JOHNSON CITY, Tenn. (WJHL) — Johnson City commissioners have more than sufficient financial wiggle room to loan $6 million to the company planning 150 new low-income housing units for the John Sevier Center’s current residents.
Commissioners Thursday night approved a development agreement with LHP, the company that would build the new apartments near the Food City on South Roan Street. The agreement includes an okay for a loan from city funds that the city’s Industrial Development Board (IDB) would hold.
LHP let the city and John Sevier’s owner, Johnson City Development Authority (JCDA), know a couple months ago that it had about a $6 million financing gap for the $30.9 million project.
City officials met with the media Thursday morning to talk through the finer points of what is a very complicated deal with LHP, which operates dozens of low income apartment complexes around the Southeast. All stressed the JCDA’s 2019 decision to buy the building and everything that has flowed from has tried to put the residents’ well-being first and foremost.
“Number one is making sure that those folks are involved in that transition, feeling comfortable that they’re going to have space there,” City Manager Cathy Ball said. “They’re going to be welcomed in. We actually believe in this location there will be better access to a lot of the facilities they need in terms of food, grocery stores, things of that nature.”
While another goal from the beginning has been to make the nearly century-old building a commercial and tax-generating anchor for Johnson City’s redeveloping downtown, JCDA board chairman Hank Carr said that’s a piece of the puzzle that has to come second.
“First and foremost we have to address and improve the conditions for the residents of the John Sevier before you can adjust the long term impact of the redevelopment of the John Sevier,” Carr said.
One initial question on the table Thursday related to the city loan: Where’s that money coming from? It turns out the city holds a substantial cash surplus, with $40 million — about half of which is a rainy day fund not to be touched for projects like this one.
Another $20 million is available and it’s from that those loan funds will be drawn.
“Given the condition of our fund balance it is very reasonable to think that that amount of money would be spent wisely,” Ball said. “Especially considering it is a loan we feel like that will be a good investment.”
Assistant City Manager Randy Trivette said those funds won’t go directly from the city immediately, but rather be spent in phases as LHP completes its work. The first payment of about $1.2 million will occur soon as the company buys the land.
LHP’s work has already begun with crews doing core drillings and other preliminary activity to get ready for building at the site. But the project is a very complicated one and will rely on a couple of other hurdles beyond the gap that the loan from the IDB is covering.
It’s not expected to be complete until the end of 2025. Other boxes need to be checked. One is getting the US Department of Housing and Urban Development’s (HUD) approval for the rental vouchers that currently tie to units at the John Sevier, a 98-year old building once home to the city’s finest hotel.
The “housing assistance payment” or HAP contract forms the basis for revenue from the project. HUD determines a “fair market rent” for units in any particular city and pays the landlord that amount each month, with residents paying 30% of their income and HUD making up the difference.
“I’ve never dealt with a particular situation where you have HUD vouchers that are assigned to a specific development at a specific location and then tried to transfer that,” Ball said.
She expressed confidence, though, in LHP’s experience in the low-income housing arena and to the higher quality of buildings and amenities residents will have at the new location.
“We are relying heavily upon the developer to know what they’re looking for in terms of the resources that they get, they way that it’s structured,” Ball said. “We obviously wouldn’t be taking this huge leap if we didn’t believe this was an improvement and that through this process that that would be vetted in a way to demonstrate that.”
LHP also has to obtain low income housing tax credits through the Tennessee Housing Development Agency, which they estimate will amount to $14.3 million, and an estimated $10.7 million HUD “221(d)4 loan. Those HUD loans are 40-year low-interest loans, often with interest only payments for three years of construction preceding the amortization period.
LHP’s CEO, Alvin Nance, had a similar assessment to Ball Monday night after the JCDA meeting.
“We’re not waiting for the transfer of the HAP contract,” Nance said. “We are moving. We’re all holding hands, man and standing on this branch and we’re going to jump off together, but we’re committed to doing the things we need to do and spending the money we need to spend right now that makes certain that we can meet that timeline that (Carr) set.”
The timeline calls for completion at the end of 2025. In the meantime, residents will remain in a building that hits the century mark in two years and must pass a HUD “REAC” inspection in the coming weeks — something it failed twice under the previous owners.
Carr acknowledged Thursday the building has proven to be an expensive proposition, not just in its purchase price but in terms of ongoing maintenance and improvements that it has needed. Carr said that wasn’t surprising and that his predecessors on the JCDA board knew they were getting into an old building that would require some investment.
It has been constant and expensive. The JCDA is now the landlord and currently collects those housing assistance payments but that operation is proving to be a money loser so far. Eight months into this fiscal year the center is running a deficit of over $400,000 compared to projections of a deficit of less than $30,000.
“It’s been a real challenge to bring that building up to acceptable standards for the residents, and it’s a continual challenge and it’s not sustainable over a long period of time,” Carr said.
He said JCDA paid for a study of the building prior to purchase.
“As you get into it now two years into managing the building, the leadership, LHP (the company also manages the Sevier) and our local folks continue to find things that have to be repaired. Were we prepared when we bought it? Yes. But this is the privilege of ownership and the responsibility of ownership. When you bought your house you probably didn’t know that something was going to break in two years. It was working fine. It breaks. Multiply that by a couple hundred units.”
On a positive note for the residents where they’re living for at least the next two and a half years, LHP has begun the process of implementing a free laundry and upgraded laundry service at the site and is running cable to provide cable and internet accessibility for residents.
Ball, who called herself an eternal optimist, said she not only is confident that those boxes will be checked in a way that allows the new housing project to go forward but that another expected expense for the city in this large undertaking could end up being lower than many people might expect.
That is the amount that might be required to help an eventual buyer of the historic hotel for its redevelopment to what JCDA leaders have called for several years now “its highest and best use.”
The John Sevier was built in 1924 and designed by an architect who also designed several other prestigious hotels in small cities around the South for the William Foor Hotel Group. Ball said that one of those is the Poinsett hotel in Greenville, South Carolina, where she began her civil career. She said it’s next to the city hall in downtown Greenville and has been completely renovated and is serving as a hotel there owned by Westin.
That project received about $4 million in tax dollars leading up to its reopening in 2000, and Ball said the city is committed to redevelopment success for the John Sevier. She said downtown’s current trajectory in terms of vitality and property values could leave the city needing to dedicate less local money than some people might expect.
“I would tend to look toward the opportunity for somebody to come in and see that they could get new market tax credits, that they could do other things to get resources to be able to upgrade that facility and put it to its highest and best use for this community,” Ball said.
“I think we’re in partnership with the JCDA and however we move forward, I would want that message to be loud and clear. But I think that while we may plan for the worst, we would be expecting somebody to really value that building as a real gem in our community and be able to figure out a way to make that building profitable potentially without the help of the city or the JCDA.”
