A Chattanooga panel that approves tax breaks for new housing developments may look at changing an agreement with the new owners of the Walnut Commons apartments downtown.
"My question is, do we stop the [property tax breaks] we have?" asked Lloyd Longnion, a member of the city's Health, Educational and Housing Facility Board, at a meeting of the panel on Wednesday.
Longnion said the payment-in-lieu-of-taxes agreement that cut the property tax bills paid for the project over 10 years was negotiated with the original development group and was more generous than what the city now provides for new downtown housing projects.
Newer stipulations require projects set aside at least 20 percent of rental units for low- and moderate-income residents or those who are handicapped or elderly, Longnion said. Also, the Walnut Commons PILOT that was passed from the old to new owners had property tax savings which potentially shouldn't apply today, he said.
Walnut Commons, a 100-unit apartment building, was the biggest such complex erected downtown in decades when it opened in 2013 at Walnut Street and Aquarium Way.
In 2014, a local development group led by developer John Clark sold the stock in the entity, Walnut Commons LLC, to an Omaha, Neb., real estate company for about $15 million.
Now, the new owner wants to exercise an option to buy the property it's now leasing from a city nonprofit agency, the Chattanooga Downtown Redevelopment Corp.
The housing board, after a long discussion, on Wednesday agreed to seek a meeting with Walnut Commons LLC to discuss the matter.
Board member Richard Johnson expressed concerns that the panel may be going against "the spirit of the agreement" with Walnut Commons LLC if there are changes in the original PILOT agreement.
"I need some clarification on this," he said.
Helen Burns Sharp, a taxpayer advocate for the Accountability for Taxpayer Money group, has questioned the Walnut Commons incentives in the past.
What she'd like to see, she said on Wednesday, is that if the the company exercises the option then "it seems like [the property] goes on the tax rolls."
"I would hope that would happen," Sharp said.
Board attorney Phil Noblett said that in 2007 the CDRC was trying to infuse new apartments downtown and held the property where the development group wanted to build. It leased the site to Walnut Commons LLC, which obtained a PILOT from the housing board in 2010, he said.
Now, Walnut Commons LLC "wants to get the CDRC out of the mix of involvement in the property and they'll have a total ownership interest in it," Noblett said. He said Walnut Commons LLC also has the remainder of the 10-year PILOT agreement.
Hicks Armor, the board's chairman, said Walnut Commons LLC has asked the panel to ratify its option to purchase the property from the CDRC.
"That original agreement doesn't have the terms and conditions of today," he added. "If you want to go back and pick apart the initial agreement, you can do that - right, wrong or indifferent, good or bad, it was done."
The CDRC agreement called for the apartment owners to pay 50 percent of all gross income in excess of 1.25 times the debt service coverage by the developer.
No payments were made during the development and construction of the project, and the Housing board's agreement initially exempted the project from any property tax payments.
In 2015, the CDRC sued the Nebraska group, claiming the company had to pay $273,443 for its 2014 lease based on the terms of the agreement the city negotiated with the original developers.
The Nebraska group originally had paid just $11,025, but it later sent a check to the city for $272,309.
New apartment complexes being built downtown continue to qualify for property tax breaks, but newer projects must pay the school tax portion of property taxes due among other stipulations.
The new owner, APRO II of America First Real Estate Group, did not return a call seeking comment.
Contact Mike Pare at mpare@timesfreepress.com or 423-757-6318