Without tax breaks, Brookhaven project on ‘cusp of disaster’

First, it was bank bailouts. Then, carmakers held out their hands.

Now, a major developer has come with a tin cup to DeKalb County, begging for $52 million in tax breaks.

Florida-based Sembler Co. says that if it doesn’t get the free ride, its 54-acre mixed-use project near the Brookhaven MARTA station will crater. But Sembler may face officials worried about the message such a deal would send to other developers.

Company President Jeff Fuqua said the 100 investors in the project “risk losing everything” because the value of the property plummeted 40 percent with the collapse of the real estate market. Lenders fled, and now there isn’t enough money to finish the job, he said, adding that the project was “on the cusp of becoming a disaster.”

Two years ago, Fuqua was wooing neighbors and county commissioners with his vision of a live-work-and-play village wrapped around a new “Main Street” spine. His plans, since scaled back, originally called for 1,560 housing units plus 150,000 square feet of office space and 600,000 square feet of retail with at least one big-box outlet.

He riled some neighbors when he sought, and obtained, height variances to build towers on the site, which is on Peachtree Road next to Oglethorpe University.

A couple of buildings are up, but last week, Fuqua said nothing else will rise on the site unless taxpayers subsidize the project. He showed officials an aerial photograph of the site. They saw two mid-rise residential towers surrounded by dirt.

“I think it would be a crime if this thing was left like it is,” Fuqua said, gesturing at the mostly brown picture. “It wouldn’t be nice to live in something that looks like that.”

What’s involved

Sembler has become a fixture in Atlanta since building Midtown Place on Ponce de Leon Avenue a decade ago. The buzzing shopping center across the street from City Hall East is known for anchor tenants Home Depot and Whole Foods. Since then, Sembler has experimented with more complicated developments that mix commercial uses with offices and residences.

Recent projects include Perimeter Place with its Manhattan condo tower, Lindbergh Plaza across the street from the Lindbergh MARTA station and the Edgewood Retail District near Little Five Points.

At Town Brookhaven, Fuqua is asking for a 100 percent property tax abatement for 20 years on about half the site. It’s an unusual request in DeKalb. Partial 10-year abatements, like the deal Sembler already has on the site, are more common. Under the existing agreement, which Sembler hopes to replace with this new proposal, the company would pay an increasing percentage of its tax until the abatement expired.

Fuqua’s presentation came Tuesday at a meeting of the DeKalb Development Authority, a quasi-governmental body appointed by the county’s elected officials.

Eugene Walker, the authority chairman, said his colleagues would vote on the matter at a yet-to-be-scheduled meeting in June, though there is some uncertainty whether they have all the discretion. Walker, who was elected to the school board last year, said the authority would, as a “courtesy,” seek the support of his colleagues in the school system and of the County Commission.

A new state law would require their consent for abatements since they’d be losing the tax revenue. But the authority’s attorney, Greg Worthy, said the new proposal would merely amend the existing agreement, which pre-dates the law and is, therefore, likely grandfathered.

‘No one has a crystal ball’

DeKalb’s top elected official, Burrell Ellis, is worried about the precedent of giving such a generous handout. At the same time, he fears getting stuck with a raw construction site.

“I think there is some benefit to the county of seeing this project completed,” said Ellis, DeKalb’s chief executive officer. But, he said, other developers are in trouble, so a tax break like this “could have broader implications than this one project.”

A consultant who helps corporations find sites for expansion said DeKalb officials have a tough decision ahead. Mark M. Sweeney said they will have to weigh the possibility that Sembler would abandon the project against the odds that someone else would buy the site at a bargain and finish it without a tax incentive.

“It’s unlikely that it would sit there like that for a very long period of time in that particular market,” said Sweeney, of McCallum Sweeney Consulting in Greenville, S.C. “But how long that period is, no one has a crystal ball.”

Residents had mixed opinions about the threat of abandonment.

Bill Draper, a longtime critic of Sembler, said neighbors would like to see the project completed so they could shop in the stores and dine at the restaurants.

“We want to see it finished, but we don’t want to have to pay to see it finished,” said Draper, who is a board member of the Brookhaven-Peachtree Community Alliance.

Sembler contends that DeKalb would benefit financially by seeing the project to completion. It would produce 900 to 1,100 long-term jobs and temporary work for 200 construction workers, the company says in documents submitted to the development authority.

Sembler calculates that the retail component would produce $75 million in county and school sales tax revenue over two decades, assuming voters renew the school system’s sales tax in 2012. (If not, the site would produce about half as much, according to the company’s figures.)

Sembler cannot guarantee the jobs would go to DeKalb residents. And even Fuqua admits that the sales tax dollars would be a win-lose proposition for the region. He told the development authority that the project was designed to bleed away shoppers from Atlanta’s Lenox Square, about three miles away.

“We think we’re going to pull those tax dollars out of the city of Atlanta and into DeKalb County,” he said.

In a tight spot

It’s unclear whether Sembler will get everything it wants. Ellis said the proposal is merely the starting point for further negotiations. (The county finance director, Mike Bell, told the development authority in April that Sembler’s sales tax revenue projections were too optimistic because they were based on sales assumptions that were “too aggressive,” according to draft minutes of that meeting.)

Sweeney, the site-selection expert, said Sembler has played its only card. It lacks the bargaining clout of a growing company that wants to build a new headquarters and has multiple cities bidding tax breaks for its presence.

The developer “has got his money in the ground” and can’t play DeKalb off some other jurisdiction, he said.

Fuqua acknowledges that he’s in a tight spot. He said his investors are “scared to death” because “their net worths have been decimated,” and he implied that his company stood to make little profit from the venture — even with the tax abatement.

Yet, unlike other developers who are idling their projects in this rough economy, he said, Sembler can get a bank loan and can muster just enough capital to finish the job — if it gets the full tax break.

“We just want to finish this thing and take our beating,” he said.

Pro/Con

Pro: Sembler says if it gets the $52 million tax break, it can finish the 54-acre mixed-use project and the county and school system can collect sales-tax money.

Con: Observers say someone else could finish the project without tax breaks after the recession ends, and DeKalb CEO Burrell Ellis worries that a generous handout might lead other developers to seek taxpayer help.