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Date
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June 4, 2007
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Agenda
Item No. 62 Roll
Call No. 07- Communication No. 07-315 Submitted by:
Richard A. Clark, City Manager |
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AGENDA HEADING:
Resolution Declaring Intent to Enter into a Proposed Urban Renewal Development Agreement with River Point West LLC for the Riverpoint West Redevelopment Project Including the Sale of City-Owned Land, Inviting Competing Proposals, and Setting Date of Public Hearing to Consider Final Approval of the Proposal that Best Serves the Public Interest
SYNOPSIS:
Council is requested to (1) declare its intent to enter into the Phase
I Commercial Development Agreement with River Point West LLC for the Riverpoint
West Redevelopment Project, which includes authorizing the sale of excess
City-owned land generally located from Martin Luther King, Jr. Parkway to
Tuttle Street between SW 9th and the southern extension of SW 12th
Streets, and potentially including Tuttle Street from SW 9th to SW
11th Streets, to the Developer; (2) invite competing proposals; and
(3) set the date of public hearing as July 9, 2007, to consider final approval
of the proposal that best serves the public interest. George Sherman, President, Sherman
Associates, Inc.,
The Developer is proposing to assemble land, conduct site preparation
and install infrastructure in order to facilitate the construction of a
mixed-use, residential/commercial project on 125 developable acres directly
south of the Central Business District in Riverpoint West. This area, to be re-branded as Gray’s
There are two significant implications resulting from the Council entering
into the Phase I Commercial Development Agreement. First, the Council is declaring its intent to
enter into a Phase II Commercial Development Agreement and a Residential
Development Agreement. Second, the
Council is declaring its support for amending the current 10-year, 100%
residential tax abatement in the downtown to 5-year, 100% residential tax
abatement. This is necessary in order to
obtain sufficient project-generated TIF revenue to repay the Section 108 loan
and additional City financial assistance.
It is essential that the tax abatement schedule for this project be
applied consistently throughout the downtown.
Council’s action represents a major policy change that will impact the
entire downtown.
FISCAL IMPACT:
There are three components to the
Riverpoint West Redevelopment Project—Phase I commercial, Phase II commercial
and a separate residential aspect. The
total cost of the commercial land assemblage and site preparation project is
projected to be $50,780,000, and includes $12,000,000 of net land sales proceeds
(excludes real estate commissions and closing costs). The Phase I commercial site preparation cost
is estimated at $27,422,000 (includes $6,200,000 of net land sales proceeds);
Phase II commercial at $23,358,000 (includes $5,800,000 of net land sales
proceeds); and residential at $16,000,000 (net land sales proceeds to be
determined). The Phase I Commercial
Development Agreement relates only to costs to prepare pad-ready sites for
commercial redevelopment along
Amount/Funding Source: The following amounts and funding sources will
be used to conduct the Phase I project.
Amount City
Funding Sources
$8,500,000 49% of the $17.5 million
Section 108 loan that HUD approved on February 23, 2007, will be disbursed to
acquire the majority of Phase I land, which will be repaid through
project-generated TIF. Up to $2.9
million of Metro Center TIF will be used to cover any shortfall between the
time the loan payments are due and sufficient TIF is generated from the
project, anticipated to be in FY 2016/17; however, the City projects that $2.5
million of Metro Center TIF will actually be expended. The Developer will be required to pay any
shortfall thereafter in project-related TIF needed to cover loan payments. The Phase I commercial development at full
build-out is anticipated to generate approximately $17.7 million in tax
revenues over 20 years (75% project-related TIF), which is sufficient to repay
the principal and interest on the loan estimated at $16.5 million over 20
years.
$2,500,000 The Developer will purchase
City-owned land, and the City will provide a grant for its equivalent value.
$1,397,665 City-owned land at the SW
corner of
$500,000 The cost to construct SW 11th
Street from Martin Luther King, Jr. Parkway to DART Way is estimated at $1.7
million. The segment from Martin Luther
King, Jr. Parkway to Murphy Street, projected at $1.2 million, is part of the
Phase I commercial development. The
segment from
Amount Other
Public Funding Sources
$2,000,000 Brownfield Economic Development Initiative (BEDI) grant that HUD approved on February 23, 2007, will be used to establish a debt service reserve fund to repay the initial four years of payments on the Section 108 loan.
$500,000 RISE
grant, which IDOT entered into an agreement with the City on March 5, 2007,
will assist in constructing
$297,000 Federal earmark that Congress approved in FY2006 will be used to acquire land.
Amount Private/Other Funding Sources
$3,100,000 Developer equity will be used
to acquire land, conduct environmental remediation and geo-technical work,
install infrastructure and/or fund administrative and related costs.
$3,500,000 New Markets Tax Credits will
be used to acquire land, conduct environmental remediation and geo-technical
work, install infrastructure and/or fund administrative and related costs.
$325,000 Hubbell Terminal
Corporation cash contribution will be used to assist in constructing
$6,200,000 Land sales proceeds will be used to create a $3.1 million Land Sales Proceeds Fund to assist with the Phase II commercial redevelopment project, and to return the developer’s equity of $3.1 million.
Other
issues that affect fiscal impact are as follows:
§
It
is anticipated that the City will draw down the entire $8.5 million Section 108
loan and $2 million Brownfield Economic Development Initiative (BEDI) grant in
2007. The first interest-only payment
will be due by January 23, 2008. Prior
to this action, the U.S. Department of Housing and Urban Development (HUD) must
have approved the Section 108 Loan Agreement, including the loan repayment
schedule acceptable to the City and the Developer. In addition, the Developer must own or have
under contract 60% of the Phase I commercial redevelopment area, have provided
the City with a Special Warranty Deed for acquired property, and have
demonstrated that it has obtained a minimum of $6.6 million in equity, which
may include New Markets Tax Credits.
§
Developers
of pad-ready sites will be limited to 3-year, 100% tax abatement on new
commercial development. This is
essential in order to ensure that sufficient TIF is generated to repay the
Section 108 loan.
§
The
City will hold a deed in escrow for all land acquired by the Developer which
the City has not granted its consent to resell, except for the northern portion
of the current Jeld-Wen site located south of Martin Luther King, Jr. Parkway
between MidAmerican Energy’s substation and SW 14th Street. The Developer anticipates constructing the
first commercial building on this site in fall 2007. The Developer and all other purchasers of
property in the Phase I area will be required to enter into a Parcel
Development Agreement with the City, which the Council must approve before the
City releases the land for sale. The
Parcel Development Agreement will accord the City the right to approve the
building plans, which must demonstrate how the development will promote
environmental sustainability; Minimum Assessment Agreement of at least $90/sf;
building permit issuance; evidence of financing and construction contract. This is to assure that the City retains
security for its investment and is able to produce sufficient tax revenue to
repay the Section 108 loan from the new buildings to be constructed on property
sold by the Developer.
§
One
half of the land sales proceeds of $6.31/sf for the sale of the northern
portion of the Jeld-Wen site will be deposited into the Land Sales Proceeds
Fund upon the earlier of July 1, 2012 or when 80% of the space in the first
commercial building has been leased or sold.
Fifty percent (50%) of all other land sales proceeds will be deposited
into the Land Sales Proceeds Fund which will be used to fund an estimated $3.1
million of the Developer’s $5.2 million required equity contribution to the
Phase II commercial redevelopment project.
§
The
Section 108 loan will not count against the City’s constitutional debt
limit. Its repayment will be structured
as non-recourse debt, subject to annual appropriation of Metro Center TIF
funds. The Section 108 loan must be
repaid. If not, HUD will withhold
payments from the City’s future Community Development Block Grant (CDBG)
allocations.
§
The
Developer will be responsible to pay any additional costs to acquire land and
install infrastructure in Phase I as well as the City’s out-of-pocket expenses,
not to exceed $100,000, to obtain and administer the Section 108 loan and
Brownfield Economic Development Initiative (BEDI) grant as well as review and
approve the New Markets Tax Credit financing structure.
§
The
City will have oversight on the uses of funds.
The City and the Developer will enter into a Trust Agreement with a
trust powers bank, who will serve as the escrow agent. The City will be required to approve project
expenditures before the escrow agent disburses funds.
§
Interest
earnings on each of the following project funds will accrue to the principal
amount of the fund and will be utilized for approved uses of each fund: Debt Service Reserve Fund; Land Sales
Proceeds Fund; Acquisition, Environmental, Geo-technical and Infrastructure
(AEGI) Fund; and Administrative Fund.
§
The
City will control the Debt Service Reserve Fund. It will retain the entire Land Sales Proceeds
Fund if the City is willing but the Developer does not enter into a Phase II
agreement. In 2014, the City will keep
75% of the balance in the AEGI Fund and the Developer, 25% if they do not enter
into a Phase II agreement and (1) the Developer has completed all Phase I site
preparation work and (2) the project TIF exceeds 130% of the maximum
installments due on the Section 108 loan.
Similarly, the Developer will keep 100% of the Administrative Fund if
the above conditions are met. Otherwise,
the balances in the AEGI Fund and the Administrative Fund will be applied to
the Phase II commercial redevelopment project.
§
If
the Developer defaults in timely repaying any amount due under the Phase I
Commercial Development Agreement, the City may call the loan due. In this case, the City may take title to all
or a portion of the property not sold for redevelopment and well as direct the
escrow agent to transfer and disburse to the City all of the Land Sales
Proceeds Fund, AEGI Fund and Administrative Fund.
§
If
the Developer has met the performance thresholds for the Phase II commercial
redevelopment and residential redevelopment projects but the City does not
enter into these future development agreements, the Developer will retain all
of the Land Sales Proceeds Fund, estimated at $3.1 million, and any remaining
amounts in the AEGI Fund and the Administrative Fund.
§
The
City will participate in any upside potential of the project if it is
successful and the City and Developer proceed with the Phase II commercial
redevelopment project. All net land
sales proceeds above $16,750,000, which will provide the Developer with an
estimated 15% internal rate of return, will be shared as follows: 40% to the City and 60% to the
Developer. The threshold of $16,750,000
may be raised for additional documented increases in land acquisition,
environmental, geo-technical and infrastructure costs and developer equity
needed above estimates in the existing pro forma.
ADDITIONAL INFORMATION:
On October 24, 2005 by Roll Call No. 05-2603, the City
Council approved the Preliminary Agreement with River Point West LLC, which
established the framework for the financial obligations to redevelop Riverpoint
West. Attached is a comparison of the
key provisions of the preliminary and the final development agreements. River Point
The City has negotiated a Phase I Commercial Development Agreement to allow the initial commercial land assemblage and site preparation project to proceed. Project phasing will assist in minimizing the City’s and the Developer’s risks. At build-out, the Phase I commercial development is expected to generate 557,000 square feet of office and retail space, which will yield approximately $50 million in new taxable value. It is a prelude to Phase II commercial and the residential development, which is projected to provide an additional tax base of $115 million.
The City will exercise control over the quality and density of development in several ways. Within 60 days after the City enters into the Section 108 Loan Agreement with HUD, the Developer is required to submit a Conceptual Development Plan and a “PUD” Conceptual Plan to the City and apply for rezoning. In addition, purchasers of redevelopment parcels will be required to enter into a Parcel Development Agreement with the City that will specify building and site characteristics. Council will review and approve the Conceptual Development Plan, “PUD” Conceptual Plan and each Parcel Development Agreement before development proceeds.
As part of the Phase I Commercial Development Agreement, the Developer would acquire approximately 7.7 acres of excess City-owned land generally located from Martin Luther King, Jr. Parkway to Tuttle Street between SW 9th and the southern extension of SW 12th Streets. The Developer has been negotiating the acquisition of property with adjoining landowners in order to create larger, more developable parcels. It is important for the Developer to have City-owned land under control to facilitate redevelopment and produce tax revenue.
Currently, the Principal Life Insurance Company has a one-year license agreement with the City to park on the above-referenced site until April 30, 2008, as well as up to 2 one-year renewal options. After April 30, 2008, the City or Principal may terminate the license, or the City may relocate this parking to the 11th and Mulberry Streets site at any time, but would need to have 3-4 months in order to design and pave it for Principal’s use.
Closing on the sale of the excess City-owned land to River Point West LLC would not occur sooner than November 15, 2008. Closing may occur between November 15, 2008 and May 15, 2010, or at such time as Principal has relinquished its license and the Developer has provided seven months notice. Closing may occur after May 15, 2010, provided the Developer has given 60 days notice. The Developer will be required to submit an actual development proposal for the site before the City transfers title to the land.
By entering into the Phase I Commercial Development
Agreement, the City is declaring its intent to enter into a Phase II Commercial
Development Agreement as well as a Residential Development Agreement for the
land assemblage and site preparation project.
River Point
In order to enter into the Phase II Commercial Development Agreement, which would require the City to provide a $9 million loan (51% of the $17.5 million Section 108 loan) primarily for public infrastructure, the Developer must have satisfied the following conditions by June 30, 2012: (1) met a majority of its Phase I Commercial Development Agreement obligations; (2) acquired or has under contract 90% of the land in Phase I; (3) cleared, graded and completed preparation of pad sites to accommodate construction of at least 414,000 square feet of commercial space; (4) caused construction to commence of at least 300,000 square feet of commercial space to be assessed at a minimum of $90/square foot; (5) received a commitment of additional equity, estimated at $7.8 million in the pro forma, from all sources including New Markets Tax Credits; (6) paid for the land for the first Phase I commercial building; (7) received EPA approval of itself and the site(s) as being eligible for an environmental remediation loan from EPA funds if needed; and (8) the Developer and the City have agreed to the terms of a Residential Development Agreement.
In order to enter into the Residential Development Agreement, which would require the City to contribute $4 million for the construction of public improvements and to assist in seeking private or public funding for construction of a pedestrian bridge across the Raccoon River, the Developer must have satisfied the following conditions by June 30, 2012: (1) met all conditions cited above for Phase II; (2) acquired or has under contract 100% of the land for residential development; (3) submitted a preliminary Conceptual Development Plan and updated pro forma that shows the number of housing units to be constructed, estimated sales prices by type of unit and timeline for construction, and demonstrates that the site preparation budget is adequate; (4) provided a study that indicates the market will be able to absorb the projected number of units to be constructed in the proposed timeline so as to generate sufficient incremental taxes to repay the Section 108 loan and the additional $4 million City contribution; (5) committed at least $10,750,000 in equity, loans or other financial commitments to be used for land acquisition and site preparation; (6) received EPA approval of itself and the site(s) as being eligible for an environmental remediation loan from EPA funds if needed; and (7) provided a performance guarantee that the Developer or another developer acceptable to the City will commit to constructing at least 160 dwelling units, commit to starting construction as soon as infrastructure is substantially installed and completing the units on schedule, and submit evidence of financing in the form of earnest money for land acquisition and a Letter of Credit or other form of guarantee that will provide the equivalent of three years of full taxes on the 160 dwelling units if construction is delayed.
Repayment of the $9 million loan derived from the Section
108 loan and the $4 million additional City contribution is contingent upon
obtaining sufficient TIF revenue from the Phase II commercial and the
residential redevelopment projects. This
project is anticipated to cash flow only if developers of Gray’s
The Riverpoint West Redevelopment Project is very complex and will not occur as a signature urban development without the City’s investment. It provides a unique opportunity for the City to affect the quality and density of development within an integrated design instead of allowing this 125-acre area to develop piecemeal and be a significant under-performer. The City and the Developer have worked diligently during the last 20 months to address issues related to the high-risk nature of this endeavor. The predominant risks relate to unforeseen costs associated with potential environmental remediation and geo-technical challenges on this former industrial site that could not be ascertained fully until site preparation is underway and less than expected tax revenues due to slower market absorption of the new commercial and residential space.
The City has built provisions into the project’s structure and the Phase I Commercial Development Agreement that assuage but do not completely avoid financial risk. These provisions include phasing the project, accessing various funding sources, ensuring that the Developer has a reasonable financial investment and risk, obtaining security for the City’s investment, maintaining oversight on project expenditures, limiting commercial tax abatement to 3-year, 100% as well as requiring sufficient density and minimum assessed values to generate anticipated tax revenue, providing interim funding through a debt service reserve and the Metro Center TIF to cover any shortfall between the time the Section 108 loan payments are due and sufficient TIF is generated from the project (anticipated to be in FY 2016/2017), requiring the Developer to pay any shortfall thereafter in project-related TIF needed to cover loan payments, and exercising financial remedies in case of default.
Although the financial risks are high, the City has the
potential to yield substantial benefits.
This project will transform a heavy industrial brownfield site into a
thriving mixed-use urban neighborhood that adds significant vitality to the
downtown area and increases Riverpoint West’s current tax base exponentially
from $12 million to at least $165 million.
It will also contribute to the long-term viability of the Central
Business District by providing new office, retail and residential opportunities
within walking distance. The new Gray’s
PREVIOUS COUNCIL
ACTION(S):
Date: August 7, 2006
Roll Call Number: 06-1617
Action: Section
108 Loan Guarantee Application and Amended Brownfield Economic Development
Initiative (BEDI) Grant Application for Redevelopment of Riverpoint West.
(Council
Communication No. 06-484) Moved by Hensley to adopt. Motion
Carried 6-1.
Date: October
24, 2005
Roll Call Number: 05-2603
Action: Preliminary Agreement with Riverpoint West
LLC for redevelopment of Riverpoint West Area. (Council
Communication No. 05-611) Moved by Hensley to adopt. Motion
Carried 7-0.
Date: May 23, 2005
Roll Call Number:
05-1331
Action: Preliminary Agreement with Hubbell Realty
Company and Hubbell Terminal Corporation (Rick Tollakson, President & CEO)
and Riverpoint West LLC (George Sherman, President) for redevelopment of
parcels west of SW 9th along Tuttle and Murphy Streets. (Council
Communication No. 05-305) Moved by Hensley to adopt.
Motion Carried 6-1. Absent:Vlassis.
BOARD/COMMISSION ACTION(S): N/A
Date: May 1, 2007
Roll Call Number: N/A
Action: Urban Design Review Board recommended
approval of using tax increment finance revenue to repay the $8.5 million
Section 108 loan.
ANTICIPATED ACTIONS AND FUTURE COMMITMENTS:
The public hearing is scheduled for July 9, 2007. The City anticipates entering into the
Section 108 Loan Agreement and Brownfields Economic Development Initiative
(BEDI) Grant Agreement in summer 2007. The Council will also need to amend the
current 10-year, 100% residential tax abatement in the downtown to 5-year, 100%
residential tax abatement. An item on tax abatement has been added to the June
11, 2007, Council workshop agenda for more discussion.
Comparison of Key Provisions of Preliminary and Final Development
Agreements
For the Redevelopment
of Riverpoint West
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Preliminary
Agreement |
Final Agreement
|
|
City financing not anticipated to exceed 75%
of the Net Present Value of projected TIF revenues generated by the project
over 20 years |
City
investment not anticipated to exceed 75% of projected TIF revenues generated
by the project over 22 years |
|
Developer will
agree to a reduction in the current 10-year, 100% tax abatement schedule
consistently applied throughout the downtown |
Same |
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CDBG funds
will not be placed at risk; Metro Center TIF to be used to address cash flow
issues |
Same; in
addition, up to $2.9 million of Metro Center TIF to be used to address cash
flow issues until FY 2015/2016; thereafter, Developer responsible to pay any
shortfall in projected TIF |
|
City’s
financial participation structured as an economic development grant to limit
the amount of local funds invested in project |
Same |
|
Section 108
loan and G.O. bonds drawn down in several installments according to a defined
project schedule with performance benchmarks |
Same |
|
City to
maintain first position in the mortgage on land as security for the Section
108 loan |
Same
effectively; City to hold deed in escrow for all land Developer acquires |
|
Repayment of
Section 108 loan to be structured as non-recourse debt, subject to annual
appropriation of TIF funds |
Same |
|
Other than tax
abatement, no other City incentives provided to project |
Same |
|
Developer to
adhere to Metro Center Urban Renewal Plan covenants |
Same |
|
Developer to
use best efforts to assemble land by voluntary acquisition; City to exercise
eminent domain if necessary |
Same |
|
Savings from
pro forma shall reduce City’s economic development grant |
Savings to be
reinvested into Phase II commercial and residential projects |