More than a decade of planning, $3 million in public and private funding, multiple marketing campaigns and $933,058 in tax incentives won't be able to save the mostly empty Renaissance Square development from foreclosure, an agent for the property said.
Regions Bank, which helped finance the two-story complex in front of the state office building on M.L. King Jr. Boulevard, is set to take over the building as early as January.
The 21,000 square-foot red brick building was originally billed as "a catalyst for economic resurgence on MLK," according to Forestine Watson-Haynes, former executive director of the nonprofit 28th Legislative District Community Development Corp., which headed up the project.
Years later, only four residential condos have been sold and none of the commercial space has ever been occupied, forcing the bank to step in, said Ann Najjar, an agent for the Raines Group, which is seeking a buyer for the building.
The developer filed a Chapter 11 bankruptcy petition in August, according to court records, and Watson-Haynes retired as executive director of the CDC the following month, after 15 years as head of the group.
"We're still standing," Watson-Hayes said when announcing her retirement from the organization. "And the vision for the 28th CDC will not change when I leave."
Property agents said the commercial properties were made more difficult to fill because they were never finished; they were left as empty shells with a gravel floor. When buyers factored in the price of building out the space on top of buying a pricey piece of real estate, it simply didn't make sense financially with all the other available property on the market, Najjar said.
Prices for commercial space are now listed at $115 per square foot, still with no takers, she said.
A BAD START
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The 28th Legislative District CDC initially secured $1.2 million from AmSouth Bank in 2004, prior to AmSouth's purchase by Regions Bank in 2006.
But construction on Renaissance Square wasn't started until two years later and after $2 million in additional loans, and the building's completion in 2007 for more than $3 million coincided with the nationwide collapse of the housing market.
Tenants who had pledged to occupy the building scattered, leaving empty space and a mounting debt.
"We have changed Realtors, we reduced the price and they're just not moving," said James Miller, chairman of the 28th CDC's board of directors and vice president at First Tennessee bank.
The remaining space is now valued at $1.4 million, according to bankruptcy filings, less than half of what it cost to build.
"When the debt on it is more than what it's worth, you've got a problem. You're upside down," Miller said.
Mel Campbell, a spokesman for Regions Bank, declined to comment on the bank's relationship with Renaissance Square, located on the 300 block of M.L. King Boulevard, citing customer privacy.
The 28th CDC also borrowed more than half a million dollars each from the financial arm of taxpayer-supported Chattanooga Neighborhood Enterprise, and New York-based Seedco, also taxpayer supported.
David Johnson, president of the CNE, declined to comment on the project.
HISTORY REPEATS ITSELF
As construction was getting under way in 2006 on Renaissance Square, CNE, which lent $565,000 to fund the project, was getting audited by city government for spending millions in taxpayer money on other failed apartment projects, according to a 2007 report.
CNE, which was founded to help homeowners and homebuyers, lost millions on several failed apartment deals, losing $1 million on Chandler Place Apartments, and defaulting on $2 million in bonds issued to finance the Park Terrace Apartments, a city audit found.
A Times Free Press investigation discovered that although a significant amount of time and treasure had been spent, CNE had mismanaged funds on a large scale. The empty, boarded-up buildings were called a "blight" on the community by neighbors.
But Richard Beeland, a spokesman for the Mayor Ron Littlefield's office, said comparisons between Renaissance Square and CNE's failed apartment projects aren't applicable, because the city of Chattanooga contributed no money toward Renaissance Square.
"We don't have any money in that building, period," Beeland said.
The city has given the 28th CDC $650,000 over the last two years.
"The city has contributed to the 28th Legislative CDC for particular projects, but not this building," he said.
The city of Chattanooga supplies about half the 28th CDC's income through federal home grants, while the Tennessee Housing Development Agency supplies the other half, according to the CDC's statement of financial affairs.
NO SALES, NO LEASING
* 1995 -- Tennessee deeds the M.L. King Boulevard property to Chattanooga to be held in trust for the 28th Legislative District Community Development Corp.
* August 2004 -- The corporation breaks ground on Renaissance Square after securing $1.2 million from AmSouth Bank, which was later purchased by Regions Bank.
* October 2006 -- Plans announced to finalize a funding agreement on $2.4 million for the project.
* November 2007 -- The corporation hosts a grand opening and tours of Renaissance Square.
* January 2008 -- The corporation closes on its first residential condo sale.
* August 2010 -- 28th Legislative CDC declares bankruptcy, having sold none of its commercial real estate.
* September 2010 -- Forestine Watson-Haynes, who oversaw Renaissance Square, retires after 15 years.
* November 2010 -- 28th Legislative CDC submits restructuring plan, intending to abandon the property to satisfy creditors' claims.
Aside from the turbulent economy, the development's failure stemmed from developers' sales-only strategy and unrealistic pricing, Najjar said.
The CDC was caught in a catch-22: Officials couldn't slash prices or lease the property because they needed a large amount of cash to pay back their construction loans. Potential buyers were only interested in leasing, she said.
"It started at $180 per square foot," she said. "I had them take it down to $135, then we took it down again to $115," but the property remained unsellable.
Potential tenants "called all the time" asking about leasing the property, Najjar said, but they didn't want to buy, not at any price.
"The majority of retail franchises do not like to buy. They just don't buy, they always lease," Najjar said.
However, Regions Bank wouldn't agree to extend the terms of the loan to allow the CDC to lease the property, Miller said, though he added that he felt Regions had done "nothing negative."
"Our lead financial institution did not want to go into any lease agreements," he said. "That was one of the first things we wanted to talk to Regions about, but they didn't think they could get their money back soon enough."
Darlene Brown, who served as agent for the development before Najjar, said she was just one in a line of agents who had unsuccessfully attempted to sell the units because of financial "issues that were detrimental to selling efforts."
"They asked us for our plan, and we asked them for their plan," Brown said, but "I never did see the financial plan for the property.
Brown said that her company isn't used to putting together a marketing effort for a building without any knowledge of the owner's finances or intentions.
"At what point do you say, my business model doesn't work -- let's lease it?"
Watson-Haynes retired in September, but not before she defended the stalled development as "a great, great project for a nonprofit CDC to undertake," and argued that the attention given to its lack of success was unfair.
"Fifteen years of success, two years of a bad economy, and the focus is on Renaissance Square," she said at the time.
Anne Jones-Pierre, who now oversees the project for the 28th CDC and as vice chairwoman of the CDC's board, defended the organization's handling of the project.
"The pricing is good on them," she said. "That's about the price range now, in conjunction with the other ones in the area."
She blamed the empty units on the difficult credit market, and said the 28th CDC had no plans to cut prices further or lease out units.
The taxpayer-supported 28th CDC, with the stated goal of providing homeownership opportunities to low-moderate income households, originally listed condos in the Renaissance Square project as high as $320,000.
The Hamilton County Assessor of Property on Wednesday listed online four of the upper-level condos as having been sold, but repeated attempts to reach the residents were unsuccessful.
Of the four, only one owner appeared to occupy space in the building, with most of the building visibly empty behind open shades.
A single residential occupant had been issued two parking spaces and a trash receptacle.
Despite three years of stagnation, the project could quickly spring to life if space is priced to meet growing demand for leasable space in the area, Najjar said.
"Depending on what somebody buys it for, they should easily be able to lease the remaining locations," she said. "If someone can purchase it and lease it, you should probably see it occupied within three to six months, with today's economy."
Regions Bank's Dewey Roberson, who was involved in the original loan of $1.2 million to the CDC in 2004, declined to comment on the bank's plans for the property.
In 2008, Roberson told the Times Free Press that he believed in the 28th CDC, saying "They have good leadership, and we're confident that Chattanooga is a good market."
Tim Collins at Regions Bank, who now oversees the bank's relationship with the CDC, according to bankruptcy documents, also declined to comment.
While the CDC still technically owns the building, "the property of the estate consisting of 301 E. M.L. King Boulevard Property shall be abandoned . . . in full satisfaction of claims," according to the 28th CDC's reorganization plan.
Contact staff writer Ellis Smith at firstname.lastname@example.org or 423-757-6315. Follow him on Twitter at twitter.com/ellisthered.