Moving on Up
River Woods Residents Priced Out of South Congress Strip
Late one sweltering Friday afternoon about six weeks ago, the residents of River Woods apartments, a converted 1950s-era motel situated smack-dab in the middle of the South Congress "revitalization zone," came home from work to find this ominous notice taped on their doors: "The Riverwood [sic] Apartments are scheduled for demolition on September 13, 1999. At midnight on September 13, 1999, all utilities and services to the Riverwood Apartments will be discontinued -- It is extremely urgent that you begin to seek alternate housing arrangements immediately." The letter was signed by Jana Ellis, district manager for the residential services division of Trammel Crow, which is planning a 256-unit luxury apartment complex for the site. The story would be little more than a footnote in Austin's ongoing "urban renewal" process -- the destruction of moderately-priced housing in favor of another "luxury apartment community" -- if not for one detail: a third of River Woods' residents lived in apartments restricted to low-income renters by the terms of an agreement reached between the state and federal government in the late 1980s. And instead of being a watchdog for low-income residents' interests, the state agency tapped to preserve affordable housing in Texas appears to have been complicit in the River Woods residents' eviction, a decision which may ultimately result in the loss of 40 affordable housing apartments in Austin.
In mid-September, Legal Aid of Central Texas filed a lawsuit against Trammel Crow and the Texas Department of Housing and Community Affairs to halt demolition on the apartments, located at 1007 South Congress, and to force a review of the agency's decision to allow demolition to proceed. Last week, Travis County District Judge Scott McCown issued an order allowing Trammel Crow to demolish the apartments with the stipulation that if the company loses its case, it may have to provide 40 rent-restricted units in its enclaved community, tentatively called the Reserve at Congress. On Tuesday, after TDHCA, Trammel Crow, and Legal Aid failed to come up with a solution after a daylong mediation session, Legal Aid attorney Fred Fuchs said he anticipated the case would go to trial sometime in October; currently, a hearing is scheduled for October 11 in district court.
The rent restrictions were put in place at River Woods, as at many similar complexes around the state, during the real estate bust of the late 1980s and early 1990s, when failed savings and loan associations were dumping property faster than people were willing to buy it. In response to complaints about the properties' collapsing prices, the federal Resolution Trust Corporation (RTC) was authorized to broker the properties, selling apartment complexes at below-market value to buyers willing to make a percentage of the units available to low-income renters at reduced rates for a period of 40 or 50 years. These "land use restriction agreements," or LURAs, as they were called, attached to the land for the duration of the agreement, regardless of how many times a piece of property switched hands, unless strict conditions were met. A LURA can only be rescinded if a property is declared "functionally obsolete" as to its location or physical condition; if it is completely unusable for housing purposes; and if repairing damage done to a property is financially infeasible. All three conditions must be met for a property to be declared obsolete.
According to Fuchs, the attorney for James Patterson, one of the tenants evicted from River Woods, the property was not only livable but fully occupied as recently as February 1999, six months before residents were informed that their apartments would be torn down. After undergoing several major renovations since they were built in 1957 (most recently in 1988), Fuchs says, the apartments were poorly maintained but in decent condition. "As far as we could tell," says Fuchs, "there weren't any big problems other than that the owner had neglected the maintenance of the place." Another former resident, who requested anonymity, says that although maintenance had deteriorated during the last year he lived in the complex -- "there was a lot of trash all over the place, the Dumpsters were overflowing, and the [laundry] room was in disrepair" ... there was nothing wrong with the apartments themselves. The complex has not been cited for any violations of the city Housing Code since it became an RTC property in 1991.
Nevertheless, the Texas Department of Housing and Community Affairs, the state agency responsible for preserving low-income housing, determined in February 1998 that the apartments were indeed functionally obsolete, and should have their land-use restriction repealed. (This was done at the request of Embrey Partners, Ltd. in San Antonio, which signed an agreement to buy the property from its owner, Brian, Fooshee, & Yonge Properties, in November 1997.) In a letter written that month, the agency's then-director, Larry Paul Manley, informed the FDIC, the agency now in charge of brokering RTC properties, that not only had the property deteriorated physically, it was located in an area plagued by crime, of which "at least some -- can be attributed to the surrounding commercial uses (bars, stores, and nightclubs) and the elevation" of the property. In March 1998, the FDIC assented, clearing the way for the River Woods to be demolished.
A year and a half later, Manley, reached at his home in Austin, said he did not remember the specifics of his decision to recommend the demolition of the River Woods apartments, but acknowledged that such a decision was highly unusual given the paucity of affordable housing in Central Texas. "That's the only recommendation [to lift a land-use restriction agreement] that percolated up to me that I can recall," he says. Asked why his agency would have made such a recommendation, Manley (who resigned as head of the agency a year ago amid accusations that the TDHCA board was granting tax credits and loans to projects run by developers with connections to Manley and other board members) likened the decision to choosing "the lesser of two evils -- would you rather lose your set-aside restrictions or let the property degenerate into a ghetto slum?"
But according to the redevelopment proposal written by an official with Embrey Partners, the area surrounding River Woods is actually an ideal location for a massive high-end development such as the one planned by Trammel Crow, where units will rent for around $1.20 a square foot. (With Embrey acting as a middleman, Brian, Fooshee, & Yonge sold the property to Trammel Crow earlier this year.) "The site -- has excellent access and visibility from Congress Avenue -- Currently, however, with only 110 units the property is underutilized for its urban in-fill location and should support significantly more residents," says the memo, written by company vice president W. Jeff Booth. (Booth did not return repeated calls from the Chronicle seeking comment; George Yonge, the principal partner with Brian, Fooshee, & Yonge, was out of town through press time.) Patterson, the evicted River Woods resident who is suing TDHCA and Trammel Crow, says the latter assessment is closer to the truth. "We've had a total of 31 police calls in one year from this place -- which is pretty light for 110 units," Patterson says. To say that number of calls qualifies the River Woods as a high-crime community, he says, is "obvious nonsense. How could [Manley] say that if he didn't intend to commit fraud?"
Did We Say Obsolete?
Entirely apart from the issue of crime on the South Congress strip is the question of livability: Did the River Woods apartments deteriorate to the point that they were unusable for housing?
No, says Legal Aid's Fuchs, who is waging a court battle to force the TDHCA to provide River Woods' low-income tenants with 40 units of affordable housing elsewhere. In fact, says Fuchs, the evaluation on which TDHCA based its decision to recommend removal of the affordable housing restriction was performed by an inspector -- Samuel Cunningham of Accurate Inspections Of Texas Inc. -- hired for $1,700 by Embrey Partners, the developer who wanted to turn the apartments into luxury housing.
Not only did the TDHCA do no independent inspection, Fuchs says, it failed to secure any financial analysis -- performed at the request of the developer or otherwise -- to determine that the cost of repairs was actually prohibitive. (Manley says he doesn't remember if any analysis was done but says he "would certainly hope" it was.) The question, Fuchs concludes, is, "why would TDHCA, as the affordable housing agency for the state, release a private owner from this rent restriction based on an assessment done by a surveyor hired by the person interested in developing the property into luxury apartments, and with no independent financial estimate of the cost of repairs?" If Manley had ties to the developer who got that restriction released, he isn't talking; the former TDHCA director claims to have only "a vague recollection" of how the deal went down.
Legal Aid enlisted the help of Tom Hatch, an independent architect in Austin, to survey the exterior of the site and evaluate its condition. Hatch found that, although the property was poorly maintained, the only structural problems were due to soil conditions endemic to Austin; independent analysis performed later by a structural engineer and a mechanical engineer at the request of Legal Aid backed up that assertion.
"In my opinion," Hatch says, "the person who bought the property committed to providing 40 units of affordable housing. -- By allowing the property to run down, he somehow convinced the powers that be that it was uninhabitable." Basically, Hatch adds, the owners "wanted to substantiate a claim of obsolescence so they could stop providing housing to poor people."
According to the Travis Central Appraisal District (TCAD), which rates properties by quality of materials and construction on a scale of two to eight, the River Woods property ranked a four in 1999 -- a category which encompasses the majority of property in Austin; an eight, according to an appraiser with the district, would be the equivalent of "a million-dollar home." Moreover, according to TCAD, the property's net income was around $213,000 in 1998, a fact which Fuchs says makes the owner's claim that he could not afford repairs highly suspect.
John Henneberger, co-director of the Texas Low-Income Housing Information Service (TxLHIS), says that although reversing land-use restrictions on low-income rental property is unusual, it makes sense that a developer would want to do so. In the case of River Woods, Henneberger says, "the land became more valuable than the apartments themselves as the city grew. Anybody that could erase the land-use restrictions on the land could make a windfall." Property value assessments obtained from TCAD support that assertion: In 1991, when the property was sold to George Yonge, it was valued at $735,000. Eight years later, Trammel Crow bought it for a reported $3 million. They also bought two adjacent properties in the 900 block of South Congress, previously owned by a law office and by the Austin American-Statesman, respectively; the latter property, a parking lot separate from the Statesman's main complex on the other side of Congress, was valued at $490,832 in 1999. Bob Buzbee, a Trammel Crow partner, was frank about the company's intended use of the property: "We're not going to have any affordable housing on this property," he said. "That's the reason we wanted to get the land-use agreement released in the first place." (Attorneys for Trammel Crow did not return repeated phone calls seeking further comment.)
But the property's increased valuation only explains why Trammel Crow would want to invest its money in luxury apartments there; what it doesn't explain is why the TDHCA, and former director Manley in particular, would want to reverse land-use restrictions that were supposed to be in place for 40 years. Henneberger says that decision is what shocks him most about the demolition: "It looks like the TDHCA gave the farm away, and that raises some concerns," Henneberger says. "It goes directly contrary to its mission [to reverse the restrictions], so it is perplexing to me why they would do that."
Manley, who currently works as an attorney and consultant representing real estate and banking firms, said his intentions were pure. "We had to analyze this from the point of whether there was any possible benefit from leaving it affordable housing and allowing it to continue to deteriorate, and we decided there was not," Manley said. "My first inclination was always to retain set-asides." But, he added, it would have been difficult to find a buyer for the property willing to reserve 40 units as affordable housing given Austin's soaring rental rates.
For now, residents of the River Woods apartments must make do with whatever housing they can procure. Chances are, it won't be in the price range they're used to paying -- around $350 for an all-bills-paid one-bedroom unit. Former River Woods resident Patterson moved out Monday evening; Trammel Crow will pay for his rent in a new apartment until the suit is settled. If he loses the case, Patterson, an unemployed dispatcher, says he may have nowhere to go; at $400 a month before bills, the cheapest unit he could find is out of the price range afforded by his monthly unemployment check.
In Search of a Home
Another former resident says the cheapest apartment he could find was $445, all bills paid; for the time being, he's living with a friend. What's frustrating, he says, is that residents were given so little notice that the apartments would be sold and replaced with housing that most of them couldn't afford. "If we had all known, maybe we could have done something about it," he says. "I guess that's why they didn't say anything in advance."
TxLHIS's Henneberger wonders how far the TDHCA's complicity with developers' interests will go as Austin's housing market continues to soar. "What does it say about George Bush's state housing agency if we're going to actively assist in the process of removing poor people so we can gentrify neighborhoods?" Henneberger asks. "Why don't they call it the Texas Department of Gentrification, or the Texas Department of Poor People Removal, instead?"