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Slow Turning

It has been a year of little change since Houston Renaissance gave up control of the Fourth Ward redevelopment

By Brian Wallstin 

Published: January 13, 2000

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.

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