HUD Loan Docs Raise Questions About City Staff's Report on $3.9 Million Loan for Patriots Crossing Development

Most of the City Council's housing committee ho-hummed or twiddled their fingers at a February 3 briefing on a big city-bankrolled development deal called "Patriots Crossing," but a few expressed dismay. They said the city had paid way too much money for land on Lancaster Road across from the Veterans Affairs hospital.

Top city staffers assured the skeptics on the council that all was in order with the city's real estate development. But U.S. Department of Housing and Urban Development loan documents I received last week in response to a demand for open records paint a picture that diverges at key points from what the staff told the council.

Maybe the most important thing the staff did not tell the council was that they, City Hall, lent a developer named Yigal Lelah $3.9 million to cover property for which he appears to have paid only $3.4 million. That's half a million dollars AWOL from the staff presentation.

It does not appear that the AWOL half million went into Lelah's pocket. In fact Lelah, if anything, was scrupulous on the documents I saw to show where the money did go. It just didn't go where the staff's PowerPoint presentation to the council said it went, to buy land. Instead the extra money appears to have gone to cover Lelah's "pre-development costs," for architectural renderings, surveys, consulting fees and other things.

See also: Dallas City Council Wants to Know What It Did With 4.5 Million of Your Dollars

I tried by phone and email to reach Lelah last week, but he did not respond. City officials said they would get back to me Friday on the same questions, but they did not.

I don't know that Lelah did anything wrong by folding his pre-development costs into his loans from the city in terms of his original understanding with the city. The original briefing in 2009 said the city would lend him money for "development and related cost including land assemblage." The point is that the council was not told that was what they were looking at in the recent briefing, and it was city staff, not Lelah, who should have told them.

The way it was done was pretty simple and pretty obvious. For example, the city loaned Lelah almost $70,000 to buy a house at 4702 Denley Drive, for which Lelah paid $36,000. In another case at 4610 Denley Drive, the city loaned Lelah $213,000 so he could pay $120,000 for the property.

The loan documents I saw are designed to explain each transaction to HUD, whose money is being spent here. On the documents, additional amounts were tacked on to each deal for consulting, architectural fees and so on. To buy the house at 4610 Denley Drive for $120,000, for example, the loan documents show that Lelah had to pay a commission of $3,612 to an unnamed person, invoices of $6,500 and $22,050 to an architectural firm, 5GStudio Collaborative, an invoice of $24,768 to someone whose name is either Kelly Pacheco or Pacheco Kelly, as well as various environmental, construction and other fees.

At 4610 as on most of the properties Lelah bought, a consulting fee of $7,224 was paid to Vernon S. Smith. In some public statements, Lelah's company, Sapphire Road Development, has described Smith as a vice president of the firm. On the properties for which I have documents, Smith is a consultant. He was paid a total of $170,000 in these deals.

Some of Lelah's paperwork seems to paint the amounts loaned for some properties as reflecting actual market value. Lelah presented the city with an appraisal of a property at 4702 Denley Drive showing a value of $248,400. But the HUD loan document for that property shows a value of $36,000.

Again, I am not arguing that any of this is a smoking gun or that I saw somebody running off over the horizon with the boodle. If city staffers would call me back and explain it to me, I might wind up less confused. I am not hugely hopeful on that score.

At the council's housing committee briefing, interim housing Director Bernadette Mitchell deflected questions from council members by suggesting that the Lelah deal was handled by the city's Office of Economic Development under Director Karl Zavitkovsky. Therefore I posed my questions last week to Zavitkovsky as well.

Zavitkovsky emailed me back: "Neither I nor anyone in the Office of Economic Development had any involvement with this transaction. I suggest that you contact Theresa O'Donnell, Assistant City Manager, with responsibility for Housing and Sustainable Development."

I did that. She said she'd get back to me. We have not yet spoken.

There is another issue. From the get-go, Lelah's project has been a high priority for council member Vonciel Hill, who represents the district. At the last full City Council meeting where questions were raised about land costs, Hill unsubtly suggested that council members who thought prices paid by the city were too high were racists. A problem with that thesis is that nobody has been more of a skeptic on this deal than African-American council member Dwaine Caraway. But there you have it.

The original project for mixed-use development went south long ago -- ain't gonna happen, not now, not never -- so now Lelah's venture has morphed into a low-income housing deal, also to paid for almost entirely with public subsidy. Some aspects of that idea are deeply strange: The city is under the gun from HUD not to cram more subsidized housing into southern Dallas. There is already a major new subsidized housing development a few blocks down Lancaster Road from Lelah, so a big initiative for more of the same in almost the same location seems anomalous.

Whether Lelah has done right or wrong by tacking all of his development costs for a failed development into so-called land costs at this address, the fact is that the city holds the ultimate liens here and is the ultimate owner if Lelah walks. So far, the city has sunk almost $4 million into a block of raw dirt across from the VA hospital.

It's not that Lancaster Road is a dead end or without potential. Things are happening on Lancaster -- an impressive amount of new development up and down the street. The question would be this: If and when this land comes back to the city and the city wants to peddle it, will there be anybody out there willing to pay $4 million for it, or is a haircut in order for City Hall?

And that could be nice, too. I'm thinking Mohawk. What about you?

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Jim Schutze has been the city columnist for the Dallas Observer since 1998. He has been a recipient of the Association of Alternative Newsweeklies’ national award for best commentary and Lincoln University’s national Unity Award for writing on civil rights and racial issues. In 2011 he was admitted to the Texas Institute of Letters.
Contact: Jim Schutze