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Development authority announces plans to buy Sevier Center, pledges to relocate residents

Nathan Baker • Sep 15, 2018 at 12:02 AM

Why is the Johnson City Development Authority interested in buying the John Sevier Center?

“First, look out the window,” Mayor David Tomita told board members Friday from their meeting room on the fourth floor of the Kings Center, which overlooks the 10-story residential building at the center of the city’s downtown.

The property is clearly positioned to be a valuable cornerstone in downtown redevelopment, but, more importantly, Tomita said the conditions in which the buildings’ low-income residents live are currently unsuitable.

After poor marks on multiple inspections, Tomita said the U.S. Department of Housing and Urban Development was near revoking owners East Tennessee Limited Partnership’s contract with the agency for subsidies. Had the property lost its contract, the current residents would have been given vouchers for rent and would have been directed to find housing from another approved property owner, which would have flooded the area’s already tight market with the residents from the center’s 150 units.

Instead, the development authority approved a purchase agreement Friday for the building for $4.1 million.

Board chair Robert Williams said the plan, should the owners agree to sell, is for the development authority to partner with Johnson City and HUD to find private developers to build new housing or repurpose existing facilities and transition the residents out over the next two to three years. The housing will be required to have access to public transportation to ensure the residents can still travel to businesses and needed services.

“No other developer or affordable housing investor would develop this property like we can, with the tenants in mind,” Williams said. “Because in Johnson City, we take care of our own. We’re going to make sure of that.”

With the current level of federal subsidies and tax incentives and with a confirmed demand, Tomita said it should not be difficult to find private developers to take on the projects, which will likely be two or three smaller complexes to avoid overcrowding a single building.

But in the interim, HUD would require the development authority to bring the center up to at least the agency’s minimum standards for a subsidies contract. Tomita said many of the items contributing to the current owners’ poor inspection ratings were relatively minor safety issues, and he didn’t believe it would be too expensive to meet HUD’s standards.

A due diligence period built into the sale contract will allow the development authority to assess the condition of the property and estimate its needs before buying.

Williams said the development authority’s executive committee planned to recommend maintaining the property’s current managers, M&M Properties. Tomita said HUD spoke favorably of the company and said there were worries the Johnson City Housing Authority wouldn’t be prepared to manage the influx of new units.

The authority has two options to finance the purchase price. The first is using tax increment financing the authority captures as downtown property values rise.

The second, which board members seemed to favor, is to use income from the tenants’ rents, which Williams said generate $1 million annually, to make payments on a traditional bank loan. After operational costs, Williams estimated $510,000 would be available for debt service each year.

Once the current tenants find new homes, Williams said the development authority would begin seeking developers to take on the large-scale project of bringing commercial business to the former hotel as a multi-use facility. He listed condominiums, apartments, office space, retail establishments, restaurants and hotel rooms as potential new tenants.

The new business activity could be an anchor for the downtown area’s redevelopment, similar to the Model Mill renovation project on West Walnut Street or the flood mitigation parks along Commerce Street, he said.

The John Sevier Hotel was built in 1924, and was touted upon its opening as the “ultimate in hotel excellence”and the social and business headquarters for the “State of Appalachia.”

In 1978, it was converted to residential housing. A fire tore through the building on Christmas Eve 1989, killing 16 people and becoming a memorable day in Johnson City’s history.

According to available property records, the Sevier Center last sold in 1990 for $2.3 million. Its total appraisal, last updated in 2014, was $2.8 million.

Williams said the $4.1 million offer was slightly higher than another offer that fell through for the building from a New York firm that planned to maintain it as subsidized housing. The current owners have indicated the price is favorable, but no contract has yet been signed.

With a 90-day due diligence period, Williams said it could take between 120 and 200 days for the authority to close on the property.

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