properties mounted, according to news reports that have been echoed in lawsuits.

Smuck referred calls to defense attorney Ralph Capitelli, who said Smuck's company got into trouble after Katrina because his insurers failed to pay business-interruption claims.

In a federal lawsuit against Hartford Fire Insurance Co. and other insurers, Smuck claims their failure to pay impeded his ability to acquire new properties, refinance existing properties and collect rents.

Hartford counters that there was "a relatively small amount of wind damage" at Smuck's offices at the Galleria in Metairie.

Many investors question whether storm damage at those offices was just a convenient excuse to explain the lack of business records and why money couldn't be distributed. Bruce Miller, a tax attorney who invested in many of the apartment deals, says the explanation doesn't make sense because rent was being paid at the Texas apartments.

"I started thinking, wait a minute, what's going on here? People are paying rents. Where is the money?" Miller said. "How could Mike say, 'The office was in disarray'?"

Smuck is still working for MBS, where he is advising the bankruptcy trustee about transferring many of the complexes to new management. He still lives in an upscale house on Palm Vista Drive in Metairie.

'Too good to be true'

In 1995, Smuck had partnered with Ed White, a Metairie commercial real estate broker who is active in religious circles and well-known among local business leaders. Until the MBS scandal started eating up his time, White also hosted a local Sunday-night television show called the Freedom Series that delved into issues of faith and free enterprise. White also has a self-published book, Financial Freedom.

Through his firm Ed White & Associates Inc., White began recruiting MBS investors. Many, but not all, of his recruits were wealthy individuals who qualified to be accredited investors as required by the U.S. Securities and Exchange Commission, a designation that is supposed to certify that investors are seasoned enough to participate in high-risk deals and survive financially if they fail.

Investors say most deals had a minimum buy-in of $50,000. They would get handsome quarterly distributions of at least 8 percent and sometimes as high as 15 percent and would cash out when complexes were sold. The investments worked so well that many poured their money back into the next deal and excitedly told friends and family about the opportunity, which often earned them a commission.

Slidell attorney Richard Regan, for example, knew White as a friend and client, and began investing in MBS apartments in the mid-1990s. He reinvested every dime he ever made into the next deal -- so he's now out hundreds of thousands of dollars.

"I know now it was too good to be true. Everything I earned, I put back in and, if I earned more money, I invested that, too," Regan said. "And of course, I got a lot of friends and relatives in it, like a lot of other people. I feel guilty."

Regan reported the scheme to the FBI more than two years ago. Most investors say they didn't know about Smuck's failed venture in the 1980s. But MBS's long successful track record seemed worthy of investment and paid distributions like clockwork. And White's religious convictions, public profile and gregarious nature put people at ease.

One person who did know of Smuck's earlier chapter was Miller. He had a client who got burned with the Equity Group apartments failure back in the 1980s and said the problem wasn't the real estate crash; it was that Smuck moved money from one complex to another to pay debts, when finances should have been kept separate.

Miller said that White knew, too, but White assured him that Smuck had started over and the investments were legitimate. Miller flew see the Houston apartments for himself. The apartments seemed well-managed, the financial statements were good, and White and others putting together the deals were credible.

Miller began investing in the mid-1990s, and he invested and reinvested in 20 apartment deals. He's still waiting for the lion's share of his money. Miller and others question the explanations they've been given and whether the financial statements they saw along the way were real.

White's role

White said he realized all was not well with the apartments when he got a call from an MBS attorney in September 2007 about cash flow problems.

White said he hadn't known anything was wrong with the 28 MBS apartment complexes he was involved with, because when he would visit the properties in Texas, they looked fine from the outside.

White took his concerns to federal law enforcement officials, and because of those inquiries, he said he can't discuss what went wrong with the apartments. "I don't want to do anything to jeopardize the investigation," he said.

White held meetings with investors in fall 2007 to keep them apprised of what he knew, and took actions on their behalf.

Eighteen of the 28 complexes were lost in the bankruptcy, but White was able to save 10.

He sold three apartment complexes to earn money for investors, entered into joint ventures on two others, and pumped his own money into five of them to stave off foreclosure. His company is now managing those properties.

He sued Whitney National Bank on the investors' behalf for allowing Smuck to take the Yellowstone checks and deposit them into another account. The case has been settled.

And while PNC Bank claims in a suit that Smuck improperly transferred to White funds it had a secured interest in, and White improperly transferred them to investors, White has sued PNC Bank. He says he relied on the bank to investigate MBS before making loans, and that the bank didn't do its due diligence.

White has earned a number of grateful fans, who say that he has been their conduit for information and their lifeline in any hope of restitution.

"It was fine for a few years until Smuck ran off with a bunch of money," said New Orleans lawyer Frank Bruno, who had been investing in MBS deals for about eight years before they stopped. "I've got faith in Ed. He's trustworthy."

But others are distrustful that all of their information about the situation has come from White, who was Smuck's partner. They say if White was earning fees and commissions for his work, then he is also liable.

"Personally, I just don't believe that he was on top of his game. I think that things were going so well for so long for these guys, Ed didn't suspect anything was wrong. He didn't visit any of the properties in question to see that they were maintained properly," said Kochera. "I have my doubts."

Anthony Tridico, a physician with several hundred thousand dollars in the MBS apartments, wants answers.

"We all feel betrayed. We're angry. We're bitter. It was a Ponzi-type scheme and, supposedly, he knew nothing about it," Tridico said. "Why has two to three years gone by? This is ridiculous. We've been given a story. The only information it seems we can get is through Ed White, and Ed White was Mr. Smuck's partner."

Similarly, Robert Schimek, an 84-year-old ophthalmologist with about $250,000 in the MBS deals, said the explanations don't add up.

"According to Ed White, Mike Smuck started all this underhanded, fraudulent activity, taking money off the table and into his pocket. He said he was completely unaware of it. If you're a co-general partner, you're responsible," said Schimek. "He was collecting money and asking us to make contributions. We were really counting on him to make sure they were good investments."

White says there's no way he could have known what was going on because, while he saw financial statements on individual apartment complexes, he couldn't see how it all fit together under the MBS umbrella.

Moreover, he was the biggest local investor, so it wouldn't have been in his interest to let things slide. He even invested in the last deal, Yellowstone.

"I lost millions of dollars on this thing. I am not that stupid," White said. "Let me assure you, if I knew what was going on, I wouldn't have invested. It was well-concealed."

White says he has been assisting federal investigators and is not a target of any inquiries. He has hired defense attorney Donald "Chick" Foret, but Foret said that's only because of his familiarity with the federal investigation process.

"He is absolutely not a target. Ed White is a victim along with the other victims," Foret said. "Ed did hire me to help he and other investors because he knows that I'm familiar with the federal system. The purpose is to maximize restitution for all the investors."

In the meantime, for investors like Gary Auer, founder of the Kenner concrete and construction company F&G Services Inc., the consequences are real.

Auer got hit with a double whammy. Not only did he invest $75,000 with MBS in his first real estate deal with Yellowstone, but his wife's son-in-law worked in Antigua for R. Allen Stanford, the Texas financier who has been charged with operating an international Ponzi scheme, so he invested about $500,000 there.

"I'm still working now. I had planned on retiring last January," said Auer, who is trying to look in the bright side. "You've got a tax write-off. It's theft."

10 April 2010

Dallas-Fort Worth Home Sales, Prices Rise

Ft. Worth Star-Telegram

After three months of declines, homes sales in North Texas were up 11 percent in March, according to the Texas A&M Real Estate Center.

Moreover, the median home price rose 6 percent, the largest increase in several months, the figures show.

Locally, Kennedale and central area Fort Worth apartments saw big sales increases of 100 percent and 107 percent, respectively. Those cities were followed closely by Euless, Hurst and Trophy Club/Westlake, all with sales increases of more than 50 percent.

Texas A&M compiles numbers from a 24-county North Texas region for its report.

In March, 6,036 homes were sold in the region. Sales last increased in November, when they jumped 31 percent on the strength of a surge of people returning to the market to take advantage of low interest rates as well as the first-time homebuyer tax credit. Sales numbers then fell in December, January and February.

The median sales price in March was $144,900, a 6 percent increase from a year ago. Median sales prices had only been increasing about 1 percent for the past few months.

Year-to-date, 13,466 homes have sold in the region, a 1 percent increase from the same period a year ago.

April sales numbers are also expected to be high as the second round of the tax credit expires at month’s end.

08 April 2010

Ross Perot Jr. Selected to Real Estate Hall of Fame

The Dallas News

Dallas businessman Ross Perot Jr. and real estate investor James Sowell are getting top honors from the North Texas commercial property industry.

Perot and Sowell next month will be inducted into the North Texas Commercial Real Estate Hall of Fame.

The award is sponsored by the North Texas Commercial Association of Realtors and Real Estate Professionals and will be presented on May 13 in Dallas.

Perot’s Hillwood companies have developed landmark North Texas real estate projects including the Alliance apartments in Fort Worth and Dallas’ Victory Park development.

Sowell’s investment firm, Sowell and Co., has built residential communities such as Dallas apartments and in other Texas markets.

The new hall of fame members will join a group that includes the likes of Trammell Crow, Henry S. Miller Jr. and Roger Staubach. More than 70 past and present real estate players have been honored with this industry accolade.

Along with the awards to Perot and Sowell, a lifetime achievement award will be given to Dallas brothers Jerry and John Bradley, who’ve worked as commercial real estate agents here since 1970. 

01 April 2010

Raytheon Shopping for Big Texas Office Space

The Dallas News

A high-profile office tenant is shopping for a big block of space in Dallas' northern suburbs.

International defense and high-tech conglomerate Raytheon Corp. is looking for potential locations for consolidating its Dallas-area offices, real estate brokers say.

The deal would encompass several hundred thousand square feet of space and would be one of the largest in the Dallas area in the last year.

Raytheon already looked at moving into part of the former headquarters of Electronic Data Systems, which is now a unit of Hewlett-Packard. But a transaction to take over a large portion of the EDS headquarters building in the Legacy business park fell through, real estate agents familiar with the deal said.

Raytheon is now considering office locations in the Telecom Corridor, including Nortel's buildings along U.S. Highway 75 near Campbell Road.

Officials with Massachusetts-based Raytheon wouldn't confirm that the company is hunting for office space. But they didn't rule it out.

"We stay abreast of opportunities in the market," Raytheon spokesman Keith Little said. "We don't discuss specific properties that we may be considering."

Real estate brokers say the EDS headquarters and Nortel buildings are logical choices for a company that needs a big office in Dallas' northern suburbs.

Both companies have reduced the amount of space they use in the Dallas area in recent years, and Nortel is in bankruptcy.

"Yes, we have been talking to companies about the Richardson space," said Nortel spokesperson Jamie Moody. "And, just like we're selling off all our businesses, we are also selling our assets, including real estate, so that we can recover the greatest value in the interest of our creditors."

Despite a real estate downturn that has left acres of North Texas' office space sitting empty, there are few prime vacant offices as big as Raytheon would need.

"For spaces 200,000 and up, your options are fairly limited," said Greg Biggs of Cushman & Wakefield of Texas. "We are working on a transaction in North Dallas that's fairly sizable, and the amount of existing space available is fairly limited in big blocks."

Raytheon has operations in several Dallas-area locations, including on U.S. Highway 75 north of LBJ Freeway, farther north in McKinney and on Lemmon Avenue in Dallas.

Unlike in previous economic downturns, the area isn't awash in vacant Dallas apartments or office space. That's why some companies – including Pizza Hut – have recently chosen to build.

"We don't have all the see-through [empty] buildings we had here in the early 1990s," said Greg Langston, managing principal in CresaPartners' Dallas office. "One thing we didn't do is overbuild this time."