City in talks for Underground deal
By Maria Saporta and Amy Wenk
Published in the Atlanta Business Chronicle on October 3, 2014
Atlanta Mayor Kasim Reed is in the midst of negotiating a deal with a potential buyer who would transform Underground Atlanta into a high-density development above ground.
“I think we will make an announcement about Underground before Dec. 1,” Reed said after the Sept. 26 meeting of the Atlanta Committee for Progress. “And I think we will be talking about an investment in the $100 million to $250 million range.”
As described by Reed, the concept being considered is “to create a customer base” for Underground through the density of the development above ground.
“The vision is to turn Underground into a residential living room,” Reed said, adding that the plan would be to “keep most” of what is now known as Underground.
“It would have a different feel,” the mayor said. “When you get to Five Points, it should look and feel completely different than it does today.”
Asked whether the development would be geared toward Georgia State University, the mayor said it would be a “higher end” development than one targeted toward students.
“Underground is good real estate — that fact has not changed for over 100 years,” said A.J. Robinson, president of Central Atlanta Progress, the downtown business group.
“Given the new wave of interest in urban development, Underground now needs a creative vision with fresh resources and determination to implement that vision,” Robinson added. “I know the mayor and the city feel the same way. I am very hopeful that a buyer will emerge who can capture our collective imagination and be one we can all support.”
Although it is clear the city is in active negotiations with a prospective buyer of Underground Atlanta, Reed declined to identify who it was. The speculation is that the buyer is from outside Atlanta.
Invest Atlanta, the city’s development arm, sent out requests to the development community to submit proposals by July 14 to buy Underground, but it has yet to be disclosed how many bids it received and who those bidders were.
A city spokesman said that information is not subject to the Georgia Open Records Act because it involves “pending, rejected or deferred sealed bids or sealed proposals and detailed cost estimates related thereto until such time as the final award of the contract is made, the project is terminated or abandoned, or the agency in possession of the records takes a public vote regarding the sealed bid or sealed proposal, whichever come first.” When asked about the lack of transparency related to the Underground project, Reed said: “I do know that as long as we are in active negotiations that it can be confidential.”
Underground Atlanta has had a roller coaster past. From 1969 through most of the 1970s, it was one of the most popular night spots in the city.
The cavernous urban setting was created in the early to mid-1900s when Atlanta built viaducts over its railroad tracks – turning second floors into street-level storefronts. For decades, the former first floors were a vacant ghost town before the idea came to turn it into a retail and entertainment complex.
But when the MARTA rail line was built in the 1970s, several of those Underground buildings were removed, and the project fell on hard times – closing in 1980.
Then in 1989, the The Rouse Co. teamed up with the city of Atlanta and completed a $142 million renovation to turn the area into a retail mall with a few entertainment venues. Eventually Rouse pulled out, and local partners — CV Underground — negotiated a super-long-term lease with city. But under that arrangement, the city of Atlanta was still responsible for paying about $8 million a year to service Underground’s debt.
Finally in May, the city reached an agreement with CV Underground, and bought out their remaining 88-year lease for $8.8 million. Then the city quickly put Underground Atlanta on the market.
Mike Neal, senior vice president for Colliers International-Atlanta’s retail services group, views Underground as a great redevelopment opportunity, but not as a traditional retail shopping center.
“Underground never did well as a retail location for most retailers,” Neal said. “I think it has a lot to do with the fact that it’s mainly daytime-oriented. It’s not a trade area that has a lot of activity … after the employment base leaves downtown.”
Neal said the most logical opportunity is to do a community-oriented project that can feed off Georgia State and the Five Points station. “If it was my project, I’d do something community-orientated like a farmers and artist market with pop-up retail,” Neal said. “Any housing would certainly be oriented toward students.”
Selling Underground is part of the mayor’s initiative to bolster the city’s economic portfolio. The city’s Commission on Waste & Efficiency recommended that selling real estate would be one way to help improve the city’s bottom line. That is even more true when it comes to selling Underground because the city still has to pay debt service on that development.
The city is planning a $250 million bond referendum for the spring, and it would need an additional $16 million a year to pay off those bonds.