The original developer of a 625-acre luxury waterfront community in Hitchcock is asserting the city still owes the company money from an initial $12 million investment in the property, according to documents released to The Daily News.
Harborwalk LP, which originally developed 380 lots, a 150-slip marina and yacht club at Harborwalk, invested more than $12.7 million into improvements that were supposed to be reimbursed through a tax increment reinvestment zone, Evan Watkins, son of Harborwalk LP principal Lynn Watkins, stated in an email.
“Ever since the March 2017 TIRZ board meeting, it has felt to us almost like the city is trying to avoid reimbursing the developer at all under the terms of the development and financing agreement,” Watkins wrote in the email to the mayor and the reinvestment zone board.
The email does not say specifically how much the developer believes it is owed.
Hitchcock Mayor Dorothy Childress declined Monday to comment, saying she would refrain from saying anything until she better understood the situation.
“There are a lot of pieces to this puzzle,” said Sabrina Schwertner, executive director of economic development and foreign trade zone for Hitchcock Industrial Development Corp. “I don’t think any decisions will be made until documents are reviewed and a legal opinion is given.”
The city designated about 850 acres that includes Harborwalk, which is on West Galveston Bay, south of state Highway 6, as a reinvestment zone in December 1999, according to a 2016 financial report.
Reinvestment zones originally were meant to attract developers to blighted areas but have expanded to attract development in general. In cities such as Galveston, they have been a source of controversy and lawsuits, especially those that struggle.
In such zones, developers advance money to make public improvements in private developments and receive reimbursement, including interest either from increased tax revenue in the zone or government-issued bond proceeds.
As new construction in a zone occurs, the resulting incremental increase in tax revenue is returned to the zone for a set period of years.
For example, if the assessed value for a base year was $6 million and improvements to the area increased the value to $7 million, the taxes collected on the additional $1 million are earmarked for the reinvestment zone to pay back developers for public improvements. The idea is to attract development and increase the city’s tax base.
Hitchcock’s reinvestment zone in 2006 issued more than $7 million in bonds meant to reimburse the developer for the improvements, records show.
Those bonds were refinanced in 2017 so the city would get better interest rates and so the bonds would be paid off by 2020, instead of 2026 as initially planned, Schwertner said.
Extending the bonds would have allowed the reinvestment zone to reimburse more money to the developer, Evan Watkins argues.
While Harborwalk LP originally developed the community of waterfront homes, there has since been trouble.
In January 2010, Harborwalk LP filed a lawsuit against Compass Bank, which later was bought by BBVA, after the bank sent a notice of default on an amended $30 million note and refused to allow the company to draw anymore money to cover project costs.
Harborwalk LP officials at the time said they had not defaulted on any provision of the loan agreement and had made timely payments. But Compass Bank blamed declining value of property used as collateral for its decision to call the note.
In 2012, Legend Communities, a developer of single- and multifamily residential and associated commercial projects, bought Harborwalk from BBVA Compass bank.
Legend Communities in September 2017 warded off a foreclosure sale of many parcels and properties in Harborwalk.
Several community members and at least one city commissioner have since raised questions about how the development has benefited the city.
“Everything is about future revenues, but we need money now,” Commissioner Monica Cantrell said. “They say ‘in 15 years we’re going to get all this money’ but the city is in dire need now.”
The city finds itself in a troubled financial position because officials have been drawing out of the fund balance at the same time that sales tax revenues have declined substantially, leading officials to cut more than $860,000 from the budget.
“I understand there are people in Hitchcock who feel the TIRZ was a bad deal for the city, but it’s the deal the city made, and in fairness to the city leaders at the time, I think they believed it would spur much more additional development along Harbor Drive and Redfish than eventually occurred,” Evan Watkins wrote.