The Dunwoody City Council is prepared to plunk down more than $8 million for a new City Hall, but needed capital improvements add up to additional $659,500, according to an assessment done as part of due diligence.

The city of Dunwoody is buying a building at 4800 Ashford-Dunwoody Road to use as its City Hall.

The city of Dunwoody is buying a building at 4800 Ashford-Dunwoody Road to use as its City Hall.

Also, the building the City Council wants to purchase at 4800 Ashford-Dunwoody Road has four current tenants and the city will be required to pay for relocation costs for those businesses, which could cost another $550,000.

Eric Johnson of Comprehensive Program Services, told the City Council at its July 25 meeting that the building itself is in “great shape” and “the deficiencies are all curable and easily fixable.”

First and foremost, Johnson said, is the need for a full roof replacement at a cost of $345,000. The roof is more than 20 years old, he said, and does have leaks.

Fred Sheats, senior vice president of Colliers International, a real estate company, is negotiating with the building’s current tenants, including a law office, management company and mortgage company. To relocate these three businesses would cost the city about $130,000, he told the council.

However, the fourth business, Elite Radiology of Georgia, which focuses on MRI services, has very particular needs and cost to relocate this business, including build-out for its specialized equipment, is estimated at $425,000, Sheats said.

The four businesses total 10,200 square feet of the of 45,000 square feet building, Sheats said, and have leases in place until 2021. The MRI business has a total 2,500 square feet of space.

Sheats also told the council he sent a letter to the building’s seller about the maintenance repairs needed, such as a new roof, and expects to enter into discussion with them about how the cost to fix the roof will affect the final selling price.

The city announced the purchase of the office building May 5 for $8.25 million. At its May 9 meeting, the council approved a resolution to move forward with the purchase from JHJ 4800 Ashford LLC and RCB 4800 Ashford LLC.

Dunwoody currently rents space at 41 Perimeter Center East for its city offices for about $599,000 a year and that lease expires next year. The building would be the first city-owned City Hall complex in the city’s nearly eight-year history.

The city’s due diligence inspections of the two-story building are to be completed next week and the closing date on the property is expected to be Sept. 30.

The City Council also considered on first read of an an ordinance on how to finance the purchase of the building. Finance Director Chris Pike provided two options for the council to consider:

Option 1.) The best rate in a bidding process was provided by JP Morgan Chase (Chase) with a preliminary rate (as of July 15) of 1.92 percent for the lifetime of the loan, Pike said. However, the final rate will not be known until the day of adoption on Aug. 8.

“Excluding an interest-only payment in 2017 of $110,960, the annual debt is estimated to start at $491,400 in 2018, escalating roughly 6 percent annually until 2029, with a balloon payment of $1.9 million due in 2031,” Pike said in a memo to the council. At any point in time beginning in the 11th year of the lease, the city [can] prepay the loan partially or in full without penalty, he added.

Option 2) An alternative to the Chase proposal would be a two-bank loan where a second bank works with Chase to reduce the annual escalation to roughly 4 percent and eliminate the balloon, Pike said. “This alternative would be a good recommendation as well should council decide the benefits outweigh the higher interest rate,” he said in a memo.

Under state law, the city is capped out at borrowing at $10 million a year, Pike said.

 

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