Through the mill: Rehabs haven’t been easy in the Great Recession

The former Premiere Manufacturing Knitting Co. plant in Morganton has a new lease on life, since it’s now home to City Hall and residential and commercial properties.

About 10 years ago, the 100,000-square-foot Burke County building was a decaying hulk at the edge of the central business district.

“People called it Kosovo,” said Sally Sandy, city manager for Morganton. “It looked like it was bombed out.”

Premiere declared bankruptcy in 1995. Then, the developer and architect, Ron Morgan, working with the city to rehabilitate the facility ran out of money and stopped halfway through the renovation project, which led to it becoming blighted.

“It was very difficult,” Morgan, of Charlotte, said. “We had gotten some financing, but the bank we were working with was going through a merger at the time. They ended up hanging us out to dry. But in the end it was one of the most successful projects of its kind in the state and won an award.”

(The project was given the 2008 North Carolina Main Street award for best public-private partnership and was one of the first projects in the state to utilize the North Carolina Mill Rehabilitation Credit.)

Still, everything that could go wrong did, Sandy said.

“We faced all kinds of delays. We decided to go ahead with the project in 1998, and at that time I was pregnant with my first child.”

By the time the city took ownership in 2007 of the renovated section of the mill that now houses City Hall, Sandy was mother to two boys: a 12- and a 9-year-old.

The Morganton mill redevelopment project serves as an example of the drawbacks — especially in the Great Recession — that have popped up with attempts to redevelop Charlotte-area mills, brick-and-mortar remnants of a bygone era. For one, such redevelopments can lower a local government’s property tax collections until the project is put back into commerce. Second, they can drag down property values as they wait to be finished.

The blighted Premiere Manufacturing site hurt the CBD’s property values. And because parts of the project had to be taken off the city’s tax rolls — they were now municipal property — they were exempt from property taxes, meaning lost tax revenue. The tax value of the project is now about $12 million, Sandy said.

The city collected no taxes on the project from 1999 until about 2007, when tenants finally started moving in thanks to a second developer, Greensboro-based Sunchase American. The company built 48 residential units in 60,000 square feet of space and a 10,000-square-foot commercial area.

Morgan and construction partner Henry Holseberg started the initial demolition on the mill in August of 1999, after buying the property at the bankruptcy auction of Premiere for a mere $250,000.

“We handed it off to Sunchase American because we knew another developer needed to get involved,” Morgan said. “That project was like Vietnam for me. I came out alive, but it was hell.

“I don’t want to talk about it even now. I’d been doing these kinds of public/private partnerships all over the region for years before that, but this one just destroyed me. It ruined my reputation and killed my partner.”

Holseberg became ill and died in 2005. Morgan blames the stress of the project.

In Catawba County, the city of Conover tried a plan to buy an old mill, the former Broyhill Furniture plant, earlier this year.

Conover owns the plant in the center of town and is waiting for a developer to come along.

The city bought the 600,000-square-foot structure and 27 acres of land for $500,000. But unintended consequences surfaced during the citywide 2007 property revaluation.

“Because we bought it so low, and there were very few sales of industrial property (in the city that year), it was one of the samples used in our current property revaluation,” Conover City Manager Donald Duncan said. “The revaluation of 2007 saw Conover lose 24 percent of its industrial (land) value.”

David Walters, University of North Carolina at Charlotte architecture professor, isn’t surprised.

“In uncertain economic times like these, these deals can lead to a decrease in property values or loss of tax revenue,” he said. “Most of the property in this region is overvalued. We’ve been used to three decades of growth and appreciation, so we automatically think that property value is going up.”

Salisbury also tried its hand at renovating an old manufacturing facility, Flowers Bakery, and saw a large amount of tax-revenue generating property come off the tax rolls. Walters served as a consultant on the project’s design team.

“We bought the property for around $504,000 in 1997,” said Joe Morris, director of community planning services for Salisbury. “We had this large industrial building that we didn’t want to go for some kind of dark use, like a mattress warehouse where materials were just stored there. We wanted to change the destiny of the property.”

The city bought the approximately 40,000-square-foot property and the 2 acres of land that came with it and started a waiting game as it tried to entice developers to buy the property or at least parts of the property. Eventually, investors showed up and the city sold off portions of the former bakery site from 1998 to 2000.

“We took a bit of a hit on tax revenues because we took this off the tax rolls,” Morris said. “But that was very short term. The private sector was able to jump in and ratchet up development faster than we were expecting.

“I don’t know that it would be possible to replicate this now in today’s market. The original asking price of the property was $1 million. Since about 2000 it has been generating about $300,000 in tax revenue for the city.”

Portions of the bakery have been used for the corporate headquarters of F&M Bank, and the project eventually sparked growth in adjacent properties; developer Ed Harris and Davidson-based Harris Development bought an old Cheerwine manufacturing building near the bakery and turned it into commercial space.

“Projects like this are one of the most important lifelines for these towns,” Walters said. “There will be unexpected problems and unintended consequences, certainly. Getting this used property back on the tax rolls and sales taxes coming in from the commercial development will make up for any temporary depreciation in property around it. I regard that depreciation as a small hiccup.”

Baughman can be reached at [email protected].