City plans to sell Underground Atlanta

March 18,2014

by Katie Leslie and Scott Trubey

Underground Atlanta, envisioned as an anchor for downtown redevelopment but for years a financial drain, will soon be for sale.

The Atlanta City Council overwhelmingly passed legislation Monday to buy out the rights of CV Underground, the real estate company that manages the shopping and entertainment facility, for $8.8 million. The city plans to look for a new developer.

Mayor Kasim Reed spokeswoman Melissa Mullinax said the city intends to close on the deal within a month and will then market the property to private entities. Business owners renting at Underground will be able to remain at the shopping center for another year as the city seeks a new owner.

City officials hope for a redevelopment similar to Ponce City Market, the $200 million-plus re-imagining of the old City Hall East, Mullinax said. Selling the property — which is owned by the Downtown Development Authority, a city entity — would generate property tax revenue and relieve the “burden” on city taxpayers, she said.

Underground has undergone multiple reincarnations, most recently as a shopping center. But it’s also earned a reputation for petty crime and panhandling.

Echoing mayors and boosters past who have championed the site, Mullinax said: “We will actually be able to develop this into something vibrant and worthy of downtown.”

Dan O’Leary, head of CV Underground, could not be reached for comment Tuesday.

The city has long leased the 12-acre property from the DDA. O’Leary assumed a sublease on the property in the late 1990s, and has 72 years remaining on his deal. Buying O’Leary out of his agreement leaves the City of Atlanta in total control of the property.

Atlanta officials have every incentive to sell buildings that aren’t generating property tax revenue, especially as Reed eyes a 2015 infrastructure bond referendum. The mayor recently announced a 16-member commission to help identify savings throughout city government that would fund the debt service of the bonds, without raising property taxes, and make the city’s bonds more appealing to Wall Street.

But Underground could soon join the several other large-scale properties awaiting redevelopment, including Fort McPherson and Turner Field, which the city has pledged to tear down and market to developers once the Braves leave for Cobb County in 2017.

Still, Kyle Kessler, president of the Atlanta Downtown Neighborhood Association, welcomed news of Underground’s possible revitalization.

“I think we’ve been dealing with the status quo or acceptance of status quo for too long,” he said, adding he hopes for transparency as city officials seek a new owner. “But I think anything to get us out of the rut we’ve been stuck in will be a step forward.”

District 10 Councilman C.T. Martin said Underground was originally envisioned as a boon to Atlanta’s tourism and convention business — an answer to Atlanta’s need for evening entertainment.

“The Underground was going to make somebody great, because it was going to be a Utopia for all,” he said.

In the late 1960s, the site was a bustling hot spot for nightlife and the original home of Dante’s Down the Hatch.

But by 1980, the party had stopped and Underground was largely closed.

At the end of the decade, the city embarked on a $142 million renovation of Underground to remake it into a shopping destination. Underground re-opened in 1989 fully leased with new shops and to rave reviews.

A year later, thousands of residents erupted with joy at Underground while watching a live feed of Juan Antonio Samaranch announce the 1996 Summer Olympic Games were coming to Atlanta.

But the complex again couldn’t keep the mojo. Vandalism after the 1992 acquittal of Los Angeles police officers in the beating of Rodney King hurt its image and sapped sales.

O’Leary and the late John Aderhold took control of Underground in the late 1990s. After some improvement, the 2007 relocation of the World of Coca-Cola led to steady decline in business. Outside of the annual New Year’s Eve Peach Drop and the occasional festival, the subterranean corridors are lightly populated, and the entertainment district has developed a reputation — fair or not — for being unsafe.

A quarter century after Underground reopened, it remains a financial albatross. O’Leary’s company pays the city $100,000 each year to manage the complex, according to prior reports in The Atlanta Journal-Constitution, and in 2011, the complex generated about $2 million in revenue.

But the city still spends about $8 million a year to pay off bonds that financed earlier redevelopment.

Speculation about a renaissance for Underground has become a near annual occurrence. In 2009, O’Leary proposed a half-billion dollar casino and hotel complex that would pump money into the state’s lottery-funded HOPE Scholarship program.

The move needed approval by the Georgia Lottery board, but then-Gov. Sonny Perdue balked and the project went nowhere. The effort won’t likely be revived anytime soon, as Gov. Nathan Deal doesn’t want to expand gambling in the state, a spokesman said.

In 2012, O’Leary told The Atlanta Journal-Constitution, that Underground needed a “big idea,” something the city could be proud of and that he hadn’t given up finding ways to boost Underground.

Pablo Bernal, who runs a jewelry store at the Underground, said he regularly hears of new plans for the shopping center, but that little has changed.

Like several employees interviewed at Underground on Tuesday, he said business sharply declined when Coca-Cola relocated its museum to another stretch of downtown.

“I try to survive and maybe someday they’ll clean it up,” said Bernal Tuesday, as intermittent shoppers passed by. “They always say next year. … After eight years, nothing has happened.”

Underground Atlanta’s history

1869: Georgia Railroad Freight Depot built.

1870: Atlanta population surpasses 37,000. Alabama Street is filled with traffic, including a horse-drawn trolley.

1910-1929: Bridges are built over the area for cars, raising the street level by one to 1 1/2 stories. Businesses move to the second floor. During Prohibition, ground floor storefronts are used for storage and occasionally speakeasies. By the 60s, the lower level is largely abandoned.

1967: Underground Atlanta is incorporated.

1969: Underground Atlanta opens with bars and restaurants, an immediate hot spot for Atlanta nightlife, including Dante’s Down the Hatch and The Blarney Stone.

1980: Underground is largely closed.

1982: Mayor Andrew Young proposes to redevelop Underground in a bid to revive the city’s downtown district.

1987: Rouse Co. begins a $142 million renovation of Underground.

1989: Underground reopens, primarily as a shopping mall.

1990: Atlantans gather at Underground to celebrate the awarding of the 1996 Olympics to Atlanta.

1990: The World of Coca-Cola opens adjacent to Underground.

1992: Rioters smash windows in the wake of the Rodney King verdict. Sales drop quickly.

1996: Underground Festival Inc., a private entity that operates the center, loses $6.5 million despite boost from the Olympics.

1999: Atlanta hires a team led by O’Leary Partners to manage the district.

2004: Atlanta passes a special ordinance allowing bars in the complex to serve drinks until 4 a.m.

2006: Attendance at Underground hits 6 million.

2007: World of Coca-Cola closes its Underground location and moves to Centennial Olympic Park.

2009: Dan O’Leary and John Aderhold, the leaseholders at Underground, propose casino-style gambling at Underground that would benefit the HOPE Scholarship. The idea ultimately goes nowhere under then-Gov. Sonny Perdue and the Georgia Lottery board, which would have to approve the plan. Kasim Reed, as a candidate for Atlanta mayor, was opposed as well.

2012: City officials step up conversations over Underground’s future, developer Dan O’Leary vows to search for “big idea” to change Underground’s dynamic.