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American dream now homeowners' nightmare
The empty houses in Mirasol, a West Side project paid for with federal tax dollars and owned by the San Antonio Housing Authority, sit in various states of deterioration, preyed on by vandals and thieves.

Express-News
American dream now homeowners' nightmare 
  08/21/2005
Ron Wilson
Express-News Staff Writer

Randy and Carole Zaragoza wish they'd never bought their home in Blueridge, a Mirasol Homes subdivision where some streets have more vacant houses than trees.

The empty houses in Mirasol, a West Side project paid for with federal tax dollars and owned by the San Antonio Housing Authority, sit in various states of deterioration, preyed on by vandals and thieves.

The Zaragozas have no neighbors on either side, and their home, which is less than 5 years old, is a repairman's dream.

The air-conditioning system blew ceiling insulation particles throughout the rooms, the ceiling pulled away from the wall and a gap emerged between the walkway and driveway, the result of improper drainage. When a worn-out carpet was replaced, they discovered cracks in the foundation.

"It took us three years to get SAHA to sell us this house although we were qualified to buy it. Now we regret it," Randy Zaragoza said. "We're not going to be able to sell it and get our money back."

And it doesn't appear that taxpayers will, either.

Ten years after Mirasol was designed, ostensibly to give the working poor a shot at homeownership, SAHA hasn't sold a third of the houses, and many people who did buy are clamoring to get out.

Built atop a landfill after a controversial bidding process, Mirasol has had problems almost from the outset. Cost-cutting measures during construction and poor management have undermined the development's noble objectives, prompting community activists and elected officials to question how developers profited and what taxpayers got for their investment.

According to a San Antonio Express-News review of a federal audit and its working papers, SAHA steered the Mirasol contract to one developer, paid it $189,000 to "design" house models that already were being built, then gave away up to $2 million in a negotiation process called "value engineering" that allowed the developer to reduce the quality of construction.

The audit, released in April 2004 by the U.S. Housing and Urban Development Department's Office of the Inspector General, also claimed SAHA spent $1.86 million mismanaging a contaminated landfill at the site, and that it could not document more than $2 million in salaries associated with the project.

Though SAHA says it has accounted for the payroll discrepancies, it continues to negotiate HUD's recommendation that it repay the $1.86 million.

SAHA has made it almost impossible to obtain a complete picture of what happened at Mirasol because it cannot produce construction contracts and other documents that it's required by law to maintain.

The Mirasol project cost $48.3 million and included an administration building, clinic, child-care facility, townhomes and senior apartments.

Of that total, $20.1 million was spent for 247 single-family homes — 160 to be sold under a lease-purchase program and 87 for public housing.

Sixty-six of the lease-purchase houses now are vacant and the purchase program has left many residents disgruntled and concerned about construction cost-cutting and use of lower-grade materials.

Henry Alvarez, SAHA's president and chief executive officer, came on board a year ago, after Mirasol was built. He says SAHA today is looking to the future, not the past.

The bid 
When SAHA was ready to build Mirasol in May 1999, it sought bids from developers and published the quality specifications it wanted. It gave extra points to any bid that included creative financing.

A month later, it selected the bid of Mirasol Joint Venture Team, which consisted primarily of developer Rick Rodriguez of Magi Realty and KB Home. The team also included West/East Design Group.

MJVT's bid said that because KB was so big, it would defer being paid until after the houses were built.

Yet within months of getting the contract, MJVT said it needed regular payments. Instead of holding MJVT to its bid, or disqualifying MJVT and restarting the bid process, SAHA simply changed the requirements and made payments.

Federal auditors concluded this had improperly limited bidding.

"What we suggested from the beginning was to break the project down into smaller projects, one for each subdivision," said community activist and long-time Mirasol critic Ralph Velasquez, a building contractor and president of the San Antonio Craftsmen Association.

Mirasol had five single-family subdivisions, and Velasquez said bundling the five into one helped no one but the developer. Still, bundling would have worked, he said, if SAHA had held MJVT to its bid.

To have (virtually) one bidder and not hold him to his bid and allow him to change specs to his benefit is almost unheard of," Velasquez said.

The specs 
Within a month after the contract was awarded, "KB told Mr. Rodriguez it could not build houses per the specs and still make money," West/East architect Chris Kimm told auditors later.

"KB acknowledged that it has a certain method to construct a house and KB cannot change it for this project."

Kimm explained that KB buys materials in bulk to help increase profits and used the same type of materials in all of its projects. He said KB wanted to use existing floor plans from its lower-priced developments and modify the plans up to 15 percent.

If the modifications were more than 15 percent, KB could not make a profit. "KB wanted to make $10,000 per house profit," Kimm told auditors.

At $10,000 per house, KB's profit on the 247 houses would be $2.47 million.

However, a document obtained by the Express-News reports that KB told auditors it made $887,705 in profit.

KB spokeswoman Cathy Teague said the builder provided "detailed information" about building costs and profits to federal auditors in 2003, but she would not confirm or deny any amounts, saying, "That information is
proprietary."

Kimm also reported that the specs were copied from houses SAHA built along Guadalupe Street that cost $70,000 to $80,000 to build. 

When KB saw these figures, Kimm told federal auditors: "KB said it could not make money if it had to build to (those specs). It needed to build less of a home." 

Soon after the meeting, Kimm told auditors, he withdrew from the joint venture over differences of opinion regarding design work and the development.

Teague downplayed Kimm's account and maintains that SAHA approved the specifications that were used. 

"Excerpting piecemeal recollections of single conversations from years ago does not diminish the end result for Mirasol residents and taxpayers — a revitalized neighborhood with 247 quality-built, structurally sound homes delivered within budget and in accordance with SAHA-approved contract specifications," she said. 

Telephone messages left for Rodriguez were not returned. 

Money given away

However, Teague said that as the subcontractor, KB didn't take the lead in making recommendations. She said the final construction specs were prepared by Magi Realty and approved by SAHA and its project manager, Heery International. 

"SAHA and Magi agreed to some, but not all, of our suggestions," she said.

The auditors' documents show SAHA allowed quality to decline in this process. According to the documents, SAHA "saved" between $5,340 and $8,000 per house, or about $1.3 million to $2 million for the project by lowering quality.

For example, SAHA allowed KB to use roofing shingles with a 20-year warranty instead of 30 years and substitute 7/16-inch oriented strand board (OSB) roof decking for 5/8-inch plywood.

The builder also substituted 2-by-4-inch trusses for 2-by-6-inch joists, eliminated front and side screen doors, didn't use noise-reducing wall insulation in the bathrooms and installed less efficient air conditioners, resulting in higher utility bills for low-income residents.

Although auditors' noted in their working papers that negotiators constantly mentioned the "savings" created by these substitutions, they wrote that every time SAHA walked into a value-engineering discussion, the average cost per house went up and the quality went down. 

Auditors cited a SAHA memo in which an agency mid-level manager told his vice president that two senior SAHA executives tried to convince him the value-engineering process was "a cost reduction" for SAHA.

But, he wrote to his supervisor, "the developer is going to pocket the savings, reduce the quality to minimums & SAHA gets nothing for this effort."

When asked why top executives failed to heed warnings from staff about lack of value and loss of quality, SAHA spokeswoman Melanie Villalobos said: "The reality is that the high-ranking executives to whom you refer are no longer at SAHA, and it would be conjecture to speculate as to what these individuals may have been thinking five to 10 years ago." 

Melvin Braziel, SAHA CEO from 1997 until he retired in 2004, was at the helm during the value-engineering process.

Last year Braziel denied that the bidding was manipulated in favor of MJVT, but in a June 11, 2003 , Express-News commentary, he acknowledged some mistakes, saying: "Yes, poor decisions were made, with regard to design and material choices for the homes, by both contractors and staff." 

When asked to comment for this report, Braziel said, "I don't have anything else to add."

KB steadfastly maintains, and the auditors agreed, it adhered to building codes. 

"As a responsible builder and subcontractor for the project, we built 247 homes for the residents of Mirasol which HUD, the Corps of Engineers, city inspectors and other third parties agreed were well-built to code and followed the contract specifications approved by Magi Realty and the San Antonio Housing Authority," Teague said.

"We are proud of our work."

For Velasquez, those statements ring hollow.

"Neither SAHA nor the builder has ever come clean and been open with taxpayers about profits or quality," he said. "No wonder taxpayers are angry." 

The homes KB built 
Many Mirasol homes are showing a lot of wear and tear after just four years.

Two residents reported this spring that when it rains, their kitchen floor linoleum bubbles up, apparently from water coming through the foundation.

Inspection reports done during construction by the Army Corps of Engineers said the contractor failed to properly cure the foundations. After it was pointed out that the specifications call for the concrete to cure for seven days, the Corps' report said, the contractor "made some attempt to properly cure the slabs."

Even when the houses were new, problems with doors not closing or being almost an inch out of vertical were reported. 

Driveways were another problem. A fallen tree limb punched an 8-inch-diameter hole in the concrete of one. That, along with several others in the subdivision, had to be replaced. 

The Corps of Engineers' report noted the contractor was warned not to let construction workers stand on the reinforcing wire mesh when the concrete was being poured. Standing on the mesh pushed it against the ground, reducing the strength of the concrete.

Still, SAHA defends the quality of construction. Villalobos, quoting from the published report of federal auditors, said construction methods "meet San Antonio building codes and are consistent with acceptable industry practice in the area." 

Yet in May 2003, when most of the houses were about 2 years old, a forensic architect told SAHA lawyers the materials "were some of the least expensive and therefore most likely to fail with normal and relatively
brief wear and tear."

The Zaragozas' experience backs up that report. "I don't know what we're going to do when the warranty is up," Carole Zaragoza said. "I or Randy will have to work until we're 70 just to keep the house up."

Management mess 
Complaints about SAHA's management of Mirasol that were included in auditors' papers portrayed an agency rife with petty interdepartmental disputes, a lack of teamwork between key department heads and an unwillingness to share information unless specifically asked.

The agency also was sensitive about the public release of information. A memo from the CEO to a vice president concerning Mirasol-related documents warned: "It's not in SAHA's best interest to release these."

Villalobos said SAHA was unaware of the memo and does not withhold information from taxpayers, but that the agency is undergoing an "organization-wide effort" to improve record keeping.

SAHA's actions show what happened to officials who complained too stridently.

The head of the architectural and engineering services department, Frank Jasso, eventually was cut out of the Mirasol oversight process after complaining sharply about loss of quality and subsequently was fired.

If anyone should have known quality, it was Jasso. He wrote the original specs for Mirasol that SAHA revised.

Those specs, according to architect Kimm, were used in designing homes on Guadalupe Street