The Andalusia City Council agreed Tuesday to become an equity owner in an apartment development by investing $500,000 into the $13.5 million project.

The development, Pinnacle Place, was first proposed about four years ago. It will be a 150-apartment complex with 1-, 2-, and 3-bedroom units, as well as a pool, exercise facility and community facility. The development is on Hwy. 84 West in the area known as Debro Hill.

Mayor Earl Johnson said while unusual, the move is permitted by law and is one he deems necessary to further economic development efforts in the county.

Constitutional Amendment 725, approved by Alabama voters for Covington County in the 1990s, authorizes the Covington County Commission or municipalities within it to become a stockholder or equity owner in a company for the promotion of economic development in the county. (For full text of amendmen, click here.)

Johnson said the cities of Prattville, Fairhope and Huntsville have taken similar actions in the past.

Johnson said the major shortfall for attracting higher level jobs to Andalusia in the recent past has been the lack of adequate housing.

“We have lost two very, very good prospects on housing,” Johnson said. “They liked our community. Liked the airport. Liked our school system. Liked our medical facilities. But when we got down to the point of the deal when they said ‘show us housing,’ the deal was over.

“We had nothing to show them of the caliber they wanted,” Johnson said, adding that the city currently is working with another potential industry for which this might also be a problem.

Jack Kirk, president of the Georgia-based Team Management & Development, LLC; Don McClure of McClure Construction, also a Georgia company; and Robert Bishop of BBS Development were all present at the meeting. Bishop and his partners on the land on which the apartments will be built; McClure’s company will build them; Kirk’s company will manage them.

In his presentation to the council, Kirk said local investors have committed $650,000 to the project; a single investor has committed $150,000; and the contractor has committed $250,000 in up-front funds. With the city’s investment, he said, there will be a $1.6 million initial investment and the balance of the funding will come from a HUD loan. HUD will finance the project with a 40-year fixed-rate, non-recourse loan, he said.

“The interest would be 4.56 percent fixed if it closed today,” Kirk said.

He explained that a non-recourse loan means that the project stands on its own. If the project failed, the city wouldn’t be liable for the balance of the loan, he said.

Similarly, the limited liability corporation in which the city is investing provides legal protection for the city, he said. The city’s only risk, he said, is its investment.

Kirk, who has been working with Bishop to put the development together for the past four years, said a market study showed the Andalusia market would need 284 new housing units by 2010 and more than 500 units by 2015.

“I haven’t been here a single time that I didn’t encounter someone interested in renting one of the units,” he said.

Kirk said he expects to finalize legal documents with HUD by the end of the year and break ground in January. The project will open in phases, he said, and he expects to begin renting apartments in the fall of 2011.

While the project is expected to be HUD-financed, the apartments will not be federally-subsidized units, Kirk said.

He said that McClure has committed to use as many local subcontractors as possible and to buy materials locally.

The resolution unanimously approved by the council authorizes the mayor and city clerk John Thompson to invest the money and names the mayor as the city’s representative on the board of the yet-to-be-formed LLC.

Johnson said he wanted it understood that he would not be compensated for his service on that board.

“Neither I nor any member of the city council have any pecuniary interest in this project whatsoever,” he said.

To read the city’s resolution, click here.