by Mike Morris, The Houston Chronicle

City, county think $11 million sewer line can bring developers to neglected area

Holmes Road in south Houston, for a stretch, feels less like a city street and more like a weathered country road in Central Texas, even though NRG Stadium and the Texas Medical Center shimmer in the distance.

On the surface, there is no reason this accessible area – over 1,400 acres – should be the city’s largest single mass of undeveloped land.

The problem lies underground. Neither the city nor private developers ever extended sewer service to the area, leading developers to skip it in favor of other sites with more infrastructure and lower up-front costs.

Houston and Harris County officials propose to remedy that by burying an $11 million sewer line along Holmes Road.

The project is still being negotiated but is scheduled for 2016, the same year Holmes is slated to be widened and rebuilt and when Buffalo Speedway is to be extended south through the area.

“A lot of migration in terms of development has moved south to the Pearland area, and I don’t think it’s because the developers desire to be in Pearland,” said Houston’s deputy director of development, Gwen Tillotson. “I just think it’s because we did not have the adequate infrastructure. The longer we delay moving forward on this project, the more opportunities for development we stand to lose.”

Linda Scurlock, president of the South Houston Concerned Citizens Coalition, has lived in the area for 37 years. Holmes Road, she said, has been an eyesore for many of those years, so isolated it invites illegal dumping.

Complex financing

“We’re close to the Medical Center, we’re close to Reliant (NRG) Stadium, we’re close to 610, we’re close to the Beltway, we’re close to 288,” Scurlock said. “We see those as pluses, and we can’t see why there has not been development out here. If you have the infrastructure there, then I think development will come.”

The proposed financing for the sewer line is complex, in part, because the city does not want to issue debt for the job and the local board that otherwise would handle the project cannot fund the deal by itself, Tillotson said.

Harris County Improvement District 12 would issue $7.5 million in bonds for the project, which, combined with $3.5 million from the city up front, would pay for construction.

The city and county would pay off the bonds, Tillotson said. The county would use the taxes generated when properties are built in the area to reimburse the district a third of the cost of the line, an estimated $3.5 million. The city would cover the rest, also using property taxes generated by nearby properties.

If the bonds are paid over the full 25-year term, the city would pay about $8.6 million, which would put its total contribution at $12.1 million. If the bonds are paid off quicker, less interest would accumulate and the city’s cost would be lower.

Earlier deal scuttled

David Turkel, who handles economic development work for Harris County, said he expects more certainty about the county’s participation in the coming weeks.

City Councilman Larry Green, who represents the area, defended the city’s decision to fund the line with tax dollars rather than wait for private developers to build it themselves.

In 2008, the city had negotiated a deal to have local developers contribute to the Holmes Road sewer line, he said, but the recession scuttled that when the land ended up in the hands of lenders.

Many of those tracts were sold to developers in the last year, in part because of the city’s sewer and road plans for the area, Green said.

“But for the infrastructure, we’d not have the type of investment we’re seeing now,” he said. “Developers want to get in and be able to acquire property and start building so they can start seeing a return.”

$1 billion potential

Several new apartment and townhome complexes offer evidence of demand for housing on and around Holmes Road. Give Green a map of the area and he can rattle off proposed projects, from “big-time residential” to mixed-use projects, grocery stores and pharmacies. Ultimately, Tillotson said, the Holmes Road area could hold more than $1 billion in improvements.

“The effort to get sanitary sewer along the south side of Holmes Road, which is one of the hurdles to development, has been long and time-consuming,” said John Kirksey, whose firm is developing Buffalo Pointe, which would be served by the new sewer line. “It’s probably not going to create any land development opportunities immediately because it’d be two to three years before that line would be built and operational and you could begin to tie in to it.”

Kirksey said discussions about private contributions to the line are continuing, but he declined further comment. At a minimum, the city would collect the typical fees developers pay to tap in to a public sewer line, according to City Attorney David Feldman.

‘They can do this’

Frank Heuszel and Lewis Kaufman, Patriot Bank vice presidents who became unintended owners of much of the area around Holmes Road during the recession, said there is no guarantee that waiting for private investment would yield results. The recession saw various lenders wind up as owners of tracts that had been more cohesive, they said, and not all those lenders have been willing to fund the work needed to prepare for development.

“There is no single developer who wants to take on this project. There’s just too much cost, they believe, involved for the amount of return,” said Heuszel. “Without sewer, we’re not going to have any development.”

Scurlock, of the South Houston citizens coalition, offered her own defense of the proposed city investment, pointing to another program that would give developers a subsidy for each apartment or condo they build in the Central Business District.

“I have a problem with them giving $15,000 a unit for people to build downtown,” Scurlock said. “If they can do that, they can do it out here. You’ve got infrastructure in your city that you need to take care of. If they can do that, they can do this.”