TROUBLE IN DANNYLAND
High-rolling, Holy-Rolling Faulkner made a fortune in condos. But how?
EVEN MONTHS before federal investigators began asking questions, it was the worst-kept secret in the Dallas real estate community: Something ominous was taking place on the shores of Lake Ray Hub-bard. Almost overnight, a city of condominiums had been constructed on a peninsula on the western side of the lake; thousands of the new structures had popped up wantonly like weeds in a suburban neighborhood. But it was a housing boom without buyers-a mushrooming community characterized by curtainless windows and empty parking lots.
The East Dallas County lakeside condo developments-with names like Highpoint Landing, Lakepoint, Snug Harbor, Centre Point and Westwind At The Point-had been constructed on Faulkner Point, the peninsula named after Danny Faulkner, a 51-year-old, illiterate one-time Dallas house painter with humble Southern beginnings. Like the sprawling condo communities bearing his name, the Mississippi native had, in just a few years’ time, mysteriously moved from rags to riches to become Rowlett’s most powerful citizen. He counts among his friends such men as Texas Attorney General Jim Mattox, former Dallas Cowboys owner Clint Murchi-son Jr. and U.S. Congressman Ralph Hall.
Although Faulkner claims to be a simple man, his public displays have portrayed him instead as an enigmatic mix of high roller and Holy Roller. So lush is his nouveau riche lifestyle that he’s thought nothing of laying out millions of dollars for such amenities as helicopters, a Lear jet, several Rolls-Royces, his own newspaper, a ranch, expensive jewelry, lavish social affairs-even a million-dollar circle suite at Texas Stadium. Yet, so good-hearted is the successful real estate wheeler-dealer that he likewise has parted with some of his millions for charitable causes: his church, the needy and the sick. He has always been a man known to open his wallet when his heart is touched-even for a stranger he might meet on the street.
But the Faulkner flair, wealth and benevolence have suddenly become suspect. The events of recent months have left folks scratching their heads about the man who jokingly compares himself and his family to television’s famous Beverly Hillbillies clan, the Clampitts. People are beginning to wonder if old Jed Clampitt might have pulled the wool over everybody’s eyes.
Word first leaked to the public last September that Faulkner Point was having problems. On September 27, two investors (one from Houston; the other, from Dallas) filed a $12.7 million federal lawsuit charging that they had been defrauded in lakefront deals by Faulkner, former Garland mayor Jim Toler and a few associates. A few months later, The Dallas Morning News began a series of investigative stories detailing possible unethical-and even illegal-land transactions, investment solicitations, loans and development activities by either Faulkner or his current and past business associates-activities that now threaten to bankrupt a half dozen savings and loan associations. For nearly a year, these activities have been the target of investigations by the FBI, the Texas Savings and Loan Department and the Federal Home Loan Bank Board and could result in criminal indictments.
Investigators say they are focusing their inquiry on known Faulkner business associates and claim that they are unsure whether Faulkner is directly involved in any illegalities. "He does show up in the chain of title and he owned and dealt a lot of land in the area," says a source with the savings and loan department. "But [Faulkner] claims they were just using his name. We have yet to directly implicate him."
The fact that any developer could sell projects at a time when most were stalled by a general housing recession was enough to cause the real estate community to be skeptical of the lakeside boom. But the facts that have already come to light suggest that the growth at the lake could have been the work of a close group of developers who carried out a complex, well-planned scheme to get rich at the expense of a group of about 150 investors and several savings and loan institutions.
If it was a calculated scheme, it was one that fed on one of the oldest human frailties known to man: greed. Perceptive investors usually take a few steps back when they sense that they are being handed a some-thing-for-nothing proposition. This time, though, something went wrong.
Investigators call what happened at the lake a "daisy chain" because to pull it off successfully requires some cooperation among landowners, developers, construction contractors and bankers. This particular daisy chain was characterized by investors who never invested a dime, slick salesmen who made promises that couldn’t be kept, land artifically inflated by a series of multiple land sales and millions of dollars’ worth of loans based on inflated financial statements.
The result is a problem that real estate experts claim is of staggering proportions: Now, not only is there a glut of condominium housing near the lake, but if the condos can’t be sold for a profit, the investors who were flimflammed by the developers will face foreclosure or bankruptcy because they could not have even qualified for such large loans through normal banking channels. The fate of several savings and loan institutions also hangs in the balance.
Although Faulkner claims that the debacle is a case of someone using his name, circumstances suggest that he was involved behind the scenes. Investigators say that Faulkner-owned helicopters were used to impress the lenders, that his billboard company was used to promote the new condo developments and that his money was loaned to one individual who had purchased a controlling interest in one of the savings and loan institutions involved in the massive development financing. And it was Faulkner who originally hired Clifford Sinclair, the man who is the focus of the investigation, to market the Faulkner condominiums.
"Danny’s very much distressed over all of this," says Dorothy Neville, editor and publisher of the Lakeside Record American in Rowlett, who also doubles as Faulkner’s official spokesperson. (Faulkner is currently declining all interviews.) "He’s a very sensitive person, and he feels he’s tried to do what’s right and that now there are people who would just love to kick him. Danny believes there’s some malicious intent on the part of some people. Although he has made no actual protestation of innocence to me, he did say that the only part he ever played was in developing 250 condos on the original Faulkner Point."
THE FIRST TIME I met Danny Faulkner was last September in his million-dollar circle suite above the 30-yard line at Texas Stadium. At the time, I was researching a story on the stadium suites, and Faulkner graciously had invited me up to his box. Wearing an open-collar shirt, a blue polyester coat and light-gray polyester slacks, he greeted me enthusiastically, extending his hand and firing off a few country phrases in a high-pitched, nasal voice that reminded me of Gomer Pyle. But what is most noticeable about Faulkner’s appearance is the abundance of jewelry-the gold necklace, the diamond Rolex watch, the large diamond ring and the flashy diamond lapel pin that bears the familiar twin peaks of the Faulkner corporate logo. Similar pins are given to members of a select fraternity comprised of Faulkner’s family and close friends.
Faulkner probably has never met anyone he considers a stranger, and I guess I was no exception. (Even though he can’t read or write, Faulkner could probably teach a college-level course to good ol’ boys and still teach them a few new tricks about the ancient country art of back-slapping.) Although he’d never met me before, we were soon sipping Cokes and munching bologna-and-cheese sandwiches at his non-alcoholic wet bar, talking as if we were old friends. He was telling me about the importance of his family and how happy he was that his boy and girl had "turned out good’-that they didn’t drink, smoke, cuss or do drugs.
Every Faulkner yarn seems to have a moral; he rarely misses a chance to make some down-home philosophical statement. After former Dallas County Judge Garry Weber paid a short visit to Faulkner’s suite, Faulkner commented that "We need to get that boy married. Being a bachelor isn’t really all that fun. It’s enough to kill a guy, when all he does is drink and party all the time."
In a way, Faulkner seems uncomfortable with his new-found wealth; at times, he is almost apologetic. He loves to talk about his million-dollar ranch near Athens, where deer walk up to the back door, and about his new jet, which enables the family to travel by air and then be met at their destination by a waiting limo. But, on the other hand, Faulkner seems compelled to convince people that money isn’t all that important and that if being rich meant that his kids might turn out bad, then he’d rather be poor.
Despite his obviously shrewd real estate deals, the public Danny Faulkner is a simple man. He loves his family, goes to church every Sunday and takes the time to touch people’s lives in a positive way. But it would be naive to assume that there is anything but a complex man beneath the country-boy facade.
"He’s too trusting a man to be shrewd," says Neville. "He’s very creative, and he’s very imaginative. But he’s so quick and so bright that it is sometimes frightening to me. Frequently, when I’m presenting an idea to him, his reasoning processes are about four steps ahead of mine, and he’s already to the bottom line. But 1 think that a lot of his success comes from his eagerness to be fair to people who work for and with him."
When Faulkner talks of his possessions, his eyes light up like a child’s. "He does enjoy the things money will buy," Neville says. "There’s something childlike in his enjoyment of them. For instance, I compare his riding in his limousine to the pleasure a child takes in showing off his new bike to the neighbors on Christmas morning. Danny assumes that people will rejoice with him, and they don’t."
I had a second opportunity to see the Faulkner mix of simplicity and wealth at the wedding of "Little Danny," Faulkner’s 25-year-old son. Little Danny had chosen a wife who was also a member of the Faulkner family’s church (the Jupiter Road Baptist Church in Garland), but the affair was so lavish that the ceremony was conducted at the larger Park Cities Baptist Church. The wedding and reception that followed at Galleria’s Westin Hotel were probably as opulent as any in Dallas’ history. It was more proof of Faulkner’s compulsion to impress -a public affirmation that he does everything first-class.
Although the November 4 ceremony seemed almost as extravagant as the wedding of Prince Charles and Lady Di, it was done in a somewhat less-classical vein. Lined up outside the church were rows of Rolls-Royces, Cadillacs, Mercedes-Benzes and limousines. Inside was a 60-piece orchestra (neatly tucked behind a wall of greenery), at least two video cameras (lights flashing continuously) and hundreds of very attentive guests (including Jim Mattox and Ralph Hall, three Dallas Cowboys coaches and City Councilman Max Goldblatt).
While tuxedo-clad ushers (most of whom were wearing diamond Faulkner Corp. lapel pins) were seating the guests, Faulkner stood in the foyer loudly greeting the guests, who were listening to such orchestral strains as the theme songs from Rocky, Star Wars and Chariots of Fire.
During the ceremony, the Rev. James Starkes delivered a glowing 10-minute speech about the Faulkner family, calling it the "most humanitarian family in Dallas." After Starkes pronounced Little Danny and Debbie Jordan husband and wife, the orchestra burst into The Eye of The Tiger, the award-winning theme song from Rocky III. At that moment, Little Danny triumphantly raised a fist just as the hero in Rocky.
After the theme song, the minister returned to the microphone and asked everyone to join the family at the reception, requesting that they travel to the Westin Hotel via the Dallas North Tollway. As the guests approached the tollway, they found out why: Standing at each toll booth were Faulkner-ites who deposited coins in the baskets as wedding guests passed through the booths free of charge.
At the reception, non-alcoholic punch and Artesia water were served to an estimated 2,000 guests, along with an array of hors d’ouevres. A huge eight-tiered cake dominated the center of the receiving area, with an accompanying chocolate groom’s cake in the shape of a Faulkner condominium. Ice sculptures were everywhere, the largest of which (about 20 feet long and 4 feet high) spelled out "Debbie and Danny" and had a heart in the middle. As the newlyweds mingled with the crowd, a waiter presided by their side carrying a silver tray with ice water and a soft drink.
PEOPLE HAVE BEEN talking about Faulkner’s opulent lifestyle for a long time. Realtors buzz incessantly about his collection of Rolls-Royces, his lavish gifts to associates and friends, the $100 tips he gives to waitresses at burger joints, and the rides he gives in his jet helicopter to impress potential investors with the growth along Inter-state-30 in Garland and Mesquite.
Likewise, Faulkner’s friends have talked about his unstinting generosity, pointing out examples such as the time he contributed $1 million to the Jupiter Road Baptist Church for a new sanctuary because he was saddened when the daughter of a fellow church member died of leukemia. And there was the time he saw a woman and her child collecting cans in a roadside ditch and pulled off the road to give them several crisp $100 bills.
But few have talked of the other side of Danny Faulkner-the man whose name is sprinkled throughout sensitive federal law-enforcement intelligence records, which have, for some time, questioned his business dealings. His life story, which admittedly has come from his lips, seems simple: poor Southern boy works hard and gets rich. But instant wealth is often viewed with suspicion.
Faulkner’s story begins on Christmas Day, 1932, in Kosciusko, Mississippi, where Danny was born and was christened David Lamar Faulkner. (No one knows why he calls himself Danny; most people don’t even know that his legal name is David.) The son of G.P. Faulkner, a cotton sharecropper who also painted houses, Danny lived in a rundown wood-frame house that he was ashamed of. The family moved to Tusca-loosa, Alabama, when Danny was still a young boy. He dropped out of school in the sixth grade, unable to read or write. He was called a slow learner; in those days, educators were unable to diagnose Faulkner’s real malady: dyslexia. He still can’t read a letter or the newspaper, but he is reputed to have an unusual ability to handle mathematical figures.
Before coming to Dallas in 1962 to look for work as a $3-an-hour union painter, Faulkner spent some time working in Corpus Christi and San Antonio. By that time, he was married, had two children and was living in a garage apartment in East Dallas. His first marriage ended in divorce shortly after the family moved to Dallas.
Legend has it that Faulkner got his big break when he was painting a fourth-floor apartment at 3525 Turtle Creek that was owned by Kenneth Murchison. Although the other painters kept their shirts off while painting, Faulkner was careful to put his shirt back on whenever the Murchisons visited the new apartment, and he always tried to be a gentleman.
"He fell into a conversation with Mr. Murchison one day," Neville says, "and Mr. Murchison told him he was too smart to be a painter and that he should be a paint contractor instead. But Danny was ashamed to admit to Mr. Murchison that he was illiterate. Ken kept after him, and when Danny finally admitted his problem, Mr. Murchison said it didn’t matter. He taught Danny how to set up his own business and loaned him $50,000."
Within a few years, Faulkner had built a moderately successful paint contracting business, landing jobs with Lincoln Property Co. to paint apartments, with builder Hal Anderson to paint luxury homes and with Troy Post to paint two high-rises on Northwest Highway, Preston Towers and the Athena. Another turning point in his career came in 1970 when he successfully bid a contract to paint a portion of Texas Stadium.
Around 1979, Faulkner decided to sink some big money into real estate and the land-development business by purchasing the first 8 acres for Faulkner Point at $17,000 an acre. (Neville claims that Faulkner has been dabbling in real estate for about 10 years, ever since he met real estate developer S. A. Bieler after the two men’s sons became friends in junior high school.)
The rest is history. Faulkner developed 250 condos during the first phase of condominium construction on Faulkner Point in 1980. They sold well. At this point, the history becomes fuzzy and is subject to a possible rewriting after federal and state investigators finish poring over thousands of deeds and loan documents.
ALTHOUGH AN investigation was already under way, the federal lawsuit, filed September 27, 1983, marked the first public hint of questionable land dealings near Lake Ray Hubbard. In the lawsuit, William Baldridge of Dallas and Robert Emrich of Houston alleged that in July 1982, representatives from Kitco Developers Inc. (a company operated by Mesquite developer Clifford Sinclair) had solicited their investment in a lakeside condo project. The suit also named Jim Toler, Ken Cansler and Danny Faulkner as defendants.
Like many of the estimated 150 investors involved in various lakeside condo development projects on Faulkner Point, Baldridge and Emrich apparently grabbed an opportunity that appeared to offer something for nothing. According to the lawsuit, the two were told that "an investor in the project would need to do nothing and that Kitco would provide the investor with everything-the raw land, financing to acquire the land, financing to construct the condominiums, architectural and site plans, engineering, construction and marketing of the completed condominiums."
They say that they were further told that the primary source of financing would be Empire Savings and Loan Association of Mesquite and that the total cost of the land, construction, financing and sales would equal $55 per square foot but that the con-dos would ultimately sell for $70 to $75 per square foot, the investors thereby realizing profits of $15 to $20 per square foot. (The actual cost of building the condos, according to Baldridge and Emrich, turned out to be about $82 to $83 a square foot, not $55.)
In return for arranging the deals, all that Kitco and Sinclair asked the investors to do was to guarantee several million dollars’ worth of loans arranged through Empire and another institution, Lancaster First Federal Savings and Loan Association. Although there was no mention of it in the lawsuit, The Dallas Morning News reported later that many of the massive loans were financed at 110 percent, so as to give investors up-front cash incentives ranging from $10,000 to $40,000 just to sign the loan documents.
Baldridge and Emrich also alleged that Sinclair and a Faulkner employee had falsely stated that Kitco and Faulkner were taking care not to overbuild in the lake area, which Realtors call the "1-30 corridor." Sinclair further assured the two investors that the area could absorb a substantial amount of additional condominium development, noting that studies commissioned by Toler and Faulkner had supported the conclusion.
But the lawsuit further charged Sinclair with failing to disclose the fact that a Dallas appraisal firm had done an in-depth analysis of the area and had concluded that it could absorb no more than 75 condo units per month. Sinclair and Ron Cansler, a former Rockwall High School football coach identified by the investors as a Faulkner employee, also failed to disclose the fact that Kitco was planning to construct 6,000 condo units in the area.
The lawsuit was dismissed three weeks later after Baldridge and Emrich filed a motion for dismissal, explaining that all the issues had been settled privately out of court. Both Faulkner and Toler publicly claim they were not aquainted with the two investors and that they did not participate in the out-of-court settlement. But the matter was far from closed. Besides the ongoing investigation by law- enforcement authorities, the interest that was generated by the lawsuit resulted in a two-month investigation by The Dallas Morning News, which prompted a story published November 27 that many Lake Ray Hubbard condo developments had been built on "hundreds of unusual land sales, inflated land appraisals and more than $500 million in questionable real estate loans."
The News further stated that the condo building boom near the lake in Mesquite, South Garland, Rowlett and Rockwall had glutted the area with a potential 12-and-one-half-year supply of condominiums. The News documented a pattern of swaps of large tracts of land among a "small network of interrelated developers." The swaps, which Realtors call "land flips," often result in artificially inflating the price of land far above usual market rates.
One of the land flips discovered by the News was a 45-acre tract purchased for $1.10 per square foot in 1981, then resold five times on December 21,1982. By the time it was subdivided and resold, the cost of the land was more than $8 per square foot. Although land flips are nothing new in the real estate community, one real estate source says that the Lake Ray Hubbard land sales were "highly unusual." "The whole thing operated in a vacuum. They didn’t use any prudence. The land flips were done so blatantly," the source said. "The whole real estate community has been looking at Faulkner in awe."
Such land flips are technically not illegal, but it is against the law to use inflated land values to secure loans, according to a source with the Texas Savings and Loan Board. Although Faulkner and his sometime business partner Jim Toler are names that appear in some land sales, Faulkner has denied that he had anything to do with the investment packages or marketing of the condos.
In subsequent weeks, the News published stories that are beginning to make the lakefront deals look like a potential can of worms. Last December, the News reported that state Sen. Ted Lyon has made thousands of dollars through his involvement with Kit-co, both as a personal investor and as the company’s attorney. In another story, the paper documented a 1982 land transaction with the same group of condo developers that personally netted Spencer H. Blain Jr., chairman of Empire Savings and Loan Association, $14.5 million. A few days later, the News published a story alleging that some of the investors in the lakeside condo projects were asked or pressured by the promoters to make $1,000 political contributions to certain political candidates, including Gov. Mark White. On December 31, the News published a story detailing financial relationships between Texas Attorney General Jim Mattox, Faulkner and three other Lake Ray Hubbard developers, as well as with a Dallas title company and Empire Savings and Loan.
DESPITE THE ADVERSE publicity, Faulkner seems to be going about his business as usual, with one exception: He isn’t saying a word to the media. Dorothy Neville says that Faulkner is getting constant requests for interviews from the national media, but decided after his son’s wedding to become more of a private citizen.
Last June, The Lakeside Record American published a story claiming that Faulkner was out of the condo development business and that he had officially retired the previous October. But Neville says that Faulkner still does a lot of traveling around the country, doing whatever he does, and still bases his family-run business operations at the lakeside headquarters of Faulkner Investments, a building that looks more like a warehouse than an office. One thing Neville does know is that, in terms of investment, Faulkner "doesn’t want to get into anything he can’t drive by and look at." Neville says that Faulkner has directed many of his recent business efforts toward setting up Little Danny with a stable real estate business.
Faulkner remains a controversial figure even in his own community because he is a developer-a man who is openly pro-growth-living in a small town where many residents are resisting the seemingly inevitable growth. Recently, The Lakeside Record American carried a front-page story about Faulkner donating a large tract of land near the lake as well as $5,000 for the city’s second public park.
The folks in Rowlett also remember Faulkner because he has risen to the occasion several times: when the old elementary school needed renovating, when the Friends of the Library needed a friend with money, when a local priest needed funds to establish a home for inner-city delinquent boys and when the Rowlett Police Department needed radios for their police cars.
That’s why most of the folks in Rowlett probably agreed with a recent statement made by C.E. Vaughan Jr., a friend of Faulkner’s and the president of First Bank of Rowlett: "If each of us in Rowlett would give comparable proportions of our own time and money, this would be the most fabulous city in the world."
No question about it: Danny Faulkner hasbeen a solid Rowlett citizen. He’s alwaysbeen a man who puts his money where hismouth is. But the question his neighbors areasking these days is, Where did it come from?