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Audit points out heavy cost of city involvement with ARA

Tuesday, February 10, 2009 by Kimberly Reeves

Story reflects changes from original–Ed.

A review of the recent status report from the City Auditor’s Office would indicate the Austin Revitalization Authority’s mixed-use development in East Austin cost more money, and took longer, then it should have. The 57,000 square feet of building space cost $24 million, more than $400 a square foot (not including the community parking lot.) Comparable properties nearby cost $200 a square foot.

In total, the ARA spent upwards of $38.1 million as of late 2007, with about $24 million of that total going to the development and construction of the ARA’s first and only mixed-use project.

This may not the kind of efficient progress Council wanted to see on the redevelopment of 11th and 12th streets. It’s one reason why the City Auditor’s Office provided the update on the performance audit of ARA.

On a flow chart presented to the Urban Renewal Board last night, ARA’s broad revenue and obligations were outlined, with federal, enterprise and private funding going into the ARA and the various agreements that have come out of the ARA.

If you add up the cost of the Snell & Street Jones Buildings ($12.8 million), plus the cost of the city tenant finish out ($9.9 million), plus portions of the cost of operations ($3.5 million) and infrastructure agreements ($6.8 million), then the cost of the building is well over $24 million.

“I think there are a combination of reasons for why things haven’t gone well,” said developer Michael Casias, who attended the meeting. “One of the main reasons is that a lot of the responsibility was placed on ARA to be the prime developer of a number of these blocks, when they really hadn’t done anything like this before. It was never the intention of the tri-party agreement for ARA to be the developer. It says in multiple places that ARA was intended to be the ‘developer of last resort.’ ARA was the non-profit community organization that was supposed to gather input.”

Casias said that the government’s role in development – with or without ARA – has simply been inherently inefficient. For every agreement, he said, there has been a debate about what was and was not intended on each block, and that would be a lot of bureaucracy for any developer.

Council’s questions about the ARA, as outlined in last night’s briefing, are such: Could ARA’s efforts be considered successful? What, in the current economic climate, is the long-term viability for ARA? And what are the risks to the City if Council chose to redirect or end its contractual relationship with ARA?

At last night’s hearing, Community Development Director Margaret Shaw, in an attempt to dispel rumors that the city was considering debt restructuring, stated the city was not looking at debt restructuring.

One of the points that ARA Executive Director Byron Marshall has made about  the lengthy timeline on redevelopment of the various blocks along 11th and 12th streets is that the revenue from one project would be leveraged to finance the next project, and so on, in a sort of domino-style financing effort to redevelop the area.

Prior audits by the city have shown that the ARA is highly leveraged in its debt-to-net-assets ratio, with shaky cash flow. Even now, years after they opened, the Street Jones and Snell buildings are not fully leased.

At last night’s meeting, Marshall did say the ARA would be meeting with a developer to potentially redevelop the northwest corner of 12th Street and Navasota. The developer would be willing to add community parking on one block in tandem with an effort to launch a 130-bed skilled nursing care facility. If those plans come to fruition, the facility would employ 133 full-time employees, most with salaries between $11 and $25 per hour, he said. Negotiations on the property have been ongoing for the last two years, Marshall said.

Fieldwork for the city audit begins this month, with staff reporting to council sometime in either April or May. The report will likely chart whether current revenues and financing would allow ARA to pay it’s debts, and finance future development.

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