well, I've reviewed the Staff Report submitted to City Council regarding the entering into a contract with the proposed developers of The Village of Rowlett. I have a couple of observations and a few more questions.
The below is copied from the Staff Report.
________________________________________________________________________
The following is a summary of the key provisions within the Development Agreement documents:
Integral & Catalyst – Developer Roles & Provisions: Commencement of Construction – April 1, 2015, subject to mutually agreed extensions Completion of Construction – No later than twenty-four (24) months from Commencement of Construction Shall obtain and secure appropriate financing to pay for the full design, engineering, development and construction of the Project, and shall demonstrate, to the City’s satisfaction, that appropriate funds or financing have been secured for the Project’s full development Minimum Private Investment of approximately $24 million for improvements as per the Concept Site plan. (Attachment 1) Construction and funding $2.4 million of infrastructure improvements for all roadways, water, wastewater, stormwater and public realm improvements for the project subject to reimbursement by the City through 380 grants Shall install all public realm improvements in the project according to high standards as defined in the agreements and pay associated Municipal Management District (MMD) special assessments for ongoing maintenance as levied Construction, funding and completion of three-story mixed use building fronting Main Street to house the Rowlett Public Library in approximately 11,700 square feet of ground floor space Enter into a Purchase & Sale Agreement for the appraised value of the property with the City through the Rowlett Chamber Foundation Enter into a five-year lease for the Rowlett Public Library and provide $233,900 tenant improvement allowance to City for improvements of finishing space Pay all other normal City fees, building permit and inspection fees, etc.
City of Rowlett – Roles & Provisions: Enter into a Purchase & Sale Agreement for the appraised value of property with Integral & Catalyst through the Rowlett Chamber Foundation and provide a 380 grant for said appraised value. Waiver of impact fees in exchange for Integral & Catalyst constructing all public infrastructure improvements. Reimbursement of infrastructure improvements for all roadway, water, wastewater, stormwater and public realm improvements for the project through 380 grants not to exceed $1,950,000. Annual 380 grants equal to one hundred percent (100%) of City ad valorem property taxes paid by Integral & Catalyst for the property for a period of fifteen (15) years with a net present value equivalent of approximately $2,000,000.
Recapture (claw back) provision should Integral & Catalyst breach or fail to meet any one or more of the performance obligations then they will refund all 380 grant amounts previously paid or waived. Reverter provision in which the property would revert back to the City should Integral & Catalyst fail to commence construction or complete construction per the dates above. Develop a transition plan for the Rowlett Public Library to include continuous operations in a short-term location until the Library space is completed on the ground floor in the project’s most prominent building on Main Street. Develop a transition plan for the Rowlett Chamber of Commerce per our existing Cooperation Agreement and discuss the potential for relocation of the existing building.
In addition to the above, Staff provides the following information as it relates to the partnership structure: Partnership structure is performance driven, Integral & Catalyst must secure financing; make an approximate $24 million private investment; complete construction and annually pay 100% of City ad valorem property taxes before receiving annual 380 grant in the form of 100% rebate of ad valorem taxes over 15 year period. $6 million public investment over 15 year period nets $24 million in private investment by early 2018, which equates to 4:1 return ratio. Public investment represents 19.9% “gap” on $30 million project – at low end of the range for catalyst projects. Property today (City owned) doesn’t generate any property tax revenue. Catalytic nature of Village of Rowlett project expected to spur additional private investment throughout Downtown District of approximately $200 million over the next 10- 15 years which could generate approximately $1,500,000 annually in property tax revenue for the City.
FINANCIAL/BUDGET IMPLICATIONS Since this is a public/private partnership, the Development Agreement document structure is performance driven and the project’s financial impact is summarized above and in the charts below.
The Village of Rowlett project will be a $30,000,000 single-phase investment generating nearly $225,000 annually in property tax revenue and $15,000 - $45,000 annually in sales tax revenue to the City; creating a significant number of indirect construction jobs; and providing a diversification of housing options and unique commercial/retail options for the citizens of Rowlett. The charts below provide additional information on the public/private investment and direct economic impact of this project:
________________________________________
The above gives the jest of the deal. Now we start.
I don't know about you, but if I have someone negotiating for me, I like to know who they are. In reviewing the last CC meeting, I observed a new face. He seemed intelligent and seemed to know what he's doing........but who is he? His name is Chris Coble of Black Label Real Estate, from Denver. He introduced the developer to the council.......but why didn't Jim Grabenhorst? Jim was on the Staff Report as an author. Coble seemed to be a consultant, therefore receiving a fee for his services, but what does he do. We seem to be up to our eyeballs in consultants already. Another questions is, Who is "third party real estate economists?" They are mentioned twice in the Staff Report, but never identified. Is staff ashamed of them? Who the heck are they? And Staff wonders why so many citizens complain of secrecy and back room dealing. Well, these two questions get us started.
This is a $30 million deal. Any bank making a development loan would want at least a 20% down, or $6 million. That is the amount that Rowlett is proposing they put into this deal. However, it is not all cash. Some is land. Some are infrastructure improvements, some is forgiveness of impact fees, and some are rebates of ad valorem taxes. But it gets more complicated.
The land is estimated to be worth $1,650,000, however there appears to be some language that this would be traded for a five year lease for the library in one of the new buildings. The library space needed is 11,700 square feet. That equals to $330,000 per year in rent, or about $28.20 per foot per year. People, that's pretty fancy space. What happens if we don't have a place to put the library in five years?
The city is to forgive $450,000 in impact fees. I don't mind that. That is not out of pocket cash. However, there is mention of "Existing Impact Fee Fund Balance." I'm not sure what that is........but it sounds like cash collected from other impact fees. Also, CIP Funds are to be contributed in the amount of $700,000. That is cash.
But, the biggest exposure seems to be the 15 year forgiveness of the ad valorem taxes. This tax give away is supposed to be funded back to the city by 380 Grant Funds. This makes me nervous. The Staff Report makes light of this simple little endeavor. The Staff Report treats the 380 Grants as no big deal.......kinda like picking up the phone and telling the state house we need another $225,000 each year, and the money is wired in in a few minutes. I doubt that. Grant funds have a history of appearing and then disappearing very quickly. Maybe 380 Grants are different. I just don't know......but I don't trust the Staff Report. According to the above language, assuming I'm reading correctly, if the 380 Grants become "unavailable" after we cut the deal with the developer, the city is already on the hook for a 15 year vacation from any revenue from this project. That is roughly $225,000 per year for 15 years......or $3,375,000. That would be an ouch. We would be literally subsidizing the developer's project for 15 years with no income.
Now I have many more questions. However, the partnership agreement would probably yield more questions.
The City Council may have answers to all the questions, but the citizens don't. I don't think the citizens need to know every detail, but I think they need to know more than has been provided.
I think it's too early to enter into a partnership agreement with the developers until some comfort level is provided to the citizens. I'm going to keep looking for more questions.
As I said earlier, I want this deal or a similar deal to work.......but we need some safety netting.......and I don't see any. The developer is not taking any market risk and probably very little construction risk. We have by far the biggest risk........and if only an apartment project is built, without any other businesses, the City of Rowlett didn't get any other benefits.
I agree with Doug Phillips that we need to seed the project, but it seems to be a little lopsided. If the 380 Grant risk could be mitigated, the risk potential changes a lot.
There are some other questions I'm looking into, but this is enough to encourage another look. We should pass on entering an agreement until we know a little more. Here, I'm favoring Carl Pankratz.
.
The below is copied from the Staff Report.
________________________________________________________________________
The following is a summary of the key provisions within the Development Agreement documents:
Integral & Catalyst – Developer Roles & Provisions: Commencement of Construction – April 1, 2015, subject to mutually agreed extensions Completion of Construction – No later than twenty-four (24) months from Commencement of Construction Shall obtain and secure appropriate financing to pay for the full design, engineering, development and construction of the Project, and shall demonstrate, to the City’s satisfaction, that appropriate funds or financing have been secured for the Project’s full development Minimum Private Investment of approximately $24 million for improvements as per the Concept Site plan. (Attachment 1) Construction and funding $2.4 million of infrastructure improvements for all roadways, water, wastewater, stormwater and public realm improvements for the project subject to reimbursement by the City through 380 grants Shall install all public realm improvements in the project according to high standards as defined in the agreements and pay associated Municipal Management District (MMD) special assessments for ongoing maintenance as levied Construction, funding and completion of three-story mixed use building fronting Main Street to house the Rowlett Public Library in approximately 11,700 square feet of ground floor space Enter into a Purchase & Sale Agreement for the appraised value of the property with the City through the Rowlett Chamber Foundation Enter into a five-year lease for the Rowlett Public Library and provide $233,900 tenant improvement allowance to City for improvements of finishing space Pay all other normal City fees, building permit and inspection fees, etc.
City of Rowlett – Roles & Provisions: Enter into a Purchase & Sale Agreement for the appraised value of property with Integral & Catalyst through the Rowlett Chamber Foundation and provide a 380 grant for said appraised value. Waiver of impact fees in exchange for Integral & Catalyst constructing all public infrastructure improvements. Reimbursement of infrastructure improvements for all roadway, water, wastewater, stormwater and public realm improvements for the project through 380 grants not to exceed $1,950,000. Annual 380 grants equal to one hundred percent (100%) of City ad valorem property taxes paid by Integral & Catalyst for the property for a period of fifteen (15) years with a net present value equivalent of approximately $2,000,000.
Recapture (claw back) provision should Integral & Catalyst breach or fail to meet any one or more of the performance obligations then they will refund all 380 grant amounts previously paid or waived. Reverter provision in which the property would revert back to the City should Integral & Catalyst fail to commence construction or complete construction per the dates above. Develop a transition plan for the Rowlett Public Library to include continuous operations in a short-term location until the Library space is completed on the ground floor in the project’s most prominent building on Main Street. Develop a transition plan for the Rowlett Chamber of Commerce per our existing Cooperation Agreement and discuss the potential for relocation of the existing building.
In addition to the above, Staff provides the following information as it relates to the partnership structure: Partnership structure is performance driven, Integral & Catalyst must secure financing; make an approximate $24 million private investment; complete construction and annually pay 100% of City ad valorem property taxes before receiving annual 380 grant in the form of 100% rebate of ad valorem taxes over 15 year period. $6 million public investment over 15 year period nets $24 million in private investment by early 2018, which equates to 4:1 return ratio. Public investment represents 19.9% “gap” on $30 million project – at low end of the range for catalyst projects. Property today (City owned) doesn’t generate any property tax revenue. Catalytic nature of Village of Rowlett project expected to spur additional private investment throughout Downtown District of approximately $200 million over the next 10- 15 years which could generate approximately $1,500,000 annually in property tax revenue for the City.
FINANCIAL/BUDGET IMPLICATIONS Since this is a public/private partnership, the Development Agreement document structure is performance driven and the project’s financial impact is summarized above and in the charts below.
The Village of Rowlett project will be a $30,000,000 single-phase investment generating nearly $225,000 annually in property tax revenue and $15,000 - $45,000 annually in sales tax revenue to the City; creating a significant number of indirect construction jobs; and providing a diversification of housing options and unique commercial/retail options for the citizens of Rowlett. The charts below provide additional information on the public/private investment and direct economic impact of this project:
________________________________________
The above gives the jest of the deal. Now we start.
I don't know about you, but if I have someone negotiating for me, I like to know who they are. In reviewing the last CC meeting, I observed a new face. He seemed intelligent and seemed to know what he's doing........but who is he? His name is Chris Coble of Black Label Real Estate, from Denver. He introduced the developer to the council.......but why didn't Jim Grabenhorst? Jim was on the Staff Report as an author. Coble seemed to be a consultant, therefore receiving a fee for his services, but what does he do. We seem to be up to our eyeballs in consultants already. Another questions is, Who is "third party real estate economists?" They are mentioned twice in the Staff Report, but never identified. Is staff ashamed of them? Who the heck are they? And Staff wonders why so many citizens complain of secrecy and back room dealing. Well, these two questions get us started.
This is a $30 million deal. Any bank making a development loan would want at least a 20% down, or $6 million. That is the amount that Rowlett is proposing they put into this deal. However, it is not all cash. Some is land. Some are infrastructure improvements, some is forgiveness of impact fees, and some are rebates of ad valorem taxes. But it gets more complicated.
The land is estimated to be worth $1,650,000, however there appears to be some language that this would be traded for a five year lease for the library in one of the new buildings. The library space needed is 11,700 square feet. That equals to $330,000 per year in rent, or about $28.20 per foot per year. People, that's pretty fancy space. What happens if we don't have a place to put the library in five years?
The city is to forgive $450,000 in impact fees. I don't mind that. That is not out of pocket cash. However, there is mention of "Existing Impact Fee Fund Balance." I'm not sure what that is........but it sounds like cash collected from other impact fees. Also, CIP Funds are to be contributed in the amount of $700,000. That is cash.
But, the biggest exposure seems to be the 15 year forgiveness of the ad valorem taxes. This tax give away is supposed to be funded back to the city by 380 Grant Funds. This makes me nervous. The Staff Report makes light of this simple little endeavor. The Staff Report treats the 380 Grants as no big deal.......kinda like picking up the phone and telling the state house we need another $225,000 each year, and the money is wired in in a few minutes. I doubt that. Grant funds have a history of appearing and then disappearing very quickly. Maybe 380 Grants are different. I just don't know......but I don't trust the Staff Report. According to the above language, assuming I'm reading correctly, if the 380 Grants become "unavailable" after we cut the deal with the developer, the city is already on the hook for a 15 year vacation from any revenue from this project. That is roughly $225,000 per year for 15 years......or $3,375,000. That would be an ouch. We would be literally subsidizing the developer's project for 15 years with no income.
Now I have many more questions. However, the partnership agreement would probably yield more questions.
The City Council may have answers to all the questions, but the citizens don't. I don't think the citizens need to know every detail, but I think they need to know more than has been provided.
I think it's too early to enter into a partnership agreement with the developers until some comfort level is provided to the citizens. I'm going to keep looking for more questions.
As I said earlier, I want this deal or a similar deal to work.......but we need some safety netting.......and I don't see any. The developer is not taking any market risk and probably very little construction risk. We have by far the biggest risk........and if only an apartment project is built, without any other businesses, the City of Rowlett didn't get any other benefits.
I agree with Doug Phillips that we need to seed the project, but it seems to be a little lopsided. If the 380 Grant risk could be mitigated, the risk potential changes a lot.
There are some other questions I'm looking into, but this is enough to encourage another look. We should pass on entering an agreement until we know a little more. Here, I'm favoring Carl Pankratz.
.
RSS Feed