insights (2006-45)

McClung Warehouse Prospects Brighten

After languishing for many years, the historic McClung Warehouses on Jackson Avenue may be on the verge of restoration.

A California-based developer, William Cole Smith, claims to have an oral agreement to acquire two of the four blighted-looking buildings from their beleaguered owner Mark Saroff. Smith says he’s “already done a lot of work” on plans for their renovation that call for condos on their upper-level floors and retail on the ground floor.

Smith, who is a Knoxville native, is on the verge of completing the impressive renovation of the Commerce Building on the 100 block of Gay Street into 20 or so condo units. He hopes to close on the purchase of the two McClung buildings that are closest to Gay Street by Thanksgiving and start work on them in 2007. He’s not prepared to talk about acquisition or redevelopment costs.

Saroff has long since stopped returning calls from Metro Pulse so his posture toward the sale cannot be ascertained. But Saroff is believed to be strapped for funds, and Smith ventures that the proceeds of the sale could go a long way toward enabling him to proceed with the redevelopment of the other two McClung buildings further west on Jackson.

A decade’s worth of false starts and abortive deals on Saroff’s part leave lots of room for doubt that this one will come to fruition. A few years ago he pulled away from an oral agreement with developer David Dewhirst. And earlier this year a deal to sell the warehouses to developer Kenn Davin fell through when, according to Davin, Saroff wanted the right to buy one of them back.

But Saroff would now appear to be under mounting financial pressure to make some disposition of the century-old buildings, which he has tried in vain to develop since he acquired them in the early 1990s.

For one, Davin is in process of acquiring delinquent mortgages on the properties held by Saroff relatives including lawyer Arnold Cohen. This could lead to a foreclosure sale, which would have to take place by public auction. And Davin, who would still like to redevelop the buildings himself, acknowledges his intention to foreclose “unless I can talk some sense into the present owner.” At the same time, the city has recently served notice of its intent to make the properties the subject of a delinquent tax sale. According to city officials, Saroff owes about $25,000 in back taxes dating back to 1999.

Also overhanging is the threat of condemnation by Knoxville’s Community Development Corp. Under a 2002 Jackson Avenue Redevelopment Plan, KCDC has sought remediation of the McClung Warehouse’s blighted facades that represent downtown’s most prominent vista from the north. When crumbling walls and broken windows didn’t get redressed, KCDC was on the verge of exercising its powers of eminent domain to take the properties. But then Davin came to Saroff’s rescue, apparently in anticipation of acquiring them, and spent what’s believed to be a substantial six-figure sum on façade work. When their deal fell through, the cost of that work became another lien on the property that left Saroff deeper in the hole.

With both Smith and Davin seeking to acquire the property (or at least force its sale in Davin’s case), KCDC is now exercising forbearance on playing the controversial e.d. card. “We’ve been having conversations with Cole Smith who’s had an option to purchase three of the buildings, and based on his work on the Commerce Buildings, we felt we were in a good position and decided to wait on a new owner,” says KCDC’s president Alvin Nance.

Should Davin acquire the property via foreclosure sale or otherwise, Nance says, “hopefully he’ll work out a deal with Cole Smith, and maybe we’ll end up with two developers.” But Smith voices confidence that “things can be worked out with Mark. I’ve spent a lot of time with him and feel we have a very good relationship.” Smith is not even acquainted with Davin, whose present relationship with Saroff is not good, to put it mildly.

For all his frailties, Saroff remains a sympathetic figure in my mind. He’s devoted more than a decade of his life to an unavailing effort to redevelop the mostly vacant McClung buildings and his aversion to parting with “his babies” is understandable. Saroff has been phobic in his condemnation of the city administration for its lack of support of his endeavors. But while other developers have gotten each of the financial incentives he has sought, no one else has gotten all of them.

Where the city has fallen down, in my view, is a lack of uptake in providing infrastructure to support development on Jackson Avenue from Gay to Broadway. While officials have done a lot of finger pointing at Saroff’s blighted-looking buildings, they have seemingly turned a blind eye to the fact that Jackson is a blighted street. A narrow crumbling sidewalk and inadequate street lighting are among the deficiencies that need to be addressed for redevelopment to flourish.

The McClung Warehouses are among the last of downtown’s historic buildings that remain to be restored. Smith believes they have great potential, and his vision is hopefully on its way to being realized.