The $68 million redevelopment bond, if approved by voters in November, would be used by the city to buy aging apartment complexes on Franklin Road, in order to tear the properties down and market the site to private developers.
In 2006, a similar redevelopment deal was set in motion. The city gave Marietta Redevelopment Corp. $2.1 million to secure a $4.2 million loan from the Bank of North Georgia to buy property along Powder Springs Street, off West Dixie Avenue and Hedges Street.
Ron Francis, chairman of the MRC and CEO of First Landmark Bank, said starting in 2007, the group spent $4 million to purchase the 8 acres of vacant lots and properties with aging homes across the street from the Hilton Marietta Hotel and Conference Center. The MRC is the redevelopment agency for the city, and as such, the City Council appoints its board of directors, which includes Councilman Grif Chalfant and Randy Weiner, chairman of the Marietta Board of Education.
The MRC was established by the City Council to act on the city’s behalf to target, assemble and plan the redevelopment of the blighted Hedges Street neighborhood, but so far there has not been any takers and the debt keeps compiling.
“The odds have been stacked against them,” Tumlin said about the MRC being a victim of the bad national economy.
Councilman Philip Goldstein said the precarious position of the MRC is partially due to the down economy, but also because the group overpaid for the property.
Francis said the MRC still owes the bank $3.99 million, with interest payments on the loan of $12,500 a month, totaling $148,665 dollars this year.
In April, the MRC renegotiated the loan from 5 percent to 3.75 percent. Interest payments in 2012 and 2011 were $218,311 each year.
Francis said $700,000 of the $2.1 million in seed money from the city has been spent on interest payments over the years.
When to default
With each passing month, the MRC sees a decline in the return on the city’s investment, and edges closer to deciding if it should keep going or allow the bank to foreclose on the property.
Beth Sessoms, Marietta’s director of economic development, who was recently appointed executive director of the MRC, said there is no exit strategy except to continue searching for the best use of the property until there is no other choice but to the turn the keys over to the bank.
Bill Hagemann, who served on the Marietta Housing Authority board until May 2010 and owns 9.5 acres near the conference center, said the MRC undertook a project that private investors were not willing to do because of the time involved in piecing together properties.
“It is a slow process,” Hagemann said.
Hagemann said he believes “property owners are really the most powerful people that are capable of redeveloping Marietta, not the city government.”
Francis said the properties that the MRC owns are valued at $883,000, much less than the $4 million used to buy the land. He said the properties were bought during a better market and 12 residential buildings on the land have been torn down.
The MRC has bought a couple of foreclosed properties in the area during the down market for much less, Francis said. The MRC has an additional $340,000 in checking and money-market accounts.
With the rebounding economy, there have been a few investors checking out the site in the last few months. Francis said it has been “people kicking the tires, but nothing concrete.”
Sessoms touts the property as having 30,000 cars passing it each day, while at the same time being within walking distance to the Square and near the future site of a pedestrian bridge that will stretch over Powder Springs Street.
A city bailout
The only buyer that has purchased land in the Hedges Redevelopment Area is the city of Marietta.
In 2010, the city bought four lots from the MRC on the east side of the property for $100,000 to add to West Dixie Park.
The sale represented a $500,000 loss for the MRC, according to Francis, who views the transaction as more of a contribution to the city’s initial investment.
Tumlin has his eyes on another section north of the Hedges Street neighborhood that could be used to expand the Marietta City Cemetery.
The mayor said he wants an additional 5 to 6 acres for the cemetery, but some of the land could be from other landowners, not just the MRC.
“I would love to buy it cheap, but not at (the MRC’s) expense,” Tumlin said.
The city owns the lot across the street from the entrance to the Marietta Hilton.
There are plans to use 2011 SPLOST money to build a road on that lot and put in a stop light at the intersection.
City engineer Jim Wilgus said a request for the stoplight has been sent to the Georgia Department of Transportation and he expects a decision in September.
The road will start across from the conference center and then curve to join with either Hedges Street or West Dixie Avenue in an effort to improve the traffic flow in and out of the hotel.
Wilgus said there are several designs that have been completed for the road project, but the Public Works Department is waiting to see what kind of development will go on the land before tweaking the plans.
Sessoms points out that besides the MRC’s 8-acre assemblage on Hedges Street there are neighboring projects sitting empty, like the 11.6 acres called Marietta Walk on Powder Springs Street between Reynolds and Griggs streets. But she said there is a change coming.
“The inventory of available lots is really decreasing,” Sessoms said.
In an effort to try and maximize income from the Hedges Street properties, the MRC has allowed some houses and duplexes to remain and be rented out.
The monthly rent collected in August, at $7,000, is projected to be the highest it has been in the last three years, according to the MRC’s rent collection summary dated June 24. The rent money is placed in the MRC operating account.
Sessoms said the MRC leases five single-family homes and eight duplexes on Hedges Street and West Dixie Avenue that range from $600 to $450 a month.
However, being a landlord adds extra expenses to the MRC in maintenance and repairs costs, which were $34,418 in fiscal 2013.
Hagemann said the MRC’s ownership of the Hedges properties was never meant to be a money making venture, especially when every property in the city is worth less than it was five years ago.
Francis said the MRC is an advisory panel tasked to redevelop a blighted neighborhood and once the area is sold he expects the group to disband.
Francis added his time on the MRC has been longer than he intended it to be.
Yet Chalfant said even though there is a good possibility the MRC may not have extra money to spend when the land sells and the loan is paid off, the group was overseeing positive redevelopment in Marietta before the Hedges project and should continue that effort.
Tumlin said other developers on Powder Springs Street have faced similar devastating stalls because of the economy, resulting in some firms going bankrupt.
“Others who jumped into the market at the same time are not standing,” Tumlin said.
Tumlin said the MRC has been able to continue because of the investment from the city, the involvement from community leaders, and the willingness of the bank to work with the group.
Hagemann said it is a little early in the recovery to sell any of the property he owns in the area to developers, but that he is always open to the right deal.
“I don’t know what it looks like to call it quits,” Hagemann said. “Everything I own I bought as an investment.”
Franklin Road redevelopment
Redevelopment efforts by the MRC on the Hedges Street properties are similar to the plans the city has for Franklin Road in that both projects address areas in Marietta that the private sector has been incapable of changing, Hagemann said.
However, he said the MRC’s problems will not keep him from voting on the $68 million redevelopment bond, which he does support.
The fact that a smaller project has not been successful does not seem have discouraged the City Council from taking on a much larger effort on the opposite end of town.
“I don’t really think you can compare them. They are not alike,” Francis said.
Francis said Franklin Road redevelopment would attract a different type of developer with giant sections of land right off the interstate.
Sessoms said the Hedges project was always meant to be more long term, whereas the development on Franklin Road should only take several months to a year to clear out residents from the city-purchased apartment complexes.
Tumlin said the MRC was a long-term investment, but the $68 million bond would be an immediate payback.
Franklin Road will change quickly from the impact of a large influx of money that will buy up many properties all at once, Tumlin said.
“It will be made to flip,” Tumlin said.
Chalfant blamed the MRC’s failure to as yet redevelopment the Hedges area on the real estate depression.
“That is not a reason to give up on making our city a better place to live,” Chalfant said.