Smyrna loses millions on apartment complex deal

A series of puzzling real estate investments that were supposed to assist redevelopment in the city of Smyrna wound up costing taxpayers almost $7 million, according to documents reviewed by The Atlanta Journal-Constitution.

In 2008, amid the collapse of the real estate market, the Cobb County city decided to spend millions in taxpayer money to buy, renovate and operate a blighted apartment complex. But just one year after sinking $2.5 million into upgrades, the city changed course: It sold the bulk of the site for about half the purchase price to make way for a new environmentally friendly elementary school.

The result was a net loss to city taxpayers of $6.8 million. City officials said they bought the apartments as a long-term investment to support redevelopment in the growing city of about 51,000. But when Cobb County Schools showed interest in the site, the city decided an elementary school would bring bigger benefits and provide the city with added greenspace.

“When we purchased (the apartments) there was no talk about putting a school there,” said longtime Smyrna Mayor Max Bacon. “We would have never done renovations had we known the school board was interested.”

In 2010, the city decided to purchase yet another apartment complex — this time a 48-acre site financed with $15.9 million in taxpayer-backed bonds. Those apartments, at the corner of Windy Hill and Old Concord roads, were demolished by the city in order to clear the way for future redevelopment. But if the property isn’t sold by February, taxpayers will have to start making payments on the bonds.

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Bacon said the site of the run-down complex was key to improving the northern part of the city. He said the city plans to get a complete return on its investment, even if it takes several years.

Longtime resident Al Graves said the city should let private businesses drive redevelopment.

“I feel like they have a vision for Smyrna that isn’t realistic,” Graves said. “They want to micromanage the future development of Smyrna. They’re hunting a utopia but going about it the wrong way, based on their record.”

Across the metro area, local governments are trying to spur redevelopment by buying real estate — with varying degrees of success.

Marietta city leaders this fall are asking voters to approve $68 million in bonds, mostly to buy and bulldoze aging apartments to clear the way for future redevelopment in a struggling area. Clayton County had plans for a hotel, golf course and office complex dubbed “Gateway Village,” using $29.8 million in bonds to buy commercial and residential properties. The properties haven’t sold, and taxpayers have paid about $8 million since 2009.

In Atlanta, a special “tax allocation district” that covers Atlantic Station has poured nearly $330 million in bonds into successfully transforming a former steel mill into one of the city’s biggest retail attractions. Tax money collected from the increased property value is used to repay the city of Atlanta’s bond — but the deal differs slightly from Smyrna and Clayton County because taxpayers are not liable if the bonds default.

In the case of the new Smyrna school site, the city bought a nearly 10-acre aging apartment complex because it wanted a 2-acre slice of the property for a new road. The 152-unit apartment complex, where rents started at about $500 a month, was next to a stalled $250 million mixed-use redevelopment project called Belmont Hills. When construction resumes at Belmont Hills, the new road would be needed to ease traffic, according to city officials and documents.

But instead of waiting to buy the 2 acres once the road was needed, the city decided to take out an $8.2 million taxpayer-backed loan to buy, renovate and run the apartment complex. The loan was financed through the Smyrna Housing Authority with the blessing of the mayor and City Council.

“It was not for sale and it came on the market,” Bacon said. “We made an offer, and we got it. We figured we’ll buy it now — we’re going to have to have it anyway.”

Bacon acknowledged that the city did not do a cost analysis to determine how much it would be to seize the property under eminent domain, but added that he’s “not crazy” about that option. But city officials did believe they could make the apartments profitable, Bacon said, and officials said the improved properties could help jump-start construction at Belmont Hills.

Over a two-year period, the city poured about $2.5 million into upgrading the apartments. A management company, Quintus Corp., was hired and paid $3,500 a month to run the complex. Records show the complex was starting to earn a small annual profit.

The city planned to keep the apartments long enough to pay off the loan, Bacon said. But the school system’s interest in the site changed those plans.

Cobb County School officials said they didn’t turn their attention to the current school site until November 2010 after another property fell through. In 2008, voters approved a new Smyrna school as part of a penny sales tax referendum, but a specific site had not been determined.

Overall, it cost the city about $151,000 just to keep operations afloat, and Smyrna had to draw $3.35 million out of savings to pay back the loan. The city kept the 2 acres needed to complete construction on the road. This month, the $19.7 million “green” school will open, complete with solar lighting, an outdoor classroom and space for a school garden. The school has two play fields, which will be open for community use after hours.

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