By Stephen Young
By Stephen Young
By Stephen Young
By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
For instance, Elsinore officer Mark Culwell was chairman of Green Bridge's three-member board of directors and helped found the group. Elsinore's president, Jim Edmondson, worked closely with Virginia McGuire during her time at the Enterprise Foundation, where at one point the McGuires, Edmondson and Culwell all were employed. "This is not a group of strangers," Edmondson concedes.
The contract McGuire signed with her husband specified Elsinore's duties in the purchase--the preparation of surveys, the hiring of lawyers, the lining up of financing, plus a long list of duties related to rehabilitating the complex. In all, Elsinore put out--and put at risk--about $103,000 in earning its fee, according to copies of the closing documents.
Rather than going to a bank, Elsinore and Green Bridge tapped a federal housing program--what are known as multifamily mortgage revenue bonds--to finance the purchase.
The bond program, which saw increasing use in the 1990s, is designed to help nonprofits build or rehab apartment buildings, a portion of which must be set aside for low- and moderate-income tenants. It lets the nonprofits, which often have no capital, borrow 100 percent of the purchase price, plus closing costs, and shift all the financial risks to the buyers of the bonds. The bond-buying investors are rewarded with high, tax-exempt returns. (The tax exemption is the subsidy that drives the program, coaxing investors into the low-income housing market with the promise of 7.6 percent tax-free annual returns.)
The bonds, which are a promise to repay the purchase price, plus interest, are issued through state housing departments, which make certain all federal requirements are met.
Because Elsinore and Green Bridge already had lined up someone to buy the bonds for Williams Run, all the McGuires needed was for their old employer, the Texas Department of Housing and Community Affairs, or TDHCA, to approve the deal.
And in the course of the state's review--which went through TDHCA, the Texas Bond Review Board and lawyers for all the parties--nobody objected to the fact that McGuire had hired her husband for a significant fee.
"The state has no regulations that prohibit a for-profit husband and a nonprofit wife from doing a real estate transaction under the [tax-exempt] bond program," says Michael Lyttle, a TDHCA spokesman. Lyttle says his agency deemed the fee acceptable, as did lawyers hired by McGuire's company and an "independent third-party developer." The developer was picked and paid by the McGuires.
The McGuire-McGuire contract was followed up with an addendum stating that Scott McGuire was being paid $175 an hour for his time, and Jim Edmondson $250 per hour.
As for Green Bridge, Virginia McGuire worked out her own fee beyond the one paid her husband's company: $100,000 plus reimbursement of all costs.
So when the deal closed in December, McGuire had enough money in her nonprofit account to pay her own salary. She reported making $83,647 that year, her group's Internal Revenue Service form shows.
Developer fees paid to closely tied entities and big director salaries at the nonprofits are easy, legal ways to make a tidy sum in the nonprofit housing world, says John Henneberger, the Austin-based housing advocate. A harsh critic of Virginia McGuire, he says, "I see her as someone operating on the ethical edge."
And she is not alone, he says. "Through these complicated transactions, you see the benefits flowing to the people who put them together, plus the brokers, the lawyers, the investment advisers. A property flows to a nonprofit, and in many cases, there is nothing enhanced from a public policy standpoint."
Green Bridge did one more deal during 2000.
For a $75,000 fee, it lent its name and nonprofit status to a for-profit developer, M. Meyers Development Co., so it could build a new $20 million apartment complex for retirees in Richardson. Meyers will receive the total property tax abatement, worth about $500,000 a year, and is not precluded from managing the complex, called Green Bridge at Buckingham, when construction is completed this summer.
A sales representative described the property as a luxury community where two-bedroom apartments will rent for $1,093 and up. Most of the apartments set aside as affordable housing will be small, one-bedroom units, measuring an average of 603 square feet, state documents show. Those will start at $553, the sales rep said.
By mid-2001, with two deals under its belt and more in the works, Virginia McGuire's company appeared to be moving up in the world.
She rented a five-room suite in a Lakewood Village office tower, a smart building popular with stockbrokers and real estate lawyers. It was convenient, too, just a few blocks away from her home on well-to-do Lakewood Boulevard.
These hearings, known as TEFRA hearings, are designed to give the public a chance to learn about proposed transactions and express their views. McGuire herself explains how a project's fate can hinge on these hearings.
"I know plenty of developers who put up some risk money and lost it because the TEFRA hearing didn't go through," McGuire says. "If people show up and say we don't want this project, TDHCA doesn't do it."