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Stratus, city working on 'Poison pill' in agreement

Monday, July 15, 2002 by

Company wants assurance that city won't change zoning

Details are lacking on a number changes to the agreement between the city and Stratus Properties, but few of them should be difficult to work out, given the agreements in principle on matters such as habitat planning. However, the one item that appears to be the biggest challenge is in what might be called the “poison pill” provision of the agreement. As currently written, the proposal says that if the city initiates downzoning in the future, the city would be required to pay Stratus the difference in value between what the property was worth before downzoning and the value after city action, plus 33 percent.

City Manager Toby Futrell raised the issue before last week’s vote, letting the Council know that staff and Stratus are still working on alternatives to that clause. Mayor Pro Tem Jackie Goodman in particular strongly opposes the current provision.

Assistant City Attorney Allison Galloway told the Council, “There has been quite a bit of controversy,” over paying Stratus for diminution in value if property were downzoned. One alternative would be, “If the Council were to initiate downzoning, that tract would be pulled out of the deal, as well as the five tracts that have been donated to the various groups, (including) the city and the Wildflower Center. And all of the tracts would be put back into place as of the day before the development agreement were signed. And they could then develop the tracts without the benefit of the agreement.” But she said she knew that neither the Council nor staff was ready to sign off on such a clause. “We will be working with each of you to see how we could accomplish this,” she concluded.

Beau Armstrong, CEO of Stratus, explained to In Fact Daily why his company feels such a clause is necessary. “A key element of this agreement is if the state were to make changes to the law . . . we could not take advantage of them.” In signing the agreement, Stratus is giving up its claims under HB 1704/Chapter 245 of state law, which allows developers to build under environmental and other rules that were in force when they first filed their plans. That claim is the subject of a lawsuit against Stratus and the city filed by the Save Our Springs Alliance.

If the city decided to downzone any of the land and there were no agreement, “maybe we would be in a position to take advantage of those changes at the Legislature,” he said. During the 2001 Legislative session and others before it, legislators have tried to pass laws that would require all cities to compensate landowners who objected to their property being downzoned. However, S.B. 1398 never made it to the House floor after substantial amendments were added by a House committee. Austin and other cities worked to prevent the bill’s passage and can be expected to do so again if similar legislation is introduced. For that reason, it might be difficult for the city to reconcile a promise of monetary payments to Stratus.

In some respects, Armstrong said, the anti-zoning change clause works exactly like the traditional poison pill, which allows stockholders to buy stock at deeply discounted prices to prevent takeover by a hostile company. “We are very, very comfortable with this deal,” he said. “We’re simply trying to prevent changes in the deal later. It wouldn’t be fair to change the deal later and not have some remedy. We need to just come to some fair compromise . . . The thing to remember about this is the ability to downzone is unilateral on the part of the city . . . it’s one hundred percent at their discretion.”

On Sunday, Mayor Gus Garcia said he would be talking about the provision with Goodman and other Council members. “I don’t know whether later on there would be neighborhood planning that would recommend downzoning, or if there were a catastrophe in the springs,” that might cause a future Council to want to downzone the property. However, he said he agreed with Council Member Daryl Slusher that the damage being done to the springs is from development that occured before the city enacted current regulations.

A look at the ownership of Stratus

One of the continuing themes played by Bill Bunch, executive director of the Save Our Springs Alliance, is that Stratus Properties is still under the control of Jim Bob Moffett and/or Freeport-McMoran (FM). FM, of course, sold the Circle C land up for zoning changes to Stratus, which was a spin-off of FM—the company that failed to win City Council approval. The short answer to who owns Stratus is: the public. Stratus Properties is a publicly-held company traded on the NASDAQ. The company lists 7.12 million shares outstanding, with a float of 6.9 million shares. (A float is defined as “the number of freely traded shares in the hands of the public.”) As of Friday, the company’s stock was listed at 8.994 per share, below the company’s 52-week high of 11.50 and above the 52-week low of 7.93.

According to filings with the Securities and Exchange Commission (made available on-line at http://www.edgar-online.com/brand/strs/), about 31.5 percent of the stock is held by institutional investors. These include 22 different companies. The firm with the largest position is Ingalls and Snyder, a New York investment services firm (http://www.ingalls.net/company.htm). Dimensional Fund Advisors ( http://www.dfafunds.com) is also listed as owning a significant portion of the company’s shares. Outside of those two, the SEC shows a single individual with a significant block of shares. Carl E. Berg is listed as owning 1,405,000 shares, which is about 19.7 percent of the company’s stock. Berg is a California-based venture capitalist with an extensive background in real estate. He serves on the boards of several companies and is active in Mission West Properties of California ( http://biz.yahoo.com/p/m/msw.html).

Stratus Properties CEO Beau Armstrong is listed has having 188,750 “exercisable stock options” and 391,250 “unexercisable stock options” as of the end of fiscal year 2000. The company shows his total executive compensation for that year as $525,415.

On Sunday, Armstrong said Moffett “does not own a single share in Stratus, nor has he for several years. I have communicated that to the Council in writing more than a year ago . . . Bill Bunch likes to say that they (Ingalls and Snyder) are a shill for Mr. Moffett, and that’s not true . . . Freeport-McMoran has no involvement in this company, and I challenge Bill to put forth one shred of evidence to the contrary.”

Environmental Board Approval

Variance would allow work to move forward

The Environmental Board voted unanimously last week to recommend a variance that would give a green light to complete a project designed to prevent future flooding in East Austin’s Crystalbrook subdivision. Due to poor placement, the neighborhood has flooded repeatedly when Walnut Creek rises.

Last week’s floodwaters rose into the neighborhood but did not damage homes. The subdivision is north off of Loyola Lane, just east of US 183.

The development standards in place in the late 1960s and early 70s, when the subdivision was built, were not rigid enough to keep the homes out of the floodplain. A study conducted by the city in 1996 found 150 homes in the Crystalbrook neighborhood to be below the 100-year floodplain. According to city documents, much of the neighborhood is within Walnut Creek’s floodplain.

Chris Dolan, with the Watershed Protection and Development Review department (WPDR), said the banks of Walnut Creek are actually several feet higher than the curb elevations of Crystalbrook Drive. And, he noted, the elevation of Loyola Lane is higher than the subdivision, thus placing the neighborhood in a sort of “bowl” with no place for the water to drain.

The City approved phase one of the Crystalbrook Flood Control project in January. That aspect of the project upgrades storm sewers and runoff channels in the area, discharging water into a section of Walnut Creek far enough away from the subdivision to avoid storm sewers from backing up in the neighborhood.

Phase two requires a simple cut-and-fill variance, which city staff had recommended and the Environmental Board reiterated last night. The second phase calls for construction of concrete floodwalls and earthen levies, along with the upgrade of a man-made bypass channel of Walnut Creek. These measures should prevent stormwater from the creek from flooding the neighborhood. The project is slated for completion in 2004.

Mapi Vigil, a supervising engineer with WPDR, told the board this project would effectively remove all the homes in the neighborhood from the floodplain by altering the area of the floodplain.

Chair Lee Leffingwell made a motion for approval of the variance with three conditions, also recommended by staff, relating to tree replacement, irrigation and native grass restoration. The vote was 5-0, with Secretary Karin Ascot and Board Members Ramon Alvarez, Connie Seibert and Susana Almanza absent.

For news from July 8-July 12, click here:

City Council appointments . . . Last week the City Council reappointed both Betty Baker and Angular Adams to the Zoning and Platting Commission. However, no action was taken on ZAP Commissioners Jean Mather, Diana Castañeda, Niyanta Spelman and Michael Casias. Spelman and Casias have asked to change to the Planning Commission, which is losing four members. Council Member Betty Dunkerley reappointed Leslie Pool to the Telecommunications Commission, laying to rest a rumor that she would not reappoint any of Beverly Griffith’s appointees. Charles Cree was reappointed to the Solid Waste Advisory Commission. The Council also reappointed Donna Carter, Matt Harris and Larry McKee to the Robert Mueller Municipal Airport Implementation Commission. Jeffrey Scott Beckage will continue to serve on the Resource Planning Commission and Laura Anne Wisdom was reappointed to the Renaissance Market Commission . . . Fawal leaving Austin . . . Richard Fawal of Grassroots Solutions has been chosen as National Political Director for the Arab-American Institute, and will be moving to Washington, DC at the end of this month. Fawal has been involved in Austin environmental protection since arriving here to study physics in 1988. Fawal and his partner at Grassroots Solutions, Mike Blizzard, had a number of early victories representing green candidates and causes. However, they had string of losses this spring. When the crisis in Israel and the West Bank escalated this summer, Fawal decided he should refocus on helping Palestinians . . . Press conference this morning . . . Mayor Gus Garcia and Council Members Raul Alvarez and Danny Thomas plan to have a press conference at 10am today at the Holly Power Plant. They will announce the closure date for two units of the plant, which has been such a concern to neighbors . . . Demonstration today . . . The SOS Alliance says “a group of citizens concerned with the proposed deal to bail out . . . Stratus Properties,” will be demonstrating in front of Stratus’ offices at 98 San Jacinto Blvd. at 4:30pm today . . . No gas to flow without judge's approval . . . Federal Judge Sam Sparks heard arguments on Friday in a lawsuit over the future of the Longhorn Pipeline. Sparks heard from attorney Lori Caramanian with the U.S. Department of Justice, Barry Cannaday for Longhorn Pipeline Partners, and Connie Odé and Renee Hicks on behalf of the City of Austin. The city is requesting an Environmental Impact Study, while the pipeline company contends that the Environmental Assessment required by the federal government is sufficiently detailed to address all safety concerns. The city claims the federal government arbitrarily issued a “Finding of No Significant Impact” for the pipeline. Longhorn plans to begin pumping gasoline into the pipeline on August 15, provided the company receives a favorable ruling from Judge Sparks by that time. The judge did not give any indication on Friday of when or if he might do that.

© 2002 In Fact News, Inc. All rights reserved.

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