Breaking News: GM Doraville Redevelopment a "Recipe for Disaster"

A report prepared by Carter and Thompson Dawson Real Estate Services for the Dekalb Development Authority raises serious questions about Orlando-based New Broad Street's (NBS) bid to redevelop the General Motors site in Doraville.

The report suggests that Dekalb County proceed with a $35 million bond issuance that's technically structured to purchase public infrastructure such as roads, sidewalks and park space at the site that NBS will develop, but the report goes on to state, "The (Carter/Thompson Dawson) team has significant concerns with respect to the current structure of the transaction, the master plan itself, the market feasibility of the proposed density, and the financial performance of the project. As such, we recommend that the County carefully consider and address the concerns put forth in this report prior to actual bond issuance."

The $60 million land deal for the GM site is slated to close June 30, and NBS estimates an additional $44 million is required for items like demolition, environmental remediation and infrastructure development. NBS indicates it has $69 million in equity commitments, and the other $35 million would come from Dekalb County's issuance of Recovery Zone Bonds for the 165-acre site.

The Carter/Thompson Dawson report also notes that "the bonds will not be repaid from proceeds (or other economic value) generated from any of the development on the site. The bonds will be repaid from an increase in the millage rate applied to all property in Dekalb County." NBS also requires the county to forfeit any permit, impact and connection fees related to any improvements at the GM site. The bonds are structured as a grant to NBS, and the county will not receive any proceeds from the development, the report states, also pointing out that NBS will not assist with the interest and debt payments as the agreement currently states.

"It's a recipe for disaster," a source with deep Dekalb ties told us.

This follows a story in Friday's Atlanta Journal-Constitution noting Dekalb Chief Operating Officer Keith Barnes' calls for a property tax increase in order to rehire hundreds of county employees who took early retirement in a budget-cutting measure. Last month, Georgia State University released a study indicating bloated staffing in Dekalb County, which has more staffers than Cobb and Gwinnett. The GSU study suggests that Dekalb lay off 909 employees and consolidate services. Dekalb Commissioners have indicated they oppose property tax increases, according to the AJC story.

For its part, New Broad Street put the GM site under contract in January after competing with Hines and Sembler for the project. Currently, its development, finance, design and construction team, which includes bankrupt architecture firm Looney Ricks Kiss Architects Inc. of Memphis, includes no local marketing and leasing or project management expertise.

The Carter/Thompson Dawson report notes that the development plan, "is generally a compilation of uses rather than a truly mixed-use plan," and also raises concerns about the plan's pro forma leasing rates. For its 2,000 multifamily units, NBS estimates rents to be $1.50 per square foot in 2010 dollars or projected $1.74 in 2015, which would require a compounded annual growth rate of 5.19 percent. NBS projects rents of $28 per square foot in 2015 as a blended average for its commercial space, which includes 2 million square feet of office, 1 million square feet of retail and a hotel. Based on CoStar data and 3 percent escalation, average 2015 Class-A asking rates in metro Atlanta would be around $22 per square foot, according to the Carter/Thompson Dawson report. In the first quarter of 2010, average retail asking rates in metro Atlanta were $24 per square foot, triple net, and $17.90 per square foot in the Doraville area, which had 12.8 percent vacancy. Current retail rates in Doraville compared with planned destination retail may not suggest an apples-to-apples comparison, though. NBS's pro formas also budget for $3 million in demolition and remediation costs and vertical construction.

Citing a strict confidentiality agreement with GM, New Broad Street executives declined to comment, but Senior Vice President Barbara Koenig did suggest anticipated rental rate growth in contrast to current, recessionary rates.