Stonecrest authority in chaos after $750M bond deals

Jump forward to 2022 and that excitement has dampened. Mayor Jason Lary resigned and pleaded guilty to federal fraud charges. Allen’s $700 million project has been delayed due to the COVID-19 pandemic. And the development authority expected to help radically transform the city is effectively defunct.

The development authority chair told The Atlanta Journal-Constitution they have no records of prior bond deals, financial statements or anything else required by open records law. The board no longer has any legal counsel, and it’s unclear when it will meet again, leaving prior bond deals unsupervised and meaning no new deals can take place.

“At this time I am not in possession of any of the records,” Belinda Hull, the authority’s chair, said in an emailed response to the AJC’s request for records. “They are with the previous city’s staff that was fired.”

Hull, a restaurant owner chosen by Lary to lead the authority last February, is referring to several city employees who were fired last April amid an investigation into how the city used its federal pandemic relief funds. That investigation, and a subsequent inquiry by the FBI, led to Lary’s guilty plea. He faces up to 35 years in prison at a sentencing hearing scheduled for May 2. The FBI also charged the wife of a former city employee who oversaw the development authority.

The authority’s future remains in limbo, since it hasn’t met since Jan. 14, 2021. A curious Stonecrest resident, Dave Marcus, also reached out to Hull over the past few months wondering what was taking place with the authority and was shocked to learn of the board’s current state of disarray.

“The reply I got indicated that the development authority is simply in a state of dysfunctional chaos,” Marcus told the AJC.

Hull said the authority is currently searching for new legal counsel and is trying to set up a meeting with city leaders. However, Stonecrest’s city leaders do not seem enthusiastic about helping the authority reconstitute or get its records in order, distancing itself from the authority in a statement.

“The SDA (Stonecrest Development Authority) is a separate legal entity from the City of Stonecrest,” the statement said. “As a separate legal entity, they are responsible for compliance with Open Records laws.”

Generally, development authorities receive little oversight in Georgia. Despite usually consisting of well-connected business or political figures, they’re separate from city governments and usually self-police their deals. Several questionable deals by the Fulton County Development Authority have prompted new attempts to reform these boards in the state Legislature.

Trading land for tax breaks

Economic development was one of Stonecrest’s core cityhood promises when it was founded in 2016. Lary and other city leaders touted they would bring development projects that otherwise wouldn’t come to their area of southeast DeKalb, a historically undercapitalized area that is more than 93% Black.

The Stonecrest Development Authority launched in 2018 and was lauded as the economic tool to attract large development deals. Allen was among the first members appointed to the authority’s board, undergoing training with the members who would end up granting his tax break a year later. Allen and another board member resigned in December 2018, about nine months before the $700 million bond deal.

Matt Hampton, Allen’s spokesman, said the businessman stepped down since he isn’t a resident of the city.

“Of course Mr. Allen has relationships with the board members and city leaders of Stonecrest considering he is one of the largest commercial land holders in the City,” Matt Hampton said when asked about whether political connections helped with the bond deal, “but the records will show that all presentations and conversations with the SDA Board and city leaders were consistent with the open records act.”

The $700 million bond deal, often called a “bond for title” deal, doesn’t actually include the sale of millions of dollars worth of government-backed bonds. Instead, it’s a real estate deal where a development authority, which does not pay property taxes, gets a developer’s property in exchange for having a say in how the developer’s project is designed. The authority will then lease the property back to the developer while providing a tax break, typically over a 10-year period.

Summey Orr, a partner with the Hartman Simons & Wood law firm who focuses on corporate real estate, said these type of bond deals are common and typically mitigate risk for both the city and the developer.

“In theory, it’s a win-win,” he said. “The county (or city) gets a development they might otherwise not have gotten, and they convert either underperforming or non-performing real estate into real estate which is now generating a pretty good tax revenue at the 10th year. The developer, on the other hand, has a development that you can start off with little or no tax and gradually work into the taxes.”

The 2019 bond deal is for Allen’s company, Allen Family Investments, to build a complex that includes a 16-story hotel and other mixed-use elements. The project uses land near the Mall at Stonecrest that was destined to become Atlanta Sports City, a failed project that created lawsuits rather than the dozens of sports fields, shops and restaurants promised by its developers.

In 2020, the development authority struck a second deal with Allen’s company, this time for $50 million in bonds. Structured the same way, it provided a tax break for the redevelopment of a shuttered Target into the New Black Wall Street Market, a retail development that’s attracted national attention for its focus on minority-owned businesses.

Both deals, the only ones the development authority ever made, provided a 22-year tax abatement. For the first 12 years, Allen wouldn’t pay any property taxes on the 300 acres he planned to develop. According to county property records, the land is worth roughly $30 million. A failure to complete the project means the developer will have to pay the authority back taxes and buy back the property from the authority.

Matt Hampton, Allen’s spokesman, said this type of bond deal is almost unheard of in Black communities. He said Stonecrest broke ground by using this financing tool.

“We feel like these bonds have helped us to do something that is highly abnormal, that’s highly risky,” Hampton said. “We hope that it becomes a model that other Black leaders can use in other communities.

‘To find out what has happened’

Confusion has hung over the Stonecrest Development Authority for the past year.

At a February 2021 council meeting, Lary and the council spent roughly an hour trying to figure out who was on the development authority’s board and when their terms expire. Lary, who was dodging questions about the city’s pandemic relief program at the time, was defensive when talking about the authority.

“When we mention words like ‘investigate,’ ‘see if something else is wrong’ or ‘nobody knows what’s going on’... I don’t want us to treat this situation like we’ve treated other situations, like we’re impugning the Stonecrest Development Authority to find out what has happened without somebody else’s knowledge,” Lary said.

During his comments, Lary also mentioned other city-related entities, including the Stonecrest Housing Authority and Stonecrest Convention and Visitor’s Bureau — both of which city leaders later learned were set up improperly and needed to be scrapped or revamped.

Julius Lee, who served on the authority since its creation, said former Stonecrest Development Director Clarence Boone primarily ran the show during authority meetings. Boone’s wife, Elaine Boone, also faces a federal charge in connection with the fraud scheme that Lary recently pleaded guilty to. Her case remains pending.

Lee said Boone prepared all the secretary and treasurer reports. Hull, who is supposed to be in possession of all development authority records due to open records law, told the AJC that the records are in the hands of Boone.

“I am waiting for the counsel to contact the city manager to set up a meeting with all of us,” Hull said when questioned about what is being done about the missing records. “Because of the holidays everything is moving slow. As of right now I have nothing to share with you.”

No developer updates

As part of the bond deals, Allen’s attorneys are supposed to provide quarterly update reports to the development authority regarding project construction, costs and expenses.

Hampton said some paperwork deadlines were missed due to the development authority not meeting, but he said Allen’s attorneys are working on submitting all the quarterly reports in the next couple of weeks. He added that the bond deal included a clause allowing for delayed deadlines in case of economic downturn.

“Progress is happening. Progress will continue to happen,” Hampton said. “... We can’t develop that other land until really we get past COVID and we really understand, and it sounds cliché at this point, but what our new normal looks like.”

Development authorities usually include penalties in case developers miss deadlines or don’t deliver a project worth the value of the bond deal — in this case a $700 million mixed-use complex.

“There’s generally a significant enough penalty for a developer that developers don’t just hop into these development authority deals without thinking that through and without a care in the world,” Orr said. “There are consequences to doing these deals, and I think it’s pretty rare to see any sort of development deal like this where the developer really had no intention of ever performing (the project).”

Hampton said Allen is still committed to fulfilling his half of the deal. He said many of the parcels that make up the mixed-use development site are listed for sale to find interested developers who might want to work on individual parts of the larger project.

“We’re pounding the pavement and working as hard as we possibly can to make business success so that it helps us to expeditiously develop that land over the next five to 10 years,” he said.

Marcus said he’s hopeful the project will be delivered as promised, and he’s optimistic about the New Black Wall Street Market’s future. However, he said he’s disappointed at the lack of large developments that have come to the city, citing the market and a Home Depot distribution center as the only ones of note.

“Beyond that (those two developments), in the last four years the city and the development authority have done virtually zero to deliver economic development, and that is a sad shame,” Marcus said.