The Public Service Board made about $1.5 million on the failed Northeast El Paso land deal with Hunt Communities, El Paso Water Utilities President and CEO Ed Archuleta told City Council Tuesday.
Archuleta reported to the council, at the request of Northeast city Rep. Melina Castro, a series of numbers related to the failed sale. He also generally addressed what would come next for the master-planned 4,800 acres, upon which the PSB – which oversees the utility – and members of City Council had pinned their hopes for a new type of development in El Paso.
“It was a missed opportunity in moving the master plan forward and to be able to capture what we thought was a very (good) bid,” Archuleta said. The bid price came in at about $27,000 per acre, well more than the next bidder at about $22,000.
He told council that the utility probably would have spent as much as it made for the first phase and said that the PSB was in no hurry to rebid the land, because there were plenty of lots to build upon and homes for sale in El Paso. The poor economic outlook in the near short term makes it unlikely for the PSB to take any action on the land until next year, he said.
For the six years of the first phase of development, he said, the PSB would have spent about $31 million on water and sewer projects, and $6 million for construction on McCombs, a key artery for the land’s development.
“We would have spent all the money we would have received from the first phased bid of land. The real revenues would have occurred in Phases 2 and 3 in years six and nine,” he said. Those two phases, he said, would have brought in $44 million and $89 million, respectively.
As for what happens next with the property, he said, “it’s just a matter of taking a fresh look at when and how we proceed. The board is not in a hurry. There’s a lot of vacant land up there,” Archuleta said, adding that the last report he saw showed 5,000 homes for sale across the city.
Later, city Rep. Emma Acosta asked Archuleta directly whether the land would be bid again, and El Paso Mayor John Cook, a member of the PSB, said that the PSB gave directions to Archuleta to “come back to us with alternatives. That could include changing the phasing, it could include the utility being the master developer.”
Archuleta said that “until the credit markets improve it makes no sense (to rebid). Maybe after the elections, after the first of the year.”
The PSB, he said, would “certainly inform you as to what the board plans to do. The fortunate thing is (there are) plenty of lots out there in all parts of the city, plenty of buildable lots. We don’t have to rush to anything.”
The failure of the sale would not affect the budgets for either the PSB or city, he and El Paso City Manager Joyce Wilson said.
For the PSB, which keeps the $3.5 million from Hunt now in escrow, there’s a gain of about $1.5 million, Archuleta said. In addition, the PSB has the master plan and other studies and documents that will be used when the property next goes to bid, although he admitted there was a question about some of the intellectual property – specifically, drainage and traffic studies — paid for by Hunt as part of preparation for the deal.
For the city, Wilson said no revenues were budgeted for this year based on the development. The land would be vacant for a couple of years before development, she said, so there would be little in the way of property taxes. The city receives 5 percent of PSB land sales, which goes into a capital improvement account, but no proceeds had been budgeted, she said. “So the only impact to the city budget is a delay in terms of income benefit,” she said.
One other question was left unresolved: Can Hunt bid again on the property?
Castro said she thought at a previous meeting the council agreed that Hunt could not bid again if the land deal failed. Nobody else remembered that, and Wilson said that the discussion was “whether failure to close would be deemed non-responsive and make you ineligible for a period of time.”
Archuleta said that Hunt was prepared to close, and it wasn’t the company’s fault the credit market suddenly dried up, but Castro insisted that the reason for the failure did not matter.
City staff promised to look the issue up.
Meanwhile, there was one critique of the failed deal. Ray Gilbert, a watchdog and frequent critic of governmental actions, repeated his assertion that the changes to the structure of the bid – the timing of the three phases of the sale, and the amount of money, land and open space requirements in each phase – essentially made the proposed transaction a new deal, and should have been rebid.
He said had the deal gone through, he would have sued. Gilbert has a lawsuit pending against the stormwater district, arguing it was created illegally. A judge in El Paso dismissed the lawsuit, but Gilbert has promised to appeal.
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Here are some background stories, arranged chronologically and in a bulleted list:
– High Bidder for 5,000 Northeast Acres: Hunt Communities, Aug. 3, 2007: “The high bidder for almost 5,000 acres of Public Service Board land in Northeast El Paso is Hunt Communities. The successful bid comes after an unprecedented process that will provide almost a generation’s worth of land north of Fort Bliss to a single purchaser.”
– Hunt Halts Land Sale; $131 Million Deal is Off, March 6, 2008: “Hunt issued a statement early Thursday, along with a letter notifying the PSB of its decision to withdraw its bid, which at more than $27,000 per acre was well ahead of the rival bidder. Reaction from the city was swift. Beyond the finger-pointing are questions of development quality, quantity, and need.”
– Starting Gun of a Northeast Land Rush, March 7, 2008: “A story from the archives, this one dated Nov. 27, 2006, sheds some light on the context of Northeast land development that has been highlighted by the recent withdrawal by Hunt Communities of its $131 million bid for PSB land. Of particular interest are comments regarding subdivision codes. Enjoy!”
– “Smart Code” and Other Changes to Development Rules Approved; Next Step, Council, March 14, 2008: “The City Council wants pedestrian- and mass transit-friendly neighborhoods. But developers need rules that allow such neighborhoods, and the city is moving — now quickly — to adopt those rules.”
– $131 Million Hunt-PSB Land Sale Back On, May 6, 2008: “Council members suggested that Hunt was backing out because it had bid too much for the land, especially in light of the looming national recession driven by the crisis in home financing. But after the hot words, negotiations quietly resumed between the city and Hunt.”
– As $131 million PSB-Hunt land sale closes, questions of legality emerge, Sept. 19, 2008: “Government watchdog Ray Gilbert contends that the sale of 4,833 acres in Northeast El Paso is illegal. He cites changes in the contract that require far less up front payment. In addition, his claim highlights how open space requirements, once on the front end of development, have been pushed into later phases.”
– First major casualty of national credit crisis: Hunt withdraws from $131 million land deal with city, Sept. 23, 2008: “The national and local economic environments that exist today are very different from the conditions which existed over a year ago when we formulated our bid and business plan,” Hunt Communities President Justin Chapman said. “Banks are aggressively working to cut their exposures to real estate loans – especially community development projects.”
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