Stacked Deck

Giving penny-ante politicians a say over lucrative affordable-housing developments seemed like a good idea--until the FBI came calling

And yet for all the money that Potashnik spent and all the risks that he took, his business rests on the kindness of strangers. Thanks to Texas law, local and state officials have the power to stymie a project with a single vote or letter, even after the developer spends hundreds of thousands of dollars on lawyers, engineers, architects and planners. We may find out that Potashnik never broke the law, but the program that funds his developments has paved the way for this type of scandal by putting well-financed developers at the mercy of obscure, often underemployed and not particularly accomplished public officials who have inordinate power to affect the fortunes of a business for years. And with that power comes the potential for abuse.

A few months before federal agents became acquainted with Potashnik, when the wealthy developer had every reason to think he was on top of the world, he told a trade magazine that he has "Mother Teresa on one side of the brain and Bill Gates on the other." So in his world, Potashnik is both a business icon and a saint in the making.

Even in hyperbole, Potashnik cut to the essence of his work, which is far messier, quirkier and ultimately rewarding than the typical residential real estate business. Potashnik operates in a very public arena where the federal government relies on the entrepreneurial class to provide affordable housing. To be as successful and prolific as he, you have to be innovative and shrewd, able to squeeze out competitors by being better and bigger. Kind of like Microsoft.

Brian Potashnik and his wife
Brian Potashnik and his wife

You also have, at least, to show a sense of compassion by providing a safe place for the working poor to live and raise families. Potashnik participates in a program that is regulated by the IRS and the state, both of which are charged with ensuring that developers keep up their properties and provide various social services. If they don't, the state can forbid them from applying for future tax credits, and the IRS can rescind tax credits already awarded, which could land the developer in legal trouble with his investors. For that reason, the investors also inspect the affordable housing that they helped fund, knowing that if it slides into disrepair they could be millions of dollars in debt.

To Potashnik's credit, people in the industry applaud Southwest Housing and how it manages its properties.

"Their product is superior," says Phil Nelson, a board member at the San Antonio Housing Authority. "What they're doing in San Antonio is top grade. Their management is good. Their services are good."

"He has a development in Austin that I wish our company's name was attached to," says Sandy Williams, the executive director of Alamo Area Mutual Housing, a nonprofit development company. "It's that good."

The Austin property Williams envies is the Rosemont at Oak Valley, located in a pleasant neighborhood south of downtown. A recent visit to the Rosemont shows a thriving complex of distinct town houses with expansive patios and balconies, ceramic tile entries and French doors highlighting cozy interiors. At the center of the complex is a swimming pool that could serve as the backdrop for a Hilton Head commercial.

More important, the property is surprisingly affordable. The rent for a four-bedroom apartment at the Rosemont is $822, and tenants can earn no more than $42,000 annually per household for a family of four. Like most tax-credit properties, the Rosemont is still not affordable enough for the hourly employees at fast-food restaurants and gas stations. Instead Southwest has constructed an idyllic place for construction workers, plumbers and clerical workers to live while saving for a new home.

"I really think they do a fabulous job," Williams says. "It's a shame the investigation has cast a pall over what they do."

The Dallas FBI investigation would make for a terrible movie. There are too many characters competing for screen time, a confusing story line and a host of subplots that seem to have little connection with the main action. The cast of secondary characters is stocked with obscure players like Ruth Steward, and the moral worth of our protagonists is hard to measure. It would kind of be like Syriana, only without George Clooney and Matt Damon.

But for any fledgling screenwriters who want to pitch this as a movie, here's the back-of-the-napkin guide to the ugly urban drama that has unfolded over the last seven months: Two Dallas developers, Potashnik and his former-underling-turned-competitor Bill Fisher, have caught the attention of federal agents for the ways in which they have tried to influence city council members, state lawmakers and appointed officials. Since news of the investigation broke in June, we've heard accounts of shady side players exchanging envelopes stuffed with cash at a local gas station and of a so-called consultant lending a luxury sedan to the city's mayor pro tem.

FBI agents have raided council member James Fantroy's security company office and have searched the law office, home and City Hall office of Mayor Pro Tem Don Hill, who was once regarded as a mayoral hopeful. Both men have lent crucial political support to Potashnik's and Fisher's projects, often in the face of public opposition. In fact, without them as allies, the two developers likely would have been forced to scrap half a dozen planned developments. In addition to Fantroy and Hill, every black member of the Dallas City Council has been named in federal subpoenas.

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