Texas developer delivered ‘heartbreak and desperation’ with unmet expectations

Originally published in the Houston Chronicle

For the better part of a decade, David Wallace had steadily refined his image as a master developer who could breathe new life into old places. The former Sugar Land mayor even wrote a book about it, making himself out as a guru of sorts who could show smaller cities how to marry public money to private know-how.

But as 2014 wore on and deadlines approached, Wallace’s image no longer seemed so relevant. At some point things have to get done.

All the years of smooth sales pitches and economic development lectures, all the promising partnerships and ambitious projects that sounded so good when he first described them – everything that brought David Gordon Wallace to this moment – faded into the shadows. His business was failing.

When at last the calendar flipped to January, Wallace disappeared. Without warning, the 53-year-old and his longtime partner, Costa Bajjali, turned off the lights and shut their business down.

Public officials in Amarillo and Waco, where they were involved with a variety of projects, were surprised by the firm’s sudden departure. But in Joplin, Mo., where they were leading an $800 million redevelopment following a devastating tornado in 2011, the reaction was more deeply felt.

Joplin had counted on Wallace and Bajjali to bring the tornado-ravaged town back from ruin. Now the city’s phone calls and emails went unanswered.

“We don’t know anything,” Joplin Mayor Michael Seibert said earlier this year when reporters asked why the leaders of the rebuilding effort had vanished.

For those back in Texas, news that Wallace and Bajjali had failed to deliver on their promises had a familiar ring. The real estate developers, based in Sugar Land, had a long history of unmet expectations, in Houston and other Texas cities where they had convinced people that their special public/private expertise was an answered prayer.

“At the end of day he fooled the people of Sugar Land, fooled hundreds of investors, fooled people in Joplin,” said Thomas Schmidt, a Houston attorney who represents dozens of investors who have accused Wallace and Bajjali of fraud and deceit in handling money that was supposed to go into real estate projects but did not. “He has left a long wake of heartbreak and desperation behind him.” Wallace and Bajjali did not respond to Houston Chronicle requests for comment.

Targeted by the SEC

At one time, Schmidt’s clients had been comfortable placing their funds with the likable Wallace, figuring that a growing Houston was a perfect place for a growing development portfolio. The website for Wallace Bajjali Development Partners showed small subdivisions, shopping centers and office buildings that it had helped bring about. Wallace touted his funds on the radio, and it didn’t hurt that he was a popular mayor of a Houston suburb lauded for its economic development strategy and overall livability.

What those investors learned later, much to their dismay, is that a large percentage of their investment funds were used not to aid new real estate projects but to prop up a media venture called BizRadio, according to court records. Promoted as a radio network focused on economic news and personal finance, the company foundered from the start and could not repay its loans, according to the Securities and Exchange Commission, which eventually sued the principals involved with BizRadio on charges of fraud and deceit. The parties involved reached a settlement.

The SEC later went after Wallace Bajjali with the same allegations, claiming they violated their written agreements with investors by putting so much money into BizRadio. That suit was settled, with the pair agreeing to pay fines of $60,000 each. They also settled a related BizRadio suit, agreeing to pay approximately $1.2 million to a court-appointed receiver by the end of 2014.

Schmidt’s lawsuit on behalf of those who invested in Wallace’s real estate funds went further, calling BizRadio a Ponzi scheme. It alleges Wallace kept putting money into the business even after he knew it was insolvent. That lawsuit is still pending. Wallace has denied wrongdoing.

According to the lawsuit, Biz­Radio siphoned off so much of those investor funds that Wallace Bajjali lacked the capital resources it should have had. And the financial strain was only worsened by the recession of 2008. Once-eager lenders were in short supply. Even when the local market improved, the company’s track record of loan defaults – as evidenced by a slew of lawsuits from the banks that had financed various projects – did not help it find new ones.

Wallace’s solution was to pursue a real estate niche that was not quite so vulnerable to market forces: municipally backed redevelopment.

His time as Sugar Land mayor had bestowed credibility as an expert on how municipalities that control desirable property could leverage private money for redevelopment. He happily traveled to other cities to speak about Sugar Land’s success. His book on the subject was touted by its publisher as an “invaluable guide for …
decision-makers seeking to create strategic partnerships to transform the retail industry into a vibrant win-win paradigm.”

Wallace Bajjali persuaded officials in Amarillo and Waco to hire them as “master developers” who would target areas in need of renewal and bring all the parties together to make it happen. Their company was involved in similar efforts in Corpus Christi and in Rowlett, a Dallas suburb.

Not quite what he seemed

But by far the biggest coup came in 2011 when Wallace Bajjali was hired to lead an $800 million effort in Joplin, promising to deliver a shiny new city from the devastation caused by one of the worst tornadoes ever to hit an American city.

In time, those officials learned the same lesson that Wallace’s investors had a few years earlier: Neither he nor his company was quite what it seemed. For all the plans and vision statements, they couldn’t make good on their plans.

By the time Wallace Bajjali quietly left town – after receiving $1.7 million in fees from the city and $5 million in a private loan – the partners had failed to get so much as a parking lot built.

“What we were all so very, very disappointed with was how they chose to leave Joplin,” said Seibert. The city terminated its agreement with Wallace Bajjali in a Feb. 3 letter alleging “acts of gross negligence, fraud and willful misconduct.”

It was a far cry from what they had expected. Wallace’s plan and salesmanship were so good that the city hired him despite a business history that included frequent litigation. He had been sued by investors, the SEC, banks that had loaned him money, and former partners and business associates. A number of the real estate projects he did bring to fruition ended up mired in financial problems and occasionally bankruptcy.

Even some of his fellow City Council members in Sugar Land viewed him unfavorably. “He’s such a slick-tongued salesman,” said former council member Don Smithers. “He wanted to play to the audience. He wanted to be liked.”

Charm didn’t sway everyone

For all of Wallace’s problems over the years, making a good impression was not one of them. He has an irrepressible charm, a trait that allowed him to appeal to voters and oust former mayor Dean Hrbacek after just one year as a council member. But Smithers was not the only one who soon soured on him.

Wallace was involved in plans to redevelop 135 acres of land that had been occupied by Imperial Sugar, which closed operations there in 2003.

At the time, he was a partner with Will Perry, son of the late homebuilder and major Republican donor Bob Perry. Because their partnership was involved in the sale and redevelopment of the Imperial property in Sugar Land, Wallace announced that he would recuse himself from those discussions to avoid any conflict of interest. He then changed his mind when he resigned from the partnership. That set off a row with some council members.

“I think his record speaks for itself,” said former council member Russell Jones, who criticized Wallace at the time for rejoining the Imperial development talks. “City Council had to quarantine him from major decisions on a major development project in the city. Why is that?”

Wallace’s frosty relationship with some council members did little to tarnish his public image, with voters re-electing him twice. He was praised by many when he left office in 2008. Sugar Land City Manager Allen Bogard said Wallace, more than anyone else, had raised the profile of the city. The Imperial project moved forward, more subdivisions were built, and Minute Maid relocated its offices there, further boosting the tax rolls.

Officials of other small cities viewed him as one of their own. He had faced some of the same issues.

So when fortune threw him and his partner an enormous bone in May 2011, Wallace was ready. They happened to be in Las Vegas for a shopping center convention on the day the tornado hit Joplin. That evening, while at a dinner put on by a construction company, they learned that their host, Chris Crossland, had just found out his mother’s house was one of the roughly 4,000 homes that had been destroyed.

A few weeks later, with Crossland’s help, Wallace showed up in Joplin with plans for a re-imagined city: It could soon be home to a minor league baseball stadium – a common thread among his renovation proposals – and a new hotel, a medical school and a nursing home, even a vast commercial development with a movie theater. In all there would be 17 projects, Seibert said.

“We thought we’d made a great decision,” Seibert said.

Their partnership had been one of six companies to submit a redevelopment proposal to Joplin’s Citizens Advisory Recovery Team, a group responsible for guiding the city through its rebuilding. Four of these groups were interviewed, but the advisory team only presented one to City Council for approval: Wallace Bajjali.

Mark Rohr, then Joplin’s city manager, said he knew of Wallace Bajjali’s history but didn’t think at the time it should knock the firm out of the running. Lawsuits and even bankruptcies are not uncommon in the world of development and construction.

“Everything was vetted on the front end, thoroughly,” Rohr said.

‘It was all talk’

On April 2, 2012, Joplin’s City Council voted 8-0 to move forward with contract negotiations with Wallace Bajjali. Just one councilman, Benjamin Rosenberg, abstained.

Rosenberg said he was always suspicious of Wallace Bajjali and had raised concerns in the 2012 meeting about lack of information on the company.

“He reminded me a lot of an aluminum siding salesman who just got off a Greyhound bus and was going to sell all he could and then get back on the bus and leave,” Rosenberg said of Wallace.

Early on it seemed like Wallace Bajjali was doing what it was supposed to, assembling land for the city while procuring grants and tax abatements to aid in redevelopment. Over time, however, the process began to drag. It became apparent, Seibert and others said, that the company simply did not have the resources to make good on its plans. The same scenario was repeated in Amarillo, where the company could not find a partner to build a convention-oriented hotel.

“It was all talk,” Rosenberg said of Wallace. “He had answers for everything, but nothing was getting done.”

Suddenly, the doors closed

As 2014 neared its end, the company’s viable projects had dwindled to just two, Seibert said – the nursing home and the commercial center.

The previous year, Wallace had assured the court-appointed receiver handling a settlement he reached with investors that he just needed time to make good. In a sworn statement, he predicted the company would earn approximately $5 million from Joplin projects in 2014. But the deals did not pan out. At the same time, he said the company was pursuing an initial public offering that would raise more money. That didn’t pan out, either.

And then in January, Joplin lost touch with Wallace Bajjali altogether. Soon after that, the city learned the company had closed its doors and both of its owners had resigned.

Amarillo officials said their experience with Wallace Bajjali mirrors Joplin. Of the four projects the company had pitched, it was only involved in one when it disappeared without warning.

In Waco, Wallace Bajjali did get something built – a student housing complex, a mid-rise building with lofts and a small shopping center. The development did not quite go as planned, as other projects did not get done and those that did ended up in bankruptcy and foreclosure following complaints of cost overruns.

Waco officials terminated their agreement with Wallace Bajjali when the company failed to develop the remaining property under its control.

In Joplin, two former employees have sued Wallace Bajjali for fraud and breach of contract. Joplin officials said the city is not on the hook for a $5 million line of credit put up by a Missouri trucking company that was used by Wallace Bajjali for working capital. In its letter of termination, the city noted that the loan is in default.

So dismal was Wallace Bajjali’s performance that an official inquiry was begun to explore the selection process that resulted in its hiring.

Meanwhile, the rebuilding continues, as it will for years. For the record, Joplin officials insist the city will be better off now that Wallace, once seen as a savior of sorts, will have no part in it.