Officials at Parkside Village’s bankrupt parent company said Friday they consider the troubled subsidized apartments a financial liability, and they are not willing or able to invest in it further.

American Housing Foundation vice president Gene Morrison said the property is “under water,” weighed down with some $2 million more in debt than it’s worth.

He said the 200-unit complex at 1323 N. Ninth St. needs “multiple millions” of dollars in renovations. Morrison said he has told federal housing officials that his company is unable to raise that capital because of its bankruptcy.

Parkside Village residents would be provided with vouchers for housing elsewhere if the property closes.
Rod Aydelotte/Tribune-Herald

The property has failed all three state and federal inspections since spring 2008, and the U.S. Department of Housing and Urban Development has threatened to pull Parkside’s low-income subsidies if it fails an inspection scheduled this week.

Morrison expects Parkside will fail that inspection. And he said Amarillo-based American Housing Foundation has made no secret that it wants Parkside out of its portfolio.

“It would be a poor business decision to keep expending money on this property,” he said. “American Housing Foundation has met with HUD and the Texas Department of Housing and Community Affairs and told both government regulatory agencies that this property was not feasible. It was not going to perform to expectations.

“It has been interesting to see the governmental agencies simply stand back and wait for an event such as an inspection to occur in the future to decide what they want to do with Parkside. The foundation is in bankruptcy and does not have the wherewithal to continue to fund hundreds of thousands of dollars in deficits per year to keep the place open. It’s not fair to the community to continue.”

Exactly what American Housing’s surrender of the property would mean for its low-income families is uncertain. If HUD pulls its low-income Housing Assistance Program contract, the property would likely face foreclosure, and unless an investor stepped up to buy and renovate the money-losing property to HUD standards, the apartments could close.

In such a case, residents would be provided with vouchers for housing elsewhere, Fort Worth-based regional HUD officials have said. Those officials declined comment on the case this week, citing the imminent inspection.

‘Mark-to-market’

Since last fall, HUD has been working on a debt restructuring plan, called “mark-to-market,” that would seek to reduce American Housing’s mortgage payments and put it on a path to financial sustainability.

American Housing has also explored government energy- efficiency funding that could reduce high energy costs at the all-bills-paid complex.

But Morrison said he has reviewed the numbers, and he doesn’t think those programs would restore Parkside to financial health. He said he hopes to meet soon in Waco for a kind of “summit” on the future of Parkside with city, state and federal officials.

Morrison stopped short of predicting what would happen to Parkside but said it faces an uphill struggle for survival.

‘“There are many, many issues stacked against it: the amount of debt presently on the property, the lack of capacity to generate liquidity to make capital improvements and the lack of resources in the community to address crime in the neighborhood,” he said.

Morrison said Parkside’s troubles far predate American Housing Foundation’s bankruptcy last spring. American Housing Foundation officials estimate it has lost $2.3 million in the past decade and continues to lose more than $200,000 a year.

“Records the foundation has related to Waco Parkside Village show that the apartments have never turned a profit — not for one month,” Morrison said.

Founder’s death

Morrison, a former HUD official himself, is part of the new leadership that took over the company after the death of founder Steve Sterquell.

Soon after Sterquell died last April 1 in a fiery car crash that was ruled a suicide, his empire of 66 subsidized low-income properties unraveled and was forced into bankruptcy court, where creditors are now seeking hundreds of millions of dollars.

Sterquell’s foundation bought Parkside in 2000 as part of a bundle of other properties that included Robinson Garden Apartments, another subsidized Waco property.

Acting as a general partner with less than 1 percent of ownership in the property, the foundation recruited private investors such as JP Morgan Chase as limited partners and won about $2.4 million in federal tax credits through the Texas Department of Housing and Community Affairs to renovate the property.

American Housing Foundation also assumed the federal Housing Assistance Program contract, which provides Section 8 subsidies to low-income residents. In 2000, that contract was worth about $645,000 a year, more than 40 percent of its projected income.

A TDCHA application from the time indicates American Housing Foundation expected to pay $4 million to acquire the property, based on a private appraisal. The actual sales price was not available.

Owes more than worth

Morrison said American Housing Foundation today owes $4.7 million on its mortgage.

A private appraisal commissioned last fall by HUD found that the property, if improved and continued as a subsidized complex, would be worth $2.4 million.

Morrison said the property was losing money even before 2000, and its continued decline was because of a bad business plan.

“American Housing Foundation paid way more for that property than anyone should have paid,” he said. “The property was overleveraged from the beginning. There appeared to be a business practice of overleveraging properties and not paying attention to operational issues, maintenance or reserves. Now we see all those poor business practices manifesting themselves.”

Before the bankruptcy

Even before the bankruptcy, Parkside was in trouble with HUD. After failing two consecutive HUD inspections in 2008, American Housing in March 2009 told HUD it had spent more than $300,000 fixing the listed deficiencies, including broken windows and screens.

The Parkside Village apartment complex in North Waco is under fire from government housing agencies for repeatedly failing inspections. Its owners say they can’t afford the repairs.
Rod Aydelotte/Waco Tribune-Herald, file

County clerk’s records show more than $167,000 in mechanics liens from eight contractors who claim they were not paid for their work in late 2008 and early 2009.

Morrison said he wasn’t surprised by the liens, most of which are for work before Sterquell’s suicide.

“The previous management of American Housing Foundation made it a practice to use funds generated by their properties for purposes that were not related to those properties,” he said. “All that is under forensic review.”

Waco housing leaders are watching the Parkside Village drama closely. One is Mike Stone, executive director of Waco Community Development Corporation, which has been developing single-family homes a few blocks north of Parkside Village.

Stone has reviewed the reports that HUD has commissioned as part of the debt restructuring proposal, and he says that even under the most optimistic scenarios, a renovated Parkside would barely break even.

Such scenarios would require paid-down debt, major improvements and an occupancy rate raised from 78 percent to 90 percent.

Stone said he doesn’t know whether the apartments can or should be saved, but protecting the residents should be the first priority.

“If they’re going to go belly-up, HUD needs to provide the residents vouchers,” he said.

Morrison of American Housing said its officials care about the residents and want to work with government and community leaders to find a solution.

“People today at American Housing Foundation want nothing to do with presiding over inferior properties,” he said, adding that Parkside is the worst of the company’s properties.

“It’s a heartache we live with every day,” he said.

jbsmith@wacotrib.com

757-5752

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