ACTION REQUESTED:
Title
Communication from the City Manager with a Request for the Following:
A. APPROVE a Loan from the City’s REVOLVING LOAN FUND to WD COMMUNITY INVESTMENT, LLC and to Authorize the City Manager to Execute the Necessary Documents; and,
B. APPROVE the FIRST AMENDMENT to the WD COMMUNITY INVESTMENT LLC REDEVELOPMENT AGREEMENT. (Council District 1)
Body
BACKGROUND: On October 13, 2015 the City Council approved a redevelopment agreement with WD Community Investment, a development company co-owned by Jacob and Rainy Shorey (Item 15-399). The Shoreys intend to renovate 214 Pecan, a 3-story building in the Warehouse District, into a mixed use project consisting of residential and commercial space. The agreement provided a loan of $250,000 to help bridge a gap in financing for the project. The loan was structured as an advance of the 50% of TIF increment that would traditionally be rebated to the developers over the remainder of the TIF. The advance/loan was to be repaid at 4% interest by withholding the developer’s share of increment.
Since the agreement was signed, the Shoreys have continued to work towards their vision for the project. Construction bids for the renovation came in considerably higher than budgeted, forcing the developers to restructure the project’s financing. On a positive note, however, they were also able to secure a commercial tenant in One Fire Media Group, Inc. to occupy the entire first floor of the building. One Fire is a provider of digital innovation services and is located at the Peoria Next Innovation Center at 801 W. Main Street. The company started in 2012 with 3 employees and one customer and have grown to 31 employees with a diversified customer base. In their current location, One Fire employees operate in various offices on different floors. At 214 Pecan, all of their employees will have a common office space with room for growth. They have signed a letter of intent to lease 5,984 sf for 5-years, with several options for extension.
In discussing options for securing a financing package, the Shoreys approached the City regarding its Revolving Loan Fund (RLF). Securing One Fire as a tenant qualifies the developers for an RLF loan of up to $250,000 with funds being used for One Fire leasehold improvements. The City’s RLF Program typically provides loan funds directly to businesses creating/retaining jobs, but it also allows landlords to apply for loan funds so long as their tenant agrees and satisfies the jobs criteria of the RLF. In this case, One Fire’s plans meet this criteria. The RLF loan represents approximately 5% of the $5.5 million project budget with the remainder taking the form of a bank loan, owner equity, private investors and historic tax credit equity.
In addition to the RLF loan, the original redevelopment agreement needs to be amended to eliminate the TIF advance of $250,000. Rather than advancing future TIF increment, the Shoreys instead are requesting to be rebated incremental property taxes. This helps improve cash flow and allows them to close the remaining gap with more private financing and equity. Developers can be rebated greater than the standard 50% if cash flow and debt service projections demonstrate the need for additional help. City staff have reviewed project financials and are recommending that the developers be rebated 100% of property tax increment generated in 2017 - 2019; 75% of increment in 2020 and 2021; and 50% of increment from 2022 through the end of the TIF.
Sources and Uses of Funds
The loan funds of $250,000 is a key part of the redevelopment project and will be used for leasehold improvements to the commercial unit. A total investment of $5.5 million is planned to renovate and historically preserve the building and will include historical tax credit investors. The three story 27,000 sf building will be converted into a one unit commercial space on the first floor and 18 residential units in the upper two floors. Below is a sources and uses of funds:
It is noted that a City Façade Improvement Grant and RERZ Sales Tax Exemption will require the completion of separate applications.
Loan Parameters
The loan was reviewed by the Loan Review Panel (see attached) and recommended for approval, with the following parameters:
1. Loan Terms - A loan amount of $250,000 at an interest rate of 4% for a term of 10 years, amortized over 20 years. Monthly payments will be interest-only up until the earliest of either a) the commencement of commercial rent; b) 60 days after the certificate of occupancy; or, c) March 31, 2016. Thereafter, there will be 120 payments of principal and interest and amortization period will commence. The loan will be disbursed 50% at closing and 50% at construction completion. The loan will be subordinated to the prime lender.
2. Collateral Requirements - The loan will be secured with: a) mortgage on the property, which will be second to the prime lender; b) an assignment of commercial rents; c) personal guarantees from Jacob Shorey and Rainy Shorey; d) a corporate guarantee from WD Community Investment; and e) assignment of life insurance policy equal to $250,000 from Jake Hamman (One Fire), Jacob Shorey and Rainy Shorey. The City will be named additional insured on all assets financed.
3. Conditions - It was noted and understood that the City loan is conditional not only on receiving the sources of funds itemized above but also on the annual TIF reimbursements as presented in a Redevelopment Agreement.
FINANCIAL IMPACT: If approved, the City would disburse $250,000 from the RLF Fund (T14004), which had a balance of $1,016,971.37, as of March 31, 2016. Additionally, the City will rebate the developers 100% of property tax increment generated in 2017 - 2019; 75% of increment generated in 2020 and 2021; and 50% of increment generated in 2022 through the end of the TIF. Staff estimates property tax increment to be approximately $60,000 per year.
NEIGHBORHOOD CONCERNS: Renovation of buildings in the Warehouse District is a widely held community goal.
IMPACT IF APPROVED: WD Community Investment would be able to proceed with project, subject to other sources, and secure One Fire as their tenant to make their project financially viable. The project would retain 31 existing jobs, and is expected to create several new jobs through One Fire’s growth.
IMPACT IF DENIED: The original Redevelopment Agreement would still be in place, providing an advance of funds to the developer to be repaid with future property tax increment. However, the developers have indicated that this arrangement is not feasible for getting the project started. As such, an upfront financial gap of $250,000 would continue to exist and on-going cash flow issues would restrict private borrowing. Additional equity/debt would need to be raised, the project may be delayed or considerably scaled back, and the entire project may be jeopardized. Additionally, One Fire may select to relocate elsewhere.
ALTERNATIVES: None
EEO CERTIFICATION NUMBER: Not applicable.
DEPARTMENT: City Manager's Office