At the authority’s regular board meeting Friday, Chairman Robert Williams said due diligence, loan documents and inspections have been done, and the sale should close next week.
Instead of a bond backed by collections from the tax increment financing district set up for the downtown area, the authority pursued a traditional bank loan to finance the project, because the Washington County Commission would not approve a TIF plan.
After receiving two loan proposals from area banks, in June the authority’s board approved a $4.6 million loan offered by HomeTrust Bank to purchase and make improvements to the 10-story residential building.
Both Williams and JCDA board member Freddie Malone are employed by HomeTrust. They mentioned the affiliations before public discussions of the loan contract and abstained from voting on it.
Final documents presented to the board Friday showed that the 25-year loan will give the authority 12 months paying only interest. After a year, the authority will begin paying off the principal and will be required to make a $1 million payment on the loan.
Williams said the principal-free period will allow the authority some breathing room to stabilize and make repairs to the Sevier Center and begin to approach private developers about building a new apartment complex to house the people currently living there. The $1 million payment is required by the bank to ensure the rental income from the tenants will be enough to cover the debt service costs.
In the loan conditions, HomeTrust also requires that the current residents vacate the Sevier Center within 42 months of the closing, a timeframe Johnson City City Manager Pete Peterson said was unrealistic.
“How are you going to work around that 42-month requirement?” Peterson asked Friday. “I mean, realistically, you’re not going to have those tenants out in 42 months. Is that something that can be re-negotiated?”
Williams said the deadline, due in February 2023, could be extended if needed. The stipulation is there in the contract to motivate the JCDA to follow through with its stated goal to eventually sell the historic downtown building to a commercial developer, he said.
Once the tenants are relocated and the new landlord pays the JCDA a fee for the transfer of their contracts for federal subsidies to cover portions of their rents, HomeTrust will also receive at least 70 percent of the proceeds of that fee. The loan agreement sets the minimum payment for that contract release fee at $700,000. The rest of the fee will be put into an escrow account to make debt service payments.
Once a hotel in the heart of Johnson City, the Sevier Center has been an apartment building for decades.
With downtown revitalization efforts taking hold, especially at anchor sites like the Model Mill and along Cherry Street, city leaders identified the Sevier Center as a transformative project that would greatly improve the city’s core if redeveloped into commercial and retail space.
The JCDA announced a multi-part, multi-year plan this year to buy the Sevier Center and make minor repairs affecting tenants’ livability, then oversee the building of new apartments for the existing tenants elsewhere in the city and finally sell the building to a private developer.