I hear recurring criticism of the current SAISD Board; that it focuses on real estate contracts and business opportunities – via new construction, bond deals, acquisition of property, and sub-contracting – rather than on the real business of the school district, educating children.
I’ve heard so much about Ed Garza’s interest in real estate that I decided to do some independent research on his real estate track record. Say what you like about his term as mayor, or his term as SAISD Board President, Ed Garza has clearly succeeded with real estate.
Through my investment business I’ve bought and sold a few dozen properties in the past decade, so I have experience looking at real estate transactions, and a few tools for doing a dive into his results.
I have to say, his track record on a number of real estate deals is incredible.
By that I’m using the literal meaning of the word: Not credible.
In the following posts I review some of the details that I find incredible, or at best highly unlikely.
I believe the results would need ‘help,’ possibly via political patronage or influence peddling.
I describe the transactions in detail so others can decide for themselves.
Two other thoughts, by way of preamble
a) I did not find an illegal real estate deal. I can only point to a pattern which, as an experienced real estate investor, I don’t think could be reproduced by others. If any reader can use this information to find a ‘smoking gun,’ I’m happy to serve as a nexus of crowd-sourced information.
b) I don’t know Ed Garza. I’ve never met him. Garza has a right to earn a living in real estate investing. Many people I’ve spoken with in recent years, however, share the uneasy feeling that real estate and business deals drive his leadership of the SAISD Board.
What’s at stake with the SAISD? Why do I care?
My oldest child is subject to the leadership of the school district every day, as she attends a public school in SAISD. Decisions of the school board affect my child’s life, and therefore my life, in a deep, visceral way. When the board focuses on the wrong things, then I, as a parent, feel a threat to my child’s future.
For the City of San Antonio the stakes are even higher.
The leadership of the SAISD knows that their success rate – as defined by graduating seniors considered “College Ready” via a minimal standardized test score – is 7%. That deserves restating: 7% of the kids in the SAISD system are ready to go to college by the time they graduate from the SAISD system. At the present rate, just 3,780 of the 54,000 children in SAISD can expect to go on to succeed in college.
This is horrible news.
That 7% success rate mirrors another statistic almost the inverse of the 7% college readiness. 93% of children attending schools in the SAISD come from disadvantaged backgrounds. 50,220 of the 54,000 kids in SAISD are economically disadvantaged.
We know that attending college – and most importantly, graduating from college – provides the key to getting ahead economically.
Putting those two statistics side-by-side, therefore, we can extrapolate the following: If we don’t change the 7% college-readiness statistic at SAISD, right now, today, we lock in the next generation of poverty for San Antonio.
We’re playing for high stakes.
College-readiness, as a way to address inter-generational poverty, needs the laser-like focus of the SAISD Board. Garza appears to lead the board with a focus on business and real-estate opportunities.
Critics of Garza I’ve spoken to in recent years point to Garza’s support of a pro-soccer field at Alamo Stadium as indicative of his interest in business contracts over what’s best for student education. Others cite the awarding of a contract to manage the SAISD bond projects to local power-broker Henry Munoz’ firm as evidence of SAISD’s style in contracting. Fairly or unfairly, the public perceives Garza this way.
A review of incredible Ed Garza Real Estate Transactions
I review below, in reverse chronological order, 3 real estate transactions of Ed Garza.
If you’d like to skip ahead please see related posts:
Real Estate Deal – #1 – 139 North Street, San Antonio 78201
Ed Garza and real estate partner Sam Wayne purchased – via their real estate joint venture known as Urban One 30 Group LLC – a property at 139 North Street, a 3 Bed 2 Bath 1,976 square foot stone construction house built in 1930. The property is in the neighborhood of Monticello Park, adjacent to and just North of Garza’s own neighborhood. Monticello Park features attractive single-story and 1.5 story houses built in the 1920s and 1930s.
Garza and Wayne paid $157,250 in March 2008 for the property, which then had a Bexar County tax-assessed value of $131,910, and a Zillow online real estate ‘Zestimate’ of $131,000.
Urban One 30 LLC obtained a Deed of Trust through Sterling Bank for $125,800, interest only, that matured nine months later, in December 2008. They probably intended to ‘flip’ the property quickly, hence the nine-month loan and interest-only provision.
Here’s how the property looked at acquisition:
Unfortunately, March 2008 was a tough time to acquire real estate for flipping – as a nation we’d be in full-on financial crisis mode by the Summer of 2008 – so Garza and Wayne refinanced the loan when it matured in December 2008.
They refinanced and extended the loan – then for $125,785 – for an additional five years to December 2013, interest-only for the first 6 months, followed by a 4.5-year amortization schedule.
Here’s where it gets weird
And then the first suspicious thing happened.
Two years after they extended the loan, and around the time they unsuccessfully listed it for sale for $145,000 in 2011, first with realty company Vflyer and next with Keller Williams, a massive fire gutted the property.
The Express-News reported that Garza claimed a contractor accidentally sparked the blaze, without going into details of how. Garza further said that he was suing the contractor.
Hmm. Ok. Was the contractor using explosives? Because this isn’t the work of a casual cigarette butt tossed next to an open aerosol can. I’ve looked at the property up close and it’s a catastrophe.
And here it is from the front, in which you can see the burned roof.
then there’s the side angle:
another side angle:
And an interior shot:
Now, in the real estate world, let’s just say there’s a weird correlation between unsold buildings with mortgages and insurance that tend to catch fire in economic downturns.
I know the property had insurance because there was a mortgage from Sterling Bank, and all mortgage lenders insist on insurance, including for fires.
Why do properties in economic downturns mysteriously catch fire, and inevitably the fire is large and catastrophic rather than contained? A fire insurance payout for the whole property can be a way for a financially distressed developer to collect insurance proceeds. That money then allows the developer to stay current on the mortgage, or to rehab the building. I’ve even seen situations in which the insurance proceeds can be offered to a new buyer, as an incentive to purchase a burned property, lowering the cost of acquisition.
Among the curious aspects of the 139 North Street situation is that, following the fire, the property never got rebuilt.
Does that mean the insurance company refused to pay because the fire appeared too suspicious? That in itself would be very interesting information, and would explain why the property lay burned and unimproved for so long.
I don’t know what caused the fire 139 North Street, but I’d really love to read the fire inspector’s report, or the insurance company’s investigation. I’d also be curious about the result of litigation Garza said he pursued against the contractor.
So then what happened?
Ok, let’s jump to the Spring of 2013. The Express-News’ Brian Chasnoff features this Monticello Park eyesore in a column. Chasnoff interviewed Neighborhood Association President Rob Sipes, who admits his Association is afraid to complain to the City about Garza’s burned out hulk because it may compromise ongoing neighborhood discussions about lighting and fencing at Jefferson High School.
It seems reasonable from Chasnoff’s article to assume that the City and neighborhood treatment of Garza and his eyesore reflect his political clout.
Meanwhile, the Bexar County tax assessed value dropped from $131,900 to $57,660 in 2013, as makes sense for an empty, burned-out husk of a house.
Another odd detail of Ed Garza’s real estate businesses
Two of Garza’s seemingly primary real estate businesses were ‘involuntarily terminated’ by the Texas Secretary of State in August 2011.
Ed Garza and partner Sam Wayne formed Urban One 30 Group LLC in November 2007, and they later formed Zane Garway Consulting LLC in October 2009. A few years later, In March 2011, the ‘Registered Agent’ for both LLCs filed a notification of ‘resignation,’ sending them a certified letter to let them know. The certified letter was to ensure Garza and Wayne couldn’t claim later to have not been notified, because of a letter lost in the mail, for example, or an incorrect address.
As you can see from the document, no reason is given in the resignation, although the most obvious reason would be for non-payment, most likely of just a few hundred dollars.
What happens next is that in August 2011, the Texas Secretary of State ‘involuntarily terminates’ Urban One 30 Group LLC and Zane Garway Consulting LLC – essentially making it improper for them to do any business in the State of Texas. The termination is for not keeping a registered agent. The effect is that nether entity then maintains required state filings, such as an annual ownership registration, an affiliated-entity registrations, or annual franchise tax registration. From my perspective, this may either be a result of neglect, a financial choice, or it may be a strategic choice.
There’s nothing necessarily shocking about the registered agent resignation and the subsequent termination. It does not mean necessarily they found something improper. It does mean, however, that Garza and Wayne a) Through neglect or for strategic reasons, failed to pay for a basic requirement of doing business and b) Through neglect or for strategic reasons, allowed their businesses to go ‘dark’ in the state of Texas from the perspective of reporting contact information, ownership information, or filing franchise tax information.
I do think there’s something unusual about a real estate investor and self-designated professional urban planner who lets his businesses, in this case two active legal entities, Urban One 30 Group LLC and Zane Garway Consulting LLC – both of which he shares with Sam Wayne – get ‘involuntarily terminated.’
But interestingly, On April 5, 2013, the Secretary of State received and approved a ‘Certificate of Reinstatement’ for Urban One 30 LLC. That filing, signed by Ed Garza, matches chronologically with the sale of 139 North Street, which is the weirdest thing of all.
Imagine my surprise to learn that Urban One 30 Group LLC sold 139 North last month for $156,250. That’s exactly $1,000 less than Garza and Wayne paid in 2008, before the house was a burned-out shell.
That got me thinking – and curious about – who would buy such a house, at such a price?
The buyer of 139 North is Nuvista LLC, a newly formed LLC, which first registered with a San Antonio PO Box in November 2012. Nuvista also acquired two other distressed properties in the nearby neighborhood, in December 2012 and March 2013, and a fourth distressed property last month.
Nuvista LLC is an unusual buyer, and the financing is odd as well.
The lender to Nuvista on the property at 139 North is called “Steadfast Funding LLC,” but that group does not appear to exist in Texas. Two private individuals in Allen TX are also listed as the principal backers of the construction loan to Nuvista, which matures in 6 months.
The owner and founder of Nuvista LLC and his wife declared bankruptcy a year ago in Arizona, in April 2012.
The owner of the LLC is listed as the founder of 20 different LLCs over the years.
The owner of the LLC has Arizona bank judgments against him for $538,497 and $42,729 from two different banks, a California State Tax Lien against him for $2,348, and a California judgment for $1,518.
I know it’s just a coincidence, but do you know who else had California State Tax Liens, and Arizona bank judgments?
Manuel Isquierdo did! Isquierdo is the Superintendent finalist that Ed Garza’s SAISD board nominated last month. In my article about Isquierdo’s nomination, I implied that board members might find a financially distressed Superintendent an advantage, rather than a disadvantage, and stated that I don’t believe in coincidences.
Let me clarify: I have no reason to think that Isquierdo and the owner of Nuvista LLC are actually linked.
But a recently bankrupt, financially desperate real estate investor paying 3 times too much for Garza’s burned-out property seems funny to me. How does the financially insolvent purchaser get a private mortgage anyway? Lenders aren’t stupid, in my experience.
It’s not illegal to pay too much for a property, but it strikes me as unlikely without a particular reason.
How did Urban One 30 find a buyer like Nuvista? Why would Nuvista pay the same amount for the property in its present, burnt-out, condition, when the tax assessed value is nearly 1/3 of its earlier value?
The fire at the location two years ago. The de-listed LLCs. The sale in April 2013. It’s incredible.
Please see other related posts:
Real Estate Deal #2 – 2006 W. Magnolia Ave, San Antonio TX 78201
Ed Garza and Urban One 30 LLC partner Sam Wayne purchased 2006 W. Magnolia in March, 2008 for $150,000, with a $120,000 9 month interest-only construction loan from Sterling Bank. The 3-bedroom 1-bath house, built in 1928, boasts 1,386 square feet, with an attractive stone exterior.
Along with the 139 North Street property also purchased in March 2008, the economic downturn probably upturned their plan for a quick flip within the term of the 9-month loan.
In December 2009 Urban One 30 Group refinanced the full $120,000 loan for an additional 5-year term, again interest-only for 6 months, followed by a 4.5-year amortization.
A silent, well-connected, co-investor
In September 2010 the Express-News featured this property in an interview with Garza and partner Sam Wayne, as they got ready to list the house, following a renovation.
We learn from the article that then-State Representative, future Congressman, and most importantly First Twin of San Antonio, Joaquin Castro had co-invested in the property with Garza.
Castro mentions to the Express-News that he’s only seen the property once, had no input into the renovation, and following a sale will just keep his money with Garza.
As the Express-News quotes Garza: “I guess he’s a silent partner. He’s only been out to the house once. That’s the kind of investor we like.”
Um, yeah. I’d agree that’s the kind of investor Garza likes.
I mean, what could go wrong? You’ve got the Mayor’s brother and future Congressman’s money co-invested with you. And he’s never seen the property but once. And by his own admission Castro has no input into the situation.
It’s not a knock on Castro that he trusts Garza to make money for him in real estate. But it does seem to be the kind of relationship-based real estate investing that Garza would seek out, to his own personal advantage. At the very least, Garza has arranged a cozy financial relationship with the Mayor’s family.
But the story of this property gets better because, like I said, he’s incredible.
The Property Value
Figuring out the value for this property at 2006 W. Magnolia is really a puzzle.
Between the purchase in 2008 and the sale in 2010, the Bexar County tax assessed value of 2006 W. Magnolia dropped steadily from $130,230, to $121,960 in 2009, to settle at $111,320 in 2010, at the time of the sale.
And then following the sale, tax assessed value stayed steady, at $122,770, $114,620, and $116,070 in years 2011, 2012, and 2013. So we’ve got a range over the past 6 years between $114K and $130K.
It’s possible the Bexar County assessor does not know about the renovations, or has declined to update the values on the house.
What about other sources for figuring out value?
The online real estate value site Zillow charts 2006 W. Magnolia steadily in the $105K to $130K range over the past 5 years.
Except for one moment.
Check it out. I’ve included a static picture of the Zillow page here, but I recommend you go on line to see this for yourself.
I’ve been using online real estate value estimator Zillow.com steadily since 2004, and I can’t recall an outlier value like the one that we see with 2006 W. Magnolia. The property sold for twice the value that would be expected using either Bexar County tax assessment or independent sales data for determining expected value in the neighborhood.
In the Zillow commentary on this property, you can read a real estate agent shilling for 2006 W Magnolia: “Urban One 30, Mayor Ed Garza and Sam Wayne did it again guys.”
Like I said, Garza is incredible at real estate. Castro’s faith in him was rewarded.
Who bought this for twice its expected value? How did he get a mortgage?
The individual purchaser bought 2006 W. Magnolia in November 2010, paying $230,348.68 – an outlier price, far above any indicated independent value for this property.
Stranger-still, the purchaser obtained a 30 year mortgage for $228,068.
For those of you doing the math at home, that not a 20%-down-payment mortgage, and that’s not a 5%-down-payment mortgage. That’s a 1%-down-payment mortgage.
The purchaser appears to work at a local coffee shop on North St. Mary Street.
What I find puzzling is the following items:
1. Like the purchaser of 2006 W. Magnolia, I got a mortgage in 2010 myself. I also obtained mortgages in 1999 and 2004. Compared to back then, I can attest that the 2010 mortgage environment was very tough.
2. Banks, since 2008, are reluctant to lend without a substantial down payment, a high property assessed value, reliable income, and great credit.
3. At the very least, on the assessed value and down payment side of things, this transaction is unusual. If the purchaser has anything less than high income and perfect credit, then this 1% mortgage is even odder.
When you can sell a property for $100,000 more than others think it’s worth, and your buyer can get a 1% money-down mortgage in the tough 2010 lending environment, I’d say you’ve got some real estate chops.
When you can sell like that and also generate some cash for the City’s First Twin and future Congressman, you’re really doing well.
Please see other related posts:
Real Estate Deal #3 – 1919 W. Magnolia, SA TX 78201
An incredible return on investment
Ed Garza purchased 1919 W. Magnolia in his own name in October 2006, for $114,220.40.
This 1,532 square foot 3-bedroom 2-bath house was built in 1927.
The tax assessed value of 1919 W. Magnolia declined steadily from $188,720 in 2008 to $130,370 in 2013.
The Zillow value of 1919 W. Magnolia fluctuated in a range between $120K and $200K over the past 6 years, 2006 to 2013.
An Amazing Flip!
The Zillow Value of 1919 W. Magnolia at the time of purchase was $159K in October 2006. Garza took out a loan at that time for $85,880 from San Antonio Federal Credit Union.
Just 7 months later, in May 2007, he sold the property to an individual for $250,040!
How good is Garza? Very good.
Garza bought it for $114,220, or 39% lower than the Zillow valuation, and 65% lower than the Bexar County 2008 value.
Garza sold it for $250,040, or 57% higher than Zillow indicated, and 32% higher than Bexar County 2008 assessed value.
All in just 7 months, for a 119% increase in price. It more than doubled.
No wonder he got the real estate bug after that flip.
Is there anything wrong here?
The only two nearby comparable houses for sale, on the 2100 block of Magnolia, as of this writing, are both listed for less than $200,000.
Of the 26 properties that share the same city block as 1919 W. Magnolia, none have a Zillow value above $157,000, or roughly $100,000 less than what Garza flipped this for in 2007. The average Zillow value of the 26 houses is $123,153.
Was it just frothy real estate times? Maybe. In late 2006 to early 2007, this kind of price action is possible, so this may be nothing more than what it seems: A good buy and a good sale.
But how does he acquire the property for $114,220 just 7 months earlier?
In the end I can’t find anything circumstantially fishy – like a massive fire or a financially distressed buyer – about the 1919 W. Magnolia transaction, other than the amazing price appreciation in 7 months.
The transaction may help explain why Ed Garza got the idea that real estate should be his focus.
Like many of us in the school district, I want his focus at SAISD on the kids’ education, not the real estate contracts.
Please see other related posts:
And subsequent posts:
 Also known as a Mortgage.
 If you’re a fan of Michael Lewis’ books you may recall the chapter in Boomerang about mysterious explosions all around Iceland when their financial crisis started. That was the sound of SUVs exploding like fireworks throughout the capital, all the better to collect insurance and relieve the owners of paying their suddenly unaffordable car loans.
 Folks closer to Garza frequently mention his adoption of his alma mater Jefferson as his own private Superintendent-ship.
 In 2011, tax-assessed value was $115,250, but then it dropped post-fire in 2012 to $58,500. Which makes sense.
 A quick note on a ‘registered agent’ if that’s not a familiar term for readers: Every corporation, LLC, or partnership – at the time of the company’s birth – informs their home state of a designated contact person and address known as a registered agent. Most businesses choose a professional ‘registered agent’ that can receive official notices such as lawsuits or government actions. It costs a few hundred dollars a year, and you have to tell your state who it is.
Post read (6114) times.
Thanks for visiting Bankers Anonymous. Be sure to sign-up for my newsletter so you never miss what's happening on my site. You can also connect with me on Facebook and Twitter to keep the conversation going.