Why is Dallas paying $300,000 in interest and legal fees to settle a lawsuit? good luck finding out

It was easy to miss him on the agenda of the Dallas City Council meeting. And council members quietly agreed to pay about $300,000 to settle a lawsuit filed years ago by a real estate developer and a nonprofit the city worked closely with to build housing for low-income residents.

The city had already written a multimillion-dollar check to the developer and non-profit shortly after the lawsuit was filed. But the trial continued. And that leaves some questions unanswered.

Why was the lawsuit not settled sooner? And why did the board members choose to spend taxpayer dollars to settle this at Wednesday’s meeting?

KERA reached out to the city for answers this week – and got none.

Make a deal

The controversy began over a development deal between the city and Hamilton Atmos LP.

In 2011, the Dallas City Council approved a deal to redevelop Hamilton Properties’ vacant Atmos Energy complex and build affordable housing in downtown Dallas. The group of buildings was donated to the city in 2005 and then sold to a real estate development firm in 2008.

After failing to secure bank financing to build mostly luxury apartments, Hamilton turned to CitySquare Housing to help secure federal investment to subsidize apartments at below-market prices. CitySquare Housing is an independent, not-for-profit organization that operates as the real estate arm of CitySquare’s anti-poverty group.

The project will transform four vacant buildings into retail stores and approximately 230 residential apartments, most of which will be affordable housing rented out at below-market prices.

A city council-approved agreement with a limited liability partnership formed by the developer, Hamilton Atmos LP, pledged to pay up to $23 million after the buildings are renovated and leased out.

The funds will come from the Downtown Communications Tax Increase Funding District, one of several TIF districts designed to incentivize targeted development of neighborhoods across the city with the promise of future payments to the city.

The deals are structured with the idea that new development in TIF areas will increase tax revenue through increased property values ​​and commercial activity. To build these income-generating projects, the city is pledging a portion of the expected increase in tax revenue to developers in the future, which helps them secure loans to finance construction in the present.

Missed payment

Hamilton and CitySquare Housing were expecting a TIF payout in 2018, years after the Atmos complex was refurbished and renamed Lone Star Gas Lofts, said John Greenan, who headed CitySquare Housing at the time.

“When it was our turn to receive the money, the city didn’t pay us,” Greenan said.

After numerous questions about the developer’s payment, the city sent “three letters on the same day” detailing the reasons for delaying money, which lawyers for Hamilton and CitySquare called “bogus defaults.”

After over a year of trying to get money from the city, Hamilton Properties decided to sue.

CitySquare Housing joined the lawsuit. Greenan said it was a little inconvenient as CitySquare Housing and its sister nonprofit CitySquare do a lot of work with the city helping poor people.

But questions remain as to why the city delayed paying developers. City officials contacted by KERA this week about the lawsuit declined to comment, as did two councilors.

Hamilton also declined to discuss the lawsuit.

Questions without answers

John Greenan, who retired last year from CitySquare Housing, said he still doesn’t understand exactly how City Hall came to the decision not to pay them. He said the city had been nitpicking about the formula used to determine utility bills for some residents, but that seemed like an arbitrary and inadequate explanation.

“We just didn’t quite understand what we were supposed to do. I mean, the amount they said was wrong on the utility bills was so small that we offered to just pay it to the city or the residents,” Greenan said.

In the lawsuit, the city’s lawyers tried to get out of the suit by citing a law that can exempt or restrict governments from recovering damages in a lawsuit. This is known as “state immunity”.

City officials also argued that Hamilton “violated the agreement and has not yet remedied the violation.” But that didn’t explain how Hamilton supposedly didn’t live up to his end of the deal.

Whatever the city’s rationale, it looks like the developers had a strong case. The city paid developers nearly $8.6 million in early 2020, just months after the lawsuit was filed, according to court documents.

But this payment did not end the lawsuit. The city approved another $300,000 payment at a council meeting on Wednesday – this time for additional interest because the original payment was delayed, as well as the developer’s legal fees.

It was essentially an overdue fee, approved by the council members without comment.

However, as a result of ongoing litigation, both developers were suspended from working with the city, specifically on projects using federal low-income housing tax credits, which Greenan said limited CitySquare Housing’s ability to develop affordable housing projects.

KERA unsuccessfully attempted to contact the current head of CitySquare Housing for comment. A spokesman for CitySquare, which is legally separate from CitySquare Housing, said the organization values ​​its relationship with the city.

Any advice? Email Nathan Collins at [email protected]. You can follow Nathan on Twitter @nathannotforyou.

Christopher Connelly is a reporter for KERA One Crisis Away exploring life on the brink of a financial crisis. Email Christopher at [email protected]. You can follow Christopher on Twitter @hithisischris.

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