A Franklin city board will have to start paying mortgage interest and taxes on a large industrial building while waiting for a company to buy it.
City officials initially hoped the 51,000-square-foot building at 1850 Graham Road would sell before construction was finished or shortly after. That didn’t happen after construction was completed in the fall, and every month that passes will cost the city a little more.
The $1.83 million building was built and paid for by Runnebohm Construction, which agreed to pay for, build and own the building. In exchange, the city redevelopment commission agreed to pay any ongoing costs, including interest payments, property taxes, insurance, maintenance and utilities, until the building is sold.
Interest from companies in the building was high throughout 2013, but no business has committed to buy it yet. That means the city redevelopment commission will have to start helping cover the building’s costs, which could reach as high as $100,000 this year.
The city board also will have to pay $450,000 for the land included with the building if the property is not sold before September 2015.
All of those expenses will be paid for with money collected in the city’s tax-increment financing, or TIF, districts, which collect property taxes from certain companies and set them aside for economic development.
The shell building, which is essentially four walls and a roof, was built to be flexible so a company could customize it as needed for its business. The building also has enough land to triple in size if a business wanted to expand. Eleven of the 15 companies that visited local properties with the Johnson County Development Corp. in 2013 were interested in the Graham Road building, president and chief executive officer Cheryl Morphew said.
Franklin Mayor Joe McGuinness has sent incentive offers to two international companies that are interested in the building.
Activity throughout the county has slowed because of the holidays and winter weather, Morphew said. But real estate agents expect industrial companies will want to continue to grow in 2014 and need new facilities, so they are still confident the city will find a buyer soon, Morphew and McGuinness said.
Until then, the city redevelopment commission will pay for those monthly expenses. In 2013, the city board budgeted $100,000 to pay for the building’s expenses and spent about $9,200 for legal work to prepare for construction, member Rob Henderson said.
This year those expenses will increase because construction is complete, he said. Runnebohm Construction is working to get a mortgage, and the city board already has agreed to make interest payments on any loan, he said. If the company borrows for the entire construction cost at current interest rates, he estimated those payments would be about $5,000 per month.
The city also agreed to pay for liability insurance, maintenance, such as snow removal and mowing, utility costs and property taxes. The commission has asked Runnebohm to draw up a budget with estimated expenses for the year, but Henderson estimated the costs would be between $80,000 and $100,000.
Those annual expenses could be recouped, since the redevelopment commission has a lien on the building. The city board would get back any money spent when a buyer purchases the building, or members could choose to waive those payments as an additional incentive for a new company, Henderson said.
“I would love to have nothing more than a good company paying local people good money for their wages and for us at the end of the day be able to walk away recouping our expenditures,” Henderson said. “But it’s possible we might have to leave some of that in the deal to get an employer or make a transaction happen.”
The two companies the city offered incentives to remained interested in the building through 2013, and McGuinness thinks the city is close to finalizing a deal.
“I do think there are two very positive leads on that building. Your hope is that they get into a bidding war or that they both want to come and we’ll sell to one and make arrangements for the other,” he said.
Economic development slows during winter because companies want to be able to walk around and survey a piece of land during a site visit and aren’t going to do that when it’s zero degrees and snowy, McGuinness said.
Companies want to move into an existing location and not have to build new, Morphew said.
“We made it out of the recession, and we’re going to continue to see growth. When you talk to the state and the brokers, there is still a shortage of existing buildings,” Morphew said. “Franklin got ahead of that curve with the private-public partnership, which puts us ahead of the game.”