CC Minutes - 02/13/06 Work Session

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important building if it could be constructed, as there were only about a dozen Platinum LEED buildings in the world. Mr. Braud said the project had been challenging from a financing standpoint and the City had been willing to exercise patience because of the significant contribution the project would make to downtown. He said ORI had been attempting to fill a financing gap that had widened over time because of loan-to-value limitations associated with appraisals and escalations in construction costs. He said the building would cost approximately $24.6 million to build and would be appraised at $15.5 million. He said the prevailing lease rates in the local market did not support the cost of constructing a building of such significance. He said there was only about $12.4 million in conventional financing available with the 80 percent loan-to-value limitation. He said the new market tax credits could contribute a combination of debt and equity to the project; the debt representing a second loan of about $5.5 million. He said the combination of those two loans was approximately $18 million. He said a bridge loan does not appear to be available for the project and the current financing package includes an estimated financing gap in the range of $5.2 million. Continuing, Mr. Braud said ORI’s purchase and sale agreement expired on January 30, 2006, when ORI failed to meet the closing date obligation. He said options for City-provided financing to assist ORI to move forward ranged from existing economic development loan programs or a Housing and Urban Development (HUD) Section 108 loan coupled with some brownfield grant dollars and possibly other funds such as the facility reserve. He said staff was considering a combination of urban renewal and Community Develop- ment Block Grant (CDBG) loan program funds in the range of $2 million because those were existing loan programs established for a public purpose. Mr. Braud said it was important to recognize that any financing would basically be unsecured and the City would need to rely on ORI’s history of grant fund income for repayment of any loans or financing it provided, although ORI’s grant history and cash flow were very positive. He said staff reviewed a number of financing options, but even with the City providing $2 million in financing, a gap of $3.2 million remained in the project. He said ORI’s strategies to address that included continuing to cut hard costs and possibly cut soft costs by finding a different provider of new market tax credit financing that would put more equity into the project. He said options included various financing strategies for the project, allowing ORI more time and considering other development opportunities for the site. Mr. Braud said the staff recommendation was to consider using the existing urban renewal and CDBG loan programs to provide ORI financing in the range of $2 million, assuming that ORI can demonstrate that the remaining gap of $3.2 million is filled within a reasonable period of time. Mayor Piercy called for council questions and comments. Ms. Bettman noted that the ORI project fulfilled many objectives and was the epitome of sustainable business. She said the City had every reason to support the project and felt the recommendation did not go far enough. She would amend the proposed motion once it was on the table. She said the project had a vast and demonstrable public benefit. Mr. Kelly echoed Ms. Bettman’s remarks about the value of ORI to the community and the building’s enhancement of downtown. He was interested in doing what was necessary to make the project happen but was frustrated by the number of extensions, changes and missed deadlines. He said the project needed to come to closure in one way or another in the near future. He asked if the two loan programs recommended by staff currently had $2.5 million between them. Mr. Braud explained that the total Business Development MINUTES—Eugene City Council February 13, 2006 Page 9 Work Session