ACTION REQUESTED:
Title
Communication from the City Manager with a Request to Approve the FIRST AMENDMENT to the SULLIVAN/HUNT REDEVELOPMENT AGREEMENT. (District 1)
Body
BACKGROUND: Pat Sullivan and John Hunt (collectively J.P. Companies) own the Sealtest building at 736 SW Washington in the Warehouse District. The building is approximately 33% renovated and houses offices for Comcast, IWIRC and Extended Pharmacy. They are now working to complete the renovation of the remainder of the building. They have signed letters of intent for leases and sales with a number of entities, including a restaurant and a number of residential condominium owners. They have been working with Central Illinois Bank (CIB) on a financing package that would refinance existing debt on their projects as well as provide a $2 million construction loan to complete the Sealtest project.
As part of the package, CIB is requiring the developer to place $300,000 in an escrow account, which will be held by CIB, to serve as a contingency fund for debt repayment. The developers have asked the City to assist with the creation of that escrow account by providing an advance on funds owed through the "Sullivan/Hunt Redevelopment Agreement." In July 2000, the City entered into a redevelopment agreement with JP Riverfront, LLC (a partnership of Pat Sullivan and John Hunt) regarding development along Water Street. That agreement outlined a number of issues regarding land transferred in order to construct the parking deck for 401 SW Water and acquisition of property to construct the parking lot that serves Le Vieux Carre. One provision stipulates that the City rebates to the developer all of the City's portion of real estate and sales taxes generated by the "Vieux Carre Project" (619 SW Water and 100-114 State); the "Development Pad" (now ELM's office building at 60 State), the "Barrel Vault Property" (now Water Street Solutions at 601 SW Water); and the "Old Sealtest Property" (736 SW Washington). These payments have been made since 2001 and will continue through 2021.
The First Amendment to the Sullivan/Hunt Redevelopment Agreement (attached), outlines a replacement provision that would provide for an advance of $300,000 in exchange for a 15% discount on all rebates owed through the life of the agreement. Between 2009 and 2013, rebates have averaged about $63,000. The chart below outlines how this might look if the averages held. The developer would be paid $300,000 upon approval. Each year, the total amount owed under the agreement would be discounted by 15% and first applied to the advance. After the advance has been repaid, rebates would continue to be paid to the developer at the discounted amount:
Year |
Rebate Amount |
85% (15% Discount) |
Payment |
Balance of Advance |
2014 |
$63,000.00 |
$53,550.00 |
$300,000.00 |
$246,450.00 |
2015 |
$63,000.00 |
$53,550.00 |
$0.00 |
$192,900.00 |
2016 |
$63,000.00 |
$53,550.00 |
$0.00 |
$139,350.00 |
2017 |
$63,000.00 |
$53,550.00 |
$0.00 |
$85,800.00 |
2018 |
$63,000.00 |
$53,550.00 |
$0.00 |
$32,250.00 |
2019 |
$63,000.00 |
$53,550.00 |
$21,300.00 |
$0.00 |
2020 |
$63,000.00 |
$53,550.00 |
$53,550.00 |
$0.00 |
2021 |
$63,000.00 |
$53,550.00 |
$53,550.00 |
$0.00 |
Total |
$504,000.00 |
$428,400.00 |
$428,400.00 |
|
Please note that the year 2019 in the above chart represents a split payment. The first $32,250 would be applied as the last repayment to the advance. The remaining $21,300 would be paid directly to the developer.
FINANCIAL IMPACT: The chart above shows that should the average rebate owed remains consistent, the City would save approximately $75,000 over the remaining life of the Agreement. This savings should be higher: Providing the advance allows the developer to complete the renovation of the Sealtest building. New tenants, especially the restaurant, will generate new sales taxes. Under the existing Agreement, these higher amounts would all be repaid to developer. The discount outlined in the amended Agreement would impact these rebates, too. For example, if the average rebate owed were $73,000, the total savings to the City would be approximately $87,500. The project as a whole also increases development in the Warehouse District and hopefully continues the momentum in the area.
NEIGHBORHOOD CONCERNS: Development of mixed use properties in the Warehouse District is a widely held community concern.
IMPACT IF APPROVED: The City will provide the advance as outlined and the project will commence.
IMPACT IF DENIED: The advance will not be provided and the City will continue to rebate the developer as outlined in the original agreement. It is unclear, but doubtful, whether the project can commence without this assistance.
ALTERNATIVES: None recommended. The City Council could direct staff to negotiate different terms for an amended Agreement, but staff feels the proposed amendment is fair and in the best interests of the City.
EEO CERTIFICATION NUMBER: Not applicable.
WHICH OF THE GOALS IDENTIFIED IN THE COUNCIL'S 2014 - 2029 STRATEGIC PLAN DOES THIS RECOMMENDATION ADVANCE?
1. Vibrant Downtown: Riverfront/ Central Business District/ Warehouse District
2. Financially Sound City Government, Effective City Organization
WHICH CRITICAL SUCCESS FACTOR(S) FROM THE COMPREHENSIVE PLAN DOES THIS RECOMMENDATION IMPLEMENT?
1. Reinvest in neighborhoods.
2. Have an efficient government.
DEPARTMENT: City Manager's Office