Multiple Issues Hamper Development of McClung Warehouses

Almost five years after the buildings went up in flames, they remain empty and undeveloped. Why? Well, it's complicated.

City officials say two small fires in December did relatively little additional damage to the already-dilapidated McClung warehouses on Jackson Avenue. But they did serve to bring to a boil passions that had been simmering for over a decade concerning the disposition of the blighted buildings.

"If we're going to see this street [Jackson] come alive, it seems to me it's time for the city to act on the property," says Chuck Morris of Jackson Avenue's Morris Creative Group. Morris leads a loose-knit coalition of local Jackson Avenue and Gay Street businessmen known as the Creative Corridor, the idea for which was taken from economist Richard Florida's landmark tome The Rise of the Creative Class.

"I know there are plenty of variables. But I'm not sure what's keeping them from issuing a Request for Proposals. It's one of the most visible pieces of property downtown, and it's an eyesore. It's past time to move forward."

The public's concerns are legion: the buildings are a known fire hazard; a magnet for the homeless; an enduring blight in the middle of an urban sector blooming with newfound fettle. And their unsightly facades are often the first impression visitors have of the city, as they issue a sort of snaggletoothed "hello" to travelers entering Knoxville westbound on I-40.

The buildings have been mostly dormant for decades. Since current owner Mark Saroff—whose name is still on property deeds, despite a bankruptcy proceeding against him—began purchasing the buildings in the early '90s, a number of development deals have been promised, but have ultimately fallen through, seemingly due to Saroff's inexperience and mercurial personality.

Tired of Saroff's foot-dragging and lack of upkeep on the properties, the city's redevelopment authority KCDC often intimated that it would exercise eminent domain, have the property condemned and sold to a viable developer. But condemnation didn't happen until recent years, when the Better Building Board declared the buildings unfit for human habitation, in the wake of a massive 2007 fire that destroyed a good portion of the structures.

Prepared to move forward with its own redevelopment plan, KCDC ordered an appraisal of the property, but balked at taking ownership of the land when the appraisal figure came back at around $4 million. "The value was a lot higher than we anticipated," says KCDC Executive Director Alvin Nance. "We had to determine that value first to see whether we could move forward."

In the meantime, Saroff, who had been accumulating a huge burden of debt to many of his creditors since he first began purchasing the warehouses in 1992, was sued by his creditors and placed in involuntary bankruptcy. Judge Richard Stair put his properties in the care of an appointed trustee, John Newton, to sell off and reimburse creditors.

And Saroff responded by hitting the city of Knoxville and KCDC with a so-called "reverse condemnation" lawsuit, essentially demanding that the city pony up the original $4 million appraisal that came in the wake of the condemnation.

What it all boils down to is this: Regardless of whether the city may have been slow or reluctant to act in pushing redevelopment of the warehouses in the past, its hands are tied now—short of shelling out $4 million on a property that it felt was over-priced at the time, and has doubtless depreciated in a bearish real estate market since—and its employees are limited by the pending Saroff lawsuit as to what they can say.

But according to Bob Whetsel, the city's director of redevelopment, that old appraisal has no bearing on the current asking price. And the whole decades-long, tragic-comic McClung episode could be but one solvent buyer away from a satisfying resolution.

"Despite the lawsuit, the property is available," he says. "You'd have to work through the trustee to purchase it. But if someone comes to the table with a legitimate offer in a way satisfying to the trustee, they can absolutely do that right now."

Whetsel won't speculate on a value for the property, saying only that "the price will be determined by the meeting of buyer and seller, just like any market."

One local official has suggested, anonymously, that the trustee may need to be more aggressive in his approach to selling the properties. Newton, the trustee, couldn't be reached for comment before press time.

There are other concerns as well. Whetsel notes the buildings have continued to deteriorate significantly due to water damage "There are holes in both roofs," he says. "If ownership doesn't get roofs put on in a reasonable period of time, it will be hard to save those structures."

Also of note have been security issues—such as the presence of the homeless, who were apparently responsible for the December fires—issues over which the trustee requested help from the city in the last few weeks.

As to what could still happen on the McClung properties, everyone still seems optimistic, despite the delays, the setbacks, all the catastrophes grand and small that have beset the once-venerable buildings through their tumultuous recent history.

"The redevelopment objectives we set out for the Jackson Depot years ago are still reasonable," says Nance. "Light industrial, residential, retail. It's to be determined by the next purchaser. But yes, it still lends itself to that. And we'll approach the new owners and make sure they're developing something consistent with the plan."

Adds Morris, "A lot of the planning has already been done. We've seen what works in that area. It's not like we have to reinvent the wheel."