Southwest Key CEO has financial stake in property leased by migrant shelter operator

Editor's note: This story has been updated to include a second Southwest Key official's financial stake in a company that leases property to the nonprofit.

In a rare public interview Saturday, the chief executive officer of the nation’s largest nonprofit dedicated to sheltering migrant children assured a Texas Tribune Festival audience that he has no financial stake in the private businesses Southwest Key Programs pays for real estate space and other services.

“No, no,” the nonprofit’s CEO, Juan Sánchez, said.

A few hours later, a representative for the organization sought to correct the record.

In an email, Southwest Key spokesman Jeff Eller said: “Today, Dr. Juan Sánchez misunderstood a question during his one-on-one interview at TribFest.”

Sánchez is part owner of a property leased by Southwest Key Programs, Eller said, and it wasn’t disclosed on the company’s tax return because it’s not required.

“Dr. Sánchez is a limited partner in an LLC that owns the property of the Casa Conroe unaccompanied minor child care facility. Because the income he receives for that rent is less than $100,000 annually, per the instruction of the 990 [tax] form it is not listed,” Eller said; Melody Chung, the nonprofit’s chief financial officer, is also a limited partner in the company.

Texas Secretary of State records show the company’s manager is a director of a Southwest Key-affiliated charter school.

Sánchez owns 33 percent of the for-profit company and made the investment because “we couldn’t find any other investors at the time and [the federal Office of Refugee Resettlement] needed beds for detained immigrant children,” Eller said. He said the rent paid at the Conroe shelter is lower than the fair market rates at the nonprofit’s other facilities.

Southwest Key contracts with the federal government to house unaccompanied migrant children, an enterprise that has brought them nearly a half-billion dollars in business in 2018, and some $1.5 billion since 2008. The increased revenue, however, has been accompanied by heightened scrutiny about the nonprofit’s relationship with the federal government, after the Trump administration launched a polarizing “zero tolerance” policy that resulted in some 2,600 families being separated.

Calling the policy “very inhumane” and “terrible,” Sánchez said Saturday that his organization has “nothing to do with any of that.”

He said some 200 children split from their parents since the policy went into effect are still in Southwest Key’s shelters, and that a small fraction of them have parents who have waived their right to reunification.

“We do not run detention centers. We do not run any prisons. And we do not separate kids from their parents,” said Sánchez, who founded the nonprofit in 1987, with five employees. “If we didn’t take them then what happens to those kids?”

Thirty years after Southwest Key was founded, Sánchez said it remains true to its nonprofit status because it provides vulnerable children with an array of services, ranging from medical care and education to weekend outings and religious services.

But critics have accused Sánchez of profiting off aggressive immigration policies, and have concentrated their scrutiny on the $1.5 million he received in compensation, including salary and a retirement package, in 2016.

Sánchez said the CEOs of other large nonprofits also earn large salaries and suggested his ethnicity played a role in the negative coverage he’s received.

“When you look at the size of Southwest Key, they wondered, how could a Latino have come up and built a company that big? There must be something wrong,” he said. “People cannot understand conceptually, how a Latino can make that much money. People have never seen it.”

Now operating more than two dozen shelters across three states, Southwest Key brought in some $450 million in revenue this fiscal year, and has seen its workforce balloon to 8,000. Though housing unaccompanied migrant youth is a bulk of their work, Southwest Key also operates juvenile justice programs, and owns a for-profit holding company that manages a handful of small “social enterprises.”

During the interview Saturday, Sánchez was asked whether he benefited financially from other for-profit entities, including any companies that own property where Southwest Key runs migrant shelters.

“You don't have any financial stake in the LLCs or anything like that, that Southwest Key is doing business with or leases?” Sánchez was asked. “Anything like that?"

Sánchez said he did not.

But after acknowledging Sánchez’s investment in the LLC that owns Casa Conroe, Eller, the spokesman, said that Southwest Key benefits from the arrangement.

The “per bed rent at Casa Conroe is substantially less than rent paid per bed at any other of Southwest Key’s 26 child care facilities," Eller said. “We intentionally charge much less than the fair market value. It’s the right thing to do."

Disclosure: Jeff Eller, a former Texas Tribune board member, has been a financial supporter of the Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.