Commercial Real Estate's Political Influence — Conscious Or Not — Takes The Spotlight Amid Series Of Criminal Investigations
The push for real estate development to serve the critical needs of communities is at the forefront of most city council charters, but a series of investigations, arrests and convictions related to real estate and tied to Dallas City Hall and other Texas cities have raised concerns about conflicts of interest and if the development and real estate communities have too much sway.
"We like to think our system isn't corrupt, but the real estate industry has had a tremendous impact on city government," said Fred Lewis, an Austin-based attorney who specializes in government and ethics and who helped shape Austin's lobbying ordinance.
The commercial real estate industry and city governments regularly work hand in hand, and CRE is often a major source of political donations. Sometimes the players are even the same people — in DFW alone, Bisnow identified at least four cities, Frisco, Arlington, Celina and McKinney, where the mayor is from real estate or related engineering and planning industries.
Being a mayor who comes out of the real estate industry is not necessarily an issue in itself or illegal, but it can raise concerns about implicit bias the mayor may have for CRE interests, and sometimes those conflicts of interest cross the legal line.
A former Richardson mayor and her partner, who worked in land development, were convicted in 2019 on a few federal offenses related to the mayor's use of power to effectuate zoning changes that helped the mayor's partner with development work tied to the creation of hundreds of affordable apartments.
In late 2020, authorities indicted a Dallas affordable housing developer for allegedly bribing two former city council members. Three months earlier, another real estate developer pleaded guilty to bribing a Dallas City Council member, according to the Department of Justice.
In 2013, a Collin County mayor in the small suburb of Melissa was indicted for reportedly getting involved in a bribery scheme in which the city annexed land to help a developer build out a project, the DOJ reported at the time.
Real estate investor World Class Capital Group CEO Nate Paul's office and Austin home were raided by the FBI in 2019. Members of the Texas Attorney General's office accused Attorney General Ken Paxton of letting Paul use the AG's office for personal gain. To date, Paul has not been indicted and no criminal charges have been filed against him, and he has accused the FBI of malfeasance in its handling of the search of his properties.
The home of Celina Mayor Sean Terry, who also works in real estate development, was searched by the FBI in 2020. To date, no indictments, arrests or charges have been made, and it's unknown why the FBI conducted a search of Terry's home. The DOJ declined to comment on why the FBI raided Paul or Terry.
But it isn't CRE-related city council cases that turn into federal indictments that concern Lewis the most. It's the ethics cases that get no attention at all that keep him up at night.
Lewis said many cities have ethical guidelines and commissions assigned to investigate violations, but these boards and commissions generally have no teeth and do nothing on the enforcement end to deter conflicts of interest. Lewis is a frequent critic of Austin, the city council he observes the most.
"In Austin, the ethics review commission is appointed by the council," he said. "It's completely useless, and they never do anything meaningful."
Bribery is the least of any city council's problems when it comes to keeping conflicts at bay, Lewis said. The real risk is the type of unconscious bias created when members of boards and councils have friendships with powerful political contributors, many of whom have ties to commercial real estate directly or indirectly, he said.
Harvard psychology professor Mahzarin R. Banaji, who studies unconscious bias, said members of an industry can believe they are deciding in a fair manner on a conscious level when, in fact, they are still being influenced by money or relationships in an industry.
"[C]onflicts of interest also operate at levels far below the threshold of conscious awareness," Banaji said. "Even when we believe we are not being bought and sold, we may be, based on our less conscious preferences, beliefs and identities and these we call implicit conflicts of interest. In an ideal society, we would work on these to remove all corruptions, including implicit conflicts of interest, that can and do enter into good decision-making. But we are so far from that ideal, as we shamelessly promote explicit forms of corruption by legally allowing conflicts of interest and even easing their path to destructive influence."
To ensure there are no conflicts at the municipal or county level, Lewis favors limits on the number of people from commercial real estate or from related fields that serve on boards or commissions. He also wants campaign donor limitations imposed.
The city of Plano took a step in this direction, with the council approving an ordinance in 2020 that forces members to recuse themselves from votes on any matters tied to donors that offered members campaign contributions above $1K.
Deputy Mayor Pro Tem Anthony Ricciardelli voted in favor of the ordinance.
"Our recusal ordinance is about bolstering public confidence in government by avoiding even the appearance of improper influence," Ricciardelli said.
"I don't think anyone on Plano City Council has changed or would change their vote based on having received a campaign contribution, but we want to set a higher standard for ourselves and avoid even the appearance of an improper influence."
Lewis, who has studied the issue of improper influence extensively, once pushed back against an architect chairing an Austin planning commission overhauling building codes because of his work in the industry potentially impeding his judgment. He said it has continually surprised that basic conflicts of interest surface at city halls all of the time with no public or media pushback.
"If the press was more vigorous, there would be more accountability," he said. "There needs to be tougher laws, more transparency, more enforcement; and there needs to more watch out for political accountability."
When asked about having mayors and council members serving while attached to the CRE industry, Lewis said more measures should be taken to remove even the appearance of a conflict.
"That's an issue for the public to decide, but obviously, they are going to end up being biased consciously or unconsciously toward their business," he said. "They really should think about putting their land in a trust, so they have a blind trust, and they are not directly or indirectly benefiting."