September 23, 2008
Citing “drastic changes in the credit and housing market” today, Hunt Communities announced it is withdrawing from the $131 million purchase of nearly 5,000 acres of Public Service Property in Northeast El Paso.
That deal, which has been in the works for more than a year, was scheduled to close as early as Friday.
The e-mailed announcement crossed computer screens this morning while government watchdog Ray Gilbert was addressing City Council, charging that the deal with Hunt would violate state law because the negotiated terms of the impending sale had changed so much since Hunt submitted the low bid in August 2007.
“Through previous discussions with the PSB, Hunt Communities said it was clear that the acquisition of the PSB Northeast property was conditioned on its ability to combine Hunt’s capital with external financing in order to fund the land purchase, project infrastructure and subdivision improvements,” Hunt’s statement read. “These costs, in just the first phase alone, total approximately $150 million.”
Those expenses were to include the initial $31 million land purchase plus the cost of streets, water and sewer lines and storm water facilities.
According to the statement (posted below the story), Hunt communicated with more than 20 lenders “but drastic changes in the credit and housing markets had a substantial effect on those lenders’ ability and desire to participate in real estate loans.”
Hunt Communities President Justin Chapman is quoted as saying, “The national and local economic environments that exist today are very different from the conditions which existed over a year ago when we formulated our bid and business plan.
“Banks are aggressively working to cut their exposures to real estate loans – especially community development projects.”
District 2 city Rep. Susie Byrd said Hunt's decision is unquestionably a blow to the city.
"I was crossing my fingers we'd be isolated from the (national) bust," she said. "That's not going to happen."
But when the city decides to put the property up for sale again, she said, everything will be in place, from the zoning and a new subdivision ordinance to the smart growth principles that are to be used for the master planned community.
Nick Costanzo, vice president of the PSB, which oversees the operations of El Paso Water Utilities and the new stormwater utility, said, "We are all very disappointed. We've all worked very hard on this.
"But the land is still there along with the smart growth principles. The board will revisit the project and the economics of the project and decide when to put the land out for bid again in some form or fashion. ... I think it's going to take some time to work through that."
One of the most controversial aspects of the project was the city's decision in 2007 to let one master developer buy all of the 4,833 acres and manage the development according to the city's master plan over the next 12 years.
Although the contract Hunt was to sign guaranteed that local developers and homebuilders would be heavily involved in the project, some opposed the master developer concept and wanted the 4,833 acres broken up and developed in the same manner as the rest of El Paso has been developed.
Northeast city Rep. Melina Castro, whose district includes the PSB property, mentioned that issue in saying she is anxious to know what the city will do now.
"From the beginning, I thought that giving more than one developer a chance would reduce the burden on any single developer," she said.
Costanzo said some of the anticipated income from the land sale was worked into the PSB's capital budget approved for the year beginning March 1.
"We had some projects tied to the land sale that will now be delayed," he said. "We'll look at our capital projects and smooth them out so we can meet them with our financial resources."
City officials have said the the Northeast project will be needed to put additional houses on the ground to help the city meet the demand for new housing brought on by the arrival of thousands of troops and family members with the expansion of Fort Bliss.
Castanzo said he thinks there is enough land under development on th East Side and in the Northeast to meet that demand for the immediate future.
"There is homebuilding continuing in El Paso, albeit at a slower pace," he said.
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To reach David Crowder, call 915 351 0605 or email to dcrowder@epmediagroup.com