JOHNSON CITY, Tenn. (WJHL) – Replacement housing for the John Sevier Center took another step toward fruition Monday when the Johnson City Development Authority (JCDA) recommended an agreement that would involve a nearly $6 million city loan to the new housing’s developer.

JCDA commissioners unanimously approved a resolution Monday that would largely remove the organization from the low-income housing element of the downtown revitalization effort centering around the eventual sale and reuse of the 98-year-old John Sevier building. JCDA purchased the former hotel in 2019 with an ambitious two-part plan: find new assisted housing for the 150-odd residents and then sell the building to a developer who will transition the building to its “highest and best use” for downtown revitalization.

A rendering of what the John Sevier Center might look like from the outside following sale and renovation.

“It’s a significant decision that supports not only the residents but the future of downtown Johnson City, so we’re real happy to get this approved and moved on to the city,” JCDA Board Chairman Hank Carr told News Channel 11 following the meeting.

LHP Development, LLC will borrow $5.94 million through Johnson City’s Industrial Development Board (IDB) to bridge the gap between LHP’s other funding sources and the project’s estimated $30.9 million total cost. LHP has identified land on South Roan Street where it hopes to construct two three-story apartment buildings with 145 units. Those will replace the aging units in the 10-story John Sevier Center, which JCDA purchased in 2019.

“It’s as good as it’s gonna get in my opinion,” Carr told board members and city management staff after walking them through the high points of the road ahead. “It’s the right deal. That’s my opinion.”

JCDA Board Chairman Hank Carr

The next stop for the proposal, and for a project that’s highly complex overall, is the Johnson City Commission, potentially as early as its Thursday meeting. The proposed development agreement would then go to the IDB to approve both the loan and a payment in lieu of tax (PILOT) for the new property.

Loan repayment is based on the amount of net profit LHP makes each year. The company will pay back 25% of whatever profit above $100,000 it makes in a given year. For instance, if that amount was $500,000, LHP would pay back $100,000, or 25% of $400,000. If the total isn’t paid by year 15 LHP is obligated to pay the rest when it “recapitalizes.”

LHP’s CEO, Alvin Nance, said the developer is already conducting core samples and other preliminary work at the property near the South Roan Street Food City. The projected date for completing the new apartments is Dec. 31, 2025.

Once the ink is dry JCDA can also begin a more realistic process marketing the historic John Sevier building, Carr said.

“You have meaningful discussions now because you have a schedule and a commitment that you couldn’t do before,” he said. “Before it was ‘perhaps’ or ‘maybe’ or ‘what if.’ Today it’s ‘this is the schedule, this is when it will be available, how would it work, and are you interested.'”

He said JCDA will use some consultants in another stage that will be “a long and complex process.”

Nance said LHP will proceed with the project even as it and the JCDA work through getting the U.S. Housing and Urban Development (HUD) “housing assistance payment” contract transferred from JCDA to LHP and approved for the new location.

“We’re holding hands, man, and standing on this branch and we’re going to jump off together, but we’re committed,” Nance said. “We’re doing the things we need to do right now, spending the money we need to spend that makes certain that this timeline that Hank is proposing here, we can meet that timeline. We have got to be doing the things we’re doing today to meet that timeline. We can’t wait.”

LHP Capital CEO Alvin Nance answers questions at Monday’s Johnson City Development Authority meeting.

While that’s going on, LHP is adding free cable and an upgraded free laundry service for residents at the current building, which it began managing a year ago. One advantage of that will be an ability for JCDA to negotiate a higher “fair market rent” (FMR) with HUD. In turn, once that’s transferred, it will make it easier for LHP to pay back the loan to the city and make its financial numbers work in general.

While just over half the Sevier Center apartments are single-bedrooms and the rest are smaller studio units, all the new apartments will be single-bedrooms.

Carr said JCDA has done an abundance of due diligence on the LHP and the deal in general.

“We have a structure that not only protects the citizens of Johnson City but ensures the project’s success,” Carr said. “LHP is a proven company with a proven track record and we believe that they will pull it off.”

The John Sevier’s JCDA ownership began with much fanfare and high hopes for both ends of the project, the current residents’ transition and the building’s sale. Since then JCDA leaders have encountered more problems than anticipated with the existing building, a longer time frame than initially anticipated and a recognition that the new housing requires at least a temporary subsidy from the city.

“I made my mind up early on I was not going to support this project unless it was the right thing for residents of John Sevier,” Carr said during Monday’s meeting. “I believe this is.”

If the loan is approved and the transfer of residents’ rental assistance is approved, LHP will use a $10.7 million HUD loan and a $14.3 million low income tax credit as the remainder of its financing.

Carr said requests for additional city subsidies are a good possibility once suitors for the building itself begin to get serious.

“I think the best analogy I can give is when you think about what did the city invest in the Walnut Street expansion — maybe $30 million, somewhere in that range,” Carr said. “I believe more investment will be needed in the John Sevier but we don’t know what that is at this point. But you have to look at it from the same perspective of infrastructure development and improving your city and that’s how the John Sevier, I believe, will be looked at over time.”