How Lago Vista came to own a $3.7M luxury mansion it never wanted


Highlights

An escalating feud with a wealthy landowner left the city with little choice but to buy the scenic estate.

But it may have overpaid, and with efforts to sell it stalled the city has turned to homeshare sites.

The 8,000-square-foot mansion perches on a cliff overlooking Lake Travis. There is a wine cellar in the basement, a billiards table in the game room and red leather reclining loungers in the home theater. Greek statuary guards two turquoise negative-edge swimming pools. There is a helipad nearby.

The estate rents for as much as $2,000 a day. “First, you arrive at the private gate to realize how tranquil the location is. Then, you pull up to the circular driveway and see the magnificence of the home,” a delighted client wrote in a recent HomeAway.com review. “It is hard to believe that this is an actual vacation rental! We each had our own private bathroom, which was extremely nice.”

“The views are better than any others you will find on the lake,” said Lago Vista City Councilman Kevin Sullivan.

PHOTOS: The $3.7M luxury mansion Lago Vista owns — but doesn't want

He would know. That’s because the taxpayers of Lago Vista are the mansion’s reluctant owners.

Three years ago, this picturesque lakeside city of 7,000 shelled out nearly $4 million — a figure representing more than half of its annual property tax revenue — to buy the sprawling villa. After a couple of years of failing to unload it, the city has turned to using it for the occasional city council retreat and, more recently, renting it out to tourists.

“People love it,” said Jacqueline Wittmuss, owner of JW Properties, which manages the rental for the city.

Not everyone. Paying top dollar with public money to acquire a manor featuring 20-foot ceilings, a giant pantry and a three-oven kitchen “was not the wisest decision,” said Mark Tippetts, a former city councilman.

“It’s not the best situation,” added Ed Tidwell, Lago Vista’s new mayor.

With buyer interest scant, the city has steadily dropped the asking price for its 4-acre luxury property, from $3.6 million to its current price tag of $2.4 million. Tippetts fears local residents are in for a financial bath. “They will not be able to sell that home for half of what it cost them,” he predicted — a potential $2 million loss.

VIDEO: Lago Vista’s taxpayer-owned Hill Country estate 

The story of how the small city an hour’s drive northwest of Austin came to acquire a Mediterranean revival mansion with breathtaking views is a cautionary tale illuminating how taxpayers can literally end up paying the price when small-town politics collide with powerful personalities.

“It was two outsized personalities who were nose to nose with each other,” said Sullivan. “But in the end, it’s the citizens of Lago Vista who ended up as the butt of the joke.”

A trade deal falls through

Lago Vista’s acquisition of its mansion began with water, and ended with beer.

Like most of Central Texas in the early part of the decade, Lago Vista was hammered by one of the worst droughts in state history. Docks poked out of mud as Lake Travis receded; boat docks ran to dirt.

More alarming, the lake threatened to drop below the two intake pipes providing the city’s water. Searching for a deeper part of the lake, city officials identified a cove off a spit of land on the lake’s north shore called Marshall’s Point. The water would be piped over land to a new treatment facility nearby.

Most of the shoreline in the area was owned by a businessman named James Otwell. A resident most recently of Houston, Otwell had bought into Lago Vista in a big way in 2004. In addition to his lakefront acreage, he’d purchased the then-not-quite-complete mansion on a cliff out of foreclosure. He planned to open a wedding venue next door and, later, build a golf course.

“I’d say I had more than $10 million into the community,” he said.

Otwell said he’d rebuffed the city’s early proposals to run the water connecting pipe through his property. In 2012, however, he proposed a deal: Lago Vista could connect the treatment facility to the intake across his land if, in return, the city agreed to bring municipal services out to his new wedding venue, Nature’s Point.

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There were several parcels of private land between the city’s property and Nature’s Point whose owners would have to agree to let the city run its water and sewer pipes through them, however, Otwell said city officials assured him it wouldn’t be a problem. “I told them, ‘They’ll fight you,’” he recalled. “But the city said, ‘We’ll take care of it.’”

Otwell and Lago Vista sealed the water-for-services trade in spring of 2013, documents show. The city promised to have water and sewage out to Nature’s Point within 6 months. It soon hired contractors and began work on its intake and treatment plant.

The deadline came and went. As Otwell feared, the other property owners refused to let the city run pipes across their land to his wedding venue. At one point, Tidwell recalled, Lago Vista explored taking the private land through eminent domain.

But to deploy the legal taking “You have to demonstrate a project benefits the entire city,” Tidwell explained. “And this was just bringing water to a wedding venue.”

Another dispute cropped up next to Otwell’s villa, where city contractors were busy connecting the intake in the lake in front of the mansion to the treatment facility behind it. “Everything was supposed to mesh in with what we already had,” Otwell said, adding that he intended to build a guest house on top of the pipe when the work was done.

“But their pipeline wasn’t a pipeline at all,” Otwell said. “One day I was out there, and saw they’d dug these giant vaults into the ground. I said: I can’t build a house on that!”

Beer war fuels feud

The chamber of commerce named Otwell its citizen of the year for 2014. But beneath the surface, tensions between him and the city — and its then-mayor, Randy Kruger — were building over more than water. Beer was proving divisive, as well.

In addition to the water project, Otwell and the city had entered into another deal, for him to purchase and operate the clubhouse restaurant next to one of Lago Vista’s two golf courses. Otwell hoped to build a hotel next to the course, as well.

In Lago Vista, golf is much more than a leisurely game. The city was first developed as a retirement community nearly a half-century ago, and many of its homes are situated on one of two golf courses. There has been ample overlap between the golf club and city hall.

The importance of the links was highlighted a decade ago when, after the private owners of the courses deemed them unprofitable, the city stepped in and purchased both to insure they remained open. Over the years, Lago Vista has spent hundreds of thousands of dollars annually to subsidize golf.

READ: ‘Socialized’ golf in Lago Vista

Critics urged the city to get out of the costly golf business. Others — most council members belonged to the golf club — responded the courses were critical to the city’s success and so worthy of the city’s support.

That apparently included the 19th hole, a golfing euphemism for the clubhouse bar where players retire following a round.

Otwell said when he took over the clubhouse the city had been keeping the price of beer at the city-owned courses artificially low, $2 a draft. So when he took over, he raised the price to $3 — “which,” he pointed out, “is still cheap, cheap, cheap.” But, he added, “when I raised the price of beer, it really pissed them off.”

Details of the dispute vary, though everyone agrees it escalated. “Every time Jim and Randy [Kruger] had an opportunity to poke each other with a pointed stick, they did,” Sullivan recalled. (Kruger did not respond to a request for comment.)

Eventually, Lago Vista’s city council voted to spend tens of thousands of dollars to install a temporary trailer near Otwell’s restaurant, out of which city contractors sold beer in direct competition with its supposed golf business partner. Otwell soon closed his restaurant.

The fracas spilled onto the letters page of the local newspaper and, eventually, into the political races for city council, where Otwell worked to unseat several unsupportive council members. For Lago Vista, however, the feud with one of its wealthier citizens — who also controlled the spigot to the city’s future water supply — turned out to be more costly than mere political gossip.

‘He had us. He had us good.’

In mid-2014 Otwell formally noticed the city that it had failed to uphold its end of the bargain to bring services to his wedding venue. In response, he ordered the intake pipeline work on his property to stop.

As the dispute dragged into court and through mediation, the city found itself under increasing financial pressure. “We were into it for several millions already,” Tidwell recalled. “We’d brought in a mine boring company from Colorado to drill through the mountain cliff” that now sat idle. With warranties on the treatment plant and intake pipe set to run out before a drop of water was pumped, he said, the city bled more money extending the buyer protections.

“We had spent $10 or $11 million on the plant, and had no way to make it operational,” said Sullivan. “The city put itself over a barrel.”

A deal for Otwell to sell the right-of-way for the pipeline to the city fell through. Soon enough it became clear that the only option remaining for Lago Vista was to buy Otwell’s entire 6-bedroom, 9-bathroom estate.

“He had us,” said Tidwell. “He had us good.”

READ: Forget guest rooms, Hill Country resort to feature luxury tents

Each side prepared its appraisal of the mansion. The city’s estimates came back in the mid-$2 million range, officials recalled.

“I had one appraisal at $2.8 million, one at $3.2 million and one at $3.9 million,” Otwell said. “Obviously, I went with the 3.9.” He said he was surprised the city quickly settled on the $3.74 million purchase price.

“I would say that’s a very good price,” Tidwell said, “for Mr. Otwell.” The city spent tens of thousands of dollars more on mold remediation and rebuilding the villa’s decks, he added.

Since it was put on the market, the villa has proven a tough sell. A giant, unscenic electric tower next door “has given us problems,” conceded Wittmuss, the broker.

After getting no offers on the sale and lowering the price several times, Sullivan said he urged the city to rent the villa on house-share sites. Wittmuss said she has been diligent about finding only the right sort of person: she performs individual background checks, and no one under 30 gets a second look.

The result has been pleasantly surprising. Lago Vista collected just over $200,000 in short-term rent last year — though its upkeep expenses ran just shy of $150,000.

Despite the proceeds, Josh Ray, who took over as city manager late last year, said he’s eager for Lago Vista to get out of the luxury home rental business. “The goal is most definitely to sell the property,” he said.

“Really, we don’t need to have a $2.4 million home.”

Editor’s note: This story has been updated to more accurately reflect Lago Vista’s financial support of its golf courses.



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