The Price of Smyrna Commons

Smyrna’s three-plus-year investment and involvement with the former Highlands Apartments should be coming to a close in the coming months. But just what was gained and what was lost?

Roughly 40 months since the Smyrna Downtown Area Development Corporation (SDADC) purchased the 144-unit complex that sits on 9.62 acres near , the City should close on its sale of 7.45 acres to the Cobb County School District by the end of November.

Highland Apartments, now known as Smyrna Commons, has been a hot-button topic among many concerned citizens in recent years. Smyrna mayoral candidate Alex Backry has longed complained that the City will be taking a significant financial loss on Smyrna Commons with the burden falling on the taxpayers of Smyrna.

“The city shouldn’t have gotten involved in it,’’ said Backry several weeks ago. “No referendum or town-hall meeting. That’s crucial when you’re talking millions of dollars.

A concerned citizen, Al Graves, has also in recent months expressed his displeasure with Smyrna officials that not only was this a bad financial deal, but as he said at the Sept. 5 city council meeting, “no effort was made by the council to have any meaningful citizens input into this discussion.’’

At last week's city council meeting, Graves, Backry and others were presented a lengthy explanation of the entire Smyrna Commons process. What they were told is that by the end of the year, there will be no bond indebtedness on the acquisition of the apartments, and that within the next two years the city will have a new state-of-the-art elementary school and a 7½-acre park to utilize during non-school hours and on weekends.

First, though, a quick start-to-finish of where it stands before the missing chapters are filled in. In July 2008, SDADC purchased the Highlands Apartments complex for the purpose of changing the future use of the property and to obtain right-of-way for a road that is part of the Belmont Hills area redevelopment plan at the corner of Atlanta and Windy Hill Roads.

An $8,195,000 bond issuance by SDADC was used to purchase the property with the actual cost of the land going for $4,636,000. Apartment renovations, capitalized interest, debt service reserve fund and the cost of issuance made up the remainder of the bond issuance.

In February of this year, the City and SDADC entered into a purchase agreement with the Cobb County Board of Education for 7.45 acres of the property located at 2525 Ward Street. The purchase agreement was for $2.9 million, or $392,000 per acre. The property will be used as part of school near the downtown area.

At the Sept. 5 council meeting, Graves told the council that by his calculations, the debt appreciation note that runs for 20 years would actually make the figure run up in excess of $12.8 million. “That figure…took my breath away,’’ Graves said.

Last week, Ward 4 Councilman Mike McNabb led the City’s response and presented a far different scenario of just what has transpired, what the ultimate total cost was and what the City of Smyrna is getting for its investment.

In terms of why the City had chosen to go down the path of apartment ownership and possibly exposing the taxpayers to indebtedness, McNabb said those were “legitimate questions,’’ but only could be fully explained within the last two weeks after all the figures had come in.

According to the councilman, in the summer of 2008, the owners of the Highlands Apartments were motivated sellers and the City had put them in touch with some local developers. Yet nothing came of that and the apartment owners returned to the City with an offer to sell the property at a price of $4.8 million, which was $200,000 less than its appraisal value at the time.

The City knew that it needed to obtain property for a right-of-way for a road that would connect Ward Street with the Belmont Hills development project and Atlanta Road so as to not bring more traffic onto already congested Windy Hill Road.

The caveat for the discounted price is that the owners of the aging apartments, which included one burned building and others that had high vacancy, gave the City just 30 days to decide and 60 days to close.

McNabb said that presented a “dilemma’’ in how to make the deal happen, but he indicated that the council wanted to “make strategic investments" for Smyrna. Viewing the run down apartments as a problem for residents and the community, but not knowing ultimately what they would do with the property, the council voted on July 7, 2008 to execute an agreement to purchase the property.

“We had thirty days to make a decision,’’ McNabb said. “We knew if they did sell, they would remain aging apartments. And we knew we were going to have to invest in the right-of-way.’’

Three weeks later, SDADC voted for the issuance of bonds for the purchase and renovation of the complex and the deal was closed on July 31, 2008.

The council debated prior to the purchase, and ultimately decided that it was their “moral obligation’’ to renovate the property as new carpeting, appliances, plumbing and such was installed.

“If we borrowed the money and didn’t have the cash flow to pay it, then the taxpayers out of the general fund would have to cover it,’’ McNabb said. “Because we were going to renovate the apartments, we could rent it out at a slightly higher rent and the positive cash flow would allow for the apartment complex to pay for the bond that bought it.’’

The renovations began in January 2009 and were completed some 13 months later. In the meantime, the council approved the acquisition of the right-of-way road project – the Ward Street Connector. The price paid by the City to SDADC was $2,726,000 for 2.82 acres.

The CCSD during this time was looking in Smyrna as to where to build its new elementary school. At one point there was thought that it would expand the current Brown Elementary site, but ultimately the district struck a deal to purchase three separate parcels of land to make up an 18-acre site for the new school to be located near Campbell High. Halpern Enterprises, owners of the Belmont Hills redevelopment, sold about nine acres to the CCSD.

The district wanted somewhere close to three acres that was owned by the SDADC, but the City said they would not sell just a small portion. Instead, a deal was struck to sell 7.45 acres for $2.9 million, with a shared-use agreement in place with the CCSD on the land being sold. That being that the 7½-acre green space and ball fields would be able to be utilized by citizens during after-school hours and on weekends.

The time to utilize the green space is roughly equivalent for both the City and the CCSD, and that “doesn’t come for free’’ as noted by McNabb.

The first bond note is due Dec. 1 and that is in the City’s current budget. The investment history is listed below along with a timeline, but when all the monies are factored in including the balance of the right-of-way acquisition and bond reserve fund cash, $3.35 million was owed by the City.

The opportunity to refinance at a lower interest rate was available, but the bond note couldn’t be paid off early that way.

“Instead, the staff decided to take $3.35 million in unrestrictive reserve fund that we have in the bank to pay off the balance,’’ McNabb said. “No taxpaying person in Smyrna has had to contribute a single nickel of property tax to this payment. None of the taxpayers' money was ever at risk to begin with.’’

The reserve fund is actually a melting pot of revenue including franchise fees, user fees, property taxes, court fines and numerous other sources. No one on the council could ever remember the City dipping into the reserve fund, which at the end of June stood at $13,467,000. That represented 35 percent of this year’s operating budget.

“Most cities our size currently in Georgia in the middle of the worst economic downturn of our lifetime have an economic reserve of five percent or less,’’ said McNabb. “The Georgia Municipal Association for all Georgia cities recommends for financial prudence maintaining a minimum 15 percent unrestrictive reserve of your annual city budget.’’

The City has a written policy not to go under 25 percent. With the money used from the unrestrictive reserve fund to pay off the bond, Smyrna has lowered its unrestrictive reserve from 35 percent to 27 percent of the annual city budget.

“Our reserve fund is now $10,132,000 after paying off Smyrna Commons,’’ remarked Ward 1 City Councilwoman Melleny Pritchett, who said the opportunity to help improve Smyrna’s schools will benefit the Jonquil City in the long run.

“Young families are our future,’’ she said. “We are having them leave every one of our wards because of the schools. Parents want their children to have great performing schools and unfortunately we’re not there yet.’’

The new elementary school, which will be built in Ward 3, will help better Smyrna's educational system according tp the city's elected leaders. And for them, you can't put a price on that.

“We have the opportunity to work closely with the school district and that’s a plus,’’ said Ward 3 Councilwoman Teri Anulewicz. “The benefits to this community with regards to the Smyrna Commons purchase far outweigh the costs.’’

Smyrna Commons Investment History

Purchase price – closed August 2008          $4.64 M
Total Renovations, including demolitions      $2.86M

Total Acquired Cost                                $7.50 M

Total Acquired Cost                                   $7.50 M
SPLOST ROW Purchase Down Payment       ($1.05 M)
Bond Reserve Funds (18%)                        $1.50 M

Bond Issuance Costs (3%)                         $0.25 M                             
Total Bond Amount                                 $8.20 M

Bond Issue Amount                                   $8.20 M
Cobb School Board Purchase Amount          ($2.88 M) (proceeds after estimated closing costs
Smyrna City Park Investment                     ($2.88 M)
Balance of $2.73 million ROW Acquisition    ($1.33 M)
Bond Reserve Fund Cash                            ($0.64 M) 
Remaining Bond Balance                         $0.47 M  6% loss/differene

            City Reserve Fund Payoff Bond = $3.35 M


Timeline:

July 7 2008 - Council voted to authorize Mayor to execute an agreement to acquire property.
July 9 2008 - Smyrna Downtown Area Development Corporation (SDADC) created by Housing Authority of Smyrna for purchase of Highlands Apartments
July 21 2008 - City Council approves IGA with SDADC that assigns responsibility for management of the renovations for Highlands Apartments to the City
July 30 2008 - SDADC voted for the issuance of bonds for the purchase and renovation of the apartment complex.
SDADC approves one year Management Agreement with Quintus Corporation
July 31 2008 - SDADC closes on purchase of Highlands Apartments using the proceeds from bond issuance
Nov 17 2008 - City Council approved a bid for $293,000 for general contracting services to Lubin Enterprises. These costs are to be paid for with bond proceeds.
Dec 15 2008 - Council approves amended contract with Croy Engineering to provide program management services to manage the renovations budget and schedule, as well as coordinate day-to-day oversight and inspections at Highlands Apartments. These costs are to be paid for with bond proceeds.
Jan 2009 - Renovation begins.
March 2 2009 - City Council approves Resolution authorizing the acquisition of right of way for road project (Ward Street Connector).
June 15 2009 - Purchase of right of way for Ward Street Connector is complete. Price paid for 2.79 acres is $2,726,000. This is based on an independent appraisal valuing the entire complex at $7,900,000 ($54,900/unit). The City agrees to allow SDADC to continue to operate buildings in the right-of-way until construction commences.
June 15 2009 - City purchases right of way for road project. Price paid for 2.82 acres is $2,726,000. This is based on an independent appraisal valuing the entire complex at $7,900,000 ($54,900/unit).
June 17 2009 - SDADC reviewed the additional renovation costs and voted to approve an additional $700,000 in renovation costs for project. These costs were for items not included in the original scope of work. These additional items will be paid for from proceeds from the sale of right-of-way.
July 6 2009 - Council reviewed the additional renovation costs and voted to approve an additional $700,000 in renovation costs for this project.
Feb 2010 - Renovation complete.
Feb 10 2011 - Smyrna Downtown Area Development Corporation (SDADC) approves recommending sale of remaining property (7.45 acres) to the Cobb County School District for $2.9 million.
Feb 21 2011 - Mayor and Council approve resolution accepting recommendation of SDADC to sell the property to the Cobb County School District, and authorized SDADC to enter into a Purchase Agreement. The council votes 4-1 with Councilman Wade Lnenicka dissenting and Councilman McNabb and Councilwoman Pritchett absent. The agreement includes the following items:

• The transaction will also include a joint use agreement between CCSB and the City for the use of activity fields by City residents.
• Purchase transaction is expected to close by December 1, 2011 or earlier.
• Residents will be able to stay through the end of their lease (all leases are scheduled to end by 2/28/12)
• City agrees that the Ward Street connector will be under construction by August 2013.