Housing permits boosted by commercial projects

While the city continues to experience a slump in new housing construction, it stands to benefit in taxable gains from a 20,000-unit residential development set to break ground, according to a bond rating report released March 28.

However, city officials explained that no such development has been planned.

"A large 20,000-unit residential development is poised to break ground in West Brownsville providing large taxable gains over its projected five-year build-out period," according to Fitch Inc., a bond-rating firm.

Fitch provided a summary regarding the city's economic outlook as officials embarked on issuing up to $24 million in debt. The firm analyzed the city's credit, debt, finances and economy, giving the new issue a high A-plus rating.

"To facilitate the project's commencement, the city is using $5.2 million of the Series 2008A (certificates of obligation) for the construction of a key access route to the development," Fitch stated in its report.

City Manager Charlie Cabler said Saturday that Fitch might have documented the status of residential development in West Brownsville "a bit different."

Cabler said that some developers have begun to construct houses in the area behind the Academy store.

The access road that Fitch refers to in its report is the expansion of Morrison Road. The new debt contains a $5 million allotment for the street's expansion.

However, when the City Commission voted to issue the new debt, it didn't specify if the expansion would be to the east or the west of U.S Highway 77/83.

Mayor Pat M. Ahumada Jr. said he knew nothing of a 20,000-unit development and also noted that he thought the Morrison Road expansion would be to the east to assist booming commercial development.

He suspected a typo in the report and later said, "I am sure that if there has been an error, it can be corrected."

"We have not spent the money yet," the mayor added. "We need to figure out what the situation is."

The Fitch report reflects the expansion will be to the west to provide access instead to residential development.

"It's not only for development," Cabler said, noting that the westward expansion of Morrison Road also addresses safety and traffic concerns. He said the plan is to extend Morrison to FM 802. "We need to prepare ourselves."

Cabler envisions a "huge residential community" there.

Fitch analyst Jose Acosta told The Herald Monday that Cabler informed him about the housing project.

"In going back over my notes, I realize now that it is not a single development," Acosta said, adding that his notes also reflect that there are several developers working on that part of town and that the, "20,000 units include some units already there."

Asked if the 20,000 project had been a factor in the bond issue's high rating, Acosta said, "not really because the city's ability to pay is not contingent on the successful completion of all of these housing units."

Asked if this merited a correction in the rating report, Acosta said that, "these bonds were sold on April 1, so it wouldn't be terribly helpful to correct it now because the investors already bought the bonds."

He said, however, that an update would be provided when new debt is issued.

Cabler envisioned the development of up to 20,000 houses in West Brownsville, while the mayor foresees space limitations. Furthermore, "you would be over building and flooding the market," Ahumada said.

In continuing to address the development, Fitch's report noted that, "with homes in the $100,000 to $150,000 range, the planned five-year build out period will add significantly to the city's tax base and help maintain stability in the local construction sector."

The report also notes that, "the city has not been spared in the impact of the national housing downturn, with residential building permit values declining by 10 percent and up to 30 percent in fiscal years 2006 and 2007, respectively.

"However, commercial building permit values remain steady and are actually accelerating for the first five months of fiscal 2008," the firm reported, analyzing the city's offer of new debt to finance street construction, airport and park improvements and to purchase public safety and public works vehicles and equipment.

In a news release issued April 8 regarding building activity for March, the city reported that March 2008 brought a, "resurgence in housing construction with 53 permits."

Public records show that this compares to 99 permits issued in March 2007 and 113 issued in March 2006.

The release also noted that the permit for a new music performance hall at the University of Texas at Brownsville and Texas Southmost College boosted March 2008 building totals by $24 million.

UTB-TSC broke ground March 20 for The Arts Center, an 800-seat music performance hall adjacent to the Jacob Brown Auditorium.

Ahumada said that the recession has not affected Brownsville like the rest of the country, due to its proximity to Mexico, plus local and foreign investment.

"It has generated jobs and increased purchasing power," said Ahumada, also a real estate appraiser. "We could be doing better. Commercial activity hasn't slowed down, residential took a small dip, but it is coming back up. We have a very healthy and vibrant economy."

Fitch analysts also described the city's financial performance as "impressive" as shown by reserves in excess of its 15 percent fund balance goal since fiscal year 2003.

City housing outlook:

"Revitalization of the city's housing market may come in the form of a 20,000 home residential development in west Brownsville. To facilitate the project's commencement, the city is using $5.2 million of the Series 2008A (certificates of obligation) for the construction of a key access route to the development." - Fitch Ratings

March building permits (March 2007-08)

March '08 March ‘07

Permits issued: 240 321

Total value: $35.6M $20.2M

Commercial projects: $26.5M $6.8M

Housing permits: 53 99

Source: City of Brownsville