Casino requirements in Mississippi

June 24th, 2008

Mississippi Gaming Commission established minimum investment for all casinos in 1994. In order to foster economic growth through job creation, the commission requires that each casino licensee build a hotel with a minimum of 250-room and a 500-space parking facility. Moreover, 25% of the actual cost of the casino development must be invested in the local community where the casino will be developed. The cost for obtaining a casino license is $5,000, along with any other investigation fees. The annual fee for maintaining a casino is $5,000 plus a fee for each game in the casino. The game fee is usually around $35 for one game and increases for each game up to 35 games for a fee of $81,200. Additional games above 35 are permitted for $100 per game. Slot machines are not considered “games”, thus not required for gaming fees. Casinos licensees are also responsible for revenue taxes as determined by the State. Publicly traded companies that are affiliated with all gaming licensees much also be registered with the Commission.

You must own a casino site when you apply. Typically, casino sites are going for $2 million to $5 million per acre.

Biloxi

Casino Magic - Bay St. Louis
711 Casino Magic Drive
Bay St. Louis, Mississippi 39520
Phone: (228) 467-9257

Beau Rivage
875 Beach Boulevard
Biloxi, Mississippi 39530
Phone: (228) 386-7111

Boomtown Casino - Biloxi
676 Bayview Avenue
Biloxi, Mississippi 39530
Phone: (228) 435-7000

Casino Magic - Biloxi
195 E. Beach Boulevard
Biloxi, Mississippi 39530
Phone: (228) 386-4600

Grand Casino Biloxi
265 Beach Boulevard
Biloxi, Mississippi 39530
Phone: (228) 436-2946

Hard Rock Hotel & Casino - Biloxi
777 Beach Boulevard
Biloxi, Mississippi 39530
Phone: (228) 374-7625

Imperial Palace Hotel & Casino
850 Bayview Avenue
Biloxi, Mississippi 39530
Phone: (228) 436-3000

Isle of Capri Casino & Hotel - Biloxi
151 Beach Boulevard
Biloxi, Mississippi 39530
Phone: (228) 436-4753

Palace Casino Resort
158 Howard Avenue
Biloxi, Mississippi 39530
Phone: (228) 432-8888

President Casino Broadwater Resort
2110 Beach Boulevard
Biloxi, Mississippi 39531
Phone: (228) 385-3500

Treasure Bay Casino Resort
1980 Beach Boulevard
Biloxi, Mississippi 39531
Phone: (228) 385-6000

Proposed economics of 1,000 acre Mississippi land purchase in Horizon with a golf course

June 24th, 2008

Proposed economics of 1,000 acre Mississippi land purchase

1,000 acres @ $25,000/acre                                                             $25,000,000

300 acres for golf course @ no cost                                                                    0

19 holes of golf @ $200,000/hole                                                          3,800,000

Expandable clubhouse @ $1,500,000                                                   1,500,000

Total cost                                                                                              30,300,000

Sale of 75 acres for 1,500 apartment @ $8,000/door                         (12,000.000)

Land cost without apartments                                                               18,300,000

42,000 LF of golf course frontage less 6,000 LF

sold off with the apartment land = 36,000 LF

on the golf course

Using lots that are 60 front feet would yield 600

Golf Course lots @ a $15,000/ lot premium                                     (9,000,000)

Effective land cost without apartments and golf course lots                $ 9,300,000

Acreage cost for 1021 net acres                                                         $10,098/acre

This does not include any premium for Biloxi River frontage

nor the value of the golf course and clubhouse

Horizon - 10,000 acre Master Planned Community north of Gulfport, Mississippi

June 24th, 2008

Re: Horizon, a new 10,000 acre Master Planned Development, located on the west side of Hwy 49 approximately 25 minutes north of Gulfport/Biloxi

Dear :

At ultimate build-out Horizon will have 70,000 single-family residential homes and 30,000 multi-family units and an estimated population of over 300,000. Horizon will become the largest or second largest city in the State of Mississippi. The first 4,000 acres are under development with the first lots projected to be available for delivery in early 2008. Construction on the next large section should start the middle of next year.

Although there are still 30,000 families (over 90,000 people) living in temporary FEMA trailers in southern Mississippi, the driving force in the new home market and rental market for the next 10 years will be providing housing for casino workers. The State of Mississippi has decided that they want to become the second largest gambling destination resort to Las Vegas. The State has awarded 15 new gambling licenses for new casinos. The first two announced in southern Mississippi were both over $1 billion and one of those has already started clearing the land. Casino revenues are currently exceeding pre-Katrina revenues. The casinos pay very well and are employee intensive. Recent studies suggest that for every new casino employee hired by a casino an additional person will be added to the local workforce.

The State of Mississippi has taken a very pragmatic approach to solving the post Katrina problems. Everyone from the Governor on down has been onboard in helping. The State realizes that they need outside help to rebuild. Opposite of what you find in a neighboring state, bureaucratic red tape and payola are not prevalent every time you turn around. Since Katrina, the State of Mississippi has helped over 10,000 families buy a new or used house with an average grant from the State of over $62,000 per family!

Most people are not aware that the major storm devastation took place within a quarter mile of the coast for 110 miles. That is where the most expensive homes in Mississippi were located. To rebuild in those areas will now require building the first floor of the structures more than twenty feet above sea level. The developers of Horizon feel that many of these people will want to rebuild further inland in places like Horizon.

Last year the State of Mississippi sent out three billion ($3,000,000,000) dollars in checks to 23,500 homeowners that were not in the 100 Year Flood Plain and were not covered by insurance for their home losses up to $150,000. The State of Mississippi currently has over $12 billion in aid available to get people into new homes and apartments. The state is willing to provide grants for down payment assistance and mortgage rate buy downs. Fannie Mae will allow pre-Katrina FICO scores for mortgage qualifications and will allow employers to make the down payments for homebuyers. 50% first year accelerated depreciation is available for new rental property including single-family residential homes through 2010.

The Biloxi/Gulfport new home building market is probably one of the strongest residential markets in the United States, and could continue to be for the next 8-10 years. There is a need to rebuild 20% of the Biloxi housing stock (5,000 homes and apartments) completely destroyed by Katrina not including the partially damaged houses that need to be rebuilt. This does not include all the houses in Gulfport and the surrounding areas that were destroyed. The manager of the Beau Ravage Casino recently said that 30% of her employees are still in FEMA trailers. The 23,500 former homeowners who are receiving checks will want another home. If half of those buy new homes there is a need for over 11,000 new homes just from a group of potential buyers with cash in the bank. The new casino construction over the next 10 years will create even more need for housing.

There are a number of area firms planning major employment expansions such as Northrop Grumman with an existing work force in excess of 16,000 employees in ship building, the port, Trinity Yachts (the largest luxury yacht builder in the United States) and the new $3.7 billion dollar steel plant going in near Mobile which should be operational by 2010. It is anticipated that the steel mill will attract numerous additional new businesses in the surrounding area.

Horizon has 20,000 acres of gently rolling wooded terrain that is 200-300 feet above sea level. One of the first lakes to be built will be 1.5 miles long and the Biloxi River bisects the western portion of the property. The property fronts on the west side of Hwy 49 (the major north/south road in the area) just north of the Desoto National Forest and is about 17 miles north of IH-10. In 2008 the State of Mississippi plans to start expanding HWY 49 to an 8-lane highway for evacuation purposes. The State is constructing a new Hwy 67 as a limited access freeway. This freeway goes from IH-110, where most of the casinos are located, northwesterly and intersects Hwy 49 about 2 miles south of Horizon. The first half of the freeway should be opened the 3rd quarter of 2007 and the 2nd part to Hwy 49 should be completed 12 months later. At that time it should be a 20-minute drive from the casinos to Horizon. The State has indicated that they would like to extend Hwy 67 through Horizon. Major internal roads in Horizon will be asphalt 4-lane, or larger, limited access and esplanaded boulevards with concrete rollover curbs. All utilities will be underground.

There are 3 federally protected pristine rivers that drain the whole Gulfport/Biloxi basin. Because of this, it is virtually impossible to get a discharge permit for a sanitary sewer plant to discharge into any of the tributaries that drain into these rivers. In addition to the sanitary sewer problems, wetlands are another major issue. Many tracts for sale have 30-90% wetlands, and to make matters worse, the Corp of Engineers says that virtually all these wetlands are high-grade wetlands.

The developers have gotten approval from the State to discharge up to ten million (10,000,000) gallons of treated effluent into the Little Biloxi River which bisects the property. Approval for a permanent sanitary sewer system to treat sewerage for the first ten thousand (10,000) residential units has been obtained from the State MECQ. In 2008 the developers will start building a new major permanent sanitary sewer plant to handle all of Stone County’s sanitary sewer needs. A number of major lift stations will be constructed onsite as needed. Water plants with above ground storage tanks will be installed throughout the property. The developers have virtually all the Corp of Engineer permits in hand needed to develop the entire 20,000 acres. In general the soils are sandy (low PSI) with an underlying clay base. Heavy equipment can normally be back in operation within 24 hours of a major rain.

Any detention requirements will be provided by the developers. A major overhead primary electrical line bisects the property. Gas will not be available to the site, but Cable TV will be. There is a rail line that bisects the property near Hwy 49, and the railroad company has agreed to install a 57 car rail spur in 2008 for material yards for suppliers. The developers plan to install an asphalt plant and concrete plant on site to guarantee the builders a steady supply of asphalt and concrete at a reasonable price. They have also decided to build four or five 18-hole golf courses onsite. The first two should break ground in 2008. There are 13 existing golf courses in the area including courses designed by Arnold Palmer & Jack Nicklaus. In the next section to be developed in Horizon, the developers plan to include a 100 acre recreational center including a large number of ball fields. There is a very nice Junior College within a half mile of Horizon.

The State is close to approving a passenger train that would make a number of trips daily between Hattiesburg and Gulfport/Biloxi. An onsite rail station in Horizon is currently being designed. In the future most casino workers would be able to commute to work by train from Horizon.

Because there will only be a county building permit required with no building inspections, the developers are being very careful in choosing who they allow to build in the project. They want only very experienced builders who are well financed and have good track records. As an example, Meritage who is the 13th largest homebuilder in the U.S will be the lead single-family homebuilder.

The developers have extensive building and development experience. Mike Adkinson has built over 15,000 apartments units, was a major high-rise condo developer in Florida, at one time was part owner of over 2 million square feet of retail, builds single-family residential homes and develops residential subdivisions. Bob Windom has built over 85 hotels and motels; at one time he was the third largest owner of timeshares in the U.S. and has owned and operated a bank.

The developers will be front-ending $50 million for the school district to build two new elementary schools in Horizon. The developers will also build two Sheriff’s Department facilities, a fire station and a town hall that will include some county offices. Home Depot has offered to build the largest Home Depot in the United States in Horizon. Wal-Mart has said they would like to build a Wal-Mart with grocery store next year or the year after.

Major issues facing builders in the marketplace are labor and housing for subs. There will be a shortage of skilled labor in the future, so labor will need to be imported to the area.  A number of the national real estate markets are slowing down, so attracting subs should be easier during the next 18 months. To help provide housing for the construction workers, the developers plan to construct 200 modular homes per month, of which a number of these units would be available for builders and contractors as needed.

Windstorm insurance rates are cheaper north of IH-10 (the property is north of IH-10). Depending upon the deductible, frame construction windstorm rates for multi-family are $.584-.688 per $100 valuation. Masonry construction rates are a little less. The single family residential rates are less and would be comparable to the Houston market. The tax rate is 120 mils on 10% of the property’s assessed value. There is a 5% State Income Tax, and in general Mississippi taxes are low.

The State of Mississippi and Fannie Mae have both indicated an interest in leasing space in the Welcome Center at the entrance to Horizon. They would pre-qualify potential home buyers before they went to meet with the builders. That way the potential home buyers would know reasonably how much and what type of aid they could get and what type of loan they would qualify for. Haley Barbour, the Governor of Mississippi, has said that the state is prepared to put all thirty thousand (30,000) families in southern Mississippi still living in FEMA trailers into single family homes and apartments.

Lot sales will be made to builders on an option contract going out up to 3 years. The single-family site built residential homes will probably range from the $160’s to over a million. Builder lot prices start at $35,000/lot for a 60′ X 125′ lot (the minimum lot size for Stone County). Nineteen and one half (19.5%) percent non-refundable earnest money will be required on each contract. All lots will be out of the 100 Year Flood Plain. A Phase One Environmental Study and Wetlands Study will be provided to the builder prior to the initial closing as well as title insurance at closing.

The front yards need to be solid sod and a sidewalk is required across the front of each lot. The minimum house size is 1,400 SF of air conditioned and heated living area. Building set backs are front - 25′, sides 5′ and back 15′.

If the above sounds like it might be of interest to your firm, we would be happy to set up a meeting in Biloxi for your people to meet the developers and engineers. We don’t think there is a better single-family building opportunity than Horizon anywhere in the United States. We can get you comped at the Imperial Palace Hotel and Casino for all your food and lodging. Please call Gary Maddox at (832) 741-4078 or Ben Koshkin at (832) 443-4366 if you are interested in meeting the developers and looking at the property. You won’t be disappointed.

Mississippi Phase I & Phase II Grants

June 24th, 2008

Mississippi Homeowner grants since Katrina
The status of the federally funded, state administered homeowner assistance grant programs, phases I and II:

Phase I:

Allocated: $1.1 billion

Applications received: 19,516

Number ineligible: 3,820

Notified to close: 14,665

Applications in process: 1,031

Grants closed: 14,268

Grants paid: 13,636 Amount paid: $986,279,730

AVERAGE PHASE I GRANT PAID TO 13,636 FAMILIES $72,329.11

Phase II:

Allocated: $700 million

Applications received: 7,424

Applications rolled over from Phase I: 4,130

Damage assessments completed: 95 percent

Initial title work completed: 91 percent

Applications approved: 2,428

Closing packages distributed: 2,197

Completed closing packages returned: 1,578

Grants paid: 787

Amount paid: $55,082,134

ESTIMATED AVERAGE PHASE II GRANTS TO BE PAID TO 11,554 FAMILIES $60,585.08

You did not have to be a home owner to qualify for a Phase II grant

- MISSISSIPPI DEVELOPMENT AUTHORITY

Estimated 1500 SF Modular Home cost breakdown and sales price

June 24th, 2008

Estimated modular costs for 1,500 SF

  1. Site clearing                                                                            $    300
  2. Site drainage                                                                                 300
  3. Set up unit                                                                                  2,500
  4. Trim out                                                                                      2,000
  5. Foundation                                                                                 5,500
  6. Sidewalks & driveway                                                                2,800
  7. Decks                                                                                         1,200
  8. Stairs                                                                                             300
  9. Electrical                                                                                        900
  10. HVAC                                                                                         1,600
  11. Plumbing                                                                                       750
  12. Cem Plank skirting                                                                     2,500
  13. Landscaping                                                                                  500
  14. Grass                                                                                            600
  15. Tap fees for water & sewer                                                        3,500
  16. Storage building                                                                         1,000

TOTAL                                                                                         $26,250

Average total estimated costs

1.1,500 SF modular unit delivered to the site with extras           $ 66,600

2. Land                                                                                           35,000

3. Site costs                                                                                   26,250

4. Marketing                                                                                     4,000

5. Closing costs                                                                               2,400

6. Financing costs                                                                           1,000

7.  3% sales tax on unit sale                                                            2,000

8.  Profit                                                                                         22,000

TOTAL ESTIMATED SALES PRICE                                        $ 159,250 *

* Includes a front porch or deck but no high pitch roof or garage

  1. We will need to put in a number of garages, carports and high-pitched roofs. It would also be nice to put in an occasional two-story unit.
  2. We are probably going to need a staging area that is lighted and fenced.
  3. We are probably going to need security cameras or guards.
  4. Engineered foundation plans for our units (estimated cost $300/unit).
  5. Liability Insurance
  6. Memberships & licenses
  7. Corporation
  8. HOA restrictions
  9. 4 or 5 models including furnishings
  10. Telephone system
  11. Computers
  12. Furniture
  13. Office supplies

1.    Power boxes are in front

2.    Underground wiring to the house

3.    Set backs

A.   Front 25′

B.   Sides 5′

C.   Back 15′

4.    Full sod front yard

5.    Some front landscaping

6.    3% State Sales tax on the purchase of the unit from the factory

7.    Windstorm rating is 2 (120 MPH)

8.    All modulars to be built to International Residential Code

9.    We probably will start buying appliances direct and installing them ourselves 2-3 months down the line. We might also be doing the HVAC units, all sheet rock work and all trim out work.

10. We will need someone to go through each unit doing punch out and testing to make sure everything works properly prior to the walk-through with the buyer.

Mississippi Modular Homes

June 24th, 2008

The following are some thoughts and recommendations that might help you in dealing with the manufacturers for Mississippi Modular Homes.

1.    We don’t need treated wood on the bottom of the modulars.

2.    Some of the manufacturers use standard metal doors with a glass window on top. To change to a total metal door in many cases won’t be cheaper because they are buying the other doors in such large volume.

3.    All the manufacturers use large crown molding and baseboards as standard in the sheet rocked homes because the molding hides some of the sheetrock transportation cracks. They typically use larger casing for the doors for the same reason.

4.    Michael is checking the size of his two cranes which he thinks are 100 ton. If so we can use them at a lower rate than would be charged by the local guys. One of the cranes is an off road crane on tracks and one has wheels.

5.    You need to check on the quality of roof shingles as some of our manufacturers might be specing a more expensive shingle than we want to use.

6.    I think Oak Creek is over building their units with extra two by material that can probably be taken out.

7.    We can take out the window sills in some of the units, but I recommend that in the kitchen we leave them in for plants & knick-knacks.

8.    Most of the manufacturers have bull nosed corners on the sheetrock as standard for all their sheetrock homes.

9.    Some of the blinds might be 2″ which are more expensive than the 1″ blinds.

10. The units typically do not come with towel bars and toilet paper holders. I don’t think they come with light bulbs either, but that might not be true.

11. I recommend highly that in the Oak Creek model, assuming that it is the 8051, that we put in the ceramic backsplash in the kitchen which really helps set the area off. That would probably be true on other units where there is a free standing counter top that is readily visible to the living room and dining room.

12. The manufacturers are going to want to put in a minimum of 25 oz carpet that does meet FHA standard. They are not looking for Class Action lawsuits if people buy with FHA financing and the carpet isn’t to standard. Most will use a 4 lb pad as standard.

13. Some of the manufacturers have their own cabinet shops and one buys units from China.

14.  Some of the manufacturers use vinyl that is put down in squares which are easier to replace. Southern Energy uses incredibly resistant vinyl sheets.

15. The sub flooring is glued and shot with shank nails or in one case they use screws.

16. You will need to decide if you want to use PEX or plastic water piping.

17. All the manufactures use 6 panel interior doors or similar. Southern Energy’s doors are weaker in looks that the other manufacturers because they are pressed.

18. Most of the manufacturers will want to brace for fans in the living room and master bedroom. At a later date if the owner tries to install a fan that doesn’t have factory bracing, the costs become very expensive.

19. You need to check to make sure that Cemplank was speced in the bids and not regular Hardie.

20. I recommend the elongated commodes which all the manufacturers use.

21. You need to check on the tubs, particularly in the second bathrooms to make sure the manufacturers are using cheaper one piece tub/shower units.

22. We might want to include wiring for two phones and 2 TVs.

23. I did not look closely at the HVAC systems.

24. The lighting was typically bare bones.

25. The faucets were typically named brands.

26. We are definitely going to need a fenced and lighted staging area.

27. You need to check the windows to make sure most are one over ones. That was not the case on some of the units we saw.

28. The sub flooring varies from manufacturer to manufacturer. We saw tongue & groove plywood, regular C/D plywood and OSB all be used for sub flooring.

29. Some of the insulation varies. I recommend R-30 in the ceiling where you have most of the heat loss.

30. On the larger homes we might have to go to 50 gallon water heaters.

31. You need to check the appliances. I know that there were upgrades in the two story units.

32. We are probably going to need dormers on some of the units to add variety.

Ben Koshkin

Houston land requirements for Ben Koshkin’s clients

June 24th, 2008

We are fee developers working as principals. We normally do not participate in the real estate commissions. In a few cases where we know on the front end that there are very major problems such as wetlands, flood plain, environmental or drainage, we may ask for half the real estate commission, but this is not typical. The following are our 2007 buying criteria for our builder clients:

Inside the City Limits of Houston

1. Minimum of 15 to 25 acres suitable for entry-level housing. $25-40,000/acre. Will consider paying more if there is a good hard corner suitable for commercial.

2. 25-100 acres suitable for entry- level housing. $25,000-$35,000/acre.

3. We may be a buyer for 15-50 acres inside the City Limits of Houston to be used for $200,000 + housing.

Inside an existing MUD

1. 15-25 acres suitable for entry level housing. $20,000 - $45,000/acre.

2. 15-25 acres suitable for $200,000+ housing. $20,000 - $65,000/acre.

3. 25-100 acres suitable for entry level housing. $20,000 - $37,5000/acre.

4. 25-100 acres suitable for $200,000+ housing. $20,000 - $55,000/acre.

Outside an existing MUD, but close enough to be annexed into the MUD

1. 25-100 acres suitable for single-family residential housing. $15,000 -

$35,000.

Land to create a MUD

1. 200-350 acres for single-family residential housing. $8,000 -

$24,000/acre.

2. We will look at larger tracts to 600 acres, but prefer smaller tracts in

today’s market.

We will buy problem properties. As an example, one of our clients closed on a 55-acre tract at $8,500/acre last year that was a 100% in the 100-Year Flood Plain. We seriously looked at another tract that was 20% in the Floodway and had Wetland issues.

Currently, we are trying to buy a 90-acre tract at $1.25/SF that fronts on two major thoroughfares. We typically do not want to go out further than 2 miles past the Grand Parkway.

Areas we are not interested in include the following:

1.    East of Lake Houston

2.    East of FM 3180 & IH-10

3.    Inside the City Limits of a small town in the Houston area where utility rebates are not offered.

4.    Within the City of Tomball’s Extra Territorial Jurisdiction (ETJ).

5.    Within the City of Friendswood’s ETJ.

6.    Within the City of Texas City’s ETJ.

7.    Within the City of Rosenberg ‘s ETJ.

8.    Within the City of Katy’s ETJ.

9.    Within the City of Humble’s ETJ.

10. Areas served by private utility companies.

11. Our clients do not want to be adjacent to a landfill or eyesore.

Our clients typically want good road frontage, although we have closed on some tracts that were located behind commercial reserves with only a road ROW going back from a major road to the property.  In almost all cases our clients want exposure to a main street,

We will give you a very fast turn around. In most cases the buyer will be Ben Koshkin Trustee and the contracts can be out in a couple of hours. We typically ask for a120-day due diligence period with a 45-day close. We also ask that we can extend the closing for 45-days by putting up additional non-refundable earnest money.

Please do not submit Loop Net and Houston Board of Realtor listings unless they are your listings or they have been listed within the past week. Please do not submit properties less than 15 acres.

About half the properties we closed last year were not listed with a Realtor. We are willing to work with you on a property you think can be delivered, but you do not have listed.

If possible, we would like the following information on each submission:

1.    A location map.

2.    The Key Map page.

3.    A boundary survey or something that shows the dimensions of the property.

4.    An aerial showing the property.

5.    Price

6.    If a MUD is involved, please try to provide the MUD Engineer’s name and telephone number.

7.    Any other pertinent information such as a title report, Phase 1 Study, Wetlands Study, Soils Report, Drainage Study, etc., would be helpful.

Builder/Developer Lot Equilibrium

June 24th, 2008

Historically in Houston, when there is a 30-36 month supply of developed lots ready to build on, and developers are developing a number of lots equal to the lots that builders are building on, we have a lot equilibrium. That is the optimum when builders have an adequate supply of lots and developers are still able to develop and sell their lots. Over the past 4 years the lot equilibrium has continued to go down. Currently, lot equilibrium has been running 24-27 months.

Ben Koshkin

Suggested changes to the City of Houston DPC contracts for land development

June 24th, 2008

Honorable Bill White

Mayor

City of Houston

mayor@cityofhouston.net

Re: Some suggestions for improving the DPC process and builder relations

Dear Mayor White:

Based upon 30 years of building and development experience in the Houston area, I’d like to suggest some ideas to you that might help improve the DPC contracts and builder relations:

  1. From a developer’s point of view, it is critical that the City of Houston not change the rules of the game once the developer has applied for a DPC contract. In many cases the developer has already purchased the land and closed into a development loan. As an example, I have a client that needed to put in a force main and lift station for sanitary sewer for a development. The right-of-way and engineering were basically complete. The land was purchased and the development loan was in place. The City called us in and said the City has changed policy and is going to Regional lift stations. You are going to be required to put in a gravity flow line instead of the force main and lift station. The client has had to acquire additional right-of-way, redesign the engineering and will have to put in a gravity flow sanitary sewer line 25′ deep. This will probably cost the client $250,000 out of pocket that was not in the development loan. Realistically, the City of Houston should have grand fathered this situation.
  2. The Joint Review Process, which usually takes 8 months or more, has to be streamlined. As an example, if a developer buys a tract for $1 million and has interest carry of 10% on the loan, then over 8 months the interest carry is $66,666. This does not count engineering, taxes, maintenance and insurance.
  3. The City should do a better job of planning, so the City does not run out of DPC money in the latter part of each fiscal year.
  4. The City needs to change the reimbursement mechanism for the DPC contracts. I suggest that the City reimburse the builders based upon the actual accessed value the builder puts on the ground. In that way if a builder wants to put in nicer houses in a low-income area, he will really be able to help the neighborhood improve for the better. The present system effectively limits low-income areas to more low-income housing.

Sincerely,

Ben Koshkin

Letter to Mayor Bill White on land development within the City of Houston

June 24th, 2008

Re: City of Houston’s desire to have developers build on vacant land within the

City of Houston

Dear Mayor White:

Over the past 3 months I have started to compose a letter to you at least a half a dozen times and stopped each time because I have become so angry with the City’s prior actions. I am starting to get over my anger and have decided to approach this letter to you with some suggestions that might help alleviate some future problems having to do with redevelopment in the City.

First a little history - I have been a real estate subdivision developer for almost 30 years here in the Houston area. I do fee development for a small number of builders ranging in size from $100 million to the billions. Larry Milberger of Brown & Gay Engineers is one of my best friends and has done most of my engineering in Houston. When Paul Nelson was second in command in Public Works Department, he continually was on Larry’s case trying to get him to convince some of Larry’s clients to development in the City. Larry, finally convinced me that it would be good for Houston to develop in the inner city. Turning existing City eyesores into attractive moderate-income housing and thereby increasing the City’s tax base, appealed to me. Larry had been involved from the inception with the CPC contracts that provided a viable way for developers to develop in the City as opposed to the Water Districts predominately outside the City Limits. Paul Nelson assured Larry that the City would do everything they could to expedite the City process.

Over the past 18 months I have convinced one of my clients to build in the inner city. We currently have 4 tracts (over 200 acres) purchased in the City that will be developed into over 1,000 lots. Over time the homes built on these lots will probably add $110-125,000,000 to the City’s property values. I would like to tell you our experience in dealing with the City on 61 acres at the NWC of Mykawa @ Fuqua.

    1. Since there were no sanitary sewer lines in the immediate area to service the property my client entered into an agreement with another developer to bring a sanitary sewer line down Cottingham and over to our proposed projects. We extended the trunk sanitary sewer approximately 2.5 miles. The part down Cottingham was a gravity flow line with the balance being a force main with lift station. My client’s initial cost for this was $375,000 of which he was going to get back from the City 25%.
    2. In addition as people tied into the sanitary sewer line along Cottingham my client thought they would get back additional dollars in tap fees from the users. Mayor White in your infinite wisdom you told all the people in the area that they wouldn’t have to pay tap fees because the City was extending the sanitary sewer line. The City is only putting in about 25% of the cost. My client and the other developer were putting in 75%. Now neither my client nor the other developer can get reimbursed for their offsite costs above the 25%.
    3. Since the City was not ready with some of the work they were supposed to do my client and the other developer had to put up another $125,000 to finish the line to get utilities.
    4. MUD 460 was approved through the Texas Legislature to be an IN CITY MUD. My client bought the property that encompassed the initial MUD. The City and various Council members help up the City approval for an additional 9 months. This cost my client a lot of additional legal fees and untold hours meeting about something that was supposed to help accelerate development in the area.
    5. My client engineered through Brown & Gay a lift station and force main to go from their property to the Regional Lift Station that was being built by my client, the other developer and the City. Without any warning I was summoned to a meeting with the City where they announced that the City now wanted my client to put in a gravity flow line. I explained that we had already acquired the ROW and designed the system for a force main with lift station. The City said we want a gravity flow line. I asked, “Do you realize we are talking 20-25′ below grade which will be below the water table, will require pumping equipment, more safety equipment and my client will have to buy more ROW if it can be acquired at a priced they can live with.” The City said we’ve spoken. This will cost my client another $250-300,000 that was not budgeted and about a 5 month delay.
    6. The City decided to put in an overpass over Mykawa @ Fuqua that my client was aware of. The City filed a Right of Eminent Domain lawsuit against Edmond and Valerie Thomas for ROW. This again has held up development because my client can’t get their DPC contracts with the City signed until this is resolved. Edmond and Valerie Thomas went in 2-3 weeks ago to meet with the City Attorney. Supposedly, they worked everything out and the Thomas’ were to be paid by Christmas. They asked the City Attorney to call me if there were any problems. There was no call.
    7. On all my client’s other proposed developments in the City there were major problems that builders and developers don’t usually experience with MUDs located outside the City Limits of Houston.

These are the reasons that many builders and developers have decided not to build in the City. The City’s process in dealing with new land development in the City needs to have a major overhaul and be streamlined.

Sincerely,

Ben Koshkin