13 Undercover

Who has the winning deal?

Friday, March 14, 2008

Real estate deals, being watched by the FBI.

It's a story we've been covering closely, a real estate deal you paid for.

Do the feds have the winning hand?

In January, developer Andy Schatte was in handcuffs, along with former county official Michael Surface. They were charged in an alleged conspiracy to bribe a city of Houston official. They both deny wrongdoing.

"The people who know Andy Schatte know he's a good man, he's done a lot for this city," said Schatte's attorney Paul Nugent.

In 1997, Michael Surface was the head of the county building department. Andy Schatte is a long time member of Commissioner El Franco Lee's finance committee and a long time business associate of Michael Surface.

"I was supporting getting out of long term, cumbersome leases that created an expense to us and to the public," said Commissioner El Franco Lee.

Maybe it was just a coincidence that the first county building bought through a lease purchase was 9418 Jensen Drive. The county was renting the building from a partnership involving developer Andy Schatte. Schatte sold it to another company that immediately did a lease purchase with the county. Commissioner Jerry Eversole made the motion. Lee was the second.

"Lease purchase made a lot of sense to me," Commissioner El Franco Lee said.

In fact many of the real estate deals now under scrutiny by the FBI are in Commissioner Lee's precinct.

Take the Precinct One building on El Rio.

In May of 2000, a corporation called El Rio Development LLC was formed. Its address is the same as the headquarters of Keystone, a company run by Schatte and Michael Surface.

Tax records show El Rio Development buys land in October 2000 at 7901 El Rio. That's the same week commissioners court approves a deal to lease purchase the property. We'll pay rent on the building until the year 2022 before we own it. Whose employees were involved in evaluating the proposal? El Franco Lee's were.

At the time, Commissioner Lee ran an engineering firm called ESPA. At the time, ESPA did business with one of Schatte's companies in another county.

Months after the El Rio deal, ESPA engineering moved to its new offices at 7120 Grand Blvd. We looked up the owner.

Want to make a bet what we found? We're all in.

The building owner is Grand Blvd Ltd. Its registered agent used to be Michael Surface, now it's Andy Schatte.

Small world.

Commissioner Lee told the Houston Chronicle his company paid fair market rent. And it was Commissioner Lee who backed Surface for his job as chairman of the sports corporation overseeing Reliant Stadium. And it was in Lee's precinct that Surface got his first county real estate deal on Murworth. Lee was absent the day of the vote.

Our "Winning Hand Investigation" links Andrew Schatte , Michael Surface or business associate David Blumhardt to at least nine real estate deals with Harris County Commissioners.

You don't have to be a rocket scientist to see it's a small world.

"I'd agree it's a small world," said Jack McCown who is the Harris County Purchasing Director.

Most of the real estate deals being examined are lease purchase deals. Are taxpayers getting the winning hand?

We pay nearly $63,000 a month to lease the El Rio building until 2022, but the contract lets taxpayers pay it off as soon as 2012.

Our research shows if we did that, taxpayers would save $2.1 million in payments, not counting for inflation.

Half a million dollars more on OST.

More than $5 million on the Murworth property.

Would that give taxpayers a winning hand?

Tuesday, Harris County Commissioners will meet to talk about the financial options on all of these real estate deals now being investigated by the Feds.

- Headlines at a glance

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