Ken Paxton

El Paso Mayor Dee Margo’s Non-Disclosure of a Real Estate Investment Trust (REIT) Earns Him a Seat at the Ethics Commission as a Lawyer Files a Complaint

Dallas lawyer and El Paso native Stuart Blaugrund filed the complaint June 11. It details various examples of Margo speaking favorably about real estate and business developments that received city incentives in Downtown. The complaint says such talk may indirectly benefit the value of properties in which the mayor has a stake via his investment in the Borderplex Realty Trust.

A lawyer has filed an ethics complaint against Mayor Dee Margo, claiming the mayor’s ownership in a realty trust focused on Downtown El Paso and his open support of developments in the area may violate the city’s ethics ordinance.

Dallas lawyer and El Paso native Stuart Blaugrund filed the complaint June 11.

It details various examples of Margo speaking favorably about real estate and business developments that received city incentives in Downtown. The complaint says such talk may indirectly benefit the value of properties in which the mayor has a stake via his investment in the Borderplex Realty Trust.

The Borderplex group is a real estate investment trust, or REIT, which is an investment vehicle that focuses on real estate.

The Borderplex trust manages the Wells Fargo building and former Chase building (now called One San Jacinto Plaza), as well as other properties in Downtown El Paso.

“I have not taken any action to promote or support a property within the trust,” Margo said in a statement issued after the complaint.

“In September, the Borderplex REIT will be dissolved and I will no longer hold an investment in those properties. For over 40 years, I have supported this community, and I will continue to do so as Mayor of El Paso.”

The city requires annual financial disclosure statements, but Margo also files financial disclosures with the state of Texas because of his position on a state board. Texas Gov. Greg Abbott appointed Margo to the Cancer Prevention and Research Institute of Texas oversight committee in 2015. His term expires Jan. 31, 2021.

As a member of a state committee, Margo is required to file a comprehensive disclosure of his ownership, benefits and investments in companies, said Ian Steusloff, interim executive director of the Texas Ethics Commission.

Blaugrund also argues that the mayor has not properly claimed his ownership in the trust. He points to Margo’s 2017 personal financial statement, which does not mention the Borderplex Realty Trust.

For the filing covering Margo’s second year in office, 2018, the income from the trust is mentioned in his disclosure, according to personal financial statements obtained by the El Paso Times through the Texas Public Information Act.

However, the mayor said in the statement that he has appropriately reported his ownership in the trust in both state and city filings.

The mayor reported having an ownership stake in the Borderplex Realty Trust in two city Annual Financial Disclosure Statements, which do not ask for shares or income generated from the trust.

For the state filings, “Current law requires a personal financial statement to identify by description of a business association in which five percent or more of the outstanding ownership was held, acquired, or sold,” Ian Steusloff, interim executive director of the Texas Ethics Commission, wrote in an email.

The mayor’s office confirmed to the El Paso Times that Margo owns less than 5% of the trust, and noted that he has never owned 5% or more of the trust.

Steusloff said any resident of the state can file a complaint if information is not disclosed, and the commission can assess fines up to $500.

Margo, however, has said he has tried to properly disclose his holdings in the trust with the Texas Ethics Commission.

“My investment in Borderplex REIT was disclosed on my financial statements filed with the Texas Ethics Commission,” he said in the statement.

Filings for stock ownership

Margo’s reported stocks in various companies also appeared to be missing from his personal financial statements filed with the state, which are required by state law.

For his first year in office, the mayor listed stock ownership of 38 companies, but Margo did not appear to report his continued ownership or gains or losses from the sales of those stocks in his next report.

Margo said in a statement that his stocks are traded daily or even more frequently, and the TEC does not have a method for reporting gains or losses on day-traded stocks.

“I have consistently been transparent on my financial statements, and I will continue to report my investments and stocks in accordance with the TEC,” he said.

Steusloff said state law requires that the information disclosed “includes the identification by name and the category of the number of shares of any mutual fund held or acquired and, if sold, the category of the amount of net gain or loss realized from the sale.

“Additionally, a filer must identify by name and the category of the number of shares of stock of any business entity held or acquired and, if sold, the category of the amount of net gain or net loss realized from the sale,” he continued.

However, he noted that “there is no specific requirement to identify the particular day on which shares are held, but a single (financial statement) applies to the full calendar year preceding the due date.”

The mayor’s office said Margo is working with the chairman of his state committee and the Texas Ethics Commission to clarify the reporting rules for his circumstances.

Filings for the REIT

Margo’s personal financial statements for his first year in office do not report whether he had ownership or profits from the trust. But his filing for last year shows he received income, interest, dividends, royalties and rents in amounts between $5,000 and $9,999.

On May 22, he filed a corrected statement and good-faith affidavit moving those gains to trust income.

When Margo served in the Texas House of Representatives, he reported having up to 10,000 or more shares in the trust in 2010 and 2011, when it was called the Borderplex Community Trust. He did not report gains or losses from his ownership in the trust in those filings.

On June 13 and 14, Margo submitted two corrections and good-faith affidavits to the TEC for his filings with the House of Representatives.

The explanation read “Filed privately held Borderplex Community Trust under incorrect heading of stock and should have been filed under trust income. Correction attached with no change in assets or income, simply a more proper category for filing.”

He reported trust income of $5,000 to $9,999 for 2010 and 2011.

Ethics complaint

Blaugrund’s ethics complaint to the city against Margo alleges that Margo has used his position as mayor to push for the demolition of the Duranguito neighborhood to build a Downtown arena.

The arena, Blaugrund said, would improve the value of properties that Margo may have an ownership stake in as an investor in the realty trust.

“This revelation that he continues to own shares in a for-profit business that was specifically formed to acquire and redevelop Downtown properties is outrageous,” he said.

City officers and employees cannot “use their official positions improperly to secure unwarranted privileges or exemptions for themselves, relatives, or others generally,” according to a city ordinance.

Rafael Adame, the former chairman of the city’s Ethics Review Commission, said City Attorney Karla Nieman will determine whether the complaint was filed correctly and whether it falls within the purview of the ethics commission. The processes must be completed within 45 days and 60 days, he added.

When an ethics complaint is filed against a member of the City Council or the city manager, “she has to hire outside counsel and recuse herself from the process,” Adame said.


Borderplex Realty Trust’s portfolio

The Borderplex Realty Trust is not a publicly traded company and therefore many of its holdings and finances are not available. However, a lawsuit between the trust’s holders and New Mexico entrepreneur Dan Burrell revealed some information about the trust’s finances in 2016.

The trust is made up of 200 investors, and the trust’s largest assets are the Wells Fargo building, the former Chase Tower, 13 retail properties, a parking lot at the intersection of Mesa and Main streets and a lot at the intersection of Mesa and Mills Ave.

The trust declined to comment on ownership requirements due to “pending transactions with the company,” a spokeswoman said.

A REIT is an investment vehicle modeled after mutual funds that provide investors a chance to own valuable real estate, have access to dividend-based income and help communities grow and revitalize, according to Nareit, a worldwide representative voice for REITs.

REITs typically pay out all of their taxable income as dividends to stakeholders, who then pay taxes on those dividends, according to the website.

In September 2015, the trust had assets of $82.4 million, including $65 million worth of real estate holdings, according to a stock offering memo attached to court documents. Most revenues, totaling $9.5 million in 2014, which was the last full year reported in the memo, came from rents from the office towers.

A company owned by El Paso billionaire Paul Foster has a pending contract to buy the 18-story former Chase Tower and the 21-story Wells Fargo building, as well as the buildings’ parking garages, from the Borderplex Realty Trust.

Incentives for companies moving into towers

Last year, the El Paso City Council approved nearly $130,000 total in incentives to two Silicon Valley-based companies that expanded their companies into the former Chase Tower. Curacubby and Fivestars were granted the incentives with agreements that included minimum personal property investments to equip, furnish and add fixtures for improvements.

The mayor was present for news conferences and City Council approved incentives to the two companies to move into the Chase Tower, but Margo did not participate in that vote.

Curacubby was required to invest $51,000 and Fivestars was required to invest $75,000 in their offices within the building.

Blaugrund​​​​​​ points to Margo’s personal financial statements filed with the city that show the mayor has shares of a publicly traded stock with Hunt Cos.’ Hunt Companies Finance Trust Inc.

Blaugrund said the mayor has spoken openly in support of the WestStar Tower that was also given incentives last June, which creates the appearance of using the office for private gain.

Hunt Companies and WestStar Bank are partnering to construct the $85 million high-rise.

The city and El Paso County have agreed to provide up to $21.73 million in tax subsidies, tax abatements and cash payments over 20 years as incentives for Hunt and WestStar to construct the office building.

Blaugrund said the mayor discussed with developer and Hunt Companies owner Woody Hunt the negotiations on the proposed $180 million multipurpose performing arts and entertainment center, also known as the Downtown arena, with historic preservationist Max Grossman and retired Houston oilman J.P. Bryan.

In an email from Hunt to Margo and Bryan on March 11, 2018, Hunt invited the sides to meet to negotiate on the arena plan, which has been mired in a legal battle waged by Grossman and Bryan in an effort to preserve the Duranguito neighborhood, which is the site of the proposed arena project.

For three months after the exchange, Hunt was copied onto emails between Margo and Bryan discussing a possible settlement over the arena, according to messages reviewed by the El Paso Times.

The mayor later admitted that he used personal email to discuss the arena and city business, which is against a 2013 city resolution that discourages the practice.

It follows his prior use of personal email to conduct public business, which is a violation of Texas law, Blaugrand said.

A city ordinance says city officers or employees cannot “give reasonable basis by their conduct for the impression that any person can improperly influence, or unduly enjoy their favor in, the performance of their official duties, or that they are unduly affected by the kinship, rank, position or influence of any person.”

“In an effort to alleviate legal costs and settle the litigation, I inadvertently continued those discussions through my personal email,” Margo said in a statement in August. “I recognize that emails in my personal account were not captured by IT. I have reviewed the City’s 2013 resolution regarding governmental transparency and I have taken measures to rectify this situation. I will no longer use my personal email to conduct city business.”

Blaugrund, however, considered that part of a pattern.

“I have watched with increasing alarm the mayor’s disregard for transparency, accountability and respect for open government,” he said. “The mayor’s conduct erodes confidence in local government.”

El Paso Mayor Dee Margo’s Non-Disclosure of a Real Estate Investment Trust (REIT) Earns Him a Seat at the Ethics Commission as a Lawyer Files a Complaint
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