Atlanta could clear $10 million from sale of Underground Atlanta

By David Pendered

Atlanta could clear about $10 million from the sale of Underground Atlanta if the deal goes through as expected.

Underground Atlanta

Atlanta could reap about $10 million from the sale of Underground Atlanta, according to financial reports.

Atlanta owes about $15.5 million on the loan it took out to develop Underground Atlanta, according to EMMA, an official repository of information on city securities. The sale price has been estimated at $25.75 million.

In addition to eliminating the annual debt payment, the sale of Underground would cut out about $3 million of additional expenses the city pays annually, according to the city’s budget for the current Fiscal Year 2015.

Atlanta Mayor Kasim Reed is expected to announce terms of the deal at a briefing today at 10:30 a.m. at Atlanta City Hall.

Along with the purchase price, the buyer is expected to pump an additional $75 million to $225 million into Underground, to build homes and commercial space.

Atlanta owes only two more debt payments on money it borrowed to develop Underground Atlanta:

  • $7.53 million, due July 1, 2015;
  • $7.92 million, due July 1, 2016.

The interest rate has crept up, to 5 percent since 2012. The interest rate was 4 percent for the first two payments, according to a report on EMMA, which stands for electronic municipal market access. EMMA is maintained by the Municipal Securities Rule Making Board, which is subject to oversight by the Securities and Exchange Commission.

Atlanta has been whittling down the loan it took out to develop Underground Atlanta since 1989, when the refurbished Underground opened as a festival destination.

In 2009, the city refinanced the loan at lower interest rate than its previous rate and for a short term – just seven years. The sale occurred in May, during the term of then Mayor Shirley Franklin and seven months before Kasim Reed was elected mayor.

Atlanta sold two separate bonds: $48 million and $12 million, according to a rating action issued by Moody’s Investors Service.

Moody’s rated the bonds as mid-level investment grade, A1, and gave them a negative outlook. Moody’s determined that Atlanta was challenged to pay its bills because the city was borrowing from savings to cover operating expenses and wasn’t collecting enough revenues to cover public safety and pension costs.

The city’s objective in selling Underground Atlanta is to free funds so they can be redirected to maintain and improve city streets, bridges, sidewalks and other infrastructure.

The sale of Underground Atlanta is one of the “quick fixes” recommended in June by Mayor Kasim Reed’s Blue Ribbon Committee on Waste & Efficiency in Government. The committee was co-chaired by Atlanta Councilmember Howard Shook and Delta CEO Richard Anderson.

The committee’s report recommended that Atlanta identify and sell surplus property, including Underground. The sale of all such surplus property was expected to reap from $25 million to $60 million in one time revenues. In addition, the sale of surplus property was projected to trim from $1 million to $8 million in recurring expenses, according to the report.

David Pendered, Managing Editor, is an Atlanta journalist with more than 30 years experience reporting on the region’s urban affairs, from Atlanta City Hall to the state Capitol. Since 2008, he has written for print and digital publications, and advised on media and governmental affairs. Previously, he spent more than 26 years with The Atlanta Journal-Constitution and won awards for his coverage of schools and urban development. David graduated from North Carolina State University and was a Western Knight Center Fellow. David was born in Pennsylvania, grew up in North Carolina and is married to a fifth-generation Atlantan.

9 replies
  1. Burroughston Broch says:

    David, do you have any information about other inducements provided by the City to the purchaser?
    The City has squandered a tremendous amount of taxpayer money on Underground in the last 50 years.Report

    Reply
  2. dwpendered says:

    Burroughston Broch 
    hello,
    i don’t have additional information at this time. 
    but i would expect the mayor will discuss  terms of the deal at the briefing.
    we’ll be following the story through the day.
    best,
    davidReport

    Reply
  3. Daave Walker says:

    David, when you factor in the approximately $8.8 million the City has to pay to buy out the existing lease, add the two remaining bond payments, you realize the City is basically giving Underground away for free.  
    This is a bit weird.Report

    Reply
  4. Burroughston Broch says:

    @Daave Walker  It’s similar to the deal IBM made with GlobalFoundries in which Global Foundries buys IBM’s chip fab plants and IBM pays them $1.5 billion.Report

    Reply
  5. Guest says:

    Burroughston Broch 
    The “bleeding” is almost over if there are only two years of debt service payments left. This should have been done back in 1999, instead of entering into that idiotic long-term (88 years) lease with Dan O’Leary.
    This is a prime example of why so-called “public-private partnerships”  are typically a disaster.  Approximately $142 million (including $85 million in City bond financing) was sunk into this property in 1989, and now it is worth only $25.75 million?

    In any event, the title to this article is misleading, because the City will not “clear” $10 million from this sale, because David has not factored in the $8.8 million the City is paying to buy out O’Leary’s lease.Report

    Reply

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