The Tennessee Valley Authority will buy back Chattanooga’s biggest office complex in 2011 for $158 million less than it sold the buildings for 25 years earlier, agency officials said.
TVA Vice President Terrell Burkhart said the federal utility will pay $22 million to purchase the 1.1 million-square-foot complex in January 2011 from the Chicago-based real estate partnership that bought the four-building complex from TVA in a lease-back arrangement in 1986.
The federal utility expects to spend more than $20 million over the next couple of decades to upgrade the buildings in the 1100 block of Market Street, he said. City officials also are discussing the possibility of building another parking deck for workers in the area.
“We want to make the buildings more energy efficient and make some other changes,” Mr. Burkhart said last week. “But even considering the costs of those investments, it will still be much cheaper for TVA to own the Chattanooga Office Complex at this price than to continue our lease.”
In fact, the purchase price is less than half the $52 million TVA now pays in annual lease payments to the current building owners, a limited partnership known as Chattanooga Valley Associates. Had TVA renewed its current lease, which expires in 2011, the utility would have had to pay $450 million in lease payments over the next 20 years and still pay all of its energy and maintenance expenses, Mr. Burkhart said.
The move also helps ensure that the power headquarters for TVA and more than 2,000 of its employees stay in downtown Chattanooga. Last summer, TVA began developing plans to relocate its Chattanooga offices into a new complex to be built near the Chickamauga Dam after the owners of the downtown office complex initially declined to sell or cut the current lease terms.
TVA also is negotiating to continue to lease one of the four buildings in the complex to Cigna Healthcare, which has housed nearly 800 employees in the Blue Ridge office building since 1998.
Although TVA has cut its downtown Chattanooga staff nearly in half in the past 25 years, the agency projects it will continue to need at least 600,000 square feet to house the engineering, load control, administration and data processing for power plants across the Tennessee Valley.
Chattanooga Mayor Ron Littlefield said he has worked with Hamilton County Mayor Claude Ramsey and U.S. Sen. Bob Corker, R-Tenn., a former Chattanooga mayor, to help keep TVA’s Chattanooga office complex downtown.
“Having TVA’s employees downtown, even if it is a reduced number from what it once was, is still very important to animate our downtown,” Mr. Littlefield said.
The mayor said the city is looking at the possibility of building a parking garage near the TVA complex to help provide more parking for employees of TVA and Cigna.
TVA’s purchase price is equal to about $18 per square foot, Mr. Burkhart said. Although that is only a fraction of what other office buildings have sold for in the past in Chattanooga, downtown boosters insist that TVA’s discounted price doesn’t reflect on the value of other buildings downtown.
“This is a special purpose building and a unique situation that I don’t think is reflective of what other offices are worth downtown,” said former Mayor Jon Kinsey, a Chattanooga developer who worked on a rival purchase offer for the TVA building in the 1980s. “It would be very difficult to turn the TVA complex into a multitenant building so the owners in the end didn’t have many options beyond what TVA offered.”
TVA originally built the Chattanooga Office Complex in the 1980s to consolidate power division offices scattered in more than a half dozen downtown buildings. The federal utility owns the land beneath the complex, which sprawls between 11th and 12th Streets and from Market to Chestnut streets.
TVA sold the buildings to help reduce its debt and to allow a private owner to take advantage of tax breaks not available to a government identity such as TVA. The utility has continued to pay for all taxes, maintenance and utilities in the complex, however.
The lease-back arrangement also allowed TVA initially to occupy the building with no lease payments during the first few years of the lease. But the lease payments ballooned over the 25-year term of the lease to allow the Chicago real estate group to recoup its 1986 investment in the building.