HomeMy WebLinkAboutItem A: Beam Development
EURA
UGENE RBAN ENEWAL GENCY
AIS
GENDA TEM UMMARY
Work Session: Beam Development
Meeting Date: April 16, 2008 Agenda Item Number: A
Department: Planning and Development Staff Contact: Denny Braud
www.eugene-or.gov Contact Telephone Number: 682-5536
ISSUE STATEMENT
The Urban Renewal Agency (URA) provided direction to pursue a development agreement for the Beam
Development project. The URA is being asked to review the status of the agreement and consider
options for moving forward.
BACKGROUND
On December 10, 2007, the URA provided direction to pursue a development agreement for the Beam
Development project and to proceed with acquisition or assignment of the purchase options on the
Washburne Building, Centre Court building and adjacent lot, within the financial constraints of the
current $33 million urban renewal district spending limit. On March 10, 2008, the council approved the
supplemental budget action necessary to move forward with the purchase of the Centre Court building
and adjacent lot ($2.8 million) and the Washburne building ($1.9 million). Also on March 10, the URA
approved the supplemental budget action necessary to acquire the Diamond property ($290,360).
On March 24, 2008 (the purchase option expiration date), the URA provided exercise notice of intent to
purchase the Centre Court and Washburne Building properties. Consistent with the terms of the
purchase option agreements, the URA paid a deposit equal to 10% of the purchase prices ($470,000).
The URA is now in a 45-day due diligence period which ends on May 8, 2008. The required 10%
deposit will become non-refundable after May 8.
The URA has been working with Beam to draft terms to be included in a binding Purchase and Sale
Agreement (PSA). The following is an outline of key terms that the URA has pursued for inclusion in
the PSA:
1. PSA Signing Date: Beam will be required to sign a binding PSA no later than May 1, 2008.
2. Deposit: Upon the signing of the PSA, Beam will be required to provide a non-refundable deposit
equal to 10% of the purchase price for each property.
3. Closing: Beam shall purchase the property from the URA, or take an assignment of the URA’s
purchase option, prior to July 8, 2008. Beam shall demonstrate satisfactory progress regarding
project financing and tenanting prior to closing.
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4. URA Loan #1: The URA shall provide financing for Beam’s purchase of the properties in an amount
equal to the purchase prices of $4.7 million (minus the deposit). The financing terms would likely
include a 20-year amortization schedule (interest-only during construction) with a 10-year balloon
payment and an interest rate equal to the rate paid on the City’s HUD Section 108 loan.
5. URA Loan #2: The URA shall provide financing for Beam’s renovation of the Centre Court
building and new construction on the vacant parcel in an amount equal to approximately $5 million.
The financing terms would include a 20-year amortization schedule (interest-only during
construction) with a 10-year balloon payment and an interest rate equal to the rate paid on the City’s
HUD Section 108 loan. The URA is unable to commit to Loan #2 until City Council and HUD
have approved the project-specific use of the borrowed HUD Section 108 funds.
6. Contingent Repayment of BEDI Proceeds: The portions of Loan #1 and Loan #2 derived from BEDI
grant proceeds will be repaid on a contingent basis, after Beam has reached its target return on
investment (13%).
7. Project Description: The PSA shall include a commitment from Beam to move forward with a
project consistent with their proposal, including rehabilitation of the Centre Court building and a
newly constructed building of approximately 75,000 square feet on the adjacent parcel. The Centre
Court building will be designed for retail, office, and sub-surface parking consistent with the design
elevations submitted in Beam’s February 2007 RFQ response. The adjacent building will also be
designed for retail, office, and sub-surface parking.
8. Project Timing: Beam shall commence construction of the project no later than 150 days following
their purchase of the property and complete construction no later than two years after the signing of
the PSA.
9. Reversionary Clause: In the event that Beam does not meet the construction and completion timeline
included in the PSA, the URA would have the right to re-purchase the property.
Beam has estimated the total construction costs for the renovation of the Centre Court building and the
new adjacent building to be approximately $33 million. Beam continues to be interested in purchasing
the Washburne Building, although they would likely defer improvements until after the Centre Court
renovation and new construction on the adjacent lot are completed.
The Centre Court building and adjacent lot continue to be one of the sites that the Oregon Research
Institute (ORI) is considering for relocation. Beam has submitted a proposal, and ORI is expected to
select a site in early May. Although Beam has indicated that they plan to move forward if ORI does not
select them, it is assumed that Beam’s ability to finance the proposed project would be enhanced with an
anchor tenant such as ORI.
The URA’s financial participation in the project would be limited to approximately $10 million in
financing provided to Beam for acquisition of property and renovation/construction. The financing
would be structured as interest bearing, secured loans that would be repaid from income derived from
the completed project. The proposed source of funding includes proceeds from the HUD Section 108
loan ($8 million) and the BEDI grant ($2 million). The HUD Section108 program includes stringent
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loan underwriting criteria that will require the project to include adequate collateral and debt service
coverage. The project would also have to meet a HUD national objective (elimination of slums and
blight or job creation).
On July 23, 2007, City Council approved the use of HUD Section 108 and BEDI funds for acquisition of
the properties. This action was preceded by a July 16 public hearing before the council. The proposed
construction loan (URA Loan #2) would require a separate HUD application request including a public
hearing and council resolution prior to HUD review and approval.
The total cost of the Beam project is approximately $38 million. The following are summaries of
sources and uses for the acquisition of property and renovation/construction:
Property Acquisition
SOURCES USES
HUD Section 108 Loan $ 3,910,000 Acquire Centre Court Property $ 2,800,000
BEDI Grant 990,000 Acquire Washburne Bldg 1,900,000
Urban Renewal Cash 526,000 Collateral Reserve 600,000
Other transaction costs 126,000
Total Sources $ 5, 426,000 Total Uses $ 5,426,000
Project Construction
SOURCES USES
HUD Section 108 Loan $ 3,990,000 Renovation of Centre Court Bldg $ 16,700,000
BEDI Grant Loan 1,010,000 New Construction 16,300,000
Bank Loan 19,000,000
Beam Equity 4,000,000
Historic Tax Credit Equity 2,000,000
New Mkt Tax Credit Equity 3,000,000
Total Sources $33,000,000 Total Uses $ 33,000,000
On April 3, 2008, the Eugene Redevelopment Advisory Committee (ERAC) reviewed the proposed
structure of the Beam project and the proposed URA financial participation. ERAC expressed concerns
regarding the scenario in which the URA obtained ownership of the properties with no assurance that
Beam’s project would move forward. ERAC also expressed concerns that the long-term investment of
limited urban renewal resources in potentially undeveloped properties would ultimately impact other
future redevelopment opportunities downtown. ERAC recommended that staff obtain additional project
detail from Beam and develop options for moving forward with the Beam project, identifying all of the
potential outcomes, both negative and positive, so that an informed decision considering all of the risks
and benefits can be made. ERAC suggested that the project be brought back for additional
consideration. Following direction from the URA, further details associated with the Beam project will
be brought back to ERAC for consideration.
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RELATED CITY POLICIES
The proposed redevelopment along West Broadway is consistent with the policies and implementation
strategies included in the Downtown Plan, including:
·Downtown development shall support the urban qualities of density, vitality, livability and diversity
to create a downtown, urban environment.
·Actively pursue public/private development opportunities to achieve the vision for an active, vital,
growing downtown.
·Use downtown development tools and incentives to encourage development that provides character
and density downtown.
·Promote multi-story, mixed-use structures downtown through financial incentives or code
amendments.
·Stimulate multi-unit housing in the downtown core and on the edges of downtown for a variety of
income levels and ownership opportunities.
·Provide and promote development and community events that reinforce downtown’s role as the
cultural center for the city and region.
·Reinforce the creative, distinctive culture of downtown as the arts and entertainment center of the
city.
In addition, future development along West Broadway is responsive to the following Growth
Management policies:
Policy 1: Support the existing Eugene Urban Growth Boundary by taking actions to increase
density and use existing vacant and under-used land within the boundary more
efficiently.
Policy 2: Encourage in-fill, mixed-use, redevelopment, and higher density development.
Policy 3: Encourage a mix of business and residential uses downtown using incentives and
zoning.
Policy 10: Encourage the creation of transportation-efficient land use patterns and
implementation of nodal development concepts.
Policy 14: Development shall be required to pay the full cost of extending infrastructure and
services, except that the City will examine ways to subsidize the costs of providing
infrastructure or offer other incentives that support higher-density infill, mixed use,
and redevelopment.
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This item is also related to one of the 2007-2008 Council Goals: Downtown InitiativeFacilitate
significant revitalization of downtown core.
COUNCIL OPTIONS
1. URA purchases property, sells to Beam, and assists with project financing
In Option 1, the URA and Beam would sign a binding agreement for the purchase of the Centre Court
and Washburne properties no later than May 1, 2008. (The May 1 date is important because the
URA’s deposits on the properties ($470,000) become non-refundable after May 8). Beam would be
required to make a 10% deposit upon the signing of the agreement, which would offset the risk of the
URA forfeiting its deposit. (The purchase option agreements on the properties require closing of the
sale to occur no later than July 8, 2008). In Option 1, it is assumed that Beam would purchase the
property after their specific contingencies have been satisfied, including completion of construction
drawings, approval of construction financing, tax credit approval, and building permit approval. The
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desired outcome in this option is that the URA purchases the properties, sells to Beam; Beam moves
forward with their proposed project and repays Loan #1 and Loan #2 within the proposed 10-year
term.
Option 1 includes some challenges. The URA would purchase the property prior to a clear
demonstration from Beam that they will be able to finance, construct, and tenant the project. Beam
has expressed concerns about the timing and risk of making a non-refundable deposit prior to
reaching satisfaction on financing, including the URA’s inability to commit at this time to making
Loan #2, and other contingencies. The URA would take ownership of the properties with no
guarantee that Beam could satisfy the specific contingencies and purchase the properties. Although
the URA would be holding an earnest money deposit, it does not guarantee Beam’s ultimate
purchase. In the event that the project is completed, the URA’s repayment of the HUD Section 108
loan primarily relies on the ability of the project to generate cash flow sufficient to cover the debt
service.
In Option 1, it is possible that the URA would own the properties and Beam’s project would not
move forward. With no other redevelopment proposal identified at this time, the URA could hold the
property for an extended time. The repayment of HUD Section 108 acquisition debt and other
property carrying costs could have negative financial implications for the Downtown Urban Renewal
District.
2. Attempt to renegotiate purchase option timeline and assign purchase options to Beam
In Option 2, the URA would work with Beam and the property owner to renegotiate the purchase
option agreements to provide more time for Beam to satisfy financing, tenanting, and other project
contingencies. Efforts to extend the timeline could be focused on an extension of the due diligence
period and an extension of the closing date. Pending an agreement to extend the timeline, the URA
would assign the purchase options at a later date, and Beam would be required to make a 10% deposit
at the time of the assignment. The URA would work with Beam to finance their acquisition of the
properties and construction of the project, consistent with the terms of Loan #1 and Loan #2
described above. The URA would condition the provision of Loan #1 and Loan #2 to assure that
Beam moves forward in a timely manner with a project consistent with their proposal.
There are challenges associated with option 2. The willingness of the property owner to extend the
timeline in the purchase option agreements is unknown at this time. If an extension agreement can be
reached, it is possible that Beam would take control of the property through an assignment of the
purchase options but not move forward with the purchase. The purchase options on the properties
would expire and control of the properties would revert back to the property owner. Option 2 may
also require an updated HUD 108 application and approval process. If an extension agreement
cannot be reached, or if Beam is unwilling to make a 10% non-refundable deposit prior to May 7,
then the URA determines that acquisition is not feasible (for reasons also described in option 3
below) and the assignment option terminates.
3. URA determines during its due diligence period not to acquire the properties
The URA is within a 45-day due diligence period that expires on May 8, 2008. If the URA
determines that acquisition is not feasible, it can choose to disengage from the purchase process.
These properties have environmental and structural challenges that could make development more
expensive, and absent a legally binding agreement with Beam to purchase the properties, the URA
could decide acquisition is not feasible given those environmental challenges. Under Option 3, the
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URA would receive a refund of its deposit, the purchase options on the properties would expire, and
control of the properties would revert back to the property owner.
In Option 3, Beam could negotiate independently with the property owner to structure a satisfactory
transaction and the URA would continue to work with Beam on financing acquisition and
construction (URA Loans #1 and #2).
AGENCY DIRECTOR’S RECOMMENDATION
The Agency Director recommends Option 2. Beam has expressed concerns about the existing purchase
option timeline relative to their need to satisfy financing, tenanting and other contingencies. Option 2
would attempt to extend the duration of the purchase option agreements so that Beam would have the
best opportunity to move forward with a successful redevelopment project. Option 2 also eliminates the
risk of the URA forfeiting its 10% deposit or obtaining ownership of the properties for an extended
period with no assurance of redevelopment.
SUGGESTED MOTION
Move to direct the Agency Director to 1) work with Beam and the property owner to extend the timeline
for the purchase option agreements on the Centre Court building and adjacent lot, and the Washburne
Building, 2) work towards an assignment of the purchase options to Beam, and 3) continue to work with
Beam on elements of acquisition and redevelopment financing consistent with the amounts and terms
outlined in this agenda item. If an extension of the option agreement timeline is not approved prior to
May 7, then the Agency Director shall inform the property owners and the escrow agent that the URA
will not be acquiring the property and the deposit should be returned. If a satisfactory extension is
approved, the Agency Director shall bring back terms to be included in the assignment of the purchase
options to Beam as soon as practicable.
ATTACHMENTS
None.
FOR MORE INFORMATION
Staff Contact: Denny Braud
Telephone: 682-5536
Staff E-Mail: denny.braud@ci.eugene.or.us
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