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Mirasol pays off big for S.A. builders ; Analysis shows huge profits at project run by SAHA.

by Ron Wilson EXPRESS-NEWS STAFF WRITER

Saturday  04/17/04  

Of $20 million in tax money spent to build the Mirasol Homes public housing project, private builders took as much as $9 million in profit, a new analysis shows.

In return, taxpayers and residents received 247 houses that critics say failed to meet federal standards.

The developers did complete the project for the San Antonio Housing Authority at slightly less than the agency had budgeted for the average house.

Claims that the houses were poorly built using cheap materials prompted U.S. Rep. Charlie Gonzalez, D-San Antonio, to request a federal audit of the project. That audit is expected out this month.

A San Antonio Express-News analysis of profits, calculated from SAHA documents and city building permits, shows a likely profit of 40 percent to 86 percent on construction costs went to the Mirasol Joint Venture Team. The group was led by local developer Rick Rodriguez, and included KB Home, one of the largest home builders in the country, and its subcontractors.

Federal contract regulations typically limit profits to 10 percent. But the U.S. Department of Housing and Urban Development, charged with overseeing Mirasol , relies instead on the competitive bidding process to limit profits, spokeswoman Patricia Campbell of Fort Worth said.

In Mirasol 's case, that process broke down when Rodriguez's lone competitor, Lineberger Homes, dropped out just before the bid was awarded.

"If a disproportionate amount of money goes into developers' profit, it reduces the number of units available (for the poor)," said John Henneberger of the Texas Low Income Housing Information Service in Austin. "That's not financially responsible to taxpayers."

The contract between the developer and the housing authority limited the developer to a profit of 2.25 percent of the total project cost . That yields a profit of less than $500,000, which Rodriguez said he made.

Any additional profits from construction were made by KB Home and other subcontractors.

SAHA says it spent more than $17 million in construction costs , and that doesn't include land development, site preparation, streets and infrastructure, which were paid for separately. SAHA already owned the land.

A public outcry over the workmanship and quality of the single-family homes led SAHA to hire forensic architect Dan Medley of the Forensic Consulting Group, whose report said the homes fell below industry and federal standards.

The architect's report said the kitchen cabinets were of such poor quality that metal handles pulled completely off of drawers and doors. It also said homes for the disabled failed to meet Texas' accessibility standards.

KB Home declined to reveal its costs or profit, citing proprietary trade information. SAHA spokeswoman Melanie Villalobos said the authority is not privy to subcontractors' profit.

In a prepared statement, KB Home said that information was provided to federal auditors, "and (we) look forward to receiving their findings."

The newspaper obtained cost estimates from city building permits that require builders to list a "declared value" for the house.

According to Michael A. Amezquita, chief appraiser for the Bexar Appraisal District, the declared value reflects an estimate by the builder of the cost to build the house but is never an exact measure of final cost .

According to homebuilders contacted by the Express-News, the actual final cost is 10 percent to 20 percent more than the declared value, with one builder suggesting that 15 percent generally was accurate.

A review of the 247 building permits shows the lowest declared value was $26,316 for a 1,204-square-foot, three-bedroom house in the 400 block of Precious Drive in the Villas at Fortuna subdivision of Mirasol .

Adding 15 percent to the declared house's value yields a cost of about $25.3 per square foot, which if extended to all the homes would total $7.9 million, producing a profit of $9.2 million, or 86 percent.

The average declared value of the homes was $33,212. Adding 15 percent yields a cost per square foot of about $31.

An Internet search of homebuilders revealed one in Houston that claimed it could build private homes in a subdivision there for $22 to $38 per square foot.

At about $31 per square foot, the Mirasol profit was about $7.7 million, or about 81 percent.

In its statement, KB Home said using the declared value to compute a builder's cost "results in an inaccurate and highly misleading conclusion."

Rodriguez said in September 2002, about nine months after some of the homes were completed, "My cost was about $39 a square foot."

Using the $39 figure, the profit would be about $4.9 million, or about 40 percent.

Rodriguez said recently that he didn't remember that $39 figure, adding it seems low in retrospect and that a cost of $48 a square foot sounded more accurate.

The $48 would mean a profit of about $2.1 million, or about 14 percent.

The contract between SAHA and the joint venture team included an original average cost per house of $69,413.

"This figure was within SAHA's projected budget and was competitive with market prices at the time," Villalobos said.

"The homes' final average cost was $69,226, a price SAHA considers fair and reasonable for the three-, four-and five-bedroom homes ranging in size from 1,200 to 1,700 square feet."

A written statement from KB Home seemed to concur.

"In an era when private and public projects frequently exceed planned costs , San Antonio subcontractors worked together with KB Home to deliver ... within the established SAHA budget."

But SAHA's final average cost fails to reflect the actual cost of construction. KB Home, an international corporation, mass produces single-family homes, so it can benefit from economies of scale.

The company can cut costs by buying supplies in mass quantities, effectively using low-cost subcontractors and deviating as little as possible from boilerplate blueprints.

Advocates for low-income Texans who need help in finding shelter say that allowing high profits on public housing construction is wrong.

"There is so little money available to help poor people, it's especially tragic that it go to anyone other than them," Henneberger said.