Ed Garza responds – On Contracting with VIA

garzaAecomSAISD President and former Mayor Ed Garza reached out to me last week in response to my review of his real estate transactions.

He responded to my review of his real estate business here.

I then used the opportunity to ask him about his other business interests.

In particular, I asked him about Zane Garway Consulting Group LLC, which he has in the past represented as an urban planning business with business in San Antonio, Fort Worth, and even Israel.

I also asked about Garza’s history of subcontract work with VIA.

Garza and I agreed that it is important that Garza’s involvement as subcontractor for VIA, for example, be kept in the public eye.

As the President of the SAISD board, he has the power to award multi-million dollar contracts, including the $12.5 Million contract to VIA Chairman Henry Munoz’ Munoz/Jacobs group.

Transparency in financial dealings of public officials is of the utmost importance, as even the appearance of quid pro quo contracting can hurt the public mission of an organization such as SAISD.

 

A) On Zane Garway Consulting Group LLC

I mentioned – somewhat in passing in my prior post – that two Garza entities Urban One 30 Group LLC and Zane Garway Consulting Group LLC had lost their registration as businesses in Texas due to the resignation of their registered agent, and a subsequent ‘involuntary dissolution’ filed by the Texas Secretary of State.

Garza clarified that he has never done business as Zane Garway Consulting Group LLC, despite using a Zane Garway email, setting up a Zane Garway website, applying for business as Zane Garway LLC[1], and listing clients on the website.

This portion of the interview:

Michael:         Thank you for spending all this time and I really appreciate it. I had another question which is beyond what I had written about but I understand you and your real-estate partner do Zane Garway Consulting Group?

Ed:                  Yeah, we formed that group but we’ve never used that group.

Michael:         You haven’t?

Ed:                  Correct.

Michael:         You have a website that has clients and prospective clients.

Ed:                  We set it all up and we had the — the work that’s on there is work that I had worked on previously with firms I’ve been employed with. I didn’t even know it was still up but it’s good to know.

Michael:         Yeah, zanegarway.com.

Ed:                  I used the email because we set it up at the time and everything started coming in on that email. It’s just a hassle of changing an email, but we’ve never used that entity in any business transactions. When I started doing independent consulting, it was easier on my own to do independent contracts rather than utilizing the entity since it was just me doing the work.

And then after the last house on North, basically the business partnership between Mr. Wayne and I has stopped. We’ve not done business since that time. You were correct on your assessment on we had to reinstate Urban One 30 in order to sell the property. [He’s referring to 139 North Street]

Michael:         Buyers’ attorneys always say “show me you’re in good standing with the state.”

Ed:                  That came out during the closing. The title company called and said you’re going to have to reinstate this in order to close this property. We had no intention of selling it at that time. We figured the litigation would have to get resolved and didn’t know the timing on that, so there was no need to reinstate an unused business, in our opinion, and we decided to let it expire.

Michael:         You never got contracts for Zane Garway?

Ed:                  Correct.

Michael:         Or you’ve never done business as Zane Garway Consulting Group?

Ed:                  Correct.

Michael:         But it looks like on the site you have contracts or have done work for Ft. Worth.

Ed:                  That was all through EDAW, I worked with TCB and then they were bought out by AECOM and then shortly thereafter is when I left. Those were all with companies I was employed with, in my urban-planning role with those companies.

Michael:         Although on the report for Ft. Worth Planning Commission, you’re listed as Ed Garza of Zane Garway.

Ed:                  Yeah, I think initially it was, from what I recall and also I think I did a job in Arlington, I was selected as Zane Garway, but when we actually entered into the contract which I was a sub, it was as an independent consultant. At the time when we applied for those projects it was the partners. After that, when we went our separate ways, it was really the work that I would be doing personally and there was no need to bring an entity involved, that the other partners were not going to be performing any of the services.

Michael:         Never did business.

Ed:                  Correct.

Michael:         Some of your information online lists Sam Wayne and another gentleman, Kevin McConnell. Was that the full extent of the partnership?

Ed:                  Correct, the three of us, and Kevin’s the one that set up the website and was the Trinity student at the time. He was leaving the company before we even started the North project. He was going back to school out of the country so he withdrew from the partnership, even though he’d set up everything in the partnership in terms of the name, the entity, the website. Mr. McConnell did most of that work.

When he left the country it was just Sam Wayne and I, and when I would be pursuing contracts out of San Antonio, again it was “I’m going to be doing the work” so it was inefficient to utilize the company where Mr. Wayne was involved when he wasn’t going to be performing any of the services. By that time, he went off on his own. I think he went into looking at getting his broker’s license. I can’t confirm that. I’ve never had any business transactions with Zane Garway.

 

B) Contracts with VIA

I also asked Garza about his contracts with San Antonio public transportation company VIA.  The board chairman of VIA is Henry Munoz, who’s firm won the $12.5 million contract to manage SAISD’s bond deal.

Michael:         One of the contracts that shows up there on the Zane Garway site is a VIA contract and so that’s interesting because people look at business relationships and think “VIA, that’s Henry Muñoz,” and at the very least from a timing perspective, the way that gets looked at is with a jaundiced eye.

Ed:                  I understand.

Michael:         Can you tell me about what you did for VIA?

Ed:                  Actually going back to EDAW and TCB. I was already working on projects with VIA with the Bus Rapid Transit —

Michael:         I don’t know what EDAW or TCB is.

Ed:                  EDAW was an urban-planning firm based out of San Francisco and TCB was an engineering firm based in Texas. Both firms eventually were bought out by AECOM which is based out of Los Angeles, I believe. During the years that I worked for one of those three companies, because they kept changing ownership, and this is a global company, I worked on a number of projects.

Locally one of the projects I took the lead on for the company was VIA’s Bus Rapid Transit project. That probably began for me in 2006-2007. My role was public engagement, the public meetings we had along Fredericksburg Road, as well, as the site planning for stations for Bus Rapid Transit. I did participate with them, before I’m on the school board, well before I thought about running. I had already developed a relationship with VIA. The second contract I had with VIA was through HNTB who was awarded the contract to be program manager for the streetcar project.

Michael:         I’m not familiar with HNTB.

Ed:                  HNTB is another engineering company, I think they’re national or international. The gentleman that was heading HNTB I knew when he worked with TCB prior to him joining HNTB. He already knew of my work with VIA, so when he got his team he asked if I would become part of that effort, team effort, which I did. And again I introduced it as Zane Garway when we first submitted, but by the time we were selected, Zane Garway was no longer being used. I became an independent contractor to HNTB.

Those have been the two contracts that I have been involved with VIA. One was prior to me being on the school board and the other came up during my first or second year. The Express News wrote about the piece, the same questions you’d asked. When I was really clarifying the fact that my relationship with VIA had started before that, and really it was the work I was doing with the staff, and not at the board level, that proved to be where my value was to the projects. Having grown up in the neighborhood, I was very familiar with Fredericksburg Road, the Deco District revitalization. They saw that as a value to the project.

Michael:         Is that what you did for the HNTB, the Deco District revitalization?

Ed:                  HNTB, my role was specific to site planning for the streetcar, not the BRT, but it dealt with the urban planning, land-use issues, and the public engagement/public involvement. The two that I’ve been involved with to date have been the urban planning and land-use assessment. I haven’t done any work on that project probably for over a year. That had been written about, talked about, and disclosed.

Michael:         That’s one of those things that between public officials and prominent public entities, there’s a higher level of scrutiny that people want to see and a higher level of disclosure and higher level of public interest.

Please also see related post Ed Garza responds about Real Estate


[1] Such as he’s listed in this Fort Worth Report.

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Ed Garza responds – on Real Estate

garzaAecomI recently posted a piece about Ed Garza, former mayor of San Antonio, and current President of the San Antonio Independent School District (SAISD), critically reviewing his real estate businesses and questioning some of his results.

Garza was kind enough to respond last week, and I appreciate that he took the time.

He corrected a significant error I made on the price at which he sold one of his properties, although the outcome of a lawsuit with respect to a fire at the property, and his sale, should still remain in the public eye.

My goal with Bankers Anonymous is to make finance and financial transactions more accessible to the public.  This matters particularly when it comes to evaluating public officials’ actions in the public and private business sphere.

An important correction to my review of the 139 North Street transaction

Garza reached out to me last week shortly after I posted a review of his real estate transactions.

Most importantly, he corrected a sale price I reported for 139 North Street, which burned in the Spring of 2011.  Based on a public records search, I reported a sale price of $156,250, an implausibly high sale price for a burned structure.

Garza has since showed me a ‘Settlement Statement’ on the sale to Nuvista LLC, which shows a more reasonable $43,000 purchase price.  Since an unusual feature of the 139 North Street situation – in addition to the unusual fire, the unusual buyer, and the unusual loan – was the sale price this is an important correction.

The buyer, Nuvista LLC – newly formed in November 2012 by a recently bankrupt gentleman from Arizona – did obtain a $125,000 loan from private individuals in Allen, TX at the time of the purchase.

Ed Garza also responded to other aspects of my real estate review, and I have included commentary and portions of our interview below.

We covered a range of topics, including

A) The fire at 139 North Street

B) The sale price of 1919 Magnolia

C) The appraisal of 2006 Magnolia

In a subsequent post, I’ve included a portion of the interview in which we discussed his other business dealings, including contracting with VIA.

A) Fire at 139 North Street

Front 139 North
139 North Street from the front

I noted in my piece that a fire in the empty property seemed unusual, and I was curious what the fire inspection showed.  Garza responded that

1. The Fire department’s report was ‘inconclusive,’

2. The bank’s insurance company initiated litigation against the contractors on the issue 1.5 years ago,

3. Garza’s firm joined the litigation alongside the insurance company, and

4. Depositions have not yet begun as of June 2013.

The portion of the interview about the fire is below.  [I have edited out a few comments tangential to the discussion of the fire at 139 North Street.]

Michael:        I’m interested in the story that was reported in the Express News about 139 North Street, and that there’d been a fire there. Can you tell me what happened? I can only see what I can see from that story, but what happened?

Ed:                   It was a home that was being restored. Probably 80% into the project, the fire occurred. When it’s 80% of the project, that’s after putting in, and investing into a renovation budget of probably close to $100,000 over a period of at least a year, and trying to bring that house, which had been vacant to a number of years prior to the purchase. It was devastating to have something that you spent not just obviously money to invest, but also the time and effort and sweat equity to bring something back to life, in a neighborhood that I’ve lived in all my life was quite devastating. It was the last house that we renovated either individually or as an entity just because of the financial hit we took because of the fire.

Michael:          Who was the contractor?

Ed:                 The contractor was a local contractor that we used, Fieldgate Remodeling was the name of the firm. We used them in the house prior on some work. They were not a general contractor but they had performed services in some of the renovation on the house prior. I was impressed with their work. I was quite busy at the time and my business partner at the time was also busy.

                       With this next house that we had in inventory, we wanted to get somebody to do the day-to-day, which we’d never done before. We asked them if they would be the general contractor for the project to oversee the day-to-day work.

Michael:          Fieldgate Remodeling was the general contractor?

Ed:                   Correct.

Michael:          What happened? Did they have insurance?

Ed:                  They have insurance. After the fire, the city did their inspection and it was — I guess the best way to say it was there wasn’t a conclusion, it was kind of undetermined.

Michael:          When you say the city, who does the inspection for the city?

Ed:                   The fire department.

Michael:          The fire department did an inspection?

Ed:                   Correct.

Michael:          You described that as an inconclusive report?

Ed:                  Right. They said the property was secure, there was no forced entry into the property. But that they asked what had been done the night before, and what we were told by the contractor, the night before they were sanding the floors. Again this is getting into the final stages of the renovation. The arson investigator that the bank – or the insurance company for the bank – concluded for their report that they believe the fire was started through the combustion of the wood particles the night before, of the sanding of the floors with chemicals from — on a rag from what was used in the kitchen on the tile work.

                       The chemical and dust particle started the fire in a bucket near the front, literally in the front window of the house. If you’re standing there from the street, you would be able to see somebody. That’s where the bucket had been left, and that’s where the fire started. It burnt through the floor, went under the floor, through the walls, up to the attic and that’s what collapsed in the house was a big attic.

Michael:          Do you know who the fire department person was who did the inspection?

Ed:                   Not offhand, I’m sure I can find his card.

Michael:          Do you remember who the insurance company was?

Ed:                  That’s the same thing, I can get you that information. Are you talking about the insurance company for them or for the bank?

Michael:          For the bank.

Ed:                   I can get you that information. It was also devastating the day of the fire that I learned my business partner allowed the insurance on the property to lapse. That was a shock. Fortunately, I found out through that week that the bank of course by law has to have the house insured, so they had a forced insurance on the property. But was not one that we carried as the property owners.

                        Since that time, the insurance company filed suit against Fieldgate. We joined that suit. I forgot the legal term that’s used, but we joined that suit for damages caused by that fire. We haven’t been deposed yet.

Michael:          Your business partner let the insurance lapse?

Ed:                  Correct, for the entity. I’m not going to just blame him, but yeah, the business entity did not renew the fire-insurance policy on the house.

Michael:         You were personally uninsured but the bank was insured. Do you remember the insurance company’s name?

Ed:                   No.

Michael:          Did the bank’s insurance pay the bank off for the mortgage?

Ed:                   Yes.

Michael:          When did they pay?

Ed:                   It was probably a few months after the fire.

Michael:          At that time, the bank had insurance; you didn’t.

Ed:                   Correct.

Michael:          Then the bank’s mortgage —

Ed:                   We weren’t going to collect on anything from the insurance but the bank, because of the forced insurance policy, was covered.

Michael:          You’re understanding is the insurance did pay out to the bank?

Ed:                   Yes, so the note was paid later that year, the note was paid off. We held the property free and clear, but of course it’s a fire-damaged property.[1]

Michael:          Sure.

Ed:                  We were out of the investment made for the renovation. No real way to recoup that, and renovating it was going to be — we did get an estimate to rebuild as-is, in terms of same materials, same quality the house was built. It was a little over $200,000.

Michael:          It would have cost you $200,000 to rebuild.

Ed:                   Right, to rebuild as-is, same materials, same quality lumber, every detail was estimated and it was going to be quite an investment.

Michael:          The timeline for the mortgage being satisfied by insurance on North Street is really the end of 2011?

Ed:                   Correct.

Michael:          You’ve not been on the hook for that one since the end of 2011.

Ed:                   Correct, not on the hook in terms of the mortgage, but still in the litigation of the property.

Michael:          Is that ongoing still?

Ed:                  Correct, we’ve not even been deposed yet. We joined that suit with the insurance company that sued the contractor, based on their investigation.

Michael:          Are you claiming damages as well?

Ed:                   Yes.

Michael:          As the entity that owned 139 North Street, trying to get reimbursed.

Ed:                   Correct.

B) Price of 1919 Magnolia

1919 W. Magnolia Ave., San Antonio TX
1919 W. Magnolia Ave., San Antonio TX

It’s not terribly relevant to the review of Garza’s real estate transactions, but he wanted me to note that in fact he purchased 1919 Magnolia at a better (ie. lower) price than I had obtained from my public records search.  I had reported, based on records available to me, that he acquired the property for $114,220.40, which he 7 months later flipped for $250K.  He clarifies that he purchased it for $90,400, and sold it for $234,000.

C) Appraisal of 2006 Magnolia

2006 W. Magnolia
2006 W. Magnolia

I expressed surprise in my review of this transaction that the buyer could obtain a 1% down-payment mortgage, at a price significantly above nearby comparables, in the tough real estate and lending environment of 2010.

Garza responded, in essence, that

1. The buyer must have had good credit [I think this is necessary, but not sufficient.]

2. The Austin-based bank appraiser must have seen something in the renovation that allowed him to use higher-end Monte Vista comparables rather than the dozens of Monticello Park comparables to come up with an appraisal.

[I have edited this section to take out non-germane comments]

Michael:         That reminds me of this other property we haven’t talked about, the 2006 West Magnolia. What’s interesting about that for me is that this buyer was able to get such an attractive financing package. Did you know this buyer?

Ed:                  I did meet the buyer. They had a realtor.

Michael:         Did you list it with somebody?

Ed:                 Yeah, the same lady that listed 1919 [Magnolia] listed 2006 [Magnolia] with Keller Williams.

Michael:         Josette Gonzales?

Ed:                 Correct. I think that one took — that was already in the bust of the real-estate market and she was more cautious again because the values had gone down, appraisers were even more unpredictable in terms of how they would look at properties. But she still came back and said we can sell this one for $234,000. Keep in mind every house that we did set a new per-square-foot record in Monticello Park. I only focused in Monticello Park. That’s my neighborhood.

                       I wasn’t interested in buying properties to flip or just doing any house. Being employed at the time with a big company, I didn’t have the time to be doing this as a flipper would. This was more about bringing value back into the neighborhood that I’ve invested in, my wife’s invested in. It really became a passion.  

                       So 2006, again being parishioners at St. Anne’s and the man was a deacon at the church. He passed away and his siblings, his daughter approached me about purchasing that house. We bought it for $120,000. Every house that I bought from Magnolia, both Magnolias, to the Mistletoe, to Fir, I always tracked the BCAD [Bexar County Appraisal District Online Property Search] and I would never offer anything more than the BCAD. That was just a general rule.

                        This one was right at the BCAD price when we purchased it, and probably sat on it for at least six to eight months before we started the project.

Michael:         Just on the 2006 Magnolia, you got an amazing sale off, and what I thought was interesting and highlighted is the buyer — you said you knew the buyer somewhat?

Ed:                  No. The buyer was represented by a broker, and the buyer is the owner of Candlelight Coffeehouse. They’re the actual owners, what was represented to us, and they were not going to have a problem with applying for the note.

Michael:         The note is extraordinary, a 1% down mortgage.

Ed:                 Right. It must be because of their credit. I would imagine that’s how they were able to get those terms, especially at that period of time. That house we probably had on the market for a month but for us that was a long time.  Magnolia was a bit longer, being in 2010, and the market the way it was, but we were still able to sell it within that first couple of weeks.

Michael:        I’ve been doing property for a long time and I find just getting a 20% down payment mortgage takes about two months itself, never mind a 1% down payment mortgage within a month, and never mind at a price that really these are outliers if you compare to other tax-assessed value or Zillow value in your neighborhood. They’re really big.

Ed:               Even the appraisers, the one for 2006 Magnolia was an Austin appraiser, and every house was a different appraiser. You never know which way they’re going to lean, but the one from Austin came in and said this is an impressive house, every detail of this house has been renovated from the minute you walk up the sidewalk, to the new lawn, new driveway, every little detail of the house.

                     He said, “You don’t see these kinds of renovations. Usually we see flips, which mainly are in the interior, they may be more cosmetic. They don’t get to foundation or rewiring, and definitely don’t get to the landscaping.” Even an Austin appraiser didn’t know anything about the neighborhood, and they came with that Austin perspective. He appraised it a bit above what we were under contract for. They were using a lot of comps because many of these appraisers couldn’t find comps in Monticello, but they were using comps from Monte Vista.

Michael:        I got a mortgage in 2010 and my bank came in about 15% less than what I was paying. I’m amazed that in 2010 you could get a 1% down mortgage and a bank to come in at really 30% higher than anything else in the neighborhood. It’s impressive.

Ed:               We did a house on Fir also, 222 Fir, and that one set a per-square-foot record. That was the first one I did with Mr. Wayne. That was a 2-bedroom/1-bath and I think we had it sold for 211,000. The price per square foot it was $180-190 range, which again was unheard of in Monticello Park.

Please also see related post: Ed Garza Responds on Contracting

[1] “Free and clear” in this context is another way of saying Garza’s company owned the property without a mortgage.

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