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The Walnut Commons apartment complex has made its first payment for its use of a prime downtown site owned by the city.

But the payment was made last week only after the Chattanooga Downtown Redevelopment Corp., sued the current owners of the 100-unit apartment complex, claiming that an initial payment was only about 4 percent as much as what was due.

The city, which has a ground lease for Walnut Commons, said in a Hamilton County Circuit Court lawsuit filed last Thursday that the apartment owners must pay $273,443 for its 2014 lease, based on the terms of the agreement the city negotiated with the original developers when the project began nearly a decade ago.

Valerie L. Malueg, assistant city attorney, told the Chattanooga Downtown Redevelopment Board Monday that within hours of the lawsuit the city received a check for $272,309, replacing the original payment of only $11,025. She said the city will verify the calculations made for the check delivered last week and, if approved, the lawsuit will be dropped.

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Walnut Commons

The dispute over the amount stems from the interpretation of the developer's cash flow after debt payments.

Daisy Madison, Chattanooga's finance director and chairwoman of the Chattanooga Downtown Redevelopment Board, said the developer was offered favorable financing and terms for the project in 2007 when downtown had few apartments and the central city lacked enough rental housing.

"The incentives were designed to help bring more apartments downtown," she said.

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Helen Burns Sharp

The city agreed in 2007 to let a development group lead by John Clark build the apartments atop a new Little Miss Mag Early Learning Center to help bring needed rental units and daycare facilities downtown.

The agreement calls 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 Chattanooga Health and Educational Facilities Board has a separate agreement that initially exempts the project from any property tax payments.

New apartment complexes being built downtown continue to qualify for property tax breaks, but newer projects must pay the school tax portion of all property taxes due and must allocate 20 percent of the units as affordable for low- and moderate-income residents.

Helen Burns Sharp, a taxpayer advocate for the Accountability for Taxpayer Money (ATM), has questioned the incentives given to Walnut Commons.

"This apartment complex charges some of the highest rents in town," she said. "It does not appear to have a significant percentage of elderly and only two of the 100 units meet ADA standards."

America First Properties Management, an Omaha-based property management firm that manages more than 7,000 apartments in 14 states, acquired the Walnut Commons last year from the original developers of the Walnut Street complex for a reported $15 million.

Contact Dave Flessner at dflessner@timesfreepress.com or 423-757-6340.

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