Due to depressed prices, Madison's move to buy seven worn apartment buildings on the South Side for a senior housing redevelopment may cost the current owners big time - perhaps nearly $1 million.

Although initial city purchase offers to the landlords are far below the assessed value of the properties, including some that have been trouble spots, city officials say they'll do everything legally possible to ensure the owners get a fair price. The city is committed to the project and will acquire the properties through purchase or condemnation.

John Lucille, a city firefighter who owns three four-unit buildings on West Badger Road that have been largely problem-free, fears the worst.

Although Lucille's properties have a combined assessed value of $753,600 for 2009, initial city appraisals resulted in a combined offer of $480,000, a $278,600 difference.

The offer is less than the mortgages for the properties after capital gains taxes are paid, Lucille said, adding that he could lose $10,000 to $30,000.

"In the past month, the city has turned my life upside down," he said. "I'm looking at financial ruin because of the city of Madison."

The city's offers to three owners of four other properties are also hundreds of thousands of dollars below assessments. Those owners - David Hammonds, Lue Thao and Nedra Bobo - could not be reached.

All told, the seven properties have a combined assessment of $2.27 million for 2009, while CDA offers total only $1.37 million.

The assessments are higher than the offers for two main reasons, said city assessor Mark Hanson, who is not involved in the effort to acquire the properties.

First, assessments were done in early 2009 and based on 2008 data for comparable sales, before the housing market fully collapsed, Hanson said. Second, the appraisals used to set purchase offers included comparables such as foreclosures and other distressed sales that can't be part of a municipal assessment for property taxes, he said.

Offers could be revised upward

The city's Community Development Authority is moving to buy seven properties in the fragile Burr Oaks neighborhood for a long-sought senior housing redevelopment, which includes two three-story structures with a total of 96 apartments, underground parking and perhaps a senior center. The city already has bought an eighth property.

The 2009 city budget has $3 million for acquisition, demolition and relocation for the project.

The CDA offers, based on appraisals, are low due to the depressed market, city officials said.

"We've never seen this situation before in Madison," city real estate manager Don Marx said. "We can sympathize where they're coming from. I don't like it. "

In May 2007, before the market dropped, the city bought the eighth property at 837 Hughes Place for $480,000, the same as its assessment at the time.

The city has encouraged the landlords to get second appraisals, which don't need to include foreclosures and could come back higher. If the new appraisals are legitimate, the CDA could adjust offers, Marx said.

CDA member and City Council President Tim Bruer, who represents the neighborhood, said the city will do what it can under the law to "ensure no one gets hurt or burned."

The elimination of worn buildings and construction of quality senior housing will boost a neighborhood long plagued by poverty and crime, Bruer said. And low purchase prices for properties benefit city taxpayers, he said.

But the CDA doesn't want to fund the senior housing project "on the backs of existing property owners and create a new set of victims," he said.

Tenants forced to move

The redevelopment will force tenants to relocate, officials said. But the CDA provides relocation assistance, and tenants living in the buildings at least 90 days before the initial offers were made are eligible for one-time payments up to $8,000 to compensate for differences between current rent and what they can find in the market, city senior real estate agent Joe Stepnik said.

Lucille suspects the city timed the acquisitions to get the lowest possible price, but city officials said that's not true.

After the CDA created a redevelopment district in the area, it hired Scott Appraisal Co. of Madison to establish property values, Marx said.

Quinn McWilliams, who did the appraisals for the company, said values were based on comparable properties in similar settings - places in neighborhoods with publicized crime, high vacancies and rent collection problems.

The comparables, McWilliams acknowledged, include foreclosed properties, which Lucille said is unfair.

But McWilliams said, "If you're going to list your property on the market, you're going to be competing with foreclosed properties."

Marx saw nothing wrong with McWilliams' appraisals but has encouraged the landlords to get their own, which the CDA will pay for if done within 60 days.

The CDA will compare the appraisals and can adjust offers, Marx said.

"The CDA is bound under Wisconsin statute to provide just compensation for what the property is worth," he said.

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