FBI pays visit to Edinburg City Hall on Monday.

La Sienna Apartment Project on hold for the time being

Ties to Pharr developer?


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By G. Romero Wendorf

Edinburg city officials are not talking about what happened at city hall on Monday, but according to several reliable confidential sources, FBI agents showed up with subpoenas in hand, granting them the authority to access paperwork and files allegedly tying the city to D&M Ventures LLC and its principle owner, David Marquez; along with paperwork concerning last year’s change in ambulance providers; and at least one other piece of city business.

Contrary to the swirling rumor mill, the FBI visit was just that, a visit. It wasn’t a “raid.”

Marquez is currently developing a $34.6 million 288-unit apartment complex in Pharr, the Jackson Place Apartments, near the intersection of Jackson and Sioux Roads.

Edinburg was set to enter into almost the exact same development agreement with Marquez in the very near future. In fact, the Edinburg project already had a name: the La Sienna Apartment complex. The plans were to build it on 15 acres situated just south and adjacent to the La Sienna Master Planned Community near the corner of Hwy 281 and Monte Cristo Road.

But after the FBI visit Monday with subpoenas in hand, Tuesday’s meeting of the Edinburg Housing Finance Corporation (EHFC) was abruptly cancelled; and according to one source, the La Sienna Apartment project has been placed on temporary hold until it’s determined if indeed and to what degree the FBI may be looking into Marquez’s work in Pharr and/or Edinburg.

The action item on Tuesday’s Edinburg agenda was to reappoint a new board of directors to the EHFC. Its current board is comprised of the city council. The plan as laid out in a Dec. 12 city council meeting was to replace it instead with those members who currently serve on the Edinburg EDC board: Edinburg Mayor Richard Garcia; Harvey Rodriguez, Jr.; Elias Longoria; Richard Ruppert; and Peter Dabrowski..


D&M vs. Pharr

Marquez currently has a lawsuit filed against the city of Pharr over the Jackson Place Apartment development. Less than two months after construction began late last spring, Pharr gave him notice that it was going to fire him as the project developer. As a result, he filed a suit against the city and sought a temporary restraining order (TRO), claiming that he had been wronged, and his reputation damaged.

His attorney was successful in getting state District Court Judge Juan Partida to sign Marquez’s TRO, preventing his removal from the job.

After some legal mediation, both sides struck a deal: Marquez’s company, D&M Ventures LLC, could stay on the job at Jackson Place as its project developer, provided some new conditions would be met. The lawsuit, however, is still on file at the county district clerk’s office and has not been dismissed. Call it a temporary time-out.

The reason behind the city’s attempt to remove Marquez from the job? According to a city spokesman at the time (last July), approximately a month after the Jackson Place work had begun, Marquez called up the staff of a local title company at which part of the $34.6 million loan had been parked so that vendors could be promptly paid as the work progressed. During that phone conversation, he ordered the release of approximately $1 million, claiming that the money was needed so that he could pay approximately nine vendors.

One of the vendors turned out to be Marquez’s wife, Cynthia Ann Marquez, who is listed as a D&M principle owner, according to state records. Out of the $1 million, she reportedly received $150,000. The question the city had was: what had she done to earn six figures? Marquez himself had already been paid $500,000 of his $1.5-million developer’s fee. So how did the extra $150k fit into the grand scheme of things?

The city claimed at the time that they weren’t aware of Marquez’s phone call to the title company, and that the project agreement it had with D&M gave the city the authority to review any and all work at Jackson Place before any money to vendors and/or consultants was paid.

In other words, the Pharr Housing Finance Corporation Jackson Place Apartments (PHFC), a non-profit organization created by the city commission to oversee the development, had oversight of the pay-outs, not Marquez.

The city then told Marquez that he needed to pay back the $1 million because he had no authority to hand it to any vendor without first acquiring PHFC approval.

Marquez disputed the PHFC claim, saying that the project development agreement gave him complete oversight over distributing the money – to whom and for how much. As long as he finished the $34.6-million apartment project on time and on budget, he met any and all contractual obligations, as so stipulated in his lawsuit against the city.

The $34.6 million for the total development is being financed by New York City-based CTL Lending/Capital. Instead of it being released in bulk, portions of it were being released and sent to the title company as the work progressed.

In a somewhat ironic twist, according to several construction sources familiar with D&M, Edinburg was one of the very first cities to which Marquez took his apartment project idea when he first landed in the RGV approximately four years ago. He is based in San Antonio, had done work in Corpus, but had never dipped his beak into Valley development.

But for whatever reason, Edinburg officials never pulled the trigger. Allegedly, he shopped the idea to several other Valley cities, including Pharr, going all the way back to 2014 when he signed an initial memorandum of understanding (MOU) with the then-city commission.

It wasn’t until late 2015, after a new administration had come on board and determined that Jackson Place would yield a revenue stream that the city could then use to facilitate development for low-income housing, that the project was given the green light.

The project is more complicated than most apartment developments because it centers around what’s known as a Public-private partnership (P3). According to Wikipedia, A P3 typically involves a private entity financing, constructing, or managing a project in return for a promised steam of payments directly from government or indirectly from users over the projected life of the project or some other specified period of time.


Low-Income vs. Market Rate

The Pharr Jackson Place project was marketed by the city as an apartment complex for low-income residents. No more than 90 percent of the Jackson Place Apartments could be rented to a family that made more than $59,000 per year even though the rent wasn’t going to be cheap – one-bedroom, $905; two-bedroom, $1,150; three-bedroom, $1,450.

Whether they’re designated for “low-income” residents or labeled market-rate apartments, because they’re owned by the city under the P3 agreement, such apartments are not subject to property taxes. Cities don’t pay property taxes on city-owned property and facilities, and that includes apartments they may decide to build. Cities can’t go out and open a retail store or a grocery store and avoid ad-valorem taxes; but apartments, they’re good to go, even though the apartments will be in direct competition with private developers who don’t enjoy property-tax exemptions.

The Advance News can’t locate a source who will say whether or not federal law-enforcement agents visited Pharr City Hall to subpoena records tied to Marquez’s involvement with Jackson Place, but considering that they were at the Edinburg City Hall on Monday, it doesn’t take much of a stretch to believe that at some point they paid a surprise visit to Pharr City Hall as well. Especially after the friction between Marquez and the city came to light in the pages of this newspaper last year about how the $1 million was paid out and to whom.

Last year when Pharr and Marquez butted heads a month or so after the development of Jackson Place had begun, which landed the two parties in state District Court, Mayor Hernandez said all the city and the PHFC were asking from the developer were three things: accountability, transparency, and compliance with the law.

What happens next is anyone’s guess. Jackson Place is moving along, and the first units should be available for rent later this year.


Developer Dollars

All told, throughout his career, Marquez seems to have been plagued with lawsuits, which was red-flagged by Pharr’s legal department before the Pharr Housing Finance Corporation, comprised of the mayor and city commission, signed the agreement with him in late 2015 to develop Jackson Place Apartments.

In fact, a lawsuit was filed against Marquez last December by a local developer, Gustavo De La Vina, who claims that he paid D&M $105,000 three years ago as an investment to develop two housing projects in Hidalgo County.

Not only were the blueprints and design plans never delivered to him, claims De La Vina, but Marquez never refunded him his $105,000.

If he can carry off the Jackson Place deal, however, it promises Marquez a gold mine of sorts.

For his part, he will be paid a developer’s fee worth $1.5 million upon completion of Jackson Place. He has already been paid $500,000.

In addition, he will receive 20 percent of the (net) Project Cash Flow after expenses have been paid, including the annual finance payment. After Jackson Place has reached an occupancy rate of 90 percent of market-rate, non-subsidized, rentals, Marquez will be paid 30 percent of the Project Cash Flow.

If the apartment complex is sold at some point down the road– say, a new city administration wants to get out of the P3 housing business – then Marquez stands to receive 30 percent of the net proceeds from the sale if seven out of the previous 10 years have racked up a 90-percent occupancy rate at Jackson Place.

Still, his past is blemished, even though Marquez said during an interview last year with this newspaper that all of his past lawsuits have been dismissed.

He suffered through a failed project in Corpus Christi, and his name was mentioned in an unflattering light in both the Dallas and San Antonio areas.

Over the course of his career, the IRS has placed multiple tax liens against him, and he’s been the subject of multiple lawsuits.


Edinburg and D&M

During a Dec. 12 special meeting, the city council had a heated discussion about whether or not the city should engage the services of David Marquez and move ahead with the approximate $35-million La Sienna Apartment development.

In the end, by a 3-2 majority, the council voted to move forward with the project, although there were still some details that had to be resolved before the final contract could be signed.

The three council members who voted in favor of approval: Mayor Richard Garcia; Councilmember J.R. Betancourt; and Councilmember Homer Jasso, Jr.

Councilmen David Torres and Richard Molina voted against approving the item agenda.

To get the project up and running with developer David Marquez of D&M Ventures LLC, who is based out of San Antonio, the city created a new non-profit: Edinburg Housing Finance Corporation La Sienna Apartments, which is a sub-set of the Edinburg Housing Finance Corporation (a city off-shoot), which was created in June 2014.

The new non-profit, Edinburg Housing Finance Corporation La Sienna Apartments, was created Dec. 12., 2016.

Marquez told the city council during the special meeting that this arrangement “encapsulates” the city, and although Edinburg tax collections “are responsible for the ($34.8-million loan), we (D&M) are your first line of defense.”

Councilmen Torres and Molina weren’t buying what the council majority and Marquez were dishing out. Both men made the case that they hadn’t been given sufficient time to study the apartment project, nor had they even seen the loan papers.

“We don’t even know what the interest rate is going to be,” said Torres. “The papers before us have a lot of documents missing, and we’re being asked to approve half-empty documents.”

Answer, according to Houston-based Attorney Andrew Johnson III, who was hired by the city to represent this transaction: a guesstimated rate of between 5 and 5.25 percent, based on the current market.

Johnson (Law firm: Johnson Petrov LLP) said that the documents before the city council, which were meant to create the new non-profit, Edinburg Housing Finance Corporation La Sienna Apartments, were only the first step in a long process. The documents had, he said, been in the city’s hands for approximately the past three years, but had been amended.

“This whole thing has been rushed,” said Torres in response to Johnson’s declaration.

The documents are similar to the documents drafted in the Pharr transaction, Johnson said.

During the approximate one-hour Dec. 12 meeting, the city council entered into a heated verbal exchange between its members as to the pros and cons of La Sienna Apartments.

Attorneys for the city, Andrew Johnson and Ricardo Palacios, also weighed in concerning the matter, as did D&M Developer David Marquez.

Here are several points of contention brought up during that meeting:

· Councilman Richard Molina: “How (did) we all go about putting this thing together? I mean, I was at an event Friday night and ran into the city manager (who mentioned this agreement) to me. We’re talking close to $35 million, and we are kind of rushing into this thing. I got an email yesterday (Sunday) that said (these) documents have not been reviewed by the lender’s side and are subject to revision. I got the (agreement) documents delivered to my house Sunday evening. Plus, there was a joint city/county meeting that same day, which just added to the amount of information to digest. We have never had hearings on this deal, nothing.”

· Andrew Johnson: “This document now before the Edinburg City Council is similar to the documents used in the Pharr transaction.”

· Mayor Garcia: “The reason for this delay (on the part of Councilmen David Torres and Richard Molina) has been that the city is not going to have control over who hires what (sub) contractor, and the city won’t have direct control over them.”

· Councilman Torres: “Mayor, I have a question as to who can vote on this. I need our legal counsel, Rick Palacios, to make sure (everything is being done) in a legal way. I believe one of our councilman, Mr. Jasso, is related to one of the vendors who is going to be involved in this project, who is currently involved (with) City of Pharr’s (Jackson Place Apartments). I believe if (Councilman Jasso) is related to (the vendor) through marriage, I don’t think (he) can vote (today).”

· Attorney Andrew Johnson: “The only thing before the council (today is the vote to establish) the (Edinburg Housing Finance Corporation).”

· Councilman Torres: “But this starts the whole process (moving forward).”

· D&M’s David Marquez: “This is a complicated transaction. It’s long term. But we have literally been coming to (Edinburg) for almost three years. As soon as we closed the Pharr transaction, we submitted all documents (to the City of Edinburg).”

· Councilman Torres: “Staying on budget is fine, but the other side of the coin is transparency, and this is why I’m asking these questions.”

· David Marquez: “We have been before this body several times. We met with Mr. Palacios (attorney), and he had some hard questions for us. I don’t know of any way to (have been) more transparent than what we (have already been).”

· Councilman Torres: “I don’t want to make the same mistake (as Pharr did), whatever that may be, because I believe people (Pharr city management and elected officials) can’t really talk about it because it’s in (civil litigation) right now.”

· David Marquez: “Actually, there is a settlement. We have settled it. They do what they’re supposed to be doing; and we do what we’re supposed to be doing.”

· Councilman Richard Molina: “Mr. Palacios (city attorney), can (Councilman) Jasso vote on this?”

· City Attorney “Rick” Palacios: “(If there is a conflict), it’s incumbent upon (city council members) to go ahead and declare if there is a conflict or not. So it is difficult for me to figure out if there is a conflict unless a councilman tells me, ‘Hey, Rick, this is a situation…a vendor we’re dealing with is a family member (related to a councilman)’ Then at that time, I have to (advise them) to declare it and file it with the clerk of the court. But unless we’re apprised of it…”

· Councilman Molina: “I just made you aware of it, and I’m saying, if it’s true, what does the law say?”

· Attorney Palacios: “Again, I would have to ensure that they are making a decision on contract right now.”

· Councilman Homer Jasso Jr: “(The vendor working on the Pharr project) is a company (sub-contractor) that has been around for a long time now. (The owner) married my sister six or seven months ago. I don’t know if this is a conflict of interest. He came to our family six to eight months ago.”

· David Marquez: “(The city of Edinburg) does not have a contract with FJW. It is the non-profit (Edinburg Housing Finance Corporation La Sienna Apartments,) that you have created (that will have the contract with FJW), which is at arm’s length (from Councilman Jasso). So, the city and the city council are kind of removed from it (any potential conflict of interest). By design, it was created that way to encapsulate the city from any liability or any lawsuit or anything. (The project) is with the housing finance corporation and not the city. So you are so far removed (from the process).”

· Mayor Garcia: “If at any point in time it is determined that (there was a conflict of interest), it (today’s vote) is voidable.”

· Attorney Palacios: “If there is such a conflict (of interest)…(the vote to approve today’s agenda item) wouldn’t be made voidable. It would put any member in a predicament with our district attorney or prosecuting attorney within this jurisdiction. Then there are both civil and criminal implications. Should (an elected official) vote (in favor of something that involves a known conflict of interest, and his vote decides the matter)) knowing that there is a conflict, and they voted anyway, (there are) civil and criminal implications on that individual. It all depends…the only tie the city has is with the non-profit. We have no control over the RFQ (request for proposals) process or what (contractor or sub-contractor) is used.”

· David Marquez: “I can’t tell contractor (FJW) who to use. I don’t want to tell them who to use because I want to stay out of it.”

· Councilman David Torres: “I believe (Councilman Homer Jasso’s step-brother) is part of this company, too, and I believe (he is) a partner with them, too, in another entity in Hidalgo County. So we have to research all of those things. We have to be sure. A while ago, Rick (the city attorney), you weren’t quite so sure (about the alleged conflict of interest), and now you are kind of sure.”

· Councilman Homer Jasso Jr.: “What entity are you talking about?”

· Councilman Torres: “I could be wrong, but I thought you were involved with them in another business.”

· Councilman Jasso: “No.”

· Councilman Torres: “I apologize.”

· Attorney Rick Palacios: “It’s the responsibility of the elected official to either declare it or not (a conflict of interest).”

· FJW Representative: “We have not hired any (sub-contractor) yet (to work on pending Edinburg apartment project).”

· Councilman Richard Molina: “I don’t believe that. And I don’t appreciate you getting up here in front of an open meeting and not telling the truth. That’s not a good way to start a (business relationship).”

· Developer David Marquez: “I can show you the contract. They have not been signed (by any sub-contractors).”

· Councilman Richard Molina: “He (Councilman Jasso) can’t vote, mayor. He’s breaking the law.”

· Mayor Garcia: “You’re out of order.”


The motion was then made and seconded to establish the Edinburg Housing Finance Corporation La Sienna Apartments Chapter 380 Economic Development Program, etc., and was passed 3-2.

The city council then voted 3-2 to have its members serve as the non-profit’s board of directors, which will include one non-council member. It will also choose its own officers. The independent member is made at the bequest of the lender who is funding the $34.8 million La Sienna Apartment project – CTL Capital LLC.

The price of land was also mentioned during the Dec. 12 meeting.

Councilman David Torres brought up the fact that the approximate 15 acres on which the Edinburg La Sienna apartment complex will be constructed was part and parcel of the total D&M project presented to the city, and was purchased from the Burns brothers for approximately $133,000 per acre.

“For the record,” Torres said, “I think three years ago the school district paid $42,500 per acre for land adjacent to La Sienna.”

Meaning, Torres asked, why did someone go out and spend almost three times as much for land in the same vicinity to create this new apartment complex?

Developer David Marquez responded: “We’re looking at today’s (price of land). The appraisal (we had done on that land) is four months old.”

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