Corpus Christi city officials are weighing whether to proceed with an external investigation of the downtown Homewood Suites by Hilton after a city auditor’s investigation determined that developers likely committed fraud in requesting $2 million in taxpayer incentives for the new downtown hotel.
An Aug. 21 memo from City Auditor George Holland to the mayor and City Council, provided to the Caller-Times by City Councilman Gil Hernandez, shows that the office received an allegation on Aug. 28, 2024, that hotel developers had altered a federal government document to obtain a grant funded by tax dollars authorized by the Type B Corp.
The developers claimed the money was meant to cover additional costs related to newly defined flood zone requirements established by the Federal Emergency Management Agency.
The audit found that hotel developers altered a FEMA website screenshot to hide the fact that FEMA flood maps were published in April 2022, “months before the Applicant’s project was even considered,” which would have contradicted the applicant’s reason for requesting the $2 million, according to Holland’s memo.
The Type B board first discussed the request for the funding in executive session on Nov. 13, 2023, according to city documents.
That was about five months after a city board granted incentives to support the five-story, 127-room new-build project, which was originally estimated to cost $34 million, according to previous Caller-Times reporting.
The Type B Corp. approved the funding on Jan. 22, 2024, and the City Council approved it on first reading on Feb. 20, 2024, and second reading on April 23, 2024.
According to the city auditor’s memo, council members saw the updated version of the presentation during the second reading after it was altered and developers had removed all FEMA references from the presentation.
“City Leadership investigated and concluded that the facts of the case constitute a felony forgery under the Texas Penal Code 32, a violation of law,” the memo said.
“The City Auditor’s Office has determined there is a reasonable basis to conclude that fraud, abuse, and/or illegal conduct have occurred, and consider our internal investigation closed.”
Holland advised the City Council to review the information and make a recommendation on whether to perform an external investigation.
City Manager Peter Zanoni deferred comment for this story to the city attorney, who was preparing a statement on the issue as of the afternoon of Aug. 26.
The civil lawsuit
The city auditor became aware of the allegation after a competing hotel developer, Ajit David of RGB Hospitality, filed a lawsuit in October 2024, court records show.
In David’s original petition, he states that around Jan. 13, 2022, the project developer, Elevate Corpus Christi LLC, brought properties at 403 Lomax St. in an area that FEMA had identified since at least 1985 as lying within or below the “flood boundary” — a designation that did not change with FEMA’s finalization of Texas flood maps in April 2022, the court filing states.
According to a news release published by FEMA on April 13, 2022, the agency’s new flood maps for Nueces County had been finalized and would become effective on Oct. 13, 2022.
David claims that principal project partners — including alleged political donors of Mayor Paulette Guajardo — “reimagined” the commercial development as a 126-room hotel development in July 2022, three months after the new flood maps published in April and eight months after the property was sold to Elevate Corpus Christi LLC, known at the time as Elevate QOF LLC.
Under FEMA requirements, the hotel would have to be raised at least 4 feet high at the site, with dry flood proofing added around the entire first floor, which would result in more than $1.5 million in unexpected project costs, according to agenda documents from the Type B board meeting on Dec. 11, 2023.
The other $489,912.50 would cover the cost of additional expenses, including $210,000 for glazing the side of the hotel facing Chaparral Street and the outdoor dining area, $50,000 for concrete at the outdoor dining patio and $35,000 for covered seating and shade canopies.
Developers cited an economic impact report conducted by the Corpus Christi Regional Economic Development Corp. showing that the $30 million capital investment would create 70 jobs with an average salary of $30,000 each, generating a total incentive amount of more than $1 million with a five-year payback period at a 19.7% rate of return, according to the Type B board agenda documents.
City Council members also approved the project for a tax reimbursement from the Tax Increment Reinvestment Zone No. 3 Board for an amount not to exceed $1.55 million, including $150,000 for flood mitigation.
Further details from the court filing argue that the mayor and City Council relied on a “false narrative” of “unanticipated, new FEMA regulations” as justification for the funding request before they approved the ordinance during a City Council meeting on Feb. 20, 2024.
The City Council approved the funding on a 5-3 vote in April 2024, city records show. Hernandez abstained.
Hernandez said he didn’t vote for the project “because of the irregularities associated with it.”
“I wanted to send it back to the Type B board for clarification about what actually transpired, because the first recommendation and second recommendations were completely different,” he said.
“They didn’t even mention FEMA floodplain maps in the second reading — it was all about catalytic economic development in downtown.”
After David emailed Zanoni information on March 7 to clarify the release date of the FEMA maps, Zanoni wrote back that day, “The FEMA flood issues are not believable, either,” David’s petition shows.
Later emails show that he called for an explanation from the developer team concerning the altered documents.
David is seeking a declaratory judgment and attorney’s fees and costs.
Attorneys are currently questioning witnesses in the civil lawsuit, which is set for a jury trial on Jan. 20, 2026.
David is calling for the court to investigate processes to create a level playing field in terms of how projects are vetted and incentivized.
“These are tax dollars that everyone in the city should have access to — the outcome of the case would be a win for taxpayers,” he said. “It will be a case where I think city leadership and City Council — it will prompt them to be more transparent in their dealings with tax dollars.”
Jeff Lehrman, a partner at the ALBM Law Firm in Corpus Christi who is representing Elevate Corpus Christi LLC in the lawsuit, said he is denying all claims that any application was altered.
“The civil lawsuit is attempting to thwart the $2 million Type B funding allocation,” he said. “The plaintiff in the lawsuit (is a competitor) who filed this lawsuit to directly attempt to sabotage or dismantle this project.”
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This article originally appeared on Corpus Christi Caller Times: City auditor finds hotel developers likely committed fraud in requesting incentive
Reporting by Katie Nickas, Corpus Christi Caller Times / Corpus Christi Caller Times
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