HUD Loan Docs Raise Questions About City Staff's Report on $3.9 Million Loan for Patriots Crossing Development

Categories: Schutze

Is City Hall in for a little haircut on the Lancaster Road "Patriot's Crossing" deal?
Most of the City Council's housing committee ho-hummed or twiddled their fingers at a February 3 briefing on a big city-bankrolled development deal called "Patriots Crossing," but a few expressed dismay. They said the city had paid way too much money for land on Lancaster Road across from the Veterans Affairs hospital.

Top city staffers assured the skeptics on the council that all was in order with the city's real estate development. But U.S. Department of Housing and Urban Development loan documents I received last week in response to a demand for open records paint a picture that diverges at key points from what the staff told the council.

Maybe the most important thing the staff did not tell the council was that they, City Hall, lent a developer named Yigal Lelah $3.9 million to cover property for which he appears to have paid only $3.4 million. That's half a million dollars AWOL from the staff presentation.

It does not appear that the AWOL half million went into Lelah's pocket. In fact Lelah, if anything, was scrupulous on the documents I saw to show where the money did go. It just didn't go where the staff's PowerPoint presentation to the council said it went, to buy land. Instead the extra money appears to have gone to cover Lelah's "pre-development costs," for architectural renderings, surveys, consulting fees and other things.

See also: Dallas City Council Wants to Know What It Did With 4.5 Million of Your Dollars

I tried by phone and email to reach Lelah last week, but he did not respond. City officials said they would get back to me Friday on the same questions, but they did not.

I don't know that Lelah did anything wrong by folding his pre-development costs into his loans from the city in terms of his original understanding with the city. The original briefing in 2009 said the city would lend him money for "development and related cost including land assemblage." The point is that the council was not told that was what they were looking at in the recent briefing, and it was city staff, not Lelah, who should have told them.

The way it was done was pretty simple and pretty obvious. For example, the city loaned Lelah almost $70,000 to buy a house at 4702 Denley Drive, for which Lelah paid $36,000. In another case at 4610 Denley Drive, the city loaned Lelah $213,000 so he could pay $120,000 for the property.

The loan documents I saw are designed to explain each transaction to HUD, whose money is being spent here. On the documents, additional amounts were tacked on to each deal for consulting, architectural fees and so on. To buy the house at 4610 Denley Drive for $120,000, for example, the loan documents show that Lelah had to pay a commission of $3,612 to an unnamed person, invoices of $6,500 and $22,050 to an architectural firm, 5GStudio Collaborative, an invoice of $24,768 to someone whose name is either Kelly Pacheco or Pacheco Kelly, as well as various environmental, construction and other fees.

At 4610 as on most of the properties Lelah bought, a consulting fee of $7,224 was paid to Vernon S. Smith. In some public statements, Lelah's company, Sapphire Road Development, has described Smith as a vice president of the firm. On the properties for which I have documents, Smith is a consultant. He was paid a total of $170,000 in these deals.

Some of Lelah's paperwork seems to paint the amounts loaned for some properties as reflecting actual market value. Lelah presented the city with an appraisal of a property at 4702 Denley Drive showing a value of $248,400. But the HUD loan document for that property shows a value of $36,000.

Again, I am not arguing that any of this is a smoking gun or that I saw somebody running off over the horizon with the boodle. If city staffers would call me back and explain it to me, I might wind up less confused. I am not hugely hopeful on that score.

At the council's housing committee briefing, interim housing Director Bernadette Mitchell deflected questions from council members by suggesting that the Lelah deal was handled by the city's Office of Economic Development under Director Karl Zavitkovsky. Therefore I posed my questions last week to Zavitkovsky as well.

Zavitkovsky emailed me back: "Neither I nor anyone in the Office of Economic Development had any involvement with this transaction. I suggest that you contact Theresa O'Donnell, Assistant City Manager, with responsibility for Housing and Sustainable Development."

I did that. She said she'd get back to me. We have not yet spoken.

There is another issue. From the get-go, Lelah's project has been a high priority for council member Vonciel Hill, who represents the district. At the last full City Council meeting where questions were raised about land costs, Hill unsubtly suggested that council members who thought prices paid by the city were too high were racists. A problem with that thesis is that nobody has been more of a skeptic on this deal than African-American council member Dwaine Caraway. But there you have it.

The original project for mixed-use development went south long ago -- ain't gonna happen, not now, not never -- so now Lelah's venture has morphed into a low-income housing deal, also to paid for almost entirely with public subsidy. Some aspects of that idea are deeply strange: The city is under the gun from HUD not to cram more subsidized housing into southern Dallas. There is already a major new subsidized housing development a few blocks down Lancaster Road from Lelah, so a big initiative for more of the same in almost the same location seems anomalous.

Whether Lelah has done right or wrong by tacking all of his development costs for a failed development into so-called land costs at this address, the fact is that the city holds the ultimate liens here and is the ultimate owner if Lelah walks. So far, the city has sunk almost $4 million into a block of raw dirt across from the VA hospital.

It's not that Lancaster Road is a dead end or without potential. Things are happening on Lancaster -- an impressive amount of new development up and down the street. The question would be this: If and when this land comes back to the city and the city wants to peddle it, will there be anybody out there willing to pay $4 million for it, or is a haircut in order for City Hall?

And that could be nice, too. I'm thinking Mohawk. What about you?

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Why in the world is HUD passing out $3.9 million to Dallas to aggregate property? - I thought they were in the business of helping with housing for the poor -

holmantx topcommenter

The future of Governors Island - By George Will (Published May 14, 1998)

NEW YORK--Someone droll in Sen. Pat Moynihan's office has provided a one-page "unfinished history" of Governors Island, which sits, like an unloved orphan, in New York harbor, hard by the Statue of Liberty. The history says: "1708: Lord Cornbury, New York's first transvestite governor, builds a mansion on Governors Island, possibly misusing defense funds, including proceeds of New York's unusual wig tax."

The usual rule of thumb among developers concerning projects with high risks but potential high yields is that "the second guy in will make money"--after the first guy goes broke. Concerning Governors Island, Trump says, "The third guy in will make money."

Maybe rebrand the tract - Governors Island.

On May 24, 2012, Mayor Michael Bloomberg broke ground on the new park and public spaces.


Why is the government involved in any of this?


"Shady Land Deal in Dallas" is one of those permanent headlines, like "Conflict in the Middle East" or "Politiician Involved in Corruption", that could be on any newspaper in the last hundred years... or the next hundred years.


We got a gumbo of metaphors here -- haircuts, sows and piglets (works in more ways than one), and "going south." Online etymology of that one dates it to mid-1800s, when fugitives and ne'er do wells (a few of them were my ancestors) escaped their U.S. troubles by fleeing to Texas or Mexico.

But the venerable "going south" as a metaphor for failure followed by evasion is a racist black hole in Dallas, so let's abandon that tarbaby and throw it out with the bathwater.


I know that Yigal Lelah is the one getting all the press here, but what about two other guys who appear to be involved in the deal:

1)  Vernon Smith, Jr. - Among other things, his father, Vernon Smith Sr., was Mayor Pro-Tem under R.L. Thornton, a Dallas City Council member, and President of the Salesmanship Club of Dallas.

2)  Mike Sugrue - Isn't he a prominent North Dallas developer that just received the Dallas Builder of the Year award?

mavdog topcommenter

Not certain that there is a hair cut coming, from what has been said the VA has wanted this property and could very well be willing to pay what the City has into the project to get the property for its own use.

The engineering done (if there truly has been some done) and the environmental studies would be of value to anyone who wants to develop the property. Those do have benefit. Could the name be "Pacheco Koch" rather than Pacheco Kelly? Koch is a large engineering firm.

If there has been any real architectural done, which is not likely looking at the numbers paid to 5G, they're not going to have much value to anyone. At this point it appears the fees were paid for concept renderings rather than actual plans.

The monies paid to "consultants" should be looked at further. The purchase of $3.4M of property resulting in a check to Vernon Smith for $170,000 is a 5% fee, which appears to be on top of commissions paid to agents. Pretty nice gig for Mr. Smith to say the least.

Long and short, this project has not been adequately supervised by the lender, who in this case is the City of Dallas. That means you and me as Dallas citizens. The person responsible at City Hall needs to answer some questions....

I got a response from a council member regarding any development with HUD as it's center piece. The response:

Housing is not constructed as Section 8.  Section 8 is housing choice vouchers and any landlord anywhere, anytime can decide to accept Section 8 vouchers.  Only various types of tax credit and TIF projects require housing to be built and deed restricted for a particular income set.

ThePosterFormerlyKnownasPaul topcommenter

Jim, the extra money was for like expenses and overheads; yeah, that's right, expenses and overheads.  This is your stop, now get out of the car.

PS: Is it possible that some of this money ended up in a floor safe in a house in Oak Cliff? -- ;-)

Jim, there are so many sub stories contained within this piece, you could take over Unfair Park for the next few months with nothing but those stories. No more tip toeing, please.

Tell the readers the Vernon Smith Jr story and who his daddy was. Could this be the reason DMN is walking around the story due to his family connections?

Let's hear more about 5G Studio, the Omni, and the Jack Matthews collaboration.

We're waiting.


Let me see if I can break down some of these terms so they'll be easier for us to understand.

City Staff = Worker Ants, whose job it is to feed and groom the

Council Members = Drones, whose job it is to be fed and groomed until it is time to mate with the

City Manager = Queen, after which they die.

holmantx topcommenter

A haircut is in order, and the taxpayer is in the chair.

But from what you've found out so far, there's no "smoking gun".  Just a few government cap pistols laying about.  TGD - Typical Government Deal.

And I can't blame Lelah - yet.  when dealing with governments (in this case the City and HUD), you've GOT to pack your costs into the deal as you go along because that old fat sow can and will roll over onto the piglets in her sleep.

And because you are spending public monies, every move this guy makes has to covered up with studies and architects and engineers and consultants . . . when if you did this with your own money you could pilot the mission more by the seat of your pants (gut instinct).  Far cheaper that way.

And it looks like that's what happened to him.  The City probably nixed the Mixed Use development plan due to lack of demand for it, or more probably they went wobbly on the sticker price, THEN the specter there was insufficient demand, THEN turned to the easy money (HUD), BUT ran into the new and improved oversight, which is shaking the new use - subsidized housing.  If I were Lelah I would exclaim - "I hate that when it happens!"

because now enters Mr. Schutze, stage left.  A dying deal is beginning to stink a little, and it's drawing in an investigative reporter.  

Lelah is right.  He had to load it up with his costs (and document it) as he went along precisely for this reason.  Because that old sow is rolling over on top of him . . . in slow motion.  And he's thoroughly fastened to the teat.

and the City will have no choice but to blame him.

"Run Lelah, RUN!"  Get out of the kill zone, man!

An interesting read this weekend on Scalia and his take on Kelo v City of New London in the WashPo.  It has more to do with the car wash than here but you have to ask - how did the mindset evolve that put the taxpayer into funding a private real estate venture in the first place?  - When Kelo changed the takings clause from "Public Use" to "Public Benefit".


@WylieH Well-placed, faceless white guys making money off the southern sector is a tradition. They're to be congratulated for their business acumen in bypassing the preachers this time.


Yes, it depends on the funds used to either finance/refinance a property or develop it; if funds used are HUD's or other subsidies from local, state and/or federal, agencies, there comes strings, which could include a requirement to accept section 8 vouchers.

Dallas has been forcing all section 8 properties in the Southern Sector, which is the root of the big kerfuffle. This project would be in stark contrast to the demands of the HUD findings. A big F-You to HUD, from their "friends" at City Hall.  

ThePosterFormerlyKnownasPaul topcommenter


On Kelo, this is clearly a case of the observation that the Supreme Court is not last because it is right, it is right because it is last.


@zqpm - There are lots of Section 8 apartments full of blacks around 635-Forest-Skillman-Audelia, and wow oh wow have they done amazing wonders for the place!  Violent crime has gone down, property values have gone up... /sarcasm

mavdog topcommenter


you mean the trailer park on NCX in Plano, north of the Costco? The park that has a mix of white, hispanic and black residents? It is a very well managed park, clean and has few if any problems.

did you have a point to your post?

mavdog topcommenter


West Virginia isn't densely populated, and its crime rate is not much lower than Mississippi....


@JimSX I have never heard anybody say that they are afraid to go to the Costco on North Central due to the trailer park next door...


@JimSX  well they certainly don't have the effect that poor blacks have.  See West Virginia - one of the poorest states, with one of the lower crime rates, and also one of the whitest states. 

JimSX topcommenter


Just for grins, just to see what you can lift, let's hear you talk about the effect you think concentrations of poor white people might have on the areas around them.

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