Death in Amarillo exposes debt-ridden housing empire
By Eric DexheimerAMERICAN-STATESMAN STAFF
Sunday, May 24, 2009
As founder and president of the Amarillo-based American Housing Foundation, Steve Sterquell presented the picture of success. His nonprofit company grew from two apartment complexes he purchased from a local Catholic organization in 1989 to one of the largest affordable housing companies in the country, boasting 14,000 units spread across Texas — including nine apartment complexes in the Austin area — and other states.
He flew around the country in his private jet and gave rides to Texas politicians. He showered state lawmakers with hundreds of thousands of dollars in campaign contributions.
On April 1, with the roads dry and the weather clear, his 2007 Lexus SUV slammed head-on into a bridge support just outside of Amarillo, bursting into flames. His obituary in the local newspaper noted his numerous good works. On April 21, state Rep. David Swinford, R-Dumas, a recipient of more than $40,000 of Sterquell's political donations, introduced a resolution honoring Sterquell's contributions to the state and his community.
But there were whispers in Amarillo about the circumstances of his death. A witness supposedly had seen fire in Sterquell's car moments before the crash.
Last week, citing the remains of two plastic gas containers in Sterquell's car and a strong smell of gas noted by first responders, as well as the witness account, the state fire marshal concluded that "the fire and accident were determined to both be intentional acts to end his life."
Subsequent court filings in Amarillo have claimed that two weeks before the crash, the 56-year-old Sterquell had reassigned the beneficiary of a $24 million life insurance policy from American Housing Foundation to trusts controlled by his family.
In the seven weeks since the crash, a complicated portrait of the developer has emerged.
Numerous creditors, including Wells Fargo bank and several Amarillo families, have filed claims in federal court in Amarillo, attempting to force the company into bankruptcy in an effort to preserve money they fear will otherwise disappear. In all, the creditors have claimed they are owed $27 million by American Housing Foundation and its related companies.
Sterquell's empire appeared to be under financial strain elsewhere, as well.
Last year, a huge plan to lower its interest costs by refinancing more than a dozen of its properties, including five in Travis County, fell through. Records show that the company has been in default since 2006 on tax-exempt bonds sold in 2002 to finance the purchase of more than a dozen properties across Texas.
Sterquell also owed about $135,000 in taxes on real estate and his two airplanes, dating to 2007, said Potter County Tax Assessor-Collector Robert Miller.
Miller said his office will seize the airplanes — if it can find them. "We have several people out looking for them," he said.
Neither Sterquell nor American Housing — nor any of the dozens of limited liability companies affiliated with them — has been accused of anything illegal.
Sterquell's son, Steve "Sterk" Sterquell II, who also works for American Housing, did not return a call seeking comment.
But people who have followed the company's fortunes say it could take years to untangle the company's finances. The Texas secretary of state's office shows Sterquell as an officer or agent for dozens of corporations and partnerships.
Sterquell was a certified public accountant who built his business on intricate transactions that even experts in the field had difficulty following.
"They were extremely complex, in part because they were so large," said Harvey Davis, manager of the Travis County Housing Finance Corp., which contemplated involvement in two Sterquell projects.
Critics of American Housing say the manner in which the company took on loads of debt to finance complex deals mirrors the recent upheaval on Wall Street, in which financiers poured money into little-understood investments that at the time seemed foolproof.
Walter Moreau, executive director of Foundation Communities, an Austin-based nonprofit developer of affordable housing, recalled that the time between the late 1990s and mid-2000s, when American Housing grew from a modest Panhandle company to one with a national presence, saw a flood of newly formed nonprofit affordable housing companies flocking to buy housing complexes.
"It was a gold rush," Moreau said.
A big lure was taxpayer subsidies. Most of American Housing's deals involved some form of public assistance, either in the form of low-interest bonds approved by local governments or tax credits awarded to the company by the state. And because its nonprofit status relieved the company of paying millions of dollars in property taxes, the investments appeared invincible.
Yet some of the deals in retrospect seem tenuous.
In 2002, American Housing grew by 50 percent in one leap when it bought 13 apartment complexes across Texas by borrowing $128 million in tax-exempt bonds through the Austin-based Texas State Affordable Housing Corp., a quasi-governmental agency that receives no state money but whose directors are appointed by the governor.
The deal was twice the size of the largest the agency had ever done. And, like others of that time, it was all debt; American Housing brought no money of its own to the table.
By requiring the company to borrow more money than it would have with equity, the debt-only deal contributed to American Housing's troubles. When the apartment market sagged and operating costs rose, the rent income could not cover the debt payments.
Although American Housing has continued to make the majority of its payments, default notices show the company began struggling to meet all its repayment obligations as early as March 1, 2006.
Taxpayers are not liable for the bond defaults; most of the bonds are insured by a private company. But the company's difficulties have exacted an indirect cost on the public.
American Housing owes the Texas State Affordable Housing Corp. $450,000 in unpaid fees related to the transaction dating back three years — money the corporation could use on other housing programs.
The no-debt deals have also cost local governments, some of which were promised payments by the developers in lieu of lost property taxes. According to a June 2008 Texas Sunset Advisory Commission report, developers including American Housing have failed to make $13 million in such payments.
The affordable housing corporation later stopped participating in the debt-only deals after a change in state law made them more difficult to finance. But many have faltered. In the report, the Sunset Advisory Commission noted that in 2001 and 2002 the corporation issued $486 million in debt-only bonds — including the American Housing deal — for the purchase of 39 properties. According to the report, the majority are now in danger of foreclosure.
Moreau said the rush to finance affordable housing was also driven by the fees earned by lawyers and financiers who were paid at closing — another echo of the money churn on Wall Street.
"You only make money if the deal closes," Moreau said. "The incentives in the system are dangerous."
The Capital Area Housing Finance Corp. in 2003 facilitated the sale of $25 million in tax-exempt bonds for American Housing to purchase two apartment complexes in North Austin. In exchange, it earned a $125,000 commission, plus $25,000 a year, said Executive Director Jim Shaw.
Underwriters and attorneys earned thousands more from the deals.
Documents for a $96 million bond proposal that the Travis County Housing Finance Corp. drew up for American Housing in 2003, but which never closed, shows attorneys and financiers were poised to take $1.74 million out of the deal in fees.