Wednesday, January 6, 2010

Henry Cisneros: Reinventing urban America

by Adolfo Pesquera
(originally published Feb. 25, 2005 in the San Antonio Express-News


Had Henry Cisneros said five years ago that he would reinvent urban housing in America, such a declaration might have come across to many as just so much hollow bombast.

The former San Antonio mayor and one-time Department of Housing and Urban Development secretary was more circumspect, stating only that he was launching a company to exploit what he believed was an untapped market for market-rate affordable homes in neglected older neighborhoods.

American CityVista, the company Cisneros started in 2000, has a score of communities under development. Most are in Texas, and they've done well - so well, in fact, that Cisneros harnessed the expertise gained from his experiment to start a second company, CityView, about two years ago in California.

CityView is a joint venture between American CityVista and Saybrook Capital, a Santa Monica-based investment bank best known for restructuring bankrupt companies. It claims among its restructure assignments such companies as Kmart, Adelphia and Delta Air Lines.

As with American CityVista, Cisneros leveraged his name and knowledge to get big-name companies to participate in a joint venture. But CityView's ambitions far exceed those of American CityVista.

"Within six months, we will be north of $1 billion in development (projects)," said CityView CEO Joel Shine. "There is no reason we won't be a $1 billion-a-year company in home sales."

When Saybrook opted to be a partner with American CityVista in the CityView joint venture, Shine's credentials earned him the top job.

CityView, Shine said, started with the idea that it would act like a traditional capital provider to homebuilders. But its mandate was to build inner-city housing for working-class families - an area where many builders were uncomfortable.

CityView, Cisneros said, would find the land, envision the project, clear regulatory issues with local governments, qualify the builder, help the builder with financing and insurance, have a say in the final design and market the project.

"We set up as a one-stop shop," Shine said. "Our seat at the table is as a traditional equity source and a bank. But we're much more nimble than the typical structure."

Where American CityVista works with one builder, KB Home, CityView works with many builders. While American CityVista does single-family housing, CityView will do single-family, condominiums and town homes, and even mixed-use projects with housing and retail.

CityView had its genesis in 2001 with a request for proposals from the California Public Employees' Retirement System. With a $189 billion fund, CalPERS is one of the largest real estate investors in the nation.

"They didn't have an urban portfolio, nor an affordable housing portfolio," Cisneros said. He put his American CityVista chief operating officer and former North American Development Bank CEO, Victor Miramontes, in charge of developing a company that CalPERS would be willing to fund.

Miramontes lost a year in fruitless negotiations with KB Home. When it opted out, Saybrook stepped up. American CityVista and Saybrook capitalized the startup and share in its governance. Miramontes is managing director and Cisneros is chairman.

CalPERS, the major investor, allocated $40 million in 2003. It upped its allocation to $100 million last year on the condition that CityView expand its service area beyond California to include Arizona, Nevada, Oregon and Washington.

"CalPERS takes its role as a financial partner very seriously," Miramontes said. "And because it is so big, it can change markets."

That, he said, translates into projects of a magnitude that can revitalize neighborhoods.

CityView takes on the most challenging sites, even abandoned and polluted land. It has cleared defunct oil fields. It recently leveled an old retail center in Pomona for town houses.

Between American CityVista and CityView, Miramontes said, Cisneros has changed the way homebuilders think about the inner city.

"Five years ago, others were suggesting this was crazy," Miramontes said. "Now they're trying to catch up."

Cisneros is not satisfied with either company. He is creating a third entity that will have as its scope a national mandate to do what CityView does on the West Coast. Cisneros wants a company that will take the CityView model into the Midwest by the end of this year and into the Southeast in 2006.

"The national fund will build off of the success we've had in California," Miramontes said. "We'll leverage what we've learned."

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