DALLAS – Despite its rapid growth and healthy economy, Houston has some problems more commonly found in rust belt cities, particularly abandoned or substandard housing.
As developers race to keep up with demands for new housing on the outskirts of the city, pockets of derelict apartment and condominium complexes become safety hazards and havens for crime, according to Mayor Annise Parker.
“Rather than ignore the sites that are a haven for drugs, prostitution and other crimes, we target them to help increase public safety and the neighborhood’s quality of life,” Parker said at an event where she actually operated one of the cranes used to demolish a particularly troublesome complex.
Some of the complexes have prompted complaints for years, including one where residents were using the green water from a neglected swimming pool for drinking water.
Unlike Detroit, where abandoned properties usually can’t find buyers, the land beneath the substandard complexes in Houston is in high demand once the structures are cleared, said Houston controller Ronald Green.
“We have builders who we can sell to under the land re-investment program,” Green said. “The builder doesn’t have the expense of clearing the lot, which makes it a lot more attractive.”
The city also uses federal housing funds to provide low-income housing at the redeveloped sites, Green said.
“We found that we needed to accelerate the demolition of so many of these buildings so that we could leverage using federal funds,” he said.
To finance the demolition program, Houston has issued certificates of obligation since 2006. Voters overwhelmingly supported the issuance of $15 million more of the COBs last November as part of a $410 million city bond package.
Half of the newly approved COBs are going to market this week as part of a $332 million deal that is mostly refunding, Green said.
Lead manager Rice Financial Products Co. is holding a pre-pricing call on Wednesday, with pricing on Thursday, Green said. Co-managers are Barclays, Wells Fargo Securities and Backstrom McCarley Berry & Co.
First Southwest Co. is co-financial advisor with Kipling Jones & Co. Bracewell & Giuliani is co-bond counsel with Baker Williams Matthiesen.
Green said he expects good demand for the city’s debt, even though the calendar looks a bit crowded with similar sized issues.
“It appears that there are a lot of deals out there, but no deal is more than about $400 million,” he said. “I don’t think that many people wanted to be out there last week because it was tax week.”
This week’s bonds are coming in three tranches, with $250 million of tax-exempt refunding as Series A, $75 million of taxable refunding bonds as Series B, and $7.5 million of COBs issued as part of Series A.
The new issue carries double-A ratings from Standard & Poor’s and Fitch Ratings with stable outlooks. Moody’s Investors Service does not rate the deal.
“In our opinion, Houston’s financial position is strong,” according to S&P analyst Russell Bryce. “Officials project 3.8% growth in property tax revenues and 4.7% growth in sales tax revenues for fiscal 2014.”
Fitch analyst Steve Murray noted that the city’s debt load is above average at $4,800 per capita, but “the pace of tax-supported debt retirement is above average with 65% retired in 10 years.”
“The post-recession recovery of Houston’s regional economy continues to outpace that of many other large U.S. cities, as a robust energy sector is a leading contributor to population and employment gains,” Murray wrote. “Regional employment registered a notable increase of nearly 3% in the 12-month period ending in January 2013, and the local unemployment rate of 6.9% for the month was down from 7.7% in the same period last year and is consistent with the state average and below the U.S. rate (8.5%).”
Between July 2011 and July 2012, Harris County, which includes Houston, saw the largest increase in raw numbers of any county in the nation. Harris grew by 80,005 residents in that year, followed by Los Angeles County and Maricopa County in Arizona, which both gained nearly 74,000 residents.
To the north, Dallas County was No. 4, with 45,827 new residents. Travis County and Tarrant County were the other two Texas counties to make the top 10, ranking No. 7 and No. 9, respectively. Texas held 11 of the spots on the Census Bureau’s list of the top 50 fastest-growing counties.
For the fourth year in a row, Houston was the top destination for people moving possessions with a U-Haul truck in 2012, according to the truck and trailer-rental company. Two other Texas cities ranked among the top 10 cities for people on the move - San Antonio at No. 5 and Austin at No. 6.
With an estimated population of 2.1 million, Houston saw taxable assessed value fall 4.9% for fiscal 2011, the first decrease in taxable AV since fiscal 1993. Although officials projected another decline of about 0.1% for fiscal 2012, the tax base actually grew by 1.5% to $145 billion for fiscal 2012.
Growing the tax base is one of the primary motivators of the housing demolition program, Green said.
“The abandoned properties are not paying taxes, and their condition is hurting the surrounding property tax values,” he noted.
Last year, the city demolished more than 800 unsafe buildings, setting a record and surpassing the initial goal of removing 600 structures. Parker said she wants the quicker pace to continue.
Last year the mayor freed up funding to hire eight more neighborhood protection inspectors. She is working on a reorganization of the city’s neighborhood protection unit and pursuing public/private partnerships like Demolition Day in which the Houston Contractors Association assisted the city in the removal of 185 buildings in a single day.
As the city clears lots for new housing, it is also planning a network of parks along the bayous under $160 million of bonds approved Nov. 6. That issue has not yet come to market.
The city’s next bond issue will be $200 million of combined utility bonds pricing May 5 through Loop Capital, Green said.