"Surplus Properties"??

The Mystery of the "Surplus " City Buildings

  

Mayor Berke’s Administration recently asked the Chattanooga City Council to declare “surplus” three city owned buildings near City Hall so they could be sold to private developers.

 

Property is typically considered "surplus" when it no longer serves the needs of the City and, therefore, the public. Two of the buildings are currently being used. Where are these employees going? What is the cost of the move, both long-term and short-term? What impact will moving them have on efforts over the years to create a city "campus" where city offices are close to one another?


The properties under consideration to be surplused and sold are the "Internal Audit" building on Lindsay Street; the former Senior Neighbors building on E. 10th St. at Houston, and the City Hall Annex on E. 11th Street where the City Attorneys and 311 are located. The IT Department had been in the annex but last year the City leased space for them in the Edney Building for $662,000 over a four-year period.


As of August 7, 2018, the City Council and the public had not been provided with a fiscal impact analysis or information on how the buildings would be sold; whether there would be an appraisal; what the evaluation criteria would be in determining the successful buyer; where the city employees currently in these buildings would go; how much the City might be looking at in future lease payments, and whether informal “negotiations” with building owners have already taken place.

 

The issues here are government transparency and wise use of taxpayer dollars. 


Public-private partnerships may be appropriate at times but require a strong negotiator for the public at the table. Unfortunately, that has not always been the case on past property transactions such as the King Street parking lot and on tax incentives agreements for PILOTs and TIFs. 


ATM raised most of these issues at the June 24 and August 7 Council meetings. On July 31, Council voted to defer action until they got more information from the Mayor’s Administration. Councilors likely have raised their own questions and seem committed to getting satisfactory answers. Resolutions to declare the properties surplus and transfer them to the CDRC remain on the August 14 City Council agenda.


ATM also asked why these properties need to be transferred to the Chattanooga Downtown Redevelopment Corporation (CDRC). Why can't the Council act for the City? Council members are elected and therefore accountable. 


We just learned that the CDRC will be asked on August 13 to enter into a Development Services Donation Agreement with the Enterprise Center for the purpose of overseeing the solicitation of development for the three properties if/when they are declared surplus by the City Council. 


Such an arrangement raises the appearance of a conflict-of-interest in that the Enterprise Center works closely with the owners of buildings who might be interested in buying the city properties or leasing the City office space, including the owners of the Edney Building where the Enterprise Center is located. 

Who is looking out for the public interest?


These properties fall within the 140-acre Innovation District, which is managed by the Enterprise Center. Mayor Berke, in his recent State of the City Address, announced that the City is offering up these buildings to help stimulate mixed use development. 


Has the Council heard a presentation on this concept? Is the thinking that the properties will pay enough over time in property tax to justify the city having to pay for office space elsewhere? Might the Innovation District later be proposed as a tax increment financing (TIF) district? That would mean that for 15 years property taxes would not go to the General Fund to fund basic services such as fire and police and street paving.


Below is a related public policy issue--"Opportunity Zones"--where the Mayor’s Office needs to provide a little sunshine.


These buildings, in addition to being in the Innovation District, also fall in one of the few census tracts in the County to be designated as "Opportunity Zones." This program was created by the federal government as part of the recent tax cut. It creates a federal tax incentive for investors to reinvest their capital gains in low-income neighborhoods. 


Hamilton County, based on input from the City or perhaps the Enterprise Center, recently chose to designate certain census tracts that are already attracting developer interest, like Downtown, MLK/UTC (including the Innovation District), the Erlanger area, the Southside (including the South Broad area), and the Westside, (including Cameron Harbor and the former Alstom site.) 


Areas that could have been selected as Opportunity Zones but were not include East Chattanooga, Avondale, Glenwood, Orchard Knob, Highland Park, East Lake, Eastdale, North Brainerd, and Woodmore. Alton Park is the one census track designated that clearly fits the spirit of the program.


Has the Council heard a presentation on Opportunity Zones and been told how these census tracts were selected? ATM wonders if this tool might have spurred development such as the building of a grocery store in the East Chattanooga/Avondale area. 


Is this an example of the two Chattanoogas? A new tool is created that actually might help our most marginalized neighborhoods. Yet it appears most of the census tracts chosen will benefit developers who are already capitalizing on the downtown boom. Will the tax break end up displacing residents in places like the Lincoln Park neighborhood while providing benefits to developers investing in already gentrifying areas?

The Saga of the King Street Parking Lot

  

In July 2016, Mayor Berke’s staff asked City Council to declare “surplus” a heavily used city employee parking lot on King Street. Council then was asked to transfer title to the Chattanooga Downtown Redevelopment Corporation (CDRC), a city entity. 


In their presentation to Council, City staff said that they had been talking for a several years to the developer of the adjacent property and that the City wanted to facilitate development of this property. It was acquired in 2014 by Rivermont King Street LLC (Hiren Desai), who planned to redevelop the  brick warehouse building for commercial use on the ground level and apartments above.


City Council was not asked to adopt findings explaining why they believed this property was surplus and where city employees would park and if the City would have to pay.


In February 2017 the CDRC issued a request for proposals (not a bid) to sell the parcel. Two corporations responded to the RFP. The CDRC was prepared to sell to their preferred proposer (Seaford Investments LLC/Hiren Desai, who owns the Moxy Hotel site at 1220 King Street) at a price much less than the city had paid for it in 2007 and well below its current market value. The public got wind of this plan, an appraisal was done, and the price more than doubled. 


In April 2017, the CDRC Board accepted Seaford’s proposal but added a provision that the purchase price would be based on the results of a new appraisal ($360,000).


On June 8, 2017, a general contractor (Chazler, Inc) sent a letter to a member of Dew LLC (Jimmy White), a corporation involved in the conversion of the warehouse building next to the parking lot. The letter attributed the flooding in the basement of their building to drainage issues related to the parking lot. The CDRC Board was not made aware of the existence of this letter until April 2018 when they were informed by the City’s Deputy Administrator for Economic Development (Charita Allen). 


On June 19, 2017, City Finance Director/CDRC President Daisy Madison reported to the CDRC Board that the vendor had agreed to pay the $360,000 new appraisal amount.


In January 2018, Ms. Madison reported to the Board that the recommended buyer (Seaford/Desai) had rescinded his offer. She gave no explanation. The Board approved a resolution authorizing the president to withdraw the RFP for the sale of the property.


In April 2018, the City Deputy Administrator for Economic Development, Charita Allen, informed the Board that the City had learned in January of 2018 that the parking lot is causing flooding in the warehouse building on adjacent property owned by the LLC that had been interested in buying the parking lot. 


Ms. Allen reported that a permanent fix (grading, paving) is estimated to cost $350,000 to $400,000. She distributed the June 8, 2017 letter from a construction contractor to the owners of the warehouse building. It attributed the cause of the flooding to the city parking lot. 


On May 8, 2018 the CDRC considered a resolution to execute a right of entry on the city parking lot relative to construction work at the adjacent warehouse building. During a five-week period, the city parking spaces that share a property line with the adjacent property would be unavailable. The displacement would result in a cost to the city of about $8,000.


During public comment, ATM founder Helen Burns Sharp noted that there is no mention of financial consideration in the agreement. Board member David Dalton raised this issue with developer Desai, who agreed to pay the city’s out of pocket costs or provide parking close by. The board approved the resolution with this amendment.


During public comment, ATM suggested that the CDRC might want to explore the concept of cost sharing with Mr. Desai, since his nearby properties would benefit from the long-term fix, estimated at $400,000. He indicated he might be willing to go 50-50, provided he could also share in the revenues from the lot.


May 10, 2018 was a continuation of the May 8 meeting. The board decided not to transfer ownership of the lot to the IDB, a strategy which apparently city staff considered to skirt the city bidding process. City Public Works staff gave timetable for an RFP for a “Stage 1” fix to begin in July. It could be followed by the complete project and finished by end of year.


CDRC member (and Council Chair) Ken Smith asked if the city had legal liability relative to water on the adjoining property. A key question in common law drainage is whether the property owner (here, the City) has done anything to change the water flow since the adjoining property owner (here, Rivermont King Street LLC/Desai) bought their parcel in 2014. The drainage on the city parking lot today is believed to be the same as in 2014. (It has likely been that way since and before the City bought the parcel in 2007.)


The Board voted unanimously to move for the “full fix” and to get Stage 1 completed as quickly as possible. No one brought up the topic of negotiating with Mr. Desai to cost share both the construction costs and the revenues.


On August 13, 2018, the CDRC will be asked to pass a resolution authorizing the President to negotiate a design-build contact with Thomas Brothers Construction for $440,000, with a contingency amount of $40,000, for a total amount not to exceed $480,000.



Helen Burns Sharp

Accountability for Taxpayer Money